Apple and America Online

[MacRumors]

One of the many significant announcements today was Apple's announcement (http://www.apple.com/pr/library/2003/oct/16aol.html) that they are partnering with America Online (AOL).

Through this partnership, Apple will gain access to AOL's 25 million U.S. subscribers. AOL will integrate iTunes links into their popular AOL Music site, providing direct links to the iTunes Music Store for both Mac and PC.

Early rumors (http://www.macrumors.com/pages/2003/04/20030428174629.shtml) that placed Apple and AOL together were apparently true. This partnership will allow AOL users to use Apple's iTunes Music store without even entering a credit card number. Users may simply use their AOL screenname to signon and purchase songs from the iTunes Music Store.

[nagromme]

So AOL's anticipated a la carte store will not be competing with iTunes... it will BE iTunes!

[1macker1]

It's good to get at all those customers, but Time Warner just dropped AOL from it's name. Downloading MP3's over 56k isn't a pleasant experience

[rueyeet]

AOL may well be the Satan of ISP's, but this answers the very vital question of how Apple was going to get mass-market Windows users to choose iTunes. Y'know, the demographic who BuyMusic figured their ads would appeal to. The ones who only vaguely realize that there's a company called Apple, and who use Windows 'cause that's what they're used to at work, and who use Internet Explorer 'cause it's right there on their desktop. And, coincidentally enough, the ones who are pretty likely to use AOL.

Just as AOL is the default choice for ISP for so many people--simply because it's ubiquitous, and has such brand recognition--putting iTunes up as the default music provider to AOL is going to rope in a lot of the people who wouldn't even have HEARD of iTunes and all that Apple stuff otherwise.

And ye gods, using only your screenname to pay for your music?!? That is, without a doubt, the most mind-numbingly brain-dead simple thing I've ever heard of. Any idiot who can manage enough of a Windows computer to even log into AOL (and some of the chat rooms can testify to how much of an idiot you can be and still manage this) can comprehend that. Heck, AOL could actually leverage that as a FEATURE to increase subscriber base.

iTunes for Windows was a necessity. Putting it on AOL was a stroke of effing genius.

[MrMacMan]

Well for the people that use AOL for anything else besides mail and connection I pitty you.

But I guess this is another plus.

Really good: AOL + iTunes downloading... excellent...

[MacsRgr8]

eh... being from across the pond (and one much smaller pond further): what is wrong with AOL?
Forgive me if I sound ignorant...

[Wonder Boy]

Originally posted by MacsRgr8
eh... being from across the pond (and one much smaller pond further)...

does this mean non us-ers with aol can use the music store, i didnt read anything about that.

[MacsRgr8]

Originally posted by Wonder Boy
does this mean non us-ers with aol can use the music store, i didnt read anything about that.

I was just referring to me as a European not knowing why AOL is an ISP "satan" as previously called.
Nothing about EU AOL iTMS. Wish it were... :rolleyes:

[ClimbingTheLog]

So Apple's demonstrated business acumen and showed people how they're going to remain the dominant player in online music.

And the stock sinks 6%.

[centauratlas]

This is a good thing because to me it indicates that Apple and AOL are taking their partnership seriously.

Next up: iChat AV for Windows *bundled* (I hope) with iSight for Windows.

[bousozoku]

Originally posted by ClimbingTheLog
So Apple's demonstrated business acumen and showed people how they're going to remain the dominant player in online music.

And the stock sinks 6%.

The stock had already fallen after the financial news and prior to the iTunes news. There was some major profit-taking but they'll be back. It's the whole buy low, sell high, buy low scheme.

It is off the lows of the day quite a bit--something like 84 cents and the volume was 17 million shares, which is incredible.

Wait until next week, u'll see it over 24 dollars again.

[Dippo]

No matter how evil you think AOL is, this can only be a good thing. AOL has like 30 million users in the US, and if only 5% of them buy about 10 songs each. That's like 15 million song, and of course they are going to want an iPod to play all of those songs :)

[1macker1]

AOL service sucks, and if you tell tech support you have a mac, they might hang the phone up on you. Thank GOD for bellsouth DSL.

[MacsRgr8]

Originally posted by 1macker1
AOL service sucks, and if you tell tech support you have a mac, they might hang the phone up on you. Thank GOD for bellsouth DSL.

That was the answer I was looking for....
But now they are "partners", I assume tech support for Macs MUST improve.

[greenstork]

Originally posted by ClimbingTheLog
So Apple's demonstrated business acumen and showed people how they're going to remain the dominant player in online music.

And the stock sinks 6%.

They're paying hundreds of millions on a risky proposition to gain market share. They're paying to promote something that might not help them sell computers. It may help, it should help, but it is still a risk and computer sales are where Apple makes its profit. This is why the stock sank today. Selling iPods and music is good too but hardly the lion share of their profit I would imagine.

edit: Then again, it could be buy on rumor, sell on news. The stock market is awfully fickle so you never really know.

[DigDug]

This is huge -- I think this is the most significant part of today's announcements. The fact that AOL users can use their screen name to buy songs will translate to mega numbers for ITMS... maybe not for modem users but there are something on the order of 2 million AOL broadband users (hard to get exact figures) and the company is aggressively trying to grow that number. As mentioned, they may very well use iTunes as a feature to encourage people to make the switch.

Moreover, many people use AOL at home but log on from work (over broadband) to check their email. I'm willing to bet that these are exactly the kind of semi-tech-literate people who cruise around Manhattan with their iPods. So while you're checking email, why not download the latest Edie Brickell album too?

This is also possibly the most ambitious move yet by Apple away from selling computers and toward selling a "digital lifestyle": a PC user buying songs over AOL has very little to do with Quartz Extreme or the G5. But it is easy, elegant, and powerful all at the same time. Sounds like the Apple Experience to me.

-DigDug

[crees!]

Originally posted by centauratlas
This is a good thing because to me it indicates that Apple and AOL are taking their partnership seriously.

Next up: iChat AV for Windows *bundled* (I hope) with iSight for Windows.

Definitely.. good thinking. Considering Apple is in with AOL with this then that gives them a foot in the door for iChat AV compatibility with AIM. Definitely two thumbs up. I wouldn't be surprised to see the next version of AIM (AIM AV?) compatible with iChat AV.

[raynegus]

AOL is one of the lowest companies in existence. Come on Apple, keep a little style.

[crees!]

Originally posted by raynegus
AOL is one of the lowest companies in existence. Come on Apple, keep a little style.

Actually, I would say Microsoft is one of the lowest, if not, THE lowest company in existence.

BTW, just because you personally don't like a company doesn't mean it's a bad thing.

[ClimbingTheLog]

Originally posted by greenstork
They're paying to promote something that might not help them sell computers. It may help, it should help, but it is still a risk and computer sales are where Apple makes its profit.

You're right, Wall Street doesn't realize that taking risks is how Apple makes money.
They have better odds on their risks than most companies.

Just a couple months ago it was "selling music online? - it can't be done", then it was "a computer company selling music online? - it can't be done. " Today it's "investing in Windows and spending promotional money with Pepsi? That won't work." Forget about "you can't make a user-friendly unix computer" or "nobody new will buy a PowerMac G3 just because it's in a round blue case". :)

I wonder what happened to Boeing's stock when they announced they were betting the company on the 747 - have investors always been so conservative?

[bertagert]

Originally posted by ClimbingTheLog
I wonder what happened to Boeing's stock when they announced they were betting the company on the 747 - have investors always been so conservative?
It is called Connexion and people aren't happy about Boeing making this move. For those that don't know, Connexion is an ISP in the sky for planes. Boeing is banking on you shelling out some loot every trip you take for Internet access. It's not the typical plane that you would expect Boeing to build. Kind of like Apple and music.

I know its off topic, I just had to chime in.

[savar]

Originally posted by DigDug
This is huge -- I think this is the most significant part of today's announcements. The fact that AOL users can use their screen name to buy songs will translate to mega numbers for ITMS... maybe not for modem users but there are something on the order of 2 million AOL broadband users (hard to get exact figures) and the company is aggressively trying to grow that number. As mentioned, they may very well use iTunes as a feature to encourage people to make the switch.

I'd like to suggest that even though 90% of AOL's user base is still on dial-up, this may be to Apple's advantage. It's been a long time since I used dial-up, but if I was using it and I wanted to download music, I would certainly download from a site where I was sure I was getting the whole song, good quality, etc.

Nothing sucks more on dialup than to spend a half hour downloading something only to have the server drop you with 5 minutes left and get an incomplete file...

I'm still blown away that Apple sealed this deal. Very smart thinking!! Now if they can get some sort of cross-promotion with Earthlink and/or RoadRunner they'd be pretty freaking good-to-go.

[1macker1]

I totally agree
Originally posted by raynegus
AOL is one of the lowest companies in existence. Come on Apple, keep a little style.

[bousozoku]

Originally posted by 1macker1
AOL service sucks, and if you tell tech support you have a mac, they might hang the phone up on you. Thank GOD for bellsouth DSL.

I'm sure that BellSouth is so much better. I couldn't even get their validator to run on either Mac. :D

Most companies don't seem keen on supporting Macs, but that's nothing new. AOL just don't care and never have.

At least, the bumbling crowd that is AOL won't mind the heavy-handed compression Apple uses.

[Phil Of Mac]

I don't think this is that much of a risk at all, iTMS is already profitable, and with an expanded user base it'll be even more so. And AOL will guarantee even more customers.

[ssurgeman]

Originally posted by bousozoku


At least, the bumbling crowd that is AOL won't mind the heavy-handed compression Apple uses.

Not sure how you can call FairPlay heavy handed. I mean sure its not unrestricted open Ogg files. But lets not forget how much of a break Apple got compaired to other legit services at the time. You can't have it all and this as close as it gets.

On a side note now that AOL is in the iTMS boat whta about MusicNet which is their current partner? I mean they are competing services and I belive that AOL/TW owns a chunck of MusicNet. Anybody hear anything about this? Cuz as of 9:30pmeastern AOL music only lists MusicNet.

Also although I don't think AOL is great by any means I do think they serve a market, one that none of us are in. New users willing to pay a bit more for "simple internet" in a sence like a mac user, exept that Macs are alot better than AOL. But still Macs are better and we pay a (teeeeny) premuim, AOL is easier than others and they pay a much bigger primum. My biggest gripe with AOL is how they destroyed Netscape. Still I have no problem recommending AOL to a new user. I personally have not had bad experiences with their support.

[weave]

have investors always been so conservative?

Take a look at SCOX sometime!

[greenstork]

Originally posted by Phil Of Mac
I don't think this is that much of a risk at all, iTMS is already profitable, and with an expanded user base it'll be even more so. And AOL will guarantee even more customers.

iTMS is not profitable. When will people get it - it's all about the hardware. It's not a moneymaker, it's a gateway drug.

Read this story straight from the horse's mouth:

Will iTunes make Apple shine? (http://news.com.com/2100-1041_3-5092559.html?tag=mac.nn)

[bousozoku]

Originally posted by ssurgeman
Not sure how you can call FairPlay heavy handed. I mean sure its not unrestricted open Ogg files. But lets not forget how much of a break Apple got compaired to other legit services at the time. You can't have it all and this as close as it gets.
...


I said compression, not licencing restrictions. 128 Kbps AAC is not that great, especially for classical music.

[billyboy]

Originally posted by greenstork
iTMS is not profitable. When will people get it - it's all about the hardware. It's not a moneymaker, it's a gateway drug.

Read this story straight from the horse's mouth:

Will iTunes make Apple shine? (http://news.com.com/2100-1041_3-5092559.html?tag=mac.nn)

I think Apple are playing down the token but useful revenue they might get from the store. You saw what just happened to the stocks - one of the reasons being their gross profit margins dropped by .5%. iTMS profit will be small but with the volume they are hoping for, it should prove to be another useful string to their bow to keep the stock market happy. ie

Apple made $44m net profit this qurter. The maths on the projected 100 million tracks, at even 5 cents net for Apple adds up to $5m profit. Its not a lot over a year and like you say, the other $95m "lost" is the lure for iPod sales, but if they say now that itms is not going to make profits, the ****ing Wall Street analysts make projections based on that. Come next quarter iTMS might possibly chip in a million or two "unexpected" profits and AAPL has outperformed. Psyche out the psychers, Jobs is quite good at that.

[greenstork]

Originally posted by billyboy


Apple made $44m net profit this qurter. The maths on the projected 100 million tracks, at even 5 cents net for Apple adds up to $5m profit.

I think there's a misunderstanding in terms here. Profit = Revenue - Expenses.

Right now iTMS is heavy on expenses like advertising, R&D, bandwidth, maintenance, etc. and it's not a winning venture. In time, with many more users, it may turn a modest profit but nothing compared to hardware sales.

edit: It's going to take more than a few million extra for Apple to exceed analysts expectations.

[DigDug]

Despite what analysts and Apple execs may say (boy, it sounds pretty ignorant to start a post like that, but I'm going to soldier on), I think iTunes Music Store can be profitable. Look at it this way: the record industry has been selling CDs for c. $15 for the past decade, and making huge profits, with very little additional income source (remember that performance and merchandise income rarely goes to the label). It's well-known that CDs cost more than they need to. The record could sell them for less and still make a tidy profit. Now, consider that maintaining an online service can cost less than physical distribution (actually getting it there is of course a major challenge) and voila: profit. The big challenge is getting to critical mass: the cost to be in business is enormous (R&D,bandwidth,marketing) but at a certain point, the marginal cost increase to serve each additional download starts to decrease, while the income continues to scale linearly. So it's all about market share -- and increasing the size of the market itself.

Yes, the real money's in the hardware. But that doesn't mean the music has to be a loss leader.

-DigDug

[edit:] hey, check it out: greenstork already said exactly what I said. Okay, so -- right on, dude!

[yamabushi]

I agree with DigDug. iTunes will be very profitable. The partnership with AOL costs Apple very little and offers them millions of potential customers. iTunes on Windows has only development, bandwidth and marketing costs. These costs will likely be easily covered even under very conservative sales projections. I think Apple has a winner for now with iTunes. Lets just hope that they don't neglect development on Mac hardware and software.:)