 |
|
 |
|
7.30.2004
iPod and RealNetworks: Apple's Right
|
By now, every tech reader knows the story. RealNetworks' new Harmony software mimics the copy protection code used by Apple, and permits songs downloaded from Real to play on the iPod.
Apple wants music purchases to go through its own iTunes store and has refused all requests by outsiders to integrate with iPod. It says that it is "stunned that RealNetworks has a adopted the tactics and ethics of a hacker to break into the iPod," and threatens that future updates will end the compatibility. Apple also raises the possibility that Real has violated the DMCA.
Real responds by saying consumers should be able to choose their music source, and that the DMCA allows for interoperability.
The issue is one that keeps coming up in the digital age, in many contexts, including games, printers, and garage doors. The underlying theme is as old as the Gillette safety razor, however, and was a matter of major controversy during the heyday of the Xerox machine.
Gillette followed a strategy of selling the razor cheaply and then coining money from the repeat sales of blades. It secured its hold on blades by patents. Xerox tried a similar strategy, in that it leased out its machines and charged according to how much paper they used, controlling its customers by contract instead of technology.
The objective in each case is to discriminate in price, charging the small user a little and the large user a lot. It makes good business sense, because it expands the market. It also makes sense for consumers, who pay in rough accord with the amount of utility that they derive from the product.
The same strategy can be applied to printers, or to game consoles. If the maker sells the basic item cheaply while maintaining control over the add-ons, such as toner cartridges or games, then it is charging different prices to consumers who value the product differently.
The cyberleft goes into high dudgeon mode over this practice, but in fact it is a reasonable pricing method, and it is much to the advantage of casual users, who can access basic capabilities at a lower price than otherwise. If such bundling is forbidden, then the price of the basic item must rise, to the disadvantage of the light user
So producers should be allowed to choose their business models. Gillette should be permitted to follow its strategy, but, of course, if someone else wants to make a generic razor and allow all comers to sell blades that fit it -- its a free country.
Apple's situation is regarded as different because, according to conventional wisdom, the strategy is reversed. The songs are the basic razor; the profit comes from the iPod itself. So why, ask some, does Apple care, since more music users should mean more iPod device sales?
At least two reasons come to mind. First, conventional wisdom is probably wrong. Establishing iTunes involved a big upfront investment, and Apple needs as much traffic as possible to spread those costs over, even if the main profit is in the iPod.
Second, one of Apple's selling points to the content owners was that the integration of protection software with the playing device was an extra protection against cracking. Real's action breaks this integration, with who knows what result.
Given all these factors, Apple has the right of this argument, from the standpoint of property rights, economics, and common morality.
Furthermore, if society wants to encourage innovative devices, such as the iPod, then the innovator should be able to choose its strategy for exploitation. Real can compete by partnering with other device makers or by starting its own integrated business, but it should not be allowed to wait until Apple has run all the risk -- the iPod was no sure thing -- and then demand to share in the rewards.
posted by James DeLong : 7/30/2004 01:08:59 PM
|
|
|
|
|
|
