Microsoft and Online Music

If Microsoft did decide to compete with Apple in the online music arena, this “innovation” would certainly be helpful in driving sales. In Microsoft’s world, if you can’t beat them, prevent users from knowing they exist or spread FUD.

[UPDATE: Salon has another good article about Microsoft’s chicanery.]

[UPDATE 2: The Register‘s Andrew Orlowski has a column up about Microsoft’s reaction to Apple’s iTunes Music Store. Orlowski suggests that Apple is looking to create a vertical monopoly on music distribution and playback. This is about the most ludicrous thing I’ve heard about Apple and iTunes—and I’ve heard a lot of ridiculous stuff in the last few days.

This is precisely why the Sherman and Clayton Anti-Trust Acts are so insidious. To say that Apple has a monopoly because of iTunes Music Store is to overlook all of the options available, all the substitutes already present. Sure, the iPod is wildly popular and the iTunes Music Store has had gangbuster sales—better than any other legal service out there by most accounts—but a true monopoly requires some forcible barrier to entry. Any company is able to enter the online music business, and many have done exactly that. The barriers to entry are minimal and getting lower because of Apple’s pioneering licensing deals.

The iTunes Music Store does use a relatively proprietary format, for now. AAC is really only supported by Apple and its iPod. There’s no reason why some other music player couldn’t implement AAC because its an open format available to anyone willing to pony up the licensing fees. In fact, there’s no reason why any other audio software couldn’t use the codec either. Orlowski would have us believe that AAC represents the path to monopoly.

Even Microsoft’s proprietary format—Windows Media Audio—isn’t really a monopoly because there’s so many other formats available to consumers, ranging from the commercial MP3 and AAC to the open-source Ogg Vorbis. Microsoft can’t force anyone to use WMA and they can’t prevent anyone from not using it. Even if they made sweetheart deals with music player manufacturers, the manufacturers could have chosen otherwise and consumers don’t have to buy them.

The substitutes here are prevalent and plentiful. Compact discs are widely entrenched in the marketplace and the majority of consumers buy their audio media in that format. There is also a sizable number of computer users infringing copyright via one of the various online download services. To say that consumers are forced to use AAC or WMA is crazy and perhaps disingenuous.

What iTunes and Windows Media Player represent are brands and brands are almost always linked to a single company. But that interferes with the perfect competition implemented by the anti-trust statutes. They envision the marketplace as one of commodity goods available to everyone—where the laws of supply and demand are perfectly realized and equilibrium is constantly achieved. Brands just don’t work in this model since they eliminate the possibility of commoditization. All purses are not alike and a lot of people pay exorbitant amounts to get a Prada, Dooney & Burke, or Coach bag, even though there’s no reason why these couldn’t be produced for much, much less. The brand here is quite powerful.

And that is why there’s no monopoly here—on either side. Monopoly comes when the barriers to entry are enforced by law. Local phone service is largely monopolistic, so is local power distribution. Software defies monopoly. And the Internet makes monopoly virtually impossible. Anyone who cries otherwise has probably been negatively affected by a competitor and has turned to the Department of Justice or the Federal Trade Commission for cover. These “political entrpreneurs,” to use Burton Folsom’s apt phrase, can’t compete in the marketplace so they turn to government to alter the marketplace in their favor. They probably had an excellent marketshare that they crapped away: Netscape pissed away its browser lead and Sun lost its server operating system preeminence.

What Microsoft and Apple are doing is competing. Microsoft’s way is to lock people in to their closed format and create hooks that prevent people from accessing competitors easily; Apple’s way is to try and create the best service possible with the best music player driving sales. Sure, Apple would like you to be a Mac user with their iPod but their software interfaces with practically any music player, can use MP3 codecs instead of AAC, and allows you to use music from other online stores providing a codec is available for their format. That’s not perfect competition, but Apple’s trying to establish their brand as the preeminent source for music.]

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