Cloning iPods? Cringely Thinks So

[Jason Dunn]

<div class='os_post_top_link'><a href='http://www.pbs.org/cringely/pulpit/pulpit20050505.html' target='_blank'>http://www.pbs.org/cringely/pulpit/pulpit20050505.html</a><br /><br /></div><i>"Apple's own downward price pressure on portable media players gives us another element of the probable iPod strategy that hearkens back to my question of a few weeks ago whether iPod is the razor or the blade. Ultimately, what Apple wants to do is make its money through iTunes, where the profit margins are better in the long term and the system is easily scalable. It was necessary to create the iPod platform to make this happen. But downward price pressures will eventually hurt iPod profit margins and affect Apple's stock price, so the trick is to know when to switch the business from being a mix of hardware and software to one that is software-only. That switch, which I believe to be inevitable, will happen shortly after Apple begins to license iPod clones. But Steve Jobs HATES clones, doesn't he? He killed the Mac clones back in the late 90s."</i><br /><br />The bulk of the column is about DayJet, but the interesting digital-media related content comes at the end where Cringely takes a stab at what Apple is going to do next. And I have to admit that I think he's right - if Jobs can swallow his own ego and make the transition possible. Give the column a read and tell me what you think will happen in the next year or two...

[Felix Torres]

Methinks there's a bit of a hole in his logic.
Namely, the idea that licensing the pod--realistically what he'd be licensing is Fairplay(and maybe the menu structure), the only Apple-specific tech in the pod--would kill itunes competitors.

Unless he explicitly negotiates a non-compatibility term in the license prohibiting support for non-apple formats in the clones (and we all know what the trustbusters on both sides of the atlantic would think of that, right?) the clones would perforce support all the features that the hardware supports, which includes wma. Cause all it would take would be for one vendor to do it before they all have to do it.

Still, he did get one thing right: Steve Jobs does hate competition.
Nope, I don't see Jobs licensing clones.
But I do think that the constant hacking of Fairplay will lead to unlicensed clones, sooner or later, and lots and lots of billable hours for lawyers...

[klinux]

[i]Ultimately, what Apple wants to do is make its money through iTunes, where the profit margins are better in the long term and the system is easily scalable. It was necessary to create the iPod platform to make this happen.

Way off mark on this one as this is totally backward.

Apple created the iTunes platform to drive iPod sales (not that it needed much help). Apple has also continually stated that it makes its money through iPod, not iTunes. Where does the idea of Apple wanting to make its money through iTunes come from?

And does one really know what Apple's profit margin on iTunes is? Is iTunes profit margin really better (much less "much better")?

Apple has proven time and time that it can charge a premium on better desgin and interface on its hardware and software. Songs, on the other hand, is a commodity item.

Anyone can undercut iTunes price (and some do, like Walmart) or repackage it as a subscription service. Morover, Apple does not control the pricing, the studio does. Apple also does not control the inventory, so the fact that this can be scaled is meaningless, if certain label goes exclusive with certain vendor. To say the profitable margin is better in the long term (for any company, not just Apple) is just laughable.

Sorry, Cringley, this column is way off.

[klinux]

Cringley also wrote: "Looking at the unused iTunes icons that shipped with your new version of 10.4, you'll notice icons for currently-not-supported ogg vorbis and Windows Media Audio (wma), as well as several others including a variety of video formats, too.

With this new information we can make a pretty good guess about the evolution of both iTunes and iPod."

Really? Hate to break it to him but iTunes has had icons of OGG and WMA since at least 2003.

[Jason Dunn]

Apple has also continually stated that it makes its money through iPod, not iTunes. Where does the idea of Apple wanting to make its money through iTunes come from?

Eventually the market will be saturated though - everyone who wants an iPod will have one. It's much less likely the someone's appetite for music will be saturated, so the long term sales of music seems to be a better bet. I think that's where the idea comes from.

[Felix Torres]

Apple has also continually stated that it makes its money through iPod, not iTunes. Where does the idea of Apple wanting to make its money through iTunes come from?

Eventually the market will be saturated though - everyone who wants an iPod will have one. It's much less likely the someone's appetite for music will be saturated, so the long term sales of music seems to be a better bet. I think that's where the idea comes from.

His math needs work, though; Apple's profit margins on the pods, like all their products, range from 30-50%. That's a minimum of $30 per pod, assuming the cheapest pod and lowest margin. Don't think many clone vendors are going to pay $30 per unit in Fairplay royalties. Not when they're balking at $1 per unit for OpenDRM...

On the flip-side, their profits at the store are 5%.
That's a nickel per song.
Takes 600 of those to get $30 back, or the equivalent of 40 cds per year per customer. Don't think there's too many of those out there either...

Whatever Cringely is thinking, he's a wee bit off mark, I think.

Besides, if the market is at or near saturation when Apple offers the licenses, what suckers would want to buy into that market? The guys running Time-Warner before the AOL merger?

[Lee Yuan Sheng]

Yup, I'd post a graph, but I'm lazy. =P Basically Apple's profts from iTunes, while growing, are nothing like that of those from the iPods.

[klinux]

Eventually the market will be saturated though - everyone who wants an iPod will have one.

Wouldn't Apple like that! In reality, people will upgrade/replace their iPod, children will grow up and want something their mom/dad/friends have, the iPod line may expand into video/phone/what not, etc...