Wednesday, October 26, 2005
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.