Originally posted by whfsdude
If Apple doesn't make any/much money on iTMS I don't see how Microsoft can. Loudeye would cut profit margins even more.
Where does it say that Microsoft needs to make a profit? Like any monopolist, Microsoft can lose money on their media store indefinitely (see "extracting rents"). Microsoft wants to turn Windows Media 9 into a "de facto" standard and squeeze out MPEG-4/AAC, Apple QuickTime, and Real Helix. This is known as vertical foreclosure and is a type of monopoly maintenance.
They've already squeezed out their own previous versions of their Media Player through the use of "optional" security updates which force upgrades/introduction of their Media Player 9 DRM as well as changes in the EULA.
The court has not yet ruled on whether or not this particular instance fits the legal definition of monopoly maintenance. Because Microsoft is a convicted monopolist, they are supposedly prevented from entering into markets that already have adequate competition (which IMO this certainly qualifies)*. Given the political situation, I doubt action will come in the United States. I imagine the European Union's reaction will depend on
how Microsoft enters the market--for instance, will they strong arm OEMs to include the Windows Media music store icon on the desktop by default? Will the music store be activated automatically by software update**?
Microsoft hasn't been successful lately at foreclosing markets: internet service (v. Yahoo, AOL, EarthLink), airline ticket sales (v. Travelocity/Sabre, Orbitz, etc), game consoles (v. Sony and Nintendo), PDAs (v. Palm and now Linux), cell phones (v. Symbian and now Palm), embedded (they were doing well until Linux entered), enterprise servers (Linux has won, Windows 2003/IIS is a niche product), enterprise apps (too many competitors to list)... So I'm not going to start running around saying the sky is falling just yet.
In any case, even if the attempt doesn't work, I doubt Microsoft will make a penny until they've squeezed out Real and Apple. (Don't count out Real. One of the big "selling" points of LoudEye/Windows Media 9 is the distribution of content onto cell phones where RealOne Mobile is doing very well.***) In the meantime, they can disguise losses by folding R&D and some marketing budgets into their OS or Enterprise divisions--both of which make a hefty profit.
The FUD machine is in full force and has been bringing up the spectre of Apple's proprietary past every time iTunes Music Store and the iPod get mentioned. I think this may be a good thing because it'll force Apple to open up their DRM to other parties to counter it as soon as iPod or iTunes Music Store market share start slipping.****
And even if Microsoft forecloses this market, I can still eek out some enjoyment. Given the estimated potential size of the downloadable music market (est. $1.25 billion next year), I have no doubt that Microsoft has some plans to screw over LoudEye in a couple years and I'll get to see that unfold. I'd bet it is somewhere along the lines of how they screwed over Stack or Sybase.
* This reminds me of the origins of Unix. Most of what we call Unix is in the public domain because AT&T was a monopoly at the time and could not make money out of the code they created so distributed Unix without any copyright. This particular monopolist, OTOH, has much less federal oversight and they live and die by their proprietary software.
** I'm going to pre-empt all of you who are going to point out that this is how Apple introduced iTunes Music Store. Apple is not a monopolist, legally or economically. Remember, monopolists are forced to play by different rules because they have an unfair advantage (see again, extracting rents).
*** Just a personal note: I saw a commercial for mp3 ringtones and thought, "Is this most compelling argument that some marketer could think of for bundling a music player with a cell phone?"
**** No, this hasn't happened yet. In fact, some of the retail channels for the iPod are dry. Yeah, great for Apple, but bad for me. I want to see Apple open up FairPlay and make a fair playing field.
