Monday, February 6, 2006

Is iPod, iTunes, iTunes Music Store A Monopoly?

In the basic sense of the word ‘monopoly‘, Apple has one in the iPod ecosystem. There are multiple definitions as to what constitutes a ‘monopoly.’ There’s Microsoft’s Windows. Apple’s iPod ecosystem. Merriam-Webster’s definition. And the legal definition. Has Apple created a monopoly?

Yes. What goes around, comes around. Apple’s iPod ecosystem, which includes the ubiquitous iPod, iTunes on Mac and Windows, and the iTunes Music Store, is truly a monopoly.

Or, nearly a monopoly. Or, could be proven to be a monopoly. Or not. That’s how law seems to work these days.

Thomas Slattery sued Apple Computer, claiming the iPod is configured so that it will only play music from iTunes Music Store and not music from other online stores.

In short, Apple is facing a number of federal and state antitrust claims, and a California judge has ruled that the plaintiff (Slattery) in this case has met the qualifications which assert a “tying” claim.

The case may now proceed as a monopolization claim under the federal Sherman Antitrust Act and other claims for violation of California’s antitrust and unfair-competition laws.

Microsoft chairman Bill Gates must be smiling. RealNetworks CEO (former Microsoft employee) Rob Glaser probably helped himself to another jelly doughnut.

The judge noted the basic facts: Apple has an 80-percent market share for online music sales, and more than 90-percent of the market for portable hard-drive music players.

According to Merrium-Webster (the only authority who would comment), there’s a non-legal definition for ‘monopoly’:

Main Entry: mo·nop·o·ly
Function: noun
Inflected Form(s): plural -lies
Etymology: Latin monopolium, from Greek monopOlion, from mon- + pOlein to sell
1 : exclusive ownership through legal privilege, command of supply, or concerted action
2 : exclusive possession or control
3 : a commodity controlled by one party
4 : one that has a monopoly

If Windows is a monopoly at 90-percent of operating systems on PCs, then Apple can have a near-monopoly on portable music players and online music sales with the iPod’s ecosystem.

But a monopoly does not illegallity make.

The issue is how Apple wields that monopoly and both the plaintiff and the judge in the California case think Apple may need to loosen the iPod’s ecostrings.

It’s the whole ‘closed system’ perspective that seems to continue to haunt Steve Jobs and Apple. Granted, the iPod ecosystem works very well. No one else has bettered the mousetrap.

That’s the point. It’s a trap. Mostly. Once you buy an iPod, you’re pretty much obligated to use iTunes if you want to listen to music on said iPod.

Once you start with iTunes, you’re just a click away from the iTunes Music Store, and, if you’re an iPod owner, that’s pretty much the only store from which you can buy tunes that will play on the iPod.

Except Wal-Mart, or Tower Records, or Sam Goody, or Target, or… you get the idea. There are alternatives, but online it’s mostly iTMS or nothing if you’re an iPod owner.

For example, you can’t buy music on Microsoft’s Music Store and play them on your iPod or within iTunes (not easily, not legally). But that’s not Apple’s fault.

Then again, Microsoft is not the monopolist when it comes to music on PCs. It’s an also ran. A runner up to the crumbs left by Apple’s stampede.

The lawsuit, and others of similar ilk, have a case, though with many holes. While Microsoft abused their monopolistic position by forcing manufacturers to pay for Windows on every PC shipped, and to bundle software (illegally, it was determined), Apple doesn’t really ‘force’ iPod buyers to use iTMS.

That’s the difference, and it’s a big difference. The problem is that you can’t use other music from other online stores employing DRM (digital rights management) not compatible with iTunes.

Whose fault is that? Apple’s? Yes and no.

Comments

  1. Fred Winston says

    Nope, Jason. That’s not it. It’s still not Apple’s fault that Windows media audio, even with DRM, won’t play on iTunes. It’s the DRM from Microsoft that’s at fault. Not Apple. It’s not an Apple licensing issue that other DRM’ed music won’t play in iTunes. It’s the fault of those that have proprietary DRM. The defacto standard for DRM is, of course, FairPlay. From Apple.

  2. Kai Cherry says

    Wow. That’s all I can say here…after being ‘hung up on’ by a fellow Mac user for picking ‘the wrong side’ in this non-debate. The fact is, it feels good to be on top, some of us have a deep ‘love’ for Apple.

    But love is often blind. Apple has an effective monopoly on the Online Digital Music (and soon, probably video) market. This is a fact.

    Apple has an *overwhelming* market share of the Hard Disk digital player market…and likely the flash market too. All of this in about 4 years time…from nowhere. Sound familiar?

    Alone, these two things are perfectly alright. But the vertical integration in these two markets, and a lack of interoperability, and fairly aggressive tactics to break interoperability are a problem.

    And let’s not kid ourselves here: *Apple* benefits from this far more that the music rights holders. In the beginning, many, many large artists were not playing along, but the fact is, if you wanna move music online, there really isn’t anywhere else to go.

    What’s really…weird…is that these same points people are using to defend Apple’s position are the same one’s Microsoft proponents were using. The difference is, by the time anyone stepped in to do anything about it, it was far too late. Everyone lost.

    This is an emerging market. You can argue up one side and down the other about inferior competitive products or whatever, but if someone made a music store that sold songs for a nickel less per, worked with iPod/iTunes, and still had DRM…there would be more places to shop.

    Or what of the higher quality audio and video people clamor for? Not gonna happen.

    As well, if other folks stores could sell players that could play Fairplay DRM music (and lets be honest…this ‘they can sell in mp3’ is a strawman; no Major Content Provider is licensing non-DRM music/video…stay with reality) then there might be room for some new emerging and compelling players out there.

    The likely remedy here tho would be that Apple would have to adopt or support another technology; the burden would be on them to interoperate with the rest of the market. And that market uses Helix or WMA DRM.

    As it stands, there is a wall there, and there is no way to penetrate it. Think about 5, 10 years from now. What if somehow, Apple was bought, or was no longer “the Apple that we love”.

    If it were *any other company* would this be “ok”? Seems to me that when it was, it wasn’t. All I’m sayin’

  3. John says

    Just a thought, but one can turn around and, looking the other way note that tunes bought from Steve only play on (portably) an iPod. That’s more of a tie that binds….

  4. says

    I have 180+GB of MP3s, none from the iTunes Shop which I have never visited.  Our iPods play MP3s very well and have never even seen an Apple encoded file.  If people choose to buy music from Apple then it is surely their choice – maybe they are technically inept or inexperienced?  CDs and http://www.AllOfMP3 provide most of my material.

    BTW you can remove the iTunes music shop from the (Mac) iTunes by going into the Parental Controls menu.

  5. Todd says

    The thinking here is backwards.  Apple did not use it’s iPod monopoly to push ITMS, Apple used iTunes to dominate the mp3 player market.  There are online music stores out there that sell drm-free mp3’s and those will play perfectly well on the iPod.

    What Apple did that was wrong, was that after they wined and dined the major music publishers and got ITMS running with the most complete music library available anywhere, practically guaranteeing themselves a monopoly in on-line music distribution, they locked that service to only one brand of mp3 player, their own.  Before ITMS, there was a small but competative mp3 player market.  Now there are only iPods.

    There was nothing significantly different about an iPod that made it better than the competition.  Sound quality was roughly equivalent.  Battery life was generally worse.  User interface was somewhat unique, but not necessarily better.  Overall features were equivalent.  All except for one thing.  The iPod could play ITMS purchased music.  In Early interviews, Jobs even admitted that they were not trying to make money with ITMS, that it was purely a way to drive iPod sales.

    Jobs claims that the music publishers demanded DRM and that Apple kept it proprietary for security reasons.  But that doesn’t explain why when some smaller publishers tried to get Apple to release their music DRM free and Apple refused.  If Apple were so security minded, then why does ITMS transmit AAC files to the iTunes client in the clear and rely on the buyer’s own computer to encrypt and apply the DRM.  This has led to multiple breaches of the ITMS music DRM scheme, which apple fixed by changing the license agreement you have to agree to when you sign up ITMS, simply prohibiting you from exploiting this obvious security hole.  Now if this is Apple’s idea of secure DRM, why would they claim that letting 3rd party mp3 player license their technology be a piracy risk?  For that matter, if they cared about piracy, why did they publicize the burn-rip-play mantra that is an easy, and probably illegal, work around built into their own software?

  6. Connie Ellis says

    How did Apple NOT use the iPod monopoly to push iTMS? That’s exactly what they did. iTMS only works with iTunes and iTunes only works with the iPod, therefore, the iPod monopoly, juggernaut, hegemony, is used to push iTMS. Any other kind of thinking is a foolish disregard for facts.

    Statements such as “there was nothing significantly different about an iPod that made it better than the competition” again disregard the facts. iPod was easier to use than any other popular MP3 player. Easier to use, easier to manage music, easier to sync, and when the iTunes Store came along, easier to buy and play music. No other music or media player ecosystem has all the pieces.

    All the issues mentioned above about security are pointless. “Breaches?” Funny how those so-called security issues are never made public, huh? How many people had security problems with iTMS music? Hahahahaha!

    Face it, fella. The iPod has a huge market because Apple created a product that worked much better than all other players, music players, and online music stores. Period. It works better. It’s priced right. The rest of your noise is just that—noise. Not an argument.