Linked by alcibiades on Tue 30th May 2006 20:40 UTC
In the News Dell and its business model has been the focus of a lot of comment on Apple oriented forums in recent months. The Dell model is said to be unviable, and Dell's recent news is said to prove this. A limited endorsement of sorts for the so called "end to end model" in music has been published by Walt Mossberg in the WSJ. Recently a real sky-is-falling article with this theme has appeared here. This is a subject that matters. If the advocates of the so-called "end to end model" are right, it implies that the industry structure which allows us all to source hardware from wherever we want, and run a variety of OSs on it, is in danger.
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cr8dle2grave
Member since:
2005-07-11

...are doomed to be eaten alive by them.

The computer market is, with a few important provisos, a commodity market. Apple has long been a niche player in the computer market because it has opted to fight the inevitable by offering a so-called end-to-end solution. It's often said that Linux has been the primary cause for the flat growth seen in the Unix market over the last 6 years, but that, I believe, misses the primary economic motivator at play: commodity hardware. Sun didn't lose business to RedHat because CIOs picked Linux over Solaris, but because Linux was "good enough" while enabling a transition to commodity x86 hardware.

As regards music, it should be noted that the overall music industry has been a classic commodity market for a very, very long time. While the music itself is arguably not an interchangable commodity (a position which can tough to maintain after listening to radio for an hour or two), it is distributed in the form of standardized media (or standardized radio broadcast protocols) available from numerous suppliers and played on standardized equipment available from numerous suppliers.

Although Apple has done a surprisingly good job (much better than Sony's similar attempts) of leveraging its first mover status in the newly emerging market for online distribution so as to counteract the economic pressures which inevitably lead to market commoditization, they will fail in the end. I have absolute confidence that 5 years from now iTMS will be, assuming it still exists at all, a bit player in online music distribution. Unless, of course, Steve Jobs overcomes his allergy to commodity markets and allows FairPlay to be widely licensed to any device manufacturer who wants to implement it. Otherwise, in 5 years time MS's Play for Sure DRM scheme will be ubituitous. Your cell phone, your TV, your computer, your car, your wristwatch, and maybe even your toaster and refrigerator will all interoperate with each other and your Play for Sure media, while iTMS purchased media will locked into to a couple of devices.

As companies, I don't particularly like either MS or Apple, although I would generally pick Apple as the lesser evil. I also don't like DRM, but I'm not naive enough to believe that it's going to go away. If there's going to be DRM, MS's offering is far more beneficial to consumers than is Apple's. MS is content to get a small part of a lot of pies, but Apple only wants to play in markets where it gets the entire pie.

Reply Score: 5

snozzberry Member since:
2005-11-14

I used to read arguments like this in economics classes, usually in the context of demonstrating particular fallacies. Much of your argument depends on what makes the most sense to you. Commodity markets overtake non-commodity markets because they're a more sensible business model.

Unfortunately, our elections prove that consumers don't make their choices based on those reasons. Comfort, price and inertia play a larger role in those decisions. Apple didn't get out of traditional retail because they weren't getting a big enough percentage of sales, they got out because it didn't work for them. Repeatedly.

The iPod is overpriced, its newest features are routinely cribbed from hackers who've demonstrated them on previous models, its product life is ridiculously short, and yet it's still the dominant music player, iTunes is still the dominant vehicle, and the government of France blinked in a staring contest. Either you have to accept these facts and adjust your understanding of markets accordingly or make up some "people won't stand for this forever, you know!" response that dismisses it. Pick the more intellectually honest one of the two.

Music players aren't computers. They don't adhere to any platform and so far there hasn't been a reason for vendors to adopt one. They don't have to be built to a particular set of specs and run a familiar OS, so your comparison of consumers to CIOs is nonsensical.

If you truly believe building an OS to the widest distribution of hardware available is a market-building strength, look at Linux and Microsoft. One OS has to reverse engineer chipsets and the other's vendor has to sign NDAs with the manufacturers of those chipsets. It's a technical nightmare at times.

Your other fallacy is extrapolating long term trends from short term trends. What happened during the 90s was a short term trend. Cheap PCs on a common platform made it possible for Windows to dominate. Short term, it worked beautifully. Long term, it yoked the Windows OS to a platform they have limited control over.

When it works, it's beautiful. When it doesn't, it sucks terribly. People actually care about those things and remember them when buying their next PC. And on that subject, those commodity PCs only last 36 months before most of their owners are convinced they have to be replaced, and that accounts substantially into market share. I kept a Mac running the latest OS from 1995 to 2002 and the upgrades still cost less than replacing the system.

Reply Parent Score: 3

cr8dle2grave Member since:
2005-07-11

No offense, but I'm having a very difficult time making much sense of your comment. I'll try and respond insofar as I can.

Commodity markets overtake non-commodity markets because they're a more sensible business model.

Yes and no. Commodity markets don't necessarily make more sense to producers. Producers generally fight commoditization over the short term. Consumers though are greatly advantaged by commodity markets, which represents the economic pressure that normally leads to commoditization.

Unfortunately, our elections prove that consumers don't make their choices based on those reasons. Comfort, price and inertia play a larger role in those decisions.

Are you speaking of rational choice models? Genreally speaking, I have a lot of objections to rational choice theory (although it is a useful assumption for constructing certain models).

Either you have to accept these facts and adjust your understanding of markets accordingly or make up some "people won't stand for this forever, you know!" response that dismisses it. Pick the more intellectually honest one of the two.

Nothing I've said ignores the fact of Apple's present dominant status. Instead I've presented the opinion that, absent a change in position over the licensing over FairPlay, they will eventually fail.

Music players aren't computers. They don't adhere to any platform and so far there hasn't been a reason for vendors to adopt one. They don't have to be built to a particular set of specs and run a familiar OS, so your comparison of consumers to CIOs is nonsensical.

Sorry, I can't make sense of what you're saying here.

If you truly believe building an OS to the widest distribution of hardware available is a market-building strength, look at Linux and Microsoft. One OS has to reverse engineer chipsets and the other's vendor has to sign NDAs with the manufacturers of those chipsets. It's a technical nightmare at times.

And yet that business model, whatever technical difficulties it may involve, represents well over 90% of the entire market. I'd say the market has chosen a winner.

Your other fallacy is extrapolating long term trends from short term trends.

Please point out to me one single instance over the last century of a commodity market which has shifted to a non-commodity market. (hint: there isn't one)

Reply Parent Score: 1

atsureki Member since:
2006-03-12

As companies, I don't particularly like either MS or Apple, although I would generally pick Apple as the lesser evil. I also don't like DRM, but I'm not naive enough to believe that it's going to go away. If there's going to be DRM, MS's offering is far more beneficial to consumers than is Apple's. MS is content to get a small part of a lot of pies, but Apple only wants to play in markets where it gets the entire pie.

Where is Microsoft playing for small portions? They have the majority of the market on operating systems, office suites, and web browsers. They're desperately pushing to hold on to the web browser dominance and for more control of game systems, servers, and multimedia. If Windows Media catches on, it'll be a disaster for consumer choice. MS doesn't even offer a basic player for a second platform anymore. Anyone with Windows Media is forced to use Windows, period. How is that beneficial to consumers?

Reply Parent Score: 3

cr8dle2grave Member since:
2005-07-11

Where is Microsoft playing for small portions?

Every single transaction in which MS profits involves other players, each of whom profits more than MS does (harware OEMs, consultants, third party software publishers, systems integrators, etc...).

If Windows Media catches on, it'll be a disaster for consumer choice

Speaking as Linux user, I'm sympathetic to this claim. That said, an MS victory in the DRM standards war is far better for consumers in general than an Apple victory (Linux user lose either way).

MS doesn't even offer a basic player for a second platform anymore.

True, but what's important is that they will license their DRM scheme to anyone for use on any platform. In fact, MS will license their DRM scheme to someone who wants to implement a compliant player on Linux (which already exist but only for embedded Linux use).

Anyone with Windows Media is forced to use Windows, period. How is that beneficial to consumers?

They can use Windows or the thousands of media devices which already support MS's DRM. The door is also open to third parties to make compliant players for use on either Macs or Linux boxes.

Reply Parent Score: 1