iTunes 4

Long time readers of this site may remember when it focused on business, technology, and IP. Those were the days. But it's about time I got around to discussing iTunes 4 and Apple's new online music store.

For those of you who haven't tried it out, this is basically how it works. iTunes used to be how many Mac users organized their mp3s and coordinated between their main machine and their iPod. iTunes was a fat client that you could use to organize files and create playlists. It also had a list of some Internet radio stations and the very useful CD name archive (so you did not have to manually name your tracks) and, via Rendezvous, it seemed that it could also act as a streaming audio server. It, along with the iPod, was a great example of how integrated hardware and software could produce a better experience than alternatives.

The iTunes music store is an extension of this. It appears as an entry in the playlist, and then connects to Apple servers to display various ways to browse for music (I assume it uses some sort of XML to connect this specialized client to the server side services). You can preview music by clicking on it, or download tracks for $1. Downloads are not in mp3 format, they are in some proprietary format called aac which has some DRM embedded in it which allows you to have the song on both your iPod, CD, and home machine, but presumably restricts you from sharing it over Napster.

Some people moan that aac does not sound as good as a CD. This may be true, but the correct comparison is how it sounds vs. mp3s, and there I cannot tell the difference. And yes, some people dislike DRM, but here it seems Apple has struck a fine balance between letting the user do what he wants and placating the RIAA. Finally, although I have called for a flat fee with unlimited downloads in the past, I like the $1/track pricing. iTunes gives you the sense that you really are collecting music (in the form of assembling your own library) and not just renting it while the meter runs, which is something people seem to hate. It's extremely easy to use.

The service's two big flaws are lack of selection and the cost to Apple of supplying the service. While the store boasts 250,000 titles, it turns out that this is not nearly enough. Indy labels are notoriously absent, but I hear that Apple is trying to sign them up. Since the marginal cost to Apple of providing this service is fixed and not zero (as opposed to P2P where it essentially is zero) they will need to charge for every track they offer, negating the massive parallel capacity Napster tapped into by building a P2P network. This means that a struggling Indy band will not be able to offer their music on iTunes 4 for free--Apple can't afford it. I know that people can share music using iTunes, and maybe eventually the service will split into a customer hosted free music platform and an Apple hosted pay music platform, but DRM will split the market into famous and expensive vs. unknown by free. This is a good thing.

One nice to have: a web radio that generates its playlist from what people are downloading. But this would be very expensive to provide.

What are the business implications for Apple? I don't think there are any (big ones). Having lost the PC war, Apple's plan is to be the best Internet client it can be by taking advantage of its tight hardware/software integration. The iBook/iPod/iTunes combo is a easy way to enjoy digital music.