Here is Part 1 and Part 2 of this discussion. And today, TheStreet.com provides an interesting article on Edgar Bronfman Jr.’s belief that the mobile phone network operators (when did we all start using the phrase mobile phone instead of cell phone?) are better positioned to ultimately win in the small, portable, music-player space. As noted in the previous postings, I agree with some caveats. I never believe in either/or. The market will be segmented into all different types of users (kids, teens, business, etc.) and storage types (flash, hard drive, holographic storage, etc.), operating systems (iPod OS, Windows, Symbian, PalmSource – if they’re still around) and DRM (Windows, Fairplay with each one keeping a certain share of the market.

But overall, when I look at the consumer’s desire to carry a converged device if it is good enough, I can’t help but think that Apple needs to bring the cell phone manufacturers to the table and offer the iPod’s back-end and iTunes to those manufacturers. Apple is selling ease of use and “coolness” and they need some way to build that in to hundreds of devices. OR they can leave that market to everybody else, have the coolest player on the block, and watch their market share decline year after year until they have 3% of the player market, the same way as they have 3% of the computer market.

During the fall of the Mac Steve Jobs was quoted as saying that he didn’t see why having small market share mattered, since Apple had larger market share than BMW. Small market share meant exclusive and high-quality. However, Steve is also a man of the masses, the original marketer of the “Computer for the rest of us”. And then once the iPod took off, he said “Boy, it sure feels great to be selling to the other 95% of the world.” He has been conveniently flip-flopping on the market share issue. Let’s hope that we don’t have to watch the same fall from glory with the iPod – from 92% marketshare in hard-drive based players to 3% while they go from saying, “Boy this is great!” to saying, “It’s okay, small market share means high-quality!”

Why do I think that this will be the inevitable outcome unless Apple forms major strategic alliances with as many of the phone manufacturers and more importantly, network operators, as they possibly can?

  • converged devices are getting better and are absorbing other device functions.
  • For example, they are already killing PDA sales;
  • they have become the primary device for kids. All kids will have a cell, some kids may have other things;
  • data storage costs are dropping radically – you will be able to put a 40GB drive into your cellphone;
  • Ring-tones are a huge business but are really just the same as downloaded music with the added bonus of having MUCH higher margins
  • People will want their music on multiple devices: dedicated music player (for the full library and clip art and photos/videos); cellphone for subset of the library; car if it is not using one of the above;
  • DRM could be made even more centralized. Phones HAVE to connect to networks, hence it would be easier to do centralized DRM.
  • There are more mobile phones in the world than iPods by a long shot and those people will definitely upgrade their phones every 2nd or 3rd year. They won’t necessarily buy a new device that ONLY plays music
  • screens are getting larger, sharper, and more energy efficient on phones. Some of the mobile phone screens equal that of the iPod;
  • network speeds are increasing and network operators will do everything they can to push applications and downloads onto that network so that they can bill for time/usage in order to finance their expansions; (if you don’t believe that, then go read about how the manufacturers are already being pressured to remove functionality from the phones to drive users to use the network instead of using USB or Bluetooth to transfer data so that the network operator can make more money.)

So for all of these reasons, I agree with Bronfman that the wireless network operators will very likely take over the downloadable and portable music markets. It will take years to overcome the high-speed internet & firewire or USB2 conduit that the iPod currently uses for getting the music into its hard drive but that will happen. Ideally a smart phone manufacturer would put a mini Firewire port on their phones until such time as Ultra Wide Band is working properly which will be a few more years yet.

UPDATE: December 17, 2004. Here is an article from Macworld discussing the Motorola/Apple combo phone/iPod that will allow its users to carry and play a small number of iTunes tracks including those with Apple’s Fairplay DRM.