The iTunes Store needs all the competition it can get

While John Gruber’s post on the new Amazon MP3 download service is filled with interesting facts and dead-on observations, his math regarding the profitability of music sold via the iTunes Store is a bit suspect as he dismisses the significant “costs” associated with servicing the downloads, i.e., “acquisition costs” and marketing expenses. Moreover, the point being made by others is not that Apple makes no money (sorry for the double-negative) from selling music — rather it’s more about dogs and wagging tails. Even if you use Gruber’s inflated numbers for what Apple “gets” from selling digital music, it’s a rounding-error compared to what it “gets” from selling the hardware used to organize and play that music. And, more importantly, the profit margins on those hardware products dwarf the thin margins of selling music downloads. iPods, et al, are brilliant golden eggs — the iTunes Store is goose feed.

Again, I agree with Gruber’s observations about Amazon’s missed-opportunity by launching their MP3 service ten-years too late. However, I can’t help but believe the numbers-crunchers at Amazon helped to delay the launch by continually pointing out just how lame the margins are on selling music downloads.

Admittedly, I’m no fan of the iTunes Store. As much as folks who read this blog may consider me an Apple fan-boy, the Apple iTunes Store does not benefit from any halo-effect of my admiration for certain other Apple products. Indeed, I hate the Apple iTunes store and its ridiculous authorization and DRM approaches. You can blame it on the record industry all you want, but the iTunes Store’s implementation of DRM makes a mockery of Apple’s typically savvy approach to pleasing the customer with ease-of-use elegance. Unfortunately, iTunes Store is filled with “gotcha” tricks that seem designed to make the customer feel like an idiot, or, worse, a victim.

I’m sure I’ll get plenty of drive-by shots on this post from people who haven’t read this blog over the years and know of my regular suggestions to anyone who uses the iTunes Store to immediately burn a CD of music purchased there and to strip-out the DRM as quickly as possible. Yet, I’ve also learned that real-people in the real-world have no idea how to do that (including members of my own family who have had to re-purchase certain iTunes purchases recently). If you want to know how absurd the iTunes Store is, tell an Apple Store “guru” that your hard drive has died on your Mac and the only place you have your purchased music backed up is on your iPod. He’ll say, “I can’t officially tell you this (wink-wink), but there are ways to do that” if you search on Google.

I’ll stop ranting there. I’ll still use iTunes (the desktop software) and I believe there are certain free things on the iTunes Store — iTunes U, for example — that are modern marvels. But there’s no magic — and a lot of potential agony — in purchasing music via the iTunes Store.

Bring on all the competitors possible.

Sidenote: I regularly back-up all music to an external hard drive and have burned all music (6,000+ tunes) to DVDs.

Update: An impressively-instantaneous e-mail response to this post suggests I should check out mediamaster.com for storing and accessing my music collection. I haven’t checked it out, but not having such a feature incorporated in the iTunes Store is one of my core-problems with it: It should provide me “access” to my purchased music…forever.

Update II: Those witty Amazon MP3 folks are selling an 89¢ DRM-less version of the Feist tune, 1234, to help kick-off the new store. The tune is the #1 download of the day. You’ve heard the tune because it’s the one played endlessly on the new iPod nano commercials. For ten cents more, you can purchase a DRM-ladened version on the iTunes Store. For the record, I think the song sounds like Shania Twain trying to go alternative, and failing.

Dave Winer on ‘what could have been’

When I attended Macworld in February, I wrote, “The least impressive thing about the iPhone is that it’s a phone.” Several times, I’ve suggested that getting an iPod with all the iPhone features except the phone” would be a good thing. So, yes, I like what I’ve heard about the iPod touch. I guess, I’m just not a “phone” person, as I primarily use the iPhone in every way possible, but don’t really talk on it that much. Again, that may just be me.

Even better than the iPod touch or iPhone/ATT would have been the iPhone/wifi/voip device Dave Winer suggests as an alternative version of what could have happened over the past few months:

“Suppose Apple had never done the deal with AT&T and they were announcing the iPod Touch today. If they hadn’t announced a deal with Skype or their own software to connect the new iPod to the phone network through wifi, we’d all be speculating about it widely. It would be the obvious next step. And suppose they had announced it. At the same time they could have said “Okay, we know wifi isn’t everywhere yet, but 17 billion Starbucks outlets have them, and you can use your new iPod at every one of them to call anyone, for a very astonishingly low price.” So intstead of propping up the old over-priced locked-down phone system, they’d be like the runner in the 1984 commercial, throwing the torch in the face of the oppressor.

I agree with everything Dave says, except I think there are now, officially, 18 billion Starbucks.

Here’s my alternative to Dave’s alternative. Suppose that software hack that opens the iPhone actually works and someone hacks a bridge to Skype or some other VoIP provider. Since the price of an iPhone dropped to, roughly, the price of an iPod touch (16 GB iPod touch and 8 GB iPhone are priced at $399), wouldn’t that be about the same thing? I agree with Dave, however, it would have been much more elegant and radical and under-warranty had Apple done it.

In reality, for business purposes or many other reasons, some people will always want the stability and infrastructure of what an AT&T can bring to the iPhone. But for many, an iPhone/wifi might be a great alternative (for a $60 a month-savings trade-off).

Sidenote: On Twitter, @SteveRubel twitter.com/steverubel said that Apple was “horrifically rude” to drop the iPhone price $200 nine weeks after the launch. I responded, “We now know the market-value of nine weeks of iHipness.”

On second thought, Why Apple won’t sue Universal

The other day, I speculated-out-loud that Apple may have grounds to sue Universal for factors related to “restraint of trade” in not allowing DRM-free music to be sold via the iTunes store while opening up such an option to nearly all other online retailers of any heft. (I admitted — and still do — I have absolutely no knowledge of the law surrounding such an issue, but I do recall “restraint-of-trade” being a central-focus of legal and regulatory battles in the book-retailing industry whenever one channel of distribution appears to gain preferential treatment from publishers or wholesalers.)

However, after thinking about it some more and reading articles like this one in the LA Times that re-hash the conventional wisdom that Universal is using this as some type of warning-shot against Apple, I have thought about it some more and come to this conclusion: Why should Apple give a rip about how people purchase DRM-free music? They should be encouraging Universal to do this and hoping that Walmart, Best Buy and anyone else who can sell DRM-free music will be as successful as possible.

Why?

In reality, Apple doesn’t make that much money from selling music. I once wrote about 10,000 words pointing out how Apple’s podcasting strategy, in which they support the RSS-distributed delivery of what is, for the most part, free music and programming, is a winner for them because, duh, Apple is in the business of selling hardware that organizes and plays music — the “content” part of iTunes is not their business. I won’t repeat the economics of this, as I’ve covered it before, but believe me, the margin Apple earns on selling music is a microscopic fraction of the margin they earn on selling an iPod or iPhone.

In reality, Apple wants you to purchase DRM-free music any way you can. They are begging Universal to the throw them into the briar patch if they doth protest too much (to mix literary metaphors) Universal’s selling of DRM-free music through every other channel possible. Steve Jobs & Co. know that on iTunes, there is this little menu item called “Consolidate Your Library” that will automagically suck into iTunes all of that DRM-free music you purchase via other sources.

Steve Jobs & Co. know that in a few months, Universal will let them sell DRM-free music. Even I, who am observing this from so far away I have to squint, can see it is inevitable that Universal will cave-in on this after all of their “testing” is done.

As if I needed the New England Journal of Medicine to Tell Me This

It’s official: Wearing an iPod in a thunder-storm is not a good idea. Quote: “Although the use of a device such as an iPod may not increase the chances of being struck by lightning, in this case, the combination of sweat and metal earphones directed the current to, and through, the patient’s head.”

Next month the New England Journal of Medicine will look into whether or not one should use a Blendtec blender in a thunderstorm.

Still traveling

Still traveling: I’ll be back in Nashville — and online — late tonight. Until then, anything I may have posted on this blog was probably not that interesting, anyway. One observation however: I think the iPhone coverage has entered the Paris Hilton-zone. It’s just a gadget, folks. As a long-time (since 1984) purchaser of almost every Apple product ever produced (except the Newton), I can tell you one thing: In six months, there will be a much better version of the iPhone on the market and everyone who purchases one tomorrow will wish they had one. If you wait until February, 2008 (or maybe November, 2007), you’ll be able to get the iPhone this one should have been.

Or better yet, you’ll be able to get an iPod with all the features except the phone.