Microsoft and Apple: Competing Again

According to the San Jose Mercury News everyone’s favorite monopolistic software vendor is preparing to unveil an online music store. Early reports indicate it bears more than a passing resemblance to the iTunes store, which is unsurprising when you consider that Microsoft is not known for wildly successful visual/user interface/ease of use innovation� or actual innovation in any sense. That’s not a criticism. Microsoft, as evidenced by the gluttonous piles of cash filling their coffers, has been very, very successful. The question now becomes will Microsoft’s foray into the world of online music downloads relegate the market leading iTunes to marginal status.
One is tempted, perhaps motivated by the hubris associated with the success of iTunes, to chalk up Microsoft venture into the realm of digitally downloaded Beyonce as just another failure waiting to happen. The track record for iTunes competitors is very poor, sure everyone remembers all the failed iPod killers (Hi Sony) but it’s easy to forget all the failed iTunes replacements. While the past results do not guarantee future performance (as any investment advertisement is legally bound to say) it can be useful tool for examining the probable outcomes.

Let us examine the history of iTunes competitors. Remember Buymusic.com? It is perhaps a reflection of its utter failure that so few people actually remember the first iTunes replacement. People have forgotten the Tommy Lee ads and the bold predictions of market dominance. Not since Nikita Khrushchev shouted “We will bury you” has a prediction been so utterly unfulfilled (final tally of songs sold by buymusic.com? three or some number thereabouts). The complete catastrophe that was buymusic did not inhibit others from entering the market. On the contrary once buymusic went the way of the Ford Pinto other companies were actually encouraged, like moths drawn to a cash burning flame, to jump into the digital download market. Wal-Mart jumped in, got out and jumped back in. They’re still selling songs at .88 cents a pop but they’re doing it at a pace where a lone Wal-Mart employee in Sheboygan Wisconsin could personally rip and encode every order. Real’s efforts are still underway, the plaintive pleading to Steve Jobs to open up the iPod and bogus consumer friendliness notwithstanding. Of course there are plenty of other failures along the way: Napster 2.0, Musicmatch et al. Sony’s music store, the most recent entry into the market, has been about as well received as a Yankees hat in Fenway Park.

Of course Microsoft has an advantage that all the other iTunes competitors lacked: they make the operating system. This gives Microsoft the ability to bundle the music store with the every license of Windows that flies out of the door. That’s over ninety percent market saturation of all new installs, spiffy if you’re Microsoft. Fortunately not every person buying a new Widows PC will naturally gravitate towards the Microsoft music store, some computer manufacturers will bundle iTunes with their offerings, HP is supposedly on track to do just that. Even with at least one computer manufacturer slapping iTunes for windows on the hard drive iTunes will be sharing space with the Microsoft version of pay as you go music. Microsoft has an even more powerful weapon at its disposal: the music store is said to be included with the next edition of Windows Media Player. So when Windows users are prompted to download the latest version of Windows Media Player presumably they’ll get a music store at no extra charge. At this point most people will reflect upon Microsoft’s market dominance and immediately think “Well so much for iTunes”.

It is almost as if the market leader has become the instant underdog, but maybe, even with the incredible market leverage of Microsoft, Apple will win this race. What possible advantage could Apple have against the prompted install that will be the Microsoft Music store? The biggest advantage that Apple has is that all the songs Microsoft sells will feature iPod incompatibility. Microsoft says that iPod incompatibility is no big deal, plenty of people don’t even own an iPod (I’m one) and, executives assure us, they’ve seen the new mp3 players coming that are every bit as great as the iPod. All I can say is “good luck with that,” so far it’s iPod 1,000 iPod killers 0. Details on pricing and DRM are sketchy or non-existent (though the widely reviled subscription model has been nixed) so it’s tough to say just what you’ll get for your money besides sixty player compatibility. Again no one outside of Redmond knows how much the tracks will set you back but Microsoft apparently got a very similar deal from the record labels as the Apple has in place. So the cost per song to Microsoft should be similar, which leads people to argue that Microsoft has the funds to undercut the iTunes pricing of $0.99 and thus “buy” market share. Wal-Mart, as noted earlier, already does this and mass migration has not been seen so pricing may not be that big of an issue. Microsoft’s other hurdle will be the already wide acceptance of iTunes. The majority of people who want to buy music online already use iTunes and getting them to switch isn’t going to be a cakewalk, after all who wants to have yet another file format (and another media player with various songs scattered betwixt the two)? So while Microsoft has all the advantages that come with being Microsoft Apple has all the advantages that come with being innovative. The outcome isn�t a slam-dunk one way or another but it should prove to be very interesting watching.