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Monday, June 06, 2005

Apple, Intel, and DRM vs Plasticity

So there's been a raging blogosphere debate about why Apple's shifting to Intel - I've wanted to blog this, but haven't had time lately. IMHO, The reason's straightforward: Hollywood and evil label record labels.

As I've said before, Apple's intent is to become the digital media monopsonist - the single buyer/distributor/etailer of the digital mediaverse. Once it does this, it can start a squeeze play, and eventually run a disintermediation play.

Now, a nice way to lock in it's already dominant position with labels, publishers, etc, is, of course, to lock down it's hardware. Hollywood and evil record labels, we we all know, are more than a little paranoid about this.

Hence, the Intel deal - I don't buy the hype about PowerPC chips running too hot, etc. The strategic rationale, I think, is simply that by offering suppliers a Total DRM platform, Apple creates a much stronger value prop.

Or so it thinks - as you and I know, Apple's much better off educating labels and publishers about why exactly rigid DRM is a bad idea; because it erodes the plasticity of media goods, and so massively limits value creation.

So the value prop gets built in one direction, but collapses in the other. Not exactly blindingly smart analytical thinking from Apple.

Most interestingly, all of this nonsense gives a HUGE advantage to marginal players who care a lot more about innovation than an outmoded notion of property rights - emerging Chinese and Indian chip guys, AMD, etc.

-- umair // 3:40 PM //


My one question:

Don't the content producers still hold the key here, i.e. isn't Apple simply taking the deal the movie/record companies are willing to give at this time? Of course, it does sort of seem Apple simple doesn't really get Media 2.0.

BTW, are you getting the DRM angle from the News.com story? They, Wired, and you seem to be the only ones making this argument. Since I read this angle early Sunday, I've thought it would click with the rest of the web, but it hasn't.
// Alex in Los Angeles // 6:04 PM

So, I was watching Steve Jobs keynote at WWDC (for the Intel details) when his podcasting presentation really clicked.

Apple has taken the podcasting innovation Winer/Curry built on the "iPod Platform" and packaged it into a major, IMHO, new selling point for iTunes. So Apple gets free innovation organically without opening their platform.

Steve Jobs even says, "This is one more way in which [Apple is] really at the forefront of this stuff bringing the innovation into the marketplace." How ironic, considering their closed platform.

So the question is how much third party innovation is apple stopping by not opening the platform? Where will Apple get the next innovation if the next Winer/Curry are lured to the WMA universe? Will apple have the funds/vision to come up with the next podcasting type breakthrough? I don't think Apple would have gotten to podcasting, but if they had massive rent income from licensees funding platform development and partnerships, ala Intel,...?

I think I'm finally starting to grasp the opportunity cost Apple could pay by not licensing. Interesting, and ballsy/stupid of Apple. They must be confident they will stary on top of new innovations, like podcasting. But wouldn't it be pretty easy for them to get caught off guard by a radical innovation, at the very time they are helping to usher in Media 2.0 disruptions?

Anyway thanks for the blog.
// Alex in Los Angeles // 8:55 PM

Hi Alex,

Thanks for the comments.

The content producers only remain powerful until Apple consolidates control over consumers and complementors - then Apple can dictate terms to them, since it becomes the only viable distributor/etailer of their goods (digitally, at least).

Now, this sounds a little farfetched - but remember, digital media markets are network markets, where strong network FX can make exactly these kinds of monopoly dynamics realistic, fast.

I saw the Wired story (not the CNet story) - but after my own posting. The DRM angle is coming from my previous work on DRM etc.
// umair // 3:00 PM
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