Apple: Hell Froze Over

For anyone that missed the news, today, Apple released iTunes for Windows, which will run on version 2000 and XP. The software delivers basically the same iTunes experience on the PC as the Mac, also opening up the iTunes Music Store to Windows users.

Apple’s software comes as competition rapidly heats up in the digital music distribution market. Following Apple’s original Mac-only iTunes store opening, BuyMusic.com started selling digital music online. A few weeks ago, MusicMatch joined in, using an approach that is very similar to Apple’s. Near the end of the month, Roxio will officially relaunch Pressplay as Napster 2.0. With the exception of Apple, all these other Windows music services--that includes RealNetworks Rhapsody--use Microsoft’s Windows Media Audio format. Apple has adopted AAC (Advanced Audio Coding), which is derived from MPEG-4, the presumed successor to the widely popular MPEG-2 format.

In some ways, iTunes for Windows pits Apple against, well, everyone else, seeing as how the other companies use WMA. Wider adoption of WMA is important to Microsoft, which has been quick to point out that most of these new services use the format. (This Q&A that appeared on Microsoft’s Website yesterday states clearly the company’s view on the new music services.) But make no mistake, WMA adoption by these new services does not mean there is wide consumer adoption. It’s hard to argue with MP3’s continued popularity.

Some of Microsoft’s partners have done an excellent job putting together their music stores. MusicMatch’s operation bares much similarity to Apple’s, likewise putting the store in the music player, offering similar pricing and setting nearly identical rights. It will be interesting to see how ala carte sales affect MusicMatch’s Radio MX subscription service. While music sales could cannibalize radio listeners, I could see many current subscribers using the radio service to screen songs for sale. That’s certainly what I would do. (By the way, Apple will no longer distribute MusicMatch software with Windows iPods. This isn't surprising, considering MusicMatch has become a competitor and Apple has released the iTunes for Windows software.)

I’ve played some with Napster 2.0, which is a great improvement over Pressplay. The service appears to have a huge catalog and could benefit from its inclusion as one of the Windows XP Media Center Online Spotlight services.

I won’t discuss the merits of ala carte sales vs. subscription services. My colleagues David Card and Michael Gartenberg would be better addressing that issue.

But, I will say much about Apple’s revamped iTunes Music Store strategy. For starters, Apple, once again, has demonstrated competition does thrive in the personal computing market, despite pundit portrayals that would make Microsoft into the thug of the personal computing market. Microsoft's success with Windows by no means makes the company immune to competition.

Apple’s agreement with AOL is a smart marketing move and one that could help propagate AAC even as Microsoft seeks to build momentum around WMA. Starting next month, AOL’s popular music destination will feature links to the iTunes Music Store. AOL subscribers will be able to sign into iTunes with their existing user ID. Billing would be to their credit card on account with AOL.

In May, AOL Time Warner (the company since dropped the AOL from the corporate name) settled a private antitrust case with Microsoft. As part of the deal, AOL could use WMA. So, it will be interesting to see if AOL ever does, in light of the Apple agreement.

In perhaps an even-smarter marketing move, Apple and Pepsi plan a February promotion that will give away 100 million songs from the iTunes store. Pepsi will produce 300 million special bottle caps, one third of which will contain a code to redeem a song from the iTunes Music Store. Winners can redeem the codes for any song of their choosing.

The promotion certainly would help adoption of AAC, which really isn’t Apple’s goal anyway. The company is more interested in introducing more people to its music store. Another motivation: Education. Apple and Pepsi plan to use the promotion as an introduction to the benefits of legal downloading, rather than illicit file trading. That’s something record labels might find appealing. So, Apple conceivably could pick up some important goodwill from the music industry.

Apple’s iTunes for Windows client delivers an experience that is fairly similar to the Mac version. Both clients access the same online store and music library. Songs can be streamed between PCs and Macs on the same network. Song rights--up to three computers--apply to any combination of PCs and Macs. Extras, like giving kids credit allowances to buy songs or adding a selection of audiobooks, are nice touches.

Then there is the exclusive on Grateful Dead music.

Some useful statistics: Apple says the iTunes Music Store has sold 13 million songs, with 90 percent of the entire catalog being bought at least once. Albums account for 46 percent sales. Apple plans to expand its catalog to 400,000 songs by the end of the month.

In many ways, the battle of the music stores is just starting. It will be interesting to look back a year from now on how the competitors fared. Apple’s early lead is no guarantee of long-term success.

If nothing else, Apple deserves credit for wry marketing. To promote the new version of its music player, a promotion tag on Apple’s Website reads: "Hell froze over: Introducing iTunes for Windows."

Posted by Joe Wilcox at October 16, 2003 06:12 PM