Could the iPod fail?

Above and beyond the ephemeral value of superior style, what is the source of Apple’s long-term competitive advantage? True, they have more artists signed up, but this is likely a short-term phenomenon. And there is a more serious problem as well:

MP3s downloaded from Sony’s Connect service can only be played on Sony’s MP3 Walkman, and not on the more popular iPod (and vice versa).

Behind the scenes, the battle waging for commercial dominance is reminiscent of the early 1980s cut-throat competition to establish video standards between VHS and Betamax. And lest we forget, VHS won despite being technically inferior.

Although Apple has been the pioneer in the MP3 market, with Sony/BMG controlling 25 per cent of the music market it will be interesting to see whose digital distribution platforms will survive. Will all those expensive iPods we have been rushing out to buy wind up piled high in car-boot sales alongside Betamax video players and 8-track cassette machines?

Here is the full account.

Going out on a limb: I’ve never been convinced that the “iPod as we know it” could make money, especially once the market becomes more competitive for hardware. Right now the songs are being used as a loss leader for the gadget. And dare I cite Apple’s history of being a leader with ideas but failing to lock up the market? But hey, I’m the same guy who said the Dow was overvalued at 7000 and the single European currency would never happen.

Addendum: Andrew McGuinness recommends this reading on the topic, especially the excellent section five.


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