Modular by Design — Digital Music Downloads

Yes­ter­day, I looked into how the mod­u­lar by design approach impacted the music busi­ness. Today, I’m exam­in­ing how music stores are sell­ing tracks.

Much has been made recently of the bat­tle between Apple and Real Net­works. After their attempt to part­ner up with Apple were rebuffed, Real Net­works intro­duced a new prod­uct called Har­mony, which allowed songs bought in the RealPlayer music store to be played on an iPod. Of course, Apple was shocked and threat­ened law­suit.

In a way, the reac­tion by Apple was to be expected as they were try­ing to cre­ate a new bun­dle around the online music busi­ness. Their model is not one of album sales but one of an inte­grated media pack­age that includes both a device (the iPod) and a ser­vice (the iTunes music store). This con­tention is encap­su­lated in the way they present their offer­ing on the Apple site. The tab at the top of their pages clearly states “iPod + iTunes” and the com­pany sees them as part of the same offering.

By intro­duc­ing a dif­fer­ent way to buy and man­age music on the iPod, Real Net­works attacked the heart of Apple music strat­egy, unbundling the device from the ser­vice. While Apple may win a law­suit against Real, the dam­age is now done as peo­ple now real­ize that Apple is work­ing on cre­at­ing a lock-in around the iPod but it is pos­si­ble to undo it. Vir­gin has already filed a law­suit about the impact of that effort so it looks like Apple will have to relax its con­trol in order to win in the long term.

So what should Apple do in order to ensure that they are not taken down by this issue. First of all, they should real­ize that fight­ing the issue is a loos­ing bat­tle. In a way, their reac­tion is sim­i­lar to the reac­tion other dig­i­tal assets han­dlers have had: Ignore the prob­lem, panic, lit­i­gate, and accept. By ignor­ing advances from Real, they cre­ated the prob­lem. Then, with Real announc­ing Har­mony, they pan­icked and threat­ened to lit­i­gate. The only way they can win is to accept that the busi­ness fun­da­men­tals have changed and look for a bet­ter approach. In their case, the ques­tion is whether they want to win in the short term (keep­ing their stance and let­ting another ven­dor even­tu­ally offer some­thing bet­ter) or play a some­what less dom­i­nat­ing role in the future (agree to a Fair Play mar­ket where oth­ers can sell music to go on the iPod and keep sales of the device strong while inno­vat­ing to stay com­pet­i­tive on the music store end).

To bor­row a turn of phrase from Oscar Wilde, the only way to get rid of a mod­u­lar by design issue is to yield to it.