VIRTUAL MEDIA: APPLE

First there were wax cylinders, then vinyl disks, then stereo long-play records, then
eight-track tapes, then cassette tapes, then compact disks, then digital videodisks
(DVDs), and now electronic files. The techonomic process of layered innovation
has been repeated in many fields: first there is joy in the discovery (the first
phonograph), then distribution of the capability, then improvements in the quality
(stereophonic), then the ability for the consumer to create the media (recorders),
then miniaturization of the electronics and means for delivery (transistors), then
virtualization of the delivery via a wired network and soon ubiquitous distribution
via a wireless network. The Apple iPod represents the latest in the line of discontinuous
innovations within the music industry.
With each step, reproduction quality advanced, media durability improved, and
replication cost diminished. With the advent of the MP3 music file format and the
plethora of hardware players, the music industry is moving though a period of
massive change. When technology first shifted customer habits from records to
compact disks (CDs), there was little change in how the music industry did business.
Artists recorded, publishers produced, industry marketers promoted music, and
customers bought the physical end product (CD) at music stores or through the mail.
The digital age began to change the industry when low-cost (First Techonomic Law)
CD duplicators allowed customers to copy the music they wanted. The expanding
network (Second Techonomic Law) allowed the music, legally or illegally, to be
transmitted via files to anyone, anywhere. For enjoying music away from the computer
desktop, few wanted to carry a portable computer or even a clunky and limited
portable CD player. Enter the MP3 music player. MP3 stands for “MPEG-2 Layer
3,” which is an audio compression standard developed by the Moving Picture Experts
Group. This technology encodes digital audio in a space-efficient manner.
While most consumer electronics companies saw the obvious opportunity to
develop a market for the MP3 players, Apple took a broader view and created an
entire system for linking buyers to sellers, providing music mobility for the masses.14
For the vast majority that had neither the technical expertise nor the immoral desire
to pirate music, Apple created an integrated, easy-to-use system that gave buyers
legal ownership of what they wanted: easily transportable music. The approach
included software that allowed the user to digitize and load their music collection
to the iPod (an MP3), download and pay for individual songs from a collection of thousands, and organize their own play lists as desired. The recording industry is
forever changed.
Since inception, Apple has now sold, via download, more than half a billion
song files. Each one of these files represents a transaction between a buyer (music
consumer) and seller (music publisher or freelance artist) orchestrated by the invisible
hand of Apple. Apple negotiates the sale price with the publisher, establishes
the Web site parameters, and maintains the Web portal to the marketplace. Each
$0.99 song download is a study in techonomics, with technology enabling free cash
flow for a company that is transferring organized bits of information from the
originator to the user. There is no cost of goods other than the initial set-up costs,
minimal operating costs, and the royalty cost to the originator after the transaction
is complete.
Even the iPod hardware unit itself is a study in short product life cycle and the
value of partnerships. The iPod is a simple device, little more than a portable hard
drive with input from a finger wheel and output to a small display and earphones.
Not a lot of subsystems to advance. Since its introduction in November 2001, the
iPod has morphed into the U2 iPod, the iPod Mini, the Shuffle, the Nano, and
probably more by the time you read this. The 60-GB model lets you download up
to 15,000 songs. Each product has variations of color casing, display, memory
capacity, footprint, and battery life. What remains the same are the important file
format, the interface to the computer, and the interface to the audio output. Vital as
it is to upgrade performance as new generations of technology emerge, it is also
important to retain consistency in the interface portals that tie a device to the world.
By maintaining consistent interfaces and establishing a strong leadership position
in the market for MP3 players, the iPod has spawned an entire industry of
complimentary products. Radio-frequency transmitters connect the iPod to any radio
in a vehicle, home, or office, allowing users to become their own disk jockeys. Small
speaker systems that have a dock for the iPod allow surround sound music to be
taken anywhere as the centerpiece for any table. Necklaces have been designed to
hold iPods. Digitizing microphones from third parties allow the iPod to become a
dictating machine. Radio shows digitize their content for “podcasting.”
Technology increases the product storage capacity and extends battery life, while
allowing improved screen resolution and color displays for minimal cost increases. As
a result, the iPod takes on new possibilities as a digital wallet for pictures and videos.
Where is the iPod headed? Will its technology be assimilated into cell phones
like the Palm Pilot? Or will it make CDs a thing of the past in the same way that
CDs made vinyl records disappear? What would techonomics predict? Techonomic
trends indicate that the hardware price point will decrease due to Moore’s Law and
competition. Over time, the iPod’s functions will be incorporated in other portable
devices, most likely the cell phone, but as music is a form of entertainment, standalone
units will also remain. Apple will be able to maintain a leading position if it
continues to acquire and make easily accessible the media desired by the customer
at a reasonable price.
As technology advances, anticipate an iPod that becomes popular as a digital
movie player, an iPod that allows wireless Internet connection for downloads of
music files, an iPod for wirelessly receiving radio podcasts, and iPods in automobiles. Within 10 years or less, CDs will be a memory, because they are not the most cost
effective way to distribute music. DVDs may see the same fate as distribution
bandwidth increases, compression improves, and storage capacities continue to
increase. These trends are already beginning today as record companies have seen
their sales of CDs decline. Technology has permanently changed music distribution
and enjoyment. It is on the cusp of doing the same for video distribution and
enjoyment. Now the scramble is on for the economic model that will succeed in an
industry that will perpetuate simply because people will always want to be entertained
in the most convenient and inexpensive manner available.