Microsoft is selling music. The leading software manufacturer (by volume) is now on a quest to dip into the supposedly lucrative pot of gold that is music downloading. The question on everyone’s mind is: Can they beat Apple?

In an amazingly hilarious twist on an old rivalry, Microsoft is now in the submissive position in a market share battle with, of all companies, Apple Computer. Expect Microsoft to pull some old tactics out of the war chest on this one, such as making MSN Music your Start Page, including a link to it in your first Outlook email, flashing it a dozen times during Office 200X installs, or even making Windows Media Player for Mac support playlists and DRMed WMA files.

Of all the tactics that Microsoft can use to get a good share of the market there’s one thing they can’t do and, again, this is irony at its best: Microsoft’s product won’t run on the most popular platform out there.

Isn’t that just painful funny?

After all this time flaunting their superior market share (in a passive-aggressive fashion) over the rest of the world, Microsoft is now the baby entering a market well behind the other players. This time, however, good marketing and leaving horse heads in competitor’s beds won’t give them the market. Apple is the gatekeeper this time.

Delicate Balance

Does this mean that Apple’s safe? Not at all. Apple’s guarding the gate, but it’s also busy juggling two very large double-ended swords. The slightest nudge and Apple’s going to lose an arm. The swords? iPod and iTunes Music Store. As large as their market share is, it’s much more fragile than you would expect.

Rise of the iPod

The iPod came first, of the two, and has a long list of reasons why it became the gold standard in music players. The strongest reasons came down to:

1. It’s mad simple.
2. It’s huge.
3. It’s tiny.
4. It’s pretty.
5. It’s Apple.

At the time the iPod came out there was nothing like it — at least nothing its size. Those that were closer than the rest had horrible geek-designed interfaces that made Windows Explorer look like a single-button mouse (with Creative’s Nomad being the worst offender — no folders or playlists and a large capacity within which to lose your music). After a few dozen reviews, a few great commercials, a few Mac fanatics spreading the word, well, sales shot up at rates so fast Apple sometimes had trouble keeping up. Once again: Apple, the slow-sales king, couldn’t make enough for a very long time. I think the devil’s heating bill was a score larger than normal that year.

Since then the iPod has taken over the market with over 60% of the market share. Yes, I’m still talking about Apple. We’ve become so accustomed to the fact that the iPod is it for the music player scene that we forget what an accomplishment this is for the New Apple. They found a market, out-thought it, and overtook it within two years. Simply stellar.

So what’s a freakishly large music player without some tunes, right? Enter the iTunes Music Store, a joint effort with the Big Five (and later, the little Five Thousand) to put all music in digital format (that they could get the rights to), lock it down, and get it on your desktop and iPod and only your desktop and iPod (well, perhaps a CD or ten).

From the very start the ITMS has been subject to the NIH syndrome that Apple is famous for. This was intentional, as the purpose of the iTMS was to get music for the Mac and for the iPod. However, later on, Apple realized they were making a bundle off the iPods alone, so rather than using it as a switching tool to get PC users to buy Macs, they made the iPod work on the PC (ironically with future rival Musicmatch) and then, later, made iTunes for the PC (complete with the music store). Better still, Windows users could download iTunes just for the music store, and they did.

Now that PC users have iTunes (which doesn’t need an iPod, per se) they could play the music they downloaded from the iTMS on the computer, or burn CDs, or, if they had one, use the iPod. So they did. After toying with the iTMS and iTunes for a while, a good number of those without an iPod typically got one, especially since it worked with their existing computer and music.

It works the other way around as well. Someone has a PC and 300 CDs and wants to carry them around, so he gets an iPod. Now he wants more and he wants to buy it digitally so he goes looking and finds out there’s only one choice for his iPod: iTMS. Why? The iPod doesn’t do Windows Media, which Napster, Rhapsody, BuyMusic, Wal*Mart, and the others all do and Apple won’t license their format to anyone else because the iTMS is selling iPods, and iPods are selling the iTMS. Why share when you already have a perfect synergy?

Close Secrets Yield No Allies

[MSN Music’s] biggest problem may be that its downloaded songs can not play on the iPod.
Eddie Cue, Apple Computer, Vice President of Applications

The two seem to be engaged in a “life spiral” as each feeds one another and a huge marketing campaign feeds them both. People are buying both for the simple reason that each works with the other and, for one reason or another, they’ve already invested in one of them. What if one variable changed? What if, say, Apple licensed their version of FairPlay to Real? It would all go to hell.

Real, from the beginning, wanted to make their music available on all players, Windows Media or AAC/FairPlay. Apple wouldn’t agree to those terms because, simply, if you could buy music for either format then the cycle of life for the iPod is broken and it’s Just Another Music Player. That is, if I buy a track from iTMS, I must use the iPod. If I use the iPod, I must use the iTMS. If Real got their deal then I don’t have to use the iTMS to buy music for the iPod. Which means, of course, the iTMS’ power to sell the iPod is weakened because someone else works with it. The iTMS could get locked in a price war with the other store, or for any other reason lose market share to it. Then the consumers that abandoned the iTMS would have less incentive to buy an iPod the next time they buy a music player since the new store doesn’t require it. The power of the iTMS to sell iPods is weakened and iPod sales slump because, finally, there are units on the market that compete with the iPod in size (physical), size (capacity), and battery life. At this point in time the balance between them is each one’s greatest strength. If the iTMS ever becomes Just Another Music Store then the iPod will be Just Another Expensive Music Player. That cannot happen. Ever.

So far, it’s not. No one has seen anything coming close to the usability or fad-empowering coolness of the iPod/iTMS pair. They have a power of their own, and are great technologies in their own right, which only adds to their power to dominate the market like a machine.

Cog in the Machine

Enter Microsoft, with another tactic altogether. Having been told the previous argument in a rather condensed form when they asked if they could be on the iPod as well (“Hell no.”), Microsoft is using only Windows Media for their format. In similar news, Creative launched an iPod clone (right down to the interface) called Zen Touch. It’s another “life spiral” in the making.

The ZT is, basically, an iPod for Windows Media (and all the “common” audio formats that the iPod also plays). It does not play AAC/FP in the same way the iPod does not play WMA. They closed the door on the iPod, but not the rest of the world.

To play music from Microsoft’s store, or any other WMA-based store, you can use just about any music player released in the past year or two (about 70 of them). For those familiar with the iPod, the ZT is the closest to a good choice. For those that want to know that a (Windows Media) store will be around for a while, Microsoft is pretty much the way to go. Each will feed the other. Expect co-branding.

Now, if this (or another combo) becomes another successful life spiral then market share for it will increase. Any increase in that market share would be a decrease in Apple’s. If you slow the increase of Apple’s share enough, or even make it flat-line, then people will take notice of other “solutions” for getting their digital music fix and leave the closed-loop Apple solution because those solutions, quite literally, offer choice. If you don’t like the prices on MSN Music, buy at Wal*Mart. They’re both WMA, so play them on your ZT or your Rio, or whatever. It all works together, and the iTMS still only works on the iPod, which only works with iTMS.

It’s Not All Marketing

Now, this is purely a marketing/economics point of view and I’ve so far intentionally overlooked the human element of choice. The iPod is the top player for a reason: it really is the best one out there. The iTMS is the top store because it really is the best store out there. They’re at the top for a reason, so even if the previously-mentioned elements play out in their entirety the iPod and iTMS will not go away or even lose too large of a share; they’re just too good for that.

The point that should come across here is that the product pair is indeed a pair and needs to be treated as such. They need to work together, and only together, or else their whole market will collapse underneath them. No one else can play iTMS music and no one else can put purchased music on the iPod (if they also support other players) because, in the end, it’s all about the iPod.

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