Thursday, February 25, 2010

Losing sight of the strategy

I read this column today and thought I was in a time warp. Peter Kafka of the WSJ writes that Apple does not make much, if any, money selling music on its iTunes store. "But you won’t hear Apple boast about how much money it’s making from iTunes," Kafka writes. "Because it’s not."

Talk about a "duh" moment. Anybody that has been paying attention has known this for years. Selling music on iTunes does not not bring in millions in profits, but it does brings in boatloads of iPod (and soon, iPad) sales -- and those are very profitable indeed.

Apple sells elegantly designed, but high-priced electronic gear for those who want the best (or the coolest) stuff. You want an iPod Touch -- a device that does not make a call -- you'll have to pay $200-400. That's a lot for a music player, no? But once you own one of Apple's devices you find that you get lots of extras: from contact and e-mail apps, to music and video, to whatever the genius developers bring to the platform. Oh, and you get cheap music, too.

 iPad? No way, I got a note pad and a hat!  ☞

There seems to be a pile on strategy going on today. The WSJ's Kafka wants to show Apple is not so smart because it doesn't make a lot of money on iTunes; Damon Kiesow at Poynter loves to link to stories that warn media companies to shy away from the iPad, or Apple, in general.

Yet no one wants to talk about the strategy. In this case, Apple has gotten the music industry to offer its content cheaply so that there would be a huge demand for media players. And the music industry went along. Who are the fools here?

Actually, no one is. Apple created the store to feed the device -- brilliant. The music industry went along because the future was digital. Physical music stores were going away, and digital players were coming in. Playing nice with Apple meant lots of little transactions with very little overhead. Is this stupid? Tell you what, ask the music labels if they really want to lose all those little transactions now?

Sounds like Google's strategy, doesn't it? That is, lots of little transactions taking place bringing in billions. While the music industry was learning that its "art" was really just content, the media industry is still under the impression that they are producing irreplaceable journalism. In the meantime, the aggregators rule the roost.

Much noise in made about how newspapers and magazines have failed to make money online and how this shows that there is no model for success yet established. Wot? Are they crazy? Google brought in $6.47 billion last quarter in advertising revenue. Remember advertising? But this is dismissed by many media outlets because the model is different.

Yes, it is different, like selling music cheaply in order to sell devices is a different strategy than overpricing CDs sold in plastic jewel cases when the consumer already owns a CD burner and knows the price to create a CD is pennies, not dollars.

There are those out there ready to steal the shirts off the backs of old media companies. Many of these new firms are out there partnering with newspaper and magazines the same way Apple partnered with the music industry. Yet these same newspaper and magazine companies gladly partner with these new firms because they are busy laying off talent, rather than taking the advice of people like Adrian Holovaty who said almost four years ago:
"Hire programmers! It all starts with the people, really. If you want innovation, hire people who are capable of it. Hire people who know what's possible."
He also said:
"I think news organizations should cooperate on removing mandatory Web-site registration walls, which are severely reader-unfriendly. It's embarrassing to be associated with an industry that treats its customers with such disdain."
But don't listen to him, he's not part of the club.

1 Comment:

dkiesow said...

Douglas -

Actually, yeah the stories linked on this week have been somewhat cautionary regarding Apple. But, that is really just to provide equal time to the many we have curated that point in the opposite direction.

If you page through the headlines here - hopefully it balances out over time:

And I agree, listening to Adrian Holovaty is usually a pretty smart way to go.


Damon Kiesow