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.


  1. Carlton Davis says

    Gimme a break. As with most portable music players, the iPod comes with software to make it work when connected to your PC. That’s iTunes. That can’t be an issue because most players work the same way. Apple has bundled the iTunes Music Store in iTunes and DRM requires Apple to “lock in” the online music buyer to their Mac or PC and their iPod. So there are other issues at play here, besides the monopoly market share. Content producers want, probably demand DRM. While they would like DRM to be the same on 100-percent of portable players and music stores, it’s not. It’s only 80-percent. Apple’s market share.

  2. kirasaw says

    They only control DRM music. so there are many sources for music on an iPod besides itunes. Yea you have to look for them or do a little extra work to use them but is that Apple’s fault that they made it easy? By the way you can buy MP4 ACC music from and it works fine with iTunes and the iPod. So much for the idea that ITMS is the only online store to buy music from.

  3. Jeff says

    iPod does *not* tie you to the iTMS – it makes it easier to use than all the other stores, but I’m perfectly happy with the 6GB of music I’ve ripped from the CD’s I bought – I have bought exactly *zero* tracks online, and I expect to continue in that manner in the future.

    And what can the court order anyway?  “Apple, you must make it possible for people to buy from other stores”.  “But, your honor, we do.  Those other stores need to use MP3.  They choose not to.”  Thats not a monopoly.

    No-one forces car manufacturers to provide LPG versions of all their vehicles, despite a significant portion of the population not wanting to be tied to regular gas.

    The only tie-in visible to me is that you need to use iTunes to sync content onto your iPod, and there are alternatives available, which Apple have *not* aggressively pursued.  Remember, if you don’t aggressively pursue trademark violation, its considered that you don’t care.  Same thing applies here – they can’t be considered to have locked the hardware exclusively to their software because there are well-known cases of people using alternate software.

  4. RB says

    I agree with the previous postings. Though only the iPod can play music from ITMS it’s not limited to only that music. Before ITMS iPods played (and still play) MP3’s ripped from CD’s. Yes, ITMS music is proprietary to the iPod but it’s not necessarily the other way around, provided that you’re willing to physically go to a brick and mortar and buy a CD.

    BTW, if the other online services did even a quarter of ITMS business they wouldn’t be all twisted over Apple’s success. (sometimes the best product does win)

  5. Ken Cheng says

    Nothing wrong with a natural monopoly. Also, isn’t the #3 online music retailer, something like E-Music, doesn’t it sell non-DRM’d MP3s? Those play on an iPod. Also, iTMS doesn’t charge a customer more, and it has as extensive a catalog as any music store. Where is the customer disadvantaged by using the iTMS? Not to mention, one can always buy CDs. No one is locked into buying their music online. This lawsuit will be given a quick heave-ho.

  6. says

    Right. The DRM imposed on music by *others* is the reason you can’t play said music on an iPod. Apple has no control over that (although it is true that you can not play music purchased from iTMS on other devices).

    I get almost all of my music from emusic, insound, allofmp3, band and label sites, and ripping from CD. There is no block from iTunes to play these files, and there is no block within Mac OSX against using software other than iTunes.

    So… monopoly, yes; “closed system,” no.

  7. brunoDexter says

    This is purely an unfairplay for a settlement- after all, you can play other files types beyond m4a, and there are other sites which you can use for downloadable music.  What this whole silly mess actually underscores is how little the plaintiff actually underdstands the product he’s suing about. 
    Now, if the problem is specifically with the DRM scheme – that being Fairplay – was it not the record companies that REQUIRED a DRM in order for them to be purchased online?  After all, before ITMS, IPOD was essentially an open platform that recognized the defacto file standards – mp3 and AIFF…
    SO MAYBE, someone should sue to strip the nececssity of DRM on ALL purchaseable music files, thereby opening the market TO ALL the players, and not just punish Apple Inc. and its successful endeavor.
    BTW – can we now sue Sony for the closed ecosystem known as playstation, or maybe I can sue MSFT and its closed ecosystem known as Xbox?
    Obviously there are people who sue for a quick buck and not actual justice…

  8. Kathy Wilhoit says

    Bruno has a good point. As does Tera. A monopoly in and of itself is not illegal. The issue is whether users are being ‘forced’ to use iTunes Music Store for online download music, instead of being able to use other online stores. Once a song gets into iTunes, it’ll play on the iPod. If the song won’t play in iTunes because of DRM from another store, that’s not Apple’s fault and the suit has no merit. If other stores sell music which will play in iTunes and the iPod, then the suit has no merit. In short, this is just another battle in the wars of doing business. Apple will win this war.

  9. Art Nelson says

    Bruno has a great point. The DRM is required to make this whole ecosystem work. And all music files can be converted to play on iPod.  iTMS music can be converted to play anywhere as well. Whether or not it’s convenient is a non-legal issue.

    There is no evidence of consumer harm. No price gouging. And the whole iPod/iTunes/iTMS system is an elastic good. There are easy to get at alternatives that produce sound (in fact, better sound, in the case of a typical purchased CD).

    They are going to have a tough time with this one. Apple offered the best mousetrap for the best set of features, quality, and price. It’s not illegal to become a monopoly, only to behave like one once you’re there.

    Apple hasn’t met this standard.

  10. Eddie says

    I think the more appropriate word for what you’re defining is an oligopoly. Defined, “A market structure with just a few firms controlling a high percentage of total sales, such as car manufacturing.” Yeah, Apple makes the player and sells the music, but you can buy anything. Buy a CD from a store, rip your music collection, whatever. Just because Microsoft’s PlayForSure or whatever its called won’t play in iTunes doesn’t make it unfair since there’s a market full of alternatives that will.

    The difference with Microsoft’s issues a few years back was that IE in so integrated into Windows that you didn’t have an alternative in the fact that you couldn’t uninstall it. You were welcomed to install Netscape in addition to IE, but the system didn’t let you choose to get rid of IE altogether. That was unfair and prohibited competition. No one made 82% (according to Bloomberg) of the player owning population buy an iPod, just like no one makes most soda drinkers buy either Coca Cola or Pepsi and not RC Cola or other smaller brands.

    Interesting points nonetheless. And congratulations in advance on probably being Dugg.

  11. Big Al says

    The music you buy for your iPod comes from the music distributors. The iTMS is open to every major or mom and pop record company in every country iTMS operates from. Apple will let anyone put their artist’s work on iTMS. Virtually every artist on the planet has access to the iPod. It is not a closed system.

    Microsoft and their clients can’t get at iPod but that is not a problem. Record distributors can get at iPod and that’s all that counts.

  12. mcepat says

    apple is a absolute monopoly when it comes to itunes+ipod

    They are also a monopoly with there OS in where they bundle, iphoto, idvd, itunes as the defualt photo viewer, default dvd viewer and default music player.

    I want the courts to force apple to come out with a OS that has no photo viewer, no dvd editor or music player, I don’t care if I can simply remove it I want it not included, lets call it TigerN, if they can’t do that then I want the courts to force them to supply all competitors with there code so they can all take a look. Oh sorry thats already happening to another company

  13. Karn says

    It must be noted that before iTMS, there was no viable online music store. Many subscription based services came only after iTMS was established and proven viable.
    Also, the biggest purpose by far of the iTMS is to sell iPods. After accounting for bandwidth and other expenses, Apple makes mere pennies off songs they sell.

    The big difference between the iPod ecosystem and MS Windows is that, amon other things, Microsoft hugely leveraged their monopoly to wipe out existing and established competitors (such as Netscape) by bundling their own software with their OS.
    The iTMS on the other hand was a trailblazer of sorts in itself.

    Also, I wouldnt mind if the outcome of all this was that Apple has to allow Playforsure DRM’ed music to work in its player. But if Apple has to pay licensing for it the i dont know…

  14. Art says

    Apple does charge for iLife, although it does come free when you buy a new Mac. The issue w/ MS, even though it went through legal morphing as the trial went on, was predatory tactics. Netscape was a viable company charging a market price for their software. MS includes IE in their OS for free AND makes it difficult or impossible to remove or change as the default web browser.

    This did wipe out Netscape as a profitable browser company.

    MS has done this even with Apple’s quicktime. They purposely added code to Windows to make it unreliable.

    Java, same thing. One look at the sweating, chunky, loud and obnoxious CEO will convince anyone of the type of tactics MS enjoys against competitors. Yet, where is the awesome software? They destroy competition, and if that’s not bad enough, their mediocre code is what’s left to feed the market. And Office costs over $400.

    Even MS technically wasn’t a monopoly, but that’s not the issue. That’s not illegal. They ACTED like one, and tha’ts where the legal system stepped in.

    However MS ends up, they have not been a champion of technological advancement. In my view, they have held the whole industry back and made mediocre the new standard.

  15. says

    Microsoft for once, actually doesn’t behave like a monopoly in the music arena.
    because they can’t afford to.
    WMP (windows media player) provides a spec that ANY store (not just MSN music) and ANY player can meet.  apple could choose to make either ITMS or iPod meet that spec.

  16. says

    Big Al, you’re absolutely incorrect.  apple makes money off promoting the artists it chooses.  just because your label want them to, doesn’t mean apple will sell your content on ITMS.

  17. Jeff says

    The remark about Microsoft deliberately modifying Windows to make Quicktime shaky is not completely true.  The Quicktime plugin developers did not fully understand what they were doing, and were relying (unknowingly) on an undocumented side-effect.  When that changed, they had problems.  That was definitely Apples fault, not Microsofts.

    The whole “why won’t Apple license Fairplay” issue needs to be considered from a real business perspective.  Does anyone know for a fact that Apple haven’t said to anyone “Sure, you can use it, the one-time cost is $1,000,000,000”?  (Long term, thats probably not an unrealistic figure)

    The courts cannot mandate a price for a company to sell its IP.  That would set a precedent that would bring down the US economy.

    You might as well sue Microsoft for not “making Steve Jobs an offer he can’t refuse”.  That’d probably be the responsible thing for Microsoft to do, where responsible == return the greatest profit to MSFT shareholders.

    Hell, Apple are already being hauled over the coals for charging 3rd party manufacturers a fee per unit for using iPod-compatible connectors.  No-ones suing over that price-gouging, because they can’t.  Its not illegal to price your product exorbitantly – if you can’t afford to make iPod-compatible hardware, thats *your* problem, go make parts for some other mp3 player.

    Market forces are supposed to sort this one out.  Your new widget appears on the Dell player instead, its an instant hit, people drop the iPod in droves, you get to sleep “on piles of money with many beautiful girls”
    The one counter to all of this, that I’m aware of, is the “inter-operability” argument.  That Apple should be forced to open its IP up, so that its competitors can inter-operate with it, in the same way that the EU forced Microsoft to show the Samba guys its internals.

    But this is not the same situation – the iPod can already play MP3.  The only thing it won’t do is support “someone elses file format” and thats a function of the business deal between two third parties, the other vendor and the music industry.

    If the courts rule that Apple has to change its ways so that Microsoft and Sony can broaden their markets whilst maintaining their current contracts, then they (the courts) have sunk to an amazingly corrupt new low.

  18. ian Johnson says

    Not a fanboy, however apple built a working system and a good interface to deliver. No one is required to use either one. You can still buy CD’s and play them on your a CD player. Should cassette- er 8-track manufacturers sue them for making CD’s inoperable in an 8-track slot? You probably can’t get the new Britny Spears on 8-track, and there’s probably a recording of “Pac Man Fever” on cassette that will never make it to CD. It’s called out with the old and in with the new. It happens. Don’t cry because it just makes it that much harder. Primus came out with a Brown Album on vinyl long after LP’s were much in vogue.
    This is like the “Coffee is Hot” model with McDonalds. Based on these relatively simple premises:
    1. Coffee is hot.
    2. If at all possible avoid spilling it on yourself.
    Nobody forces coffee to be hot. It’s just better that way. Do not commandeer a cup of brew unless you feel you are sufficiently able to navigate the liquid as it cools down, into your mouth.
    If you don’t know how to load your iPod with songs that you got like your “Pac Man Fever” cassette. Get out your old Walkman. And return the iPod for someone more capable. If you want to buy a PossiblyWillPlay (TM) player and load it with songs you can only find on the iTunes store burn them on CD in audio format, after all you own a copy of the music, then use your Windows Media this or that to import the CD. As long as you bought the music you probably won’t be reported to the RIAA for putting your Pat Boone iTunes original collection on your iWinKyoob player.
    And to Adam, anyone can put their music on iTunes, even Purple Grandma Deathkill Emo, and apparently keep every penny of the sale from their “Knitting with Satan” EP. See this on Digg

    Ok Ok, I’m sort of a fanboy and this is mostly a rant, but more importantly I believe that when you dumb stuff down for the least common denominator, everything starts to suck. -Hey world, someone come up with a cooler idea for music distribution and delivery format and I’ll buy it. And in the meantime please keep the whining to a minimum.

  19. says

    Didn’t ‘WE’ choose for iPod and iTunes? Aren’t ‘WE’ the millions of people that made the same choice? Didn’t ‘WE’ kill the the ‘others’.
    Apple made something that WE love, because of the looks, the feel and it’s easy to use too.
    That’s what WE want and WE made this monopoly!

    ‘WE control iPod’

  20. Jason says

    “For example, you canít buy music on Microsoftís Music Store and play them on your iPod or within iTunes (not easily, not legally). But thatís not Appleís fault.”

    Actually, that IS Apple’s fault. They won’t allow iPods to play any DRM’d music but their own through the iTMS. And when anyone has tried to make their alternate legal service work with an iPod (like Real), they got sued by Apple.

    The iPod is technically capable of supporting WMA and the associated DRM. The portalplayer platform they’re all built on is used in other players that do. Similarly, other players could be made to work with Apple’s FairPlay DRM – there’s no technical hurdle, it is only that Apple refuses to license it.

    Long story short: Apple holds the keys here and it is only their decisions that prevent interoperability (with either players or music stores).

  21. 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.

  22. 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’

  23. 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….

  24. 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.

  25. 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?

  26. 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.