Apple’s DRM puts network effects to work against it

Following up on the thread about Amazon’s MP3 sales in its first year of business, Finance Geek concludes that:

  • Few people care about copyright protection, which was supposed to be Amazon’s main selling point.
  • And we think many people — the kind of people who pay for music online, at least — still prefer iTunes’ easy, all-in-one music shopping/playing/iPod management experience, versus buying music on the Web and having it imported into iTunes.

It’s true that users don’t care about DRM, but they very much care about being able to shop around, and DRM locks them into a single vendor for every part of their stack for all time.

Buy a Sandisk MP3 player instead of an iPod and DRM becomes impossible. Prefer Windows Media Player to iTunes and you can’t use the iTunes music store any more. Get an eMusic subscription. Try to get rid of Quicktime on your Windows machine. And on and on. Do any of a million little things and you find yourself outside the town limits of Apple’s Celebration USA.

…with a big stack of DRMd files that have become worthless in an instant. You can’t even sell them used to somebody who’s still in the Apple stack, like you can with MP3s.

Don’t underestimate the power of Amazon’s market share. Every single vendor outside of Apple has a common interest in interoperability with one another. Amazon was able to become the #2 download vendor in large part because the lack of DRM made its downloads interoperable with portable music devices and smart phones aside from Apple’s. Ensuring that there is a user-friendly download store adds value for every other vendor outside of Apple. It makes SanDisk more valuable to users, it adds value to Nokia music phones and Windows Media Player. And vice versa — the more Nokias that get sold, the more important Amazon’s music store is.

Just across the border from Apple’s Celebration USA is not just Amazon, but *everybody*, including all the network effects.

Lack of DRM is not Amazon’s main selling point and never was. Interoperability with every device and bit of software ever is the selling point. And what they have accomplished with this selling point is substantial. 10% of this market is not chump change.

2 thoughts on “Apple’s DRM puts network effects to work against it

  1. There is still so much room for innovation in the digital music marketplace for a better music library than iTunes–and ~99% of that innovation is going to be mp3 focused, rather than oriented towards proprietary formats. In other words, all music libraries are focused on helping you organize and listen to mp3s, and only a few are focused on helping you listen to a proprietary format like iTunes DRM AAC.

    And, since Apple is not focused on selling mp3s, Amazon doesn’t have to compete with Apple to become the leading seller of mp3s. Being the leading seller of mp3s is going to keep being a better thing.

    If and when there are mp3 libraries that work better than iTunes and integrate with iPods, there’s going to be a bigger shift, too. I think it’ll be like the rise of Firefox and Safari in relationship to Internet Explorer–some people will see iTunes to be like IE, and choose something else with features + freedom over iTunes stagnation and the specter of lock-in.

    Of course, Apple isn’t Microsoft–iTunes keeps adding features whereas IE truly stagnated. And, user experience is key–some aspects of which Apple is so super focused on that few compete.

  2. If Amazon shows the same resilience it showed in growing its book business despite massive start-up ramp costs, then its mp3 business will skyrocket after a build-up.

    If this occurs, then we’ll see iTunes change over time as well, and eventually we may see a better anti-DRM situation.

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