Tera Patricks' Tera Talks - 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.

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.

Posted by Art Nelson on Monday, February 6 2006 at 7:38 pm

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.

Posted by Eddie on Tuesday, February 7 2006 at 12:20 am

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…

Posted by Karn on Tuesday, February 7 2006 at 12:50 pm

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.

Posted by Art on Tuesday, February 7 2006 at 1:09 pm