Umair Haque / Bubblegeneration
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Design principles for 21st century companies, markets, and economies. Foreword by Gary Hamel. Coming January 4th. Pre-order at Amazon.

Tuesday, August 17, 2004

Jobs Vs Jobs

Daring Fireball has another post up in favour of Apple's music strategy. It's a nice example of why thinking strategically requires careful definition of firms, industries, dynamics, and markets.

"...So the gist of the current punditry�s iPod-as-Mac analogy boils down to this: Apple makes something cool, but then they keep it to themselves, and then they lose the market to a knock-off from Microsoft that gets licensed to other manufacturers.

...The iPod, iTunes, and iTMS work with any modern personal computer, Windows or Mac. Yes, the original iPod debuted as a Mac-only peripheral, and iTunes for Windows appeared even later � but Apple offered complete support for Windows relatively quickly.

...Establishing a de facto standard format for DRM audio, on the other hand, is the type of success that keeps on succeeding. Ten cents a song on 100 million songs is nice; sell a couple of billion songs, and you�re talking about a serious cash cow. Not to mention the potential to parlay success with DRM audio into success with DRM video."

The piece is a lil too confused for me to cover entirely, but if you are trying to analyse this topic, here's some fat to chew on. First, the notion of compatibility in the post is confused - let's be more precise and just call it complementarity.

Now, it's not complementarity between PC and media that's of any importance in this discussion; we take for given that for any player to have a shot at standard-setting, the nascent standard must be complementary with the core platform.

So it's complementarity between media and media player that counts here. This is why the Mac/PC parallel is deadly accurate - just like before, it's complementarity between hardware and software that's important.

That's because the gains derived from complementarity are the incentives for consumers to buy into the platform. In 1984, more software got more PC buyers; in 2004, more media players and iTunes clones would get more iPod/iTunes (platform) buyers. This is how markets grow - different quality substitutes at different prices emerge, attracted by firms seeking profits.

So Apple has a kind of meta-resource almost no other firm ever captures - a chance to control market growth. But it's opting out of doing so.

Second, the role of industry dynamics is pretty much ignored. Sure, Apple competes against Real, MS, etc - but the real game, as I've argued before, is monopsony power over suppliers (record labels). It's not between Apple and Real, or Apple and MS at all.

So yes, establishing a de facto standard for digital audio will be valuable. But that's to restate the obvious. The real questions are twofold: how do you do it fastest, and for the largest possible market? And how do you do it without fragmenting your own buyer power over record labels?

If the questions are rephrased this way, the answer pretty intuitively becomes: create a platform, charge for access to it, co-opt your competitors' market power, and subsidize your own technological advantage to exert innovation pressure. Apple's lucky Real begged them to do this; most firms have to fight for it.

If you really, really, want, you can read my long, mind-numbing Apple vs Real pieces from a couple of weeks ago. But I really think you should do something fun instead.

-- umair // 12:27 AM // 2 comments


This earlier article is I think where fireball is taking its ideas from and explains it better.

- Pecx, duende
// Anonymous Anonymous // 2:36 AM

Thanks for the link.
// Blogger umair // 11:26 AM

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