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Is Apple's iTunes Monopoly About To Die?
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By: Robin Bloor Published: 15th February 2007 Copyright © 2007 |
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StumbleUponThe idea that a credible rival to iTunes could appear from nowhere and compete head-to-head with Apple (as Microsoft has clearly failed to do) seems far fetched to say the least. But never mind, it's happening. The company that is presumptuous enough to believe it can do this is Omnifone and, given the reports that emerged from the recent 3GSM conference in Barcelona, the press believes it too.
It's not too difficult to work out why. Omnifone has already sewn up deals with 23 mobile network operators, that have subscribers in 40 countries, giving it a total customer base of 690m subscribers. That's a potential customer base of course—not all of those subscribers will choose to use Omnifone, but then again not all of the mobile network operators have talked to Omnifone yet either.
It is quite likely that Omnifone will sweep the board as regards deals with network operators—and here's why: Few of the press reports home in on the killer capability that Omnifone has developed. The Omnifone software engineers have built an automatic configuration capability for mobile phones so that you can feed in the technical spec of a mobile phone, Omnifone software will build an appropriate MusicStation client for the phone—in about 2 hours. (Most handsets can be catered for in this way, but even when one cannot most of the MusicStation client can be built and a few days of manual programming completes the task. There are hundreds of different mobile handsets and Omnifone's MusicStation will already work on about 75 percent of them).
Omnifone provides a fully scalable server for music downloads, just like iTunes, and it manages the whole process, downloading music, providing album covers, tracking usage and so on. The handset manufacturers like Omnifone because a) It isn't Apple b) The application is cool (It is, I've played with it) c) It just works on their handsets. The music business likes Omnifone (especially the big 4; Universal, Warner, Sony and Emi) because a) It isn't Apple b) they can sell music by subscription through MusicStation and the network operators like Omnifone because a) It isn't Apple b) It reaches the vast majority of handsets including those that could only accommodate a few songs c) It offers them a music revenue stream.
You can do a blow-by-blow comparison of iTunes and MusicStation, but no matter how you toss it up and catch it, it is difficult to believe that MusicStation isn't going to take a big share of the digital music download market. First think in terms of coverage:
Even in Steve Jobs' wildest dreams Apple's beautiful iPhone will not capture more than a few percent of the mobile phone market. Omnifone will probably get most of the rest. Apple is giving exclusive deals to a single carrier whereas Omnifone works with all carriers. To that you can add the fact that the iPhone doesn't allow direct download to the phone.
A big reason why the Music industry is backing Omnifone is the music by subscription model it operates. The idea is that you pay a regular subscription charge as part of your phone bill and you can have "all you can eat" in terms of music. (The initial roll out will offer 1.2 million songs). The music companies tend to think like this: With iTunes the average user buys around 20 tracks a year—equivalent to maybe 2 or 3 CDs and generating $20 in revenue. With a subscription model at, say, $3.50 per month, the revenues per person will above $40 (twice as much).
All Omnifone has to do now, to establish itself as the other player in the music market, is to roll out the service (rollouts have already taken place in South Africa and Norway).
Eat your heart out Microsoft.
P.S. I first reported on Omnifone last year.
Reader Comments
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15th February 2007: 'nerdbrain' said:
I disagree. Music station will compete well with Napster and similar subscription-based online music retailers - not iTunes.
In fact, Music Station's subscription (as per their website) is costlier than Napster's U.S store - over $16 compared to Napster's $9.99 monthly fee. By breaking down the fee to show weekly cost they have achieved one of their goals, fooling the consumer into thinking it's cheap. In the UK no one pays a weekly tariff. Therefore, saying it's going to cost £1.99 per week only obscures the fact that it actually costs nearly £10 a month.
I doubt a service nearly twice as expensive as the beleaguered Napster is going to be as successful as you suggest. On the other hand, if they managed to do what they've clearly done with you - fool you into thinking it's actually cheaper - then they may achieve some limited success, but not because it's better.
15th February 2007: 'Jon T' said:
What utter tosh and nonsense.
It has been proved over and over and over again that people don't want a music collection that isn't theirs and can vanish overnight.
Even Microsoft identified this with its pathetic attempt to better iTunes and iPod with its Zune.
Is Omniphone easier to use than iTunes. I doubt it.
Thye beauty of iTunes is that the computer takes care of everything just letting the iPod do the playing. The Omniphone model makes the the phone do the legwork . A recipe for more rather than less phone problems.
And since most phones have music playing abilities, but aren't used except by a tiny minority, what does that tell you?
I think the writier of this left his brain at home and has reasons for Omniphone being the answer to our dreams.
Not likely.
15th February 2007: 'AJ' said:
Several questions that need to be addressed:
1. Who are these presses that believe this is going to be a success? Please, name several that truly believes the Omnifone is going to be a success. One is not convincing enough. Provide links as proof.
2. Your argument that Omnifone will sweep the board is faulty--and here's why:
a. Your autoconfig takes two hours. In the iPhone, it takes a few minutes.
b. Manual programming. In the iPhone, there is no manual programming. It is done automatically. How many people will actually want to program their phones manually?
c. You provided no proof that this is what the masses want. Are we suppose to take your word for it?
3. How many steps does it take to download one music? You stated that it takes 2 hours to autoconfig and a possible manual programming. But what happens after all of this is complete. Hence, how many steps does it take. On the iPhone, just plug it in.
4. What hapeens to the music when I stop paying? On the iPhone, you keep the music because it's an iPod. Omnifone? As a follow up, do people really want to rent their music? There is no data provided that supports your notion
Conclusion:
1. iTunes monopoly, as you suggested, is NOT going to die.
2. Simplicity wins over complexity.
3. Your definition of a monopoly is wrong. You need to do more research why Microsoft was taken to court as a monopolistic company.
4. iTunes and iPhone will be here for a while. I have a hunch that it will overtake Omnifone within 12 months after launch. Just my hunch.
15th February 2007: 'Gary' said:
Robin , you kill me. Subscription based music does not work. People want to keep their music. Subscriptions work with movies, because you usually only watch a movie once. Lets face it, music is taken off of CD's and pilfered from the internet, thats how most people get their music.
You keep harping that Apple is a monopoly. How can that be when you can purchase the exact same music on any other music site. There is no barrier to buying the music on CD's and putting them on an iPod or any other player. You can buy a song on iTunes and listen to it on any computer in the world. Apple does not own the music, so where is the monopoly?
Ahh... but by puttiing the words Apple and monopoly in you headlines, you think your being a clever writer.
The only thing to conclude from your article is that " YOU DONT LIKE APPLE".
15th February 2007: 'PV' said:
Apple needs serious competition. As an avid Apple and iPod user, I know that competition is imperative in order for them to make needed improvements in their features and quality. Apple's arrogance has been renown even when they weren't doing well. A large market share makes the Mac world unbearable.
Death to the iTunes monopoly! Long live higher quality!
15th February 2007: 'MacDailyNews' said:
MacDailyNews Take: The music by subscription model is a proven failure. People want to own their music, not rent it. Stop paying Omnifone and you'll have nothing. Additionally, Bloor's numbers do not even come close to adding up. Let's do something interesting and look at the actual facts: Omnifone's subscription service will be £1.99 (US$3.90) per week, not month. So, it actually costs US$16.90 per month on average or $202.80 per year. In other words, Omnifone is 70% more per month than the beleaguered Napster subscription failure that currently charges (US$9.95/month).
The mobile phone networks are suckers because they, like every iTunes Store victim on the planet, want to control the customer instead of giving customers the control they want — even to the point of buying into this repackaged, over-priced, proven failure that's called "Omnifone" this time instead of "Napster."
Apple gives customers what they want while other outfits want so badly to reap a weekly/monthly payment ad infinitum that they keep trying to ignore reality. The mobile phone companies are deluding themselves with visions of recurring weekly charges that simply aren't going to exist in worthwhile numbers because people don't want what they're trying to sell no matter how badly they dream of selling it.
15th February 2007: 'Denny' said:
Is it possible for a service to crash before it launches? I believe so. Consumers want to own their music - not rent it! Look at Napster subscription failure. The phone companies are so desparate to control the customer. this is marketing 101. Who thinks of this stuff!
15th February 2007: 'Larry Busch Jr.' said:
Omnifone's service is about $3.90 PER WEEK, not per month as your blog states. That's over $200 per year, for music you can't keep.
The subscription model is favored by the music industry because they like the idea of no one owning thier music, but instead having to rent it.
Omnifone will fail for the same reason Napster, etc. have all failed – people want to own their music, not rent it.
15th February 2007: 'tim' said:
Your first post claimed that Omniphone would win because Apple would lose the DRM war; that Moni would win by using Microsoft DRM. How's that theory working out now? Why didn't we see it this time?
This service is more expensive than subscriptions that haven't been doing well for years now.
If all of the subscription services are dividing up 20% of the digital music market into 2% slices, doesn't that mean that Omni is likely to get 2% of that potential subscriber base?
After all, Napster and others are or will be offering mobile subscriptions. Also, these carriers are also offering their own services; this company doesn't have exclusive access to this potential market.
This late in the game and they have an offering 1/3 the size of Apple's catalog? Ooh, that studio-love sure is impressive.
Moreover, is it the same 1+ million catalog in every market it will be available in - the UK, Japan, Saudi Arabia, Korea, Latin America, Hungary, wherever?
You say they'll reach 75% of mobile phones: why would anyone pay a subscription fee on top of traditional phone subscriptions if they are the 80% of that 75% with just a few megabytes or even less to store music on? Do you really think people will pay that rate to have 5 songs on their phone?
An application that may be simply crude text or a slightly nicer graphical interface or maybe a better interface depending on your phone is not compelling.
Sorry, no, it sounds like you are cheerleading for a company that your friends are a part of. Not providing real analysis.
15th February 2007: 'Phoenix' said:
Another subscription model means another failing model. There is no diffeerence between this and the others other than a phone. which people change yearly on the average. what makes this subcription better if they are charging more than the others? AOL just sold to Napster, Napster is selling, how much do we bet that in a few months or one year this will fail? how can this writer not research the truth and look up why the other subscription models have failed. It has nothing to do with ipods, it about money.
15th February 2007: 'Tom Shaughnessy' said:
Robin, please rent music if you think that is a good idea. Please write every time the monthly rental fee increases. Please write a wonderful piece each year on the absolute total you spend on renting entertainment. We love reading about when you put your money where your words are.
15th February 2007: 'Dan Charles' said:
A couple of questions to consider regarding OmniPhone:
1) Except for being more expensive, how is this any different from the spectacularly unsuccessful music subscription services offered by Napster, Microsoft, Real, Verizon, Sprint, Yahoo, and other wanna be iTunes killers?
2) How do you unteather the music from your phone to play on your computer, home stereo or in you car?
3) How do they plan to convince the public that this time it is a good idea to have your music collection held hostage to a monthly randsom payment--pay your monthly fee or we kill all your music? What new argument do they have to overcome prior objections from the buying public (see #1)
4) Are they using open standards (like MP4 aka AAC or its generational predicessor MP3) like Apple is underneath their DRM, or are they using proprietary encoding standards (like the Microsoft owned WMA which underlies both PlaysForSure and Zune)
Finally, you write "Even in Steve Jobs' wildest dreams Apple's beautiful iPhone will not capture more than a few percent of the mobile phone market." It is important to note that Steve Job's stated marketshare goals for the iPhone is only 1%. If the iPhone got "a few percent", given its price point, OmniPhone wouldn't matter.
Why wouldn't it matter?
Because, dear analyist, nobody except music labels makes money on digital downloads--and subscription services are losing money hand over fist. Microsoft has lost more than 1,000,000,000 USD on its PlaysForSure and Zune platforms. Yahoo, Real, Napster, et al also are losing huge amounts of money. Even Apple only make about 1 penny profit per track--and that is before taking into account the costs of marketing iTunes (according to SEC filings, they pay about 68 cents per track to the licensee and spend 30 cents per track on iTunes Store infrastructure costs like develoment, bandwidth, servers, content managers, et al)
Where Apple makes their money is on the players themselves--the iPod. This isn't a Gillette razors/blades situation (where the razor equate to iPods, and the blades equate to music tracks downloaded)
15th February 2007: 'davew' said:
You A) clearly lack understanding of peoples music habits or B) Simply trolling for readers by playing devils advocate. People want the music they like. They DON'T want unlimited music that THEY DO NOT LIKE or have the time
looking for some new music that they do like.
Subscription is great for the the corporations involved but they ignore that the public has very little interest.
You don't have a clue, that's very clear.
Give Zune time it will make a move like the Xbox finally did, with XBOX360.
15th February 2007: 'Charles Silverman' said:
I don't understand why the subscription model continues to be attractive to businesses. So many have tried and failed using this approach to go up against iTunes.
15th February 2007: 'Bryan TO CA' said:
"To that you can add the fact that the iPhone doesn't allow direct download to the phone."
1. Apple will allow it. When the iPhone becomes available. Check-out their recent patent approval(s).
2. People want to own their music, thank you.
3. I hope they are paying you well to prostitute yourself. The author is quoted on their website.
4. £1.99 per week, give me a break.
15th February 2007: 'Nick Trikakis' said:
Is iTunes a monopoly or just better than the rest? I think its better than the rest, especially Omnifone.
15th February 2007: 'Brad' said:
Fer Christsakes, iTunes is NOT a monopoly. Stop spreading FUD. There are plenty of iTunes competitors. And iPod users are NOT locked into iTunes either, they are free to purchase unprotected tracks from any online services that offer them (just as non-iPod players are not forced to use iTunes) or, of course, they can just buy CDs and rip them to their iPod or other MP3 player. I'm so sick of everyone's ignorance surrounding this issue.
15th February 2007: 'Eddie Blach' said:
US$3.50 per month? Try per week. I'm not paying US$200 for a year of music when I only buy about a 150 singles per year.
Before you go claiming the next big thing in online music sales, you should get your facts straight.
Journalists today...
15th February 2007: 'Doh' said:
Wanted to post a comment about this article on iTunes to say how I agree with Mr Bloor, but I couldn't as the form would not accept my image code.
15th February 2007: 'Duncan' said:
Long live subscription based music. DRM is the best thing since sliced bread.
15th February 2007: 'Alotta Fagina' said:
Omnifone doesn't stand much chance. Apple has the market with its preferred subscribtion model and service, plus the iPhone is awesome.
15th February 2007: 'Christian Potter' said:
Monopoly is best board game ever. I am going to login to iTunes and download my copy.
15th February 2007: 'OS11' said:
if Omnifone even gets... 0.0000001% of the download market you should have a $1 million party! Of course, it will never happen since Apple works hard to provide the most to consumers for the least amount of money.
Apple's owns the market for good reason, they have fought record companies left and right to get down to .99 cents... and yes, in a non-DRM world, the price should be .6 cents or .8 cents depending on the popularity, anything more than that and piracy will CONTINUE!
Got that RIAA, record execs! You can't charge more than a dime a song IF you want to make money in the future. Apple is really trying to help you here, but you are fighting the future.
It won't work.
Get an iPod and download songs (from wherever) it's the future of Music Distribution and Apple is a great company to make all of this happen.
-
16th February 2007: 'denuj' said:
1st, this isn't sound as well as fair reporting.
2nd, facts are all jumbled up.
3rd, this isn't going to happen.
People want their music NOT rent them. Do you imagine people renting CDs weekly for a fixed cost? Movie rental schemes are dying because people nowadays want something they can plug in their players ANYTIME, so they buy their movies and watch whenever they feel like to. The same is true with music.
16th February 2007: 'Texas Yank' said:
All the valid arguments about the subscription based model's history of failure aside, I think a service like this could gain some traction. The reason is that there are millions of mobile phone customers who do not have iPods or any other music player who will be inticed by the opportunity to listen to music on their phone, simply by adding "unlimited music" to their other services such as call forwarding, caller-id, messaging, etc. These potential customers are not the music enthusiasts who have already been offended by the limitations of DRM. They are casual listeners who will likely see this as a relatively cheap add-on to their current mobile service. If the information I read was correct, the weekly fee INCLUDES data charges, i.e. the user doesn't have to sign up for an over-priced data service to get unlimited music. Compared to other mobile services or even satellite radio, this service will actually not be all that expensive.
Of course, if the service itself is difficult to use, or if users are overly limited by the capabilities and storage available on their current phones, they will likely not be happy with the service. On the other hand, the trend in mobile handsets is toward greater capability and storage, so this may not be a significant hindrance in the near future.
Whether it proves to be successful or not, I completely disagree that it will threaten Apple in any way. Apple doesn't make money selling music. They make money selling iPods and soon, iPhones. If Musicstation is able to introduce a previously untapped customer base to the world of online music, then that is good news for Apple.
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