Frank Beacham /
02.04.2004 12:00 AM
The New Killer App(le)
If you believe the major recording companies, the Internet has been the destruction of the music business. Rampant free downloading is a cancer, they say, undermining the commercial distribution of music. Their desperate corporate reaction has been to threaten, intimidate and sue customers.

While the music companies defend the status quo, an outsider-computer visionary Steve Jobs-tried something different. He created iTunes Music store, a new legal music download service that embraced the Internet.

Jobs coupled the online store to a software jukebox, iTunes, and Apple's iPod, an elegant portable music player with a miniature hard drive. He made copy protection invisible, putting convenience, modern design and hipness first. Although the skeptics confidently predicted disaster, Jobs hit a homerun.

By MacWorld last month, Jobs had stunned the music business by selling more 30 million iTunes tracks online at 99 cents each. He is on track now to selling 100 million songs a year. In only a matter of months, the online venture-available on both the Mac and Windows platforms-has accumulated more than 500,000 music tracks for sale, making iTunes the world's biggest online music store.

According to Soundscan, Apple now has 70 percent of the total market for legal online music. Not only that, Apple has sold more than 2 million iPods, and now owns 30 percent of the market for portable digital players. That 30 percent figure, mind you, is based on sales figures from October and November 2003; it doesn't even reflect the explosive Christmas buying season.

APPLE MUSIC CO.

Perhaps the most brilliant, and least understood, card that Apple played at MacWorld was the introduction of GarageBand, a new pro-quality music tool that now ties amateur musicians to Apple's online music equation. It stems from a fact that Apple recognized that others didn't: More than half of all households have at least one musician.

To be packaged free on all new Macintosh computers, GarageBand is an all-purpose recording studio that can record, live, up to 64 tracks and features 50 software instruments (playable via USB or MIDI keyboard), 1,000 professional audio loops, 200 audio effects and both vintage and modern guitar amp simulators.

Musicians can jam with the system, varying tempo and styles, and build compositions piece by piece. When complete, new songs can be automatically integrated into an iTunes playlist, stored on an iPod and burned as a CD.

In a matter of time-and it's a no brainer-I predict that Apple will operate as a new breed of record company that allows the online distribution and sale of music produced by its own customers. Just connect the dots.

Naturally, Apple's early success has sent competitors scurrying. Not the old school record companies, but the likes of RealNetworks, Microsoft, Sony and no doubt many others who are in the process of launching music services and manufacturing new "iPod killers."

Along with this burst of activity will come increasing fragmentation as each company creates technologies based on incompatible copy-protection mechanisms and portable players. Unfortunately, a cowboy mentality still dominates the Internet.

It's worth noting that not one manufacturer has yet seriously challenged Apple's elegantly designed iPod music player. For Sony, creator of the "Walkman," the first portable music player, this must be a stinging embarrassment. Yet, Sony's implementation of copy protection is considered heavy-handed and onerous by customers. The touch and feel of Apple's player-along with its superior ergonomics-makes it an object of desire that no competitor has been able to touch.

In a recent speech at the Chicago Economic Club, FCC chairman Michael Powell predicted exactly what is happening when companies like Apple use the Internet to break down the walls to become successful in a new business.

POWELL PREDICTIONS

"Not long ago, you would have said SBC is a telephone company. Comcast is a cable company. T-Mobile is a cellphone company and NBC is a television company," Powell said. "They enjoyed near-monopoly positions within their lanes and had no significant cause for concern from companies in other lanes. But with digitalization transforming all communication services into data applications that can run over any platform, these barriers will fall, revealing new and formidable competitors."

Powell noted that the Internet threat is even greater for today's established companies because applications on the Net are separated from the infrastructure. Services, he said, can all be software applications that ride over the platform as bits. (Example, iTunes.)

"The fact that applications are divorced from infrastructure means companies like Microsoft, Intel and Apple are suddenly competitors to traditional communications companies," Powell continued. "Apple, for example, sells a high-quality Web camera that, combined with free software, enables very easy computer-to-computer video-conferencing to anyone with a broadband Internet connection. All for $149. What did any of you pay recently for video-conferencing services?"

For those media companies feeling secure these days, it might do well to consider that if Apple can become a leading music company in only a year, who might come out of the blue to use the Internet as the next television service?


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