Umair has a very pertinent strategic analysis of Apple locking in its iPod customers into the Itunes store thereby aiming for short term profits instead of opening it up and finding different ways for creating value in the long term (i.e. leveraging their ITunes and Ipod by charging access rents).
It is a classic discussion of short term versus long term value creation process and disrupting your own strategic position (and competitive advantage thereof) by creating more innovation. Classic example in case also quoted by Umair is Intel's launching a better chip periodically. (for the records, Intel is a competitive advantage disruption case study for switching from its leader position in a mature market - RAM to an underdog in an emergent one - chips; that was as early as 1984) Umair is also arguing that since Apple can't replicate its innovative Ipod platform, it's just being protective.
Have these links as a reference for the context and read part 1 and part 2.
Apple provides value in the quality of the user's music experience. This includes ease-of-use, aesthetics, etc. This quality comes from the integration of the iPod platform - the iPod player, the iTunes jukebox, and the iTMS (for digital music) and iTunes ripping (for CDs). Apple believes Real's music store does not enhance the iPod music experience, but detracts from it. First, Real's music store offers very little that Apple's doesn't. Renting music is the big thing but that doesn't work on portable players yet! 192k bitrate - how many can hear the difference? Second, to ensure the user experience, Apple will need to support Real's songs - if there are problems with the iPod, they will call Apple not Real. When Apple innovates and needs to change the guts of the iPod, they will need to coordinate with Real so as not to break Real's songs. That will detract from Apple's ability to innovate and waste resources. Umair says Apple can't replicate innovation since the iPod. Well, let's see, there's the iPod mini. Then there is Airport Express. Then the iPod car kit with BMW and coming soon with Alpine and others. Then there is iTunes mobile music with Motorola and maybe others. What have the other music-competitors done? They have yet to even get the player, jukebox, store, and DRM right. Sucky players (except for battery life). Sucky stores. Sucky jukeboxes. Sucky DRM rules. Even Sony can't get it right! All of Apple's innovations since the iPod expand the user's high-quality experience, and Apple saw no problem with revealing stuff to each of their partners. Why? Because they brought something useful to the table. But not Real! Yes, Apple is protecting. It is protecting its iPod users from songs that may or may not work. It is protecting itself from being hamstrung in its future innovation. It is protecting its award-winning intellectual property from people who offer nothing in return. It is protecting its future for the benefit of its customers. Those are things worth protecting. A time will surely come when Apple will license technology to others. It has done it in the past with ADB, Appletalk, Firewire, Rendezvous/Opentalk, etc because networking interfaces benefits by being open from the beginning. (But not all interfaces benefit from being open.) It will license when other parties can bring something to the table that will improve the customer experience and will improve Apple's ability to innovate. Reconsider your view!
Amen brother!!! BTW, what everyone keeps forgetting, is that the "10,000 songs in your pocket" are not all purchased from the iTunes Music Store. The iPod, at it's core, is an MP3 player. iTunes is an MP3 player for your computer. There are absolutely no restrictrictions on listening to MP3's on your iPod that you keep on your computer, any computer. You don't even need iTunes to use one (but why wouldn't you want to). If you have a CD that you want to listen to on your iPod, anyone who feels like it, can do burn it, and move it to their player. There are no restrictions whatsoever for this.
As the anonymous poster mentioned, the iPod can play a variety of file formats: AAC/Protected AAC (iTMS Format), AIFF, WAV, Apple Lossless (Admittedly a proprietary format), and mp3 (Audible+CBR+VBR). You are in no Way "locked in" to using the iTMS, I myself (over) populated my iPod with my own music, none of which was from the iTMS, before the Music store was available. I also disagree with the bit about Apple not innovating due to the iPod. Let us not forget, as kev said, that there have been 4 significant upgrades to the iPod, as well as all the other innovation outside of the music field, although I guess that kind of doesn't apply to his argument.
From one perspective and applying the old ANALOG rules towards media - Apple's AAC M4P's are "locked" but unlike analog, you can convert that file to 4 DIFFERENT lossless format with a few clicks of the mouse and keyboard (CD Audio, AIFF, WAV & Apple Loss-less). (and yes, AIFF & WAV are really just computer readable versions of CD-audio but it's still requires a reader/player that can decode that format) So, the reality is that it's only LOCKED if YOU don't want to unlock it. At any point, if Apple stops selling AAC files, you can convert it a CD that will play on BILLIONS of devices worldwide! And that goes exactly the same for REAL's current files. There is ZERO need to hack Apple's and your own files. Buy tracks at REAL - burn them to a CD - convert them loss-less to AIFF, WAV or Apple loss-less to load onto your ipod. Or if don't mind losing a little fidelity - Mp3 or M4P. Then why is "Harmony" really doing except creating 'disharmony' and doubt? Basically, Apple has set valet parking in their mall. As a consumer, there are advantages and disadavantages to valet parking as with buying tracks from the itunes music store but like valet parking, if convenience over-rides your other decisions, then convenience it is. Real has decided that to set a competing valet service within Apple's parking lot - in the real world, it would be a quick settlement on property rights and right-of-way ... in the digital world, because people are less likely to see the larger picture, it's easier for Real to cloud the issue. In the valet parking situation, if Real tries to set up on someone else's property and cries restraint of trade - that would be easy to dispute.
Real came in and offered to cannibalize the iTMS for an undisclosed license payment. Apple responded negatively and licensing talks broke down. Real's response was to first enable their player software to listen to iTMS bought content (which Apple did not protest) and now they reversed the process so that Real content can play on the iPod. If Real didn't need to license Apple's technology, why start licensing talks? If Real recognized that licensing wasn't necessary and reverse engineering was a legal option, why not do that from the beginning? As long as Apple continues to aggressively increase the amount of DRM music on the iPod and doesn't shut out competitors that can increase the library, I think that Apple's closed system can be successful as .doc and .xls file formats have been in the past for Microsoft.
If you are to listen to business analysts, for the past 25 years Apple has been: - doing terminal business decisions - bought by Microsoft - going out of business - screwing up with the new version of Mac OS. Every time Apple makes and announcement, analyst predict it's doom and the stock comes down. Announce a new iMac for December? Stock prices go down. New iPod? Down! Fat free take away Indian menus in Cupertino? Why, the stock must go down of course! Apple is one of the few profitable computer makers, and very good at that, thank you very much. Sitting on a pile of cash large enough to buy a small country. Innovating like hell, for Christ's sake! They are leading the way in both hardware and software innovations. The iPod is not their main business. Only recently (end of Q2?) they announced selling more iPod's then PowerMacs. Cheapest PowerMac: $1999. Cheapest iPod: $299.