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.
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