Wednesday, October 26, 2005

Apple's Rope-a-Dope

Much of the business news has been (1) hyping the release of the Motorola ROKR (cell phone and iPod player) and (2) expressing shock at the poor consumer response to the product. The truth is that the press and the consumer have been part of one of the most impressive strategic business moves ever witnessed.

You see, market research consistently projects that Apple's music services is not considered a long term success. Its cost of doing business is too high; their business is not flexible to work with third parties - essentially history was believed to be repeating itself (as seen in the death of the Mac versus the PC.) The biggest threat is cell phones, which also act as MP3 players. MP3 players are very cheap, storage is easy, and you can get around the annoying ACC encodes that I-pod supports. The lion’s share of the revenue will go to the cellular device manufacturers and the cellular companies for download songs.

Apple knows this all too well, so here's what they did. (1) They announced to the world they intended to enter the wireless market - thus scaring off short-term competition with the power of their brand (a defensive play). (2) They kept on putting off the launch - further holding off the inevitable competitive wireless marketplace. (3) Apple FORCED a song limit of 100 songs. (Initially, they were trying to hold this number to 30). (4) The ROKR device's experience is not nearly as user friendly as the standard Apple devices.

By capturing mass market's attention, holding the competitive market at bay, and offering a sub par product, they have effectively spoiled the market opportunity for the mid-term. Industry "experts" will lament that there isn't customer interest in these music and communications converged services; companies will be hesitant to invest in building a competitive product to the ROKR because the consensus will be that they can't make money in it. All along, Apple will continue cashing in on their brand and their cute little i-Pods.

Eventually, the marketplace will figure this out and get over the negative taste for the ROKR; but until then, Steve Jobs has proven he has learned from history and is laughing all the way to the bank.


Tokyo Joe said...

Great analysis of the situation. It's good to know that someone actually leaarns from history.

As for the need for an all-in-one device, I'm going to pass on it for a bit. I would rather have a great phone, great mp3 playerand a great PDA instead of one device that does all that stuff just okay.

In related topics, I'm excited about the video IPod. Not because i want one, but because i've had a portable video player for about 6 months now and I love it. The Mobiblu DVH-100 is the best thing to come out of Korea since kimchee (okay, I understand not everyone likes kimchee, but i dig it). I use the video player at the gym to watch Blackadder episodes on the bike and i catch up on all the latest sitcoms and TV while riding the train. Heck, i don't even mind eating at restaurants by myelf anymore since i can watch a movie as i eat.

The only problem I see the video IPod having is not being able to read different formats. Flexibility is key. I can rip all of my DVDs no problem and watch them where ever I like. the same goes for anything off a TIVO machine. No one will want to have to pay for shows and movies that they already have or can tape for free.

Thrillhous said...

I agree with you on all three points: separate components are better than a combined one, the video ipods could be really cool, and kimchi rocks.

You know, we don't talk enough about kimchi on this blog. Mrs. T's momma (who is Korean) says this year has seen bumper crops of cabbage and, as a result, kimchi, in Korea. It's about time this taste sensation swept America.

Thrillhous said...

In all my excitement over Tokyo's kimchi reference, I forgot to say that this is a great post, Studio. I'm glad someone around here can explain marketing to me.

But let's give some props to the true father of vaporware, Bill Gates. I hear he's secretly funding Zod's campaign.

InanimateCarbonRod said...

I would like to further sing the praises of kimchee. A friend of mine introduced me to bulgogi, and my life has not been the same since.

Apparently I am the only person in the universe who thinks a video iPod is completely useless. Maybe it's because I'm getting old and my eyesight is going, but nothing you can put on a screen that small would interest me. Even iPorn.

Smitty said...

Just heard on NPR that Miers withdrew.

Otto Man said...

I'm with I-rod on both the bulgogi and the uselessness of the video iPod. I don't even use the backlight feature on my iPod.

Susie the Bear said...

I don't know i-rod...I think iPorn could be a big seller :P

Tokyo Joe said...

Granted the picture is small, but on how many TV shows do you need that super crisp HD movie theater feel? Most shows are more about what is said rather than what is done. And even though the screen is small, the picture is surprising good (I have a friend who even watches subtitled movies on his).

Of course, i live in a major metro area and thus i have a good bit of "down time" on the train and the like where i can sit back and watch shows. I'm sure it will only be a matter of time before some fool sues Apple because they got into a car wreck while driving and watching a movie.

Oh, and it's great to hear all the support for the kimchee. I'm a big fan of biminbop (it's even fun to say). Anyone here try kagogi? I hear's it's great stuff.