Yesterday, in a move that garnered worldwide media attention, Apple computer did the unthinkable: They changed the pricing model of their music. The change was not exactly earthshaking in nature, at least according to the vast majority of media. Apple was merely changing track prices to 69¢, 99¢, and $1.29, and moving away from the flat 99¢ per track that has been the model for so many years.
This marks a major concession on the part of Steve Jobs, as it had been his goal to keep pricing at 99¢ per track, pretty much forever. What did change yesterday were the fundamentals of Apple's business model. It was ignored by the vast majority of the non-tech media, as they fell over themselves to explain the new pricing model. You see, yesterday, Apple computer freed their music of all Digital Rights Management. For the first time in the history of the iTunes music store, users would be able to purchase any track, transfer it to any music player, and copy it an unlimited number of times, to any medium. Nothing is off limits. Before, you could play your music
The techie crowd has been clamoring for this since the introduction of the iPod. Apple gave users some concessions when they struck a deal with EMI, and began offering their tracks DRM free. This has not had a substantial effect on their business. However, something else did. Amazon.com premiered their completely DRM free music collection, and charged 89¢ per track for the same music that Apple offered. This gave Amazon an estimated 10% of online music market share. Apple was basically cornered by Amazon, and forced to negotiate for DRM free music in the iTunes store.
To understand how this new offering changes their business model, we have to find examine the state of things less than a month ago. iTunes was built for the sole purpose of moving units of the iPod. This would provide an end-to-end product that music lovers would use to manage an Apple approved music device. Apple offered music in a format that would be controlled , and keep most iPod users from transferring their music libraries to another(cheaper) device. They also controlled the number of machines that the songs could be played back on. It was set at a maximum of 5. This hypothetically fine for 1 person, but if you have an entire family that has MP3 players, you are going to run into sharing problems. Another problem was that Apple only allowed you to download your music once. No more. If you didn't make a backup, and your hard drive failed, you were out of luck. That is, unless iTunes customer service allowed you to re-download. You prayed they would allow you to do so. Again, this was the state of things.
With Apple removing DRM from tracks, they no longer have any control over where users take, or put their tracks. Sure, they can stick with an iPod for the simplest music experience, but more tech-savvy users are not locked into iTunes. They are free to explore other options for managing their music, and that exploring may take them off the Apple axis, and into the Amazon shop. The fact that you can store music on an infinite number of machines, means that it is less likely you will lose your music in the event of a hard drive crash. This means less money for Apple in the form of "redownloads", where people pay again for music they have already bought.
In order to combat this, the iPhone and iPod Touch both connect directly to the iTunes music store. This makes the impulse buy far easier, as the music store is now contained directly on the device. Apple is placing all of its bets on a self-contained music delivery system, by which they can bypass Amazon altogether. Simplicity and ease of use have always been tandem strategies for Apple, but this move is their most risky yet. They are betting on the fact that most users won't want to go to the trouble of transferring music to another device.
As usual, we'll have to leave the answers to history and iTunes users. My guess is that most users will stay with the platform and device they are used to, and that Apple will continue to milk iTunes for all it is worth. As for me, I'll be staying with Amazon. Who needs to pay 99¢ when you could pay 79¢ for a DRM free track all along?
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