Real Networks and the Microsoft myth
The media has hyped any number of new entries to the online music field. Most of them were supposed to have cut into Apple's online sales. At least one of them (WalMart) was supposed to have 'destroyed' Apple. None of this occurred. The media (constitutionally incapable of admitting that it doesn't know what it's talking about) now paints Microsoft as a looming threat that will... well, you know.
An insightful look at Microsoft reveals that it only leads in ONE area: operating systems (and some related software, like Word, Excel and Internet Explorer). Where it has ventured into other areas, MS has spent a great deal of money to finish second.
For example: the X-Box. Second to Playstation.
In the business of selling online images? Corbis, second to Getty.
Let's not forget that years ago, MS' online services were going to crush AOL (they didn't - although AOL has since collapsed under its own weight. A more accurate comparison would be: is MS' online network the dominant means for accessing the web, as AOL once was? The answer is - not hardly.)
PDA's? Second to Palm.
There probably are instances beyond the desktop where MS is in fact number one, but in the arenas where they felt the greatest need to contest, they have fallen short. In some cases, they've withdrawn altogether. It is also true that MS has engaged in some dubious anticompetitive pratices which have held back innovation in some areas. But they will be unable to compete, in this instance, through the same means by which they undermined smaller players. Apple is too big, and their hold on this market too established, for that to work. (Even if they COULD destroy Apple, would they WANT to? It only brings up the monoploy spectre again.)
The means by which MS achieved desktop dominance was simply that most hardware would not work without MS software. Since every business wanted a computer that worked with every other business computer, MS got its cut. But they never had a BETTER product (as Apple users will fervently attest). The point is, MS cannot apply this same advantage to taking control of the online music market. Anyone who buys a Windows computer HAS to pay royalties to MS, that's built into the price. But that does not mean the Windows user has to use MS' music system.... especially if one buys an HP. (Smart alliance on HP's part, identifying itself with a winner.)
Apple has worked out a better product, and the marketplace has voted for it. Not just the "creators" market, this is not like the Mac situation. This product, the iPod has cut a wide and deep swath for itself and is ripe for expansion (more on which later). To assume MS money alone can bridge the gap is to not understand MS' history in most marketplaces. No, MS cannot shape a monopoly on this product. Nor can they cut Apple off at the pass, as they have done to others. Nor will undercutting the service pay off (WalMart is making little headway). MS has to build a better product, and they will fail for the same reason they have failed in other markets: because you cannot innovate and copy at the same time.
On the other hand, if MS does manage to build a better product, that's great. Choice is good. Competition drives innovation. Apple knows what the iPod is doing for its bottom line. It hasn't tended to stand pat, at least not in recent years, and it seems to have a good feel for what can be brought to market.
I could not agree more with all posters about the absolutely sleazy nature of RealNetworks. Jobs, no fool, sees this as well. I'm sure if he does cut a deal he will maintain the upper hand. I would venture that one condition levied would be a time limit on the agreement. After that period, if Real has not played nice, Apple pulls the rug out and Real is that much further behind in making headway with a needed ally. Real is certainly not at all in the drivers' seat, and they want desperately (the deperation is seen in their implied 'threat') to partner with a winner. MS at this point is an unknown - or maybe not. Maybe Real understands the second-class status of most of MS' business ventures.
The iPod will soon expand its base on iPhoto and the huge number of digital photos floating around that no one will ever have the patience to print. People will accept the tradeoff of a small screen - they do so today on their cellphones. They'll dump their family pics and home movies AND their music on the next generation of a device they're already familiar with. (Yes, it'll kill the batteries quicker but that's another tradeoff people will accept to carry hundreds of images, and battery life will improve eventually.) In fact, some clever 3rd party marketer will quickly come up with a way to dump those cel phone images on the iPod in the user's OTHER pocket. Cool.
MS is a giant, but that won't make them top dog in an emerging field. It rarely has before, despite the fawning, unknowing press. MS dominates when they have a monopoly or can buy or in another way pre-empt the competition. Otherwise, they finish second or out of the running. In this horse race, it's Apple#1, MS (probably)#2, Real (and everyone else) a distant third. Second place is acceptable for MS (it'll HAVE to be), but Real can't afford to keep slipping. Don't think Steve doesn't smell the fear, just like he did with Disney.
