When A Dollar Beats Free: Lessons From The iTunes Music Store

Presumably Amy Greer is felling rather giddy. For doing nothing more than, likely, randomly purchasing the 500,000,0000^th song from the iTunes store she received a load of swag and the number of iPods she personally owns will soon more than double Hadley Stern’s* collection. To be more precise for coughing up .99 cents Amy Greer is now entitled to 10 iPods, a 10,000 song gift card, four tickets to a Coldplay concert (front row!) with backstage passes. Which isn’t quite as nice as scoring a wildly profitable English candy factory complete with an uncomplaining live-in labor force but not a bad trade for one penny less than a buck.

As interesting as Amy’s experience undoubtedly was what is more interesting for Apple fans is the astounding growth of the iTunes music store. Rolled out amid a cacophony of peer to peer file sharing programs the iTunes store has done what many thought highly improbable: enticed users into paying for something that previously they were getting for free. This is a particularly surprising development or most die-hard Mac enthusiasts. After all the relative cost of Macs to PCs is the most oft cited reason for Windows monopolistic dominance. Many Mac users will argue vociferously that if Macs were either priced like PC’s or promoted via seemingly low prices then surely the balance would be a bit more equitable.

The comparison is not entirely fair. Computer operating systems are an example of a natural monopoly so there is an argument that once IBM entered the fray that there is precious little Apple could do to staunch the bleeding. Yet there are still things to be learned from the runaway success of iTunes. To fully comprehend the lessons it is necessary to examine what allows iTunes to thrive in the midst of P2P file sharing programs. It would be the purest moment of hubris to suppose that the iTunes store is more popular or transfers a greater amount of data than the combination of the various file sharing programs so any information gleaned will probably not translate into overall market dominance. Still it will provide an interesting primer on how to succeed in spite of low-ball competition.

Why iTunes Succeeds:

Legal considerations: A lot of people just aren’t comfortable downloading music from someone else’s computer. They know that the artist probably nets next to nothing out of an iTunes download but they are positive that the artist receives exactly squat from a download. These folks are also compelled by their conscience to try to stay within the law. While Metallica and the RIAA might think launching lawsuits is the way to force people to stay legal the truth is that those actions have a negligible impact on behavior. In the end people wanting to do the right thing turn to iTunes because it is completely legal.

Convenience: While Kazaa (to use one example) may be cheap it is not the most convenient way to get music. You are left dealing with uncertain transfers, files of questionable quality, and host of other problems. With iTunes users are assured of fast servers, decent sounding files and a definite “what you click is what you get” shopping environment.

Music Previews:  You wouldn’t think a thirty-second preview would really be a big deal but when you’re paying for a song you have never heard it can be huge. Say, for example, a friend recommends We Built This City by Starship. During the thirty-second preview (and admittedly in this case you won’t need the entire thirty seconds) you can decide not to buy the song and remove your “friend” from your mental list of trusted music sources.

Low price of entry: With iTunes the first hit isn’t free but it is only .99 cents. That is not a big enough barrier to stop many people from giving iTunes a try.

Integration with hardware:  iTunes integrates so seamlessly with your computer and your iPod that the process is nearly transparent. This marriage of hardware and software is an example of great Apple engineering and what keeps rival music stores marginalized.

Unobtrusive DRM: People despise DRM (digital rights management). There is substance to this complaint: as a consumer you feel you are buying a song (despite the EULA) and once you exchange your money for goods you rightly expect to own the goods and be able to use them in any fashion you see fit. The iTunes store clearly shows that most people will live with a DRM system as long as it is not intrusive.

So what lessons can Apple take from the thrill ride of constant sales increases of the iTunes store and apply to the Macintosh? In many ways the iTunes store is already a reflection of things that are great about the Mac. The tight hardware software integration has been present on the Macintosh for some time. There is no DRM scheme on retail copies of Tiger (though iLife ‘05 employs a serial number). Where the Mac fails when compared to the iTunes store is obviously the cost of entry. The cheapest Mac Apple sells is the $499 Mac Mini. While the Mini is a perfectly capable computer $499 is, well, $498 more than the cost of trying iTunes. Coupled with the fact that there is no ready method to take a thirty-second (or thirty-day) preview of OS X most consumers are left with much more uncertainty when considering a jump to Macs. Perhaps with the upcoming switch to Intel chips the preview could be addressed but, for the foreseeable future, the cost of entry will still be much too high for someone to just “give Macs a shot.”

In the end the lesson of the iTunes store is both comforting and tough for Apple fans. The iTunes store coupled with the iPod proves Apple is still capable of catching the attention of a huge segment of America but it also seems to say that the Apple is, for more reasons than outlined above, unable to position the Mac in such a way as to recreate that success. At this point it is easy to say that as long as the Mac remains just a computer there is no imminent “revolution.” Still there is hope. If Apple learns the lessons of the iTunes music store, the iPod and offers repackaged Mac as a media center one certainly wonders if folks at Cupertino couldn’t draw on the lessons of their success and catch lightning in a bottle yet again. Sure the Mac will still languish in when the market share numbers are released for computers but you can be certain Apple wouldn’t mind selling the lion’s share of computers called “Media Centers.”

*Hadley owns a seemingly absurd five iPods. Two wildly customized models are likely on order from the Apple Store so he can have an iPod for each day of the week.