What the heck... I just can't resist.. NEITHER ARE BLADES!!!

Somewhere in my reading today I came across a post that pointed to an interested discussion happening in the blogsphere about the iPod. I stumbled across the discussion at slashdot posting and this posting by Robert X. Cringely.

Here is the abridged version of the current discussion: Everyone knows that Gillette (recently purchased by P&G) mints money from essentially giving away razors and charging a high price for the blades. Well, people are now asking which is the razor and which is the blade in the iPod/iTunes world. I think the discussion has gotten so far off base that I had to suspend my personal embargo on commenting on the digital music space. (When I started at RealNetworks I decided to not comment on areas that pertained to my work, but I think I can comment here w/o getting myself in trouble ;-)

While in business school you couldn't go a week with out someone saying "That is like the razor & blades approach" or "They should try and follow an 'Intel Inside' strategy"... When a business strategy has success you often see people try and impose the concepts of that strategy on everything in sight. This is clearly the case with the discussion happening around iPod/iTunes and Razors/Blades.

Neither the iPod nor the songs sold for the iPod are the blades. First off, the songs can't be blades because they don't "wear out" and unlike blades, if you don't buy new ones, you won't be looked at funny by your wife/girlfriend. More importantly, the songs don't possess the margins necessary for being the "blade" in this strategy. The iPod itself clearly can't be the blades... while the product contains the margins needed (especially when sold directly) it simply isn't being replaced on the cycle needed to be called the "blades" in this strategy.

I think the best case scenario for Apple would be that the industry shapes up to be along the lines of the telecom industry, where the songs are the service, essentially undifferentiated, and the real value is captured by the hardware makers (cell phone makers). I personally don't think the industry is headed in that direction, but it is clearly where Apple should hope it heads...

I don't think the relationship between the music player and content will be like the relationship between the cell phone and service. I honestly believe that in the long run it is content that is king, not hardware. It is the overall music experience that will dictate where the dollars are spent. If history has shown us anything, hardware commoditizes over time, and eventually the basis of competition shifts to some other attribute, preferably not price ;). Do we know of any industry where hardware is a commodity and it is the consumer experience that matters??? Can you say PCs & Software.

So what is the proper "business analogy" for the iPod/iTunes combination? I don't think there is one. It CLEARLY isn't razors & blades. It hasn't turned into Cell phones/service or PCs/software either.... to me the critical question isn't "What is the analogous business model for iPods/iTunes today?"... the critical question is "Where is the headed? Is it a unique model or will it head to a model we all understand today?"... I have my opinion on that, but I think sharing would get me in trouble, so I will stop here.

Google, Microsoft, and Yahoo! agree on something!

Adam Smith reportedly said when a group of capitalists gather under one roof the talk eventually turns toward collusion against the public. Well today Google announced that they have been working with Yahoo! and Microsoft around search technology... but rather than collude against the public they have taken a major step forward for the good of the public.

While unknown to most of the public, there has been an underground war occurring on the net for the last couple of years... that war is around links. Because of the value of links in search results, people have created programs to create links to their sites. This is especially a problem for popular blogs and bloggers. See if you are a popular blogger you can't link to a site you don't like because that link will HELP that site, Robert Scoble has a good example of that here. Well now the search engines have come up with a way to "disable" the positive impact of a link, and that is great news for consumers. This means that search results will only get better over time. All 3 major engines will observe the same "disable" meta data, so there is a consumer standard!

Adam Smith would be proud!

CES - Incremental innovation vs. Disruptive Innovations

I had the pleasure of working CES for my employer this year, and it was a very interesting 5 days down in Vegas. I was last at CES 2 years ago, and from my recollection, I had the opportunity to check out many disruptive technologies, including satellite radio, Plasma / LCD / DLP TVs, and many others. This year the show seemed to be all about incremental innovation. While I did spot numerous small companies with innovative products, I didn't find the "next big thing" like I felt I had when I saw XM 2 years ago. While this year seemed slow, I am confident with broadband speeds increasing, 3G networks being deployed, and moore's law still kicking, we should expect a big CES next year.

The devil you know vs. the devil you don't

Is it the late 1990's all over again? Remember in the 90's when the music labels took Napster to court and put the company out of business... it was hailed as a win against digital music piracy. Only month later new applications like Morpheus and Kazaa emerged which have proven impossible for the labels to shut down due to their lack of a centralized server.

So here we are 5+ years later and with broadband penetration on the rise, sharing movies today is as easy as it was to share music 5 years ago. So when the movie studios looked at the hub of digital movie sharing, Suprnova, I hoped that the companies would seek to find a way to turn Suprnova into a legitimate operation. Instead the MPAA has shut down Suprnova and other BitTorrent sites and again it has been hailed as a victory over movie piracy.

Sometimes it is better to deal with the devil you know rather than the devil you don't, because I expect the P2P community to come out with brand new file sharing applications this year that will make the MPAA whish they had a centralized source to deal with. There has already been some hype around an application called eXeem, which is supposed to in essence reproduce the Suprnova experience, but in a decentralized fashion.

The game of "cat & mouse" between the content owners and those interested in sharing content will not end due to lawsuits... it will end when consumer needs are being met and when the cost associated with stealing content is greater than the cost associated with purchasing content.