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HP Licenses Apple's iPod & iTMS
grouchomarxist writes "According to the press release here and this article at Forbes HP is licensing Apple's iPod technology for its own MP3 player and use the iTunes Music Store. 'HP and Apple today announced a strategic alliance to deliver an HP-branded digital music player based on Apple's iPod, the number one digital music player in the world, and Apple's award-winning iTunes digital music jukebox and pioneering online music store to HP's customers.'"
apple stands to gain a LOT from this. HP alone probably ships more machines a year than apple, so that's already doubling the distribution of iTunes for them. iTunes really is the key to this one. iTunes introduces them to iPods and iTMS
- tristan
Thoroughly smart move by HP - tie into a strong offering from Apple's growing recognition in the field. Apple wins tremendously by getting the backing of additional hardware distribution and essentially provides nothing (support & specs) to turn a profit on the licensing portion while having another route to their system lends it significantly to their legitimacy (and therefore brand exposure).
Any spoon would be too big.
"But hey, I could be wrong, and we could all be getting $99 hPods next December. "
It seems obvious that part of the licensing deal would stipulate that HP cannot undercut Apple's pricing. I would be shocked to see any HP models with anything but the same capacities as Apple's at the same prices. And if anything, they'll be physically bigger, or won't look as nice. Apple's going to keep the high ground somehow.
With the installation of iTunes, Apple has managed to get QT installed on alot of computers without resorting to whining or lawsuits. Congrats Apple.
Apple has much to gain from this. HP is effectivly giving them a bigger audience to the Itunes music store, in a similar fashion that MS Windows has given Aol via putting links to AOL on the desktop of all new PCs. The strategy is tried and tested; more importantly, it works.
HP also gains by getting a neat bit of kit which they can brand, allowing them to compete against Dell's new musical offering. Seeing as almost everyone is getting in on the act these days, it would seem foolish for HP not too; and why not do it with the best thing that there currently is on the market? Who knows, they might even intergrate it better with the PC? They might even bring the price down a bit. Who know- whatever happens, i'm sure it will be good for music lovers.
Apple needs to get iTunes onto the Windows desktop by default .. otherwise M$ will be able to pull a Netscape manouver pretty easily. I am sure Apple will be able to use this as leverage to negotiate better deals with the Record Labels down the road.
..
Hardware-wise maybe HPiPods will introduce a little competition and make Apple rethink the pricing on the mini iPods
I'm sure that HP computers will have a pretty good chance at having Quicktime and iTunes preinstalled to support the 'hPods'
not only will this add to the QT base but will ad potential customers to the iTunes music store..
I think this is a really good move for Apple.
Yeah, because no one at Apple would ever think of putting a stipulation in the contract to bar HP from undercutting Apple ...
The scary thing is how many Slashdotters will agree with you, while many will be the same people who just excoriated HP (only four stories ago!) for exporting tech jobs overseas.
"HP is fscking over American IT employees because we let them. Our government won't even.... Ooooh, iPods!"
While I applaud your apparent patriotism and support for American jobs, I can't help but snicker at this. I am reminded of a friend I used to know who was a VERY staunch vegetarian, she wouldn't even eat food that had been prepared on the same grill or in the same pan as a meat product. And yet she wore LEATHER shoes.
So yes, you have a God given right to buy from whom you like. So I will assume that you only buy "American made" products from companies in the United States?
Do you drive a car or truck? Was it made in America? That's a loaded question since there really is no such thing anymore, I can't think of an automobile company that doesn't assemble vehicles from parts made or assembled in another country. Your vehicle may indeed have been put together here in the U.S. but a large portion of the parts are assembled or manufactured in other countries, essentially "outsourced".
Don't get me wrong, I hate outsourcing as much as the next guy, I work in tech and worry about the job prospects, but this is natural market evolution. It happened in manufacturing a couple (a few?) decades ago. Now it's happening to tech. The country adjusted back then, it will adjust now. Will the process be painful? I think it already is. But I have hope that the outcome will be positive.
So while I applaud your sentiment, I think we need to be realistic and consistent.
Not trying to start a flame but please, please don't start the Ogg Vorbis conversation. This is an APPLE device...APPLE is committed to AAC+Fairplay. Apple knows about Ogg, as do all the other WMA music sites and music device manufaturers.
As hard as it is to swallow, Apple has decided AGAINST supporting Ogg Vorbis in current devices. So have all but ONE music device manufacturer. The market isn't there because as bad as you want Ogg, you will settle for AAC and buy an iPod because it is a more complete package. And if you won't, then you are a market minority so small that Apple doesn't have the time and money to spend reaching you.
I only came here to do two things; kick some ass, and drink some beer...looks like we're almost out of beer.
Let me be the first one to tell you that vegetarians don't eat meat for variety of reasons, which does not necessarily involve ethical ideology. Vegetarians in most part, avoid animal foods for health concerns, and you would find many, who often consume eggs and milk. Humane animal treatment comes in distant second.
The group you're trying to lump her into is called veganism. They don't eat meat, and at the same time avoid (to most extent) purchasing products derived from animals (i.e. leather, oil, fur, etc). Vegans rank animal rights, environmentalism, and ethics ahead of health.
From Apple's point of view, I'm not sure what they gain.
.wma based (with respect to purchased music), and while it may not be the greatest bit of kit, nor the greatest service HP will sell enough of them with system bundles / special deals / etc. (and even if the content side of the equation blows a user would have the option to use any other .wma based content service, like BuyMusic.com, Music.Walmart.com, etc.)
Mindshare and marketshare, not to mention money. If you want clout with component manufacturers on the hardware side and the Big 5 (soon to be Big 4) on the content side you have to be a volume leader. So lets see what happens if Apple told HP to go fly a kite.
HP comes up with their own player and service (or, more likely license someone else's) that would be
Instead, cut a deal with HP (since they seem to love the iPod and iTunes) and you may lose some money on a per-unit basis, but you are further cementing the AAC format, increasing the volume of the iTunes store, and increasing the volume of equipment that you're buying from hardware suppliers, the latter two allowing you further leverage to bring down costs and/or increase profit margins.
Apple needs to continue to hold a large share of the music d/l market. Let, ahem, others grab too controling a share of the codec pie and they'll use that leverage to lock everyone else out.
the iTMS is either a loss leader or barely breaks even
That's only true at the current economy of scale; if they crank up the units (songs) sold, the capacity for profit is much, much greater. Making deals with other companies will increase the number of iTunes customers.
~jeff
Now that the news has sunk in a few minutes, I am not so certain HP had a lot of better options.
They are already
(1) fighting off loosing market share to Dell
(2) managing a HUGE merger with Compaq (these things take years to work themselves out)
(3) spending tons in R&D with the iPaq
When HP sat down, they had a few options
The WMA way:
(1) Go with the WMA music store everyone else has and try to differentiate, knowing that at $0.99, the service is basically break even
(2) Build a player in house - a huge R&D expense (and risk) should the solution not work out when they launch head to head with Dell that isn't going through restructuring, has a huge market share, and doesn't have the iPaq taking R&D dollars.
The Apple way:
(1) recognize no one is teamed up with the market leader and WHY THE HECK SHOULDN'T WE!
(2) instead of trying to improve on what 31% of the entire MP3 market has already said they wanted by purchasing an iPod, just rebrand the damn thing like IBM did with the Palm III and be done with it.
The Apple way is less risk (and less money in HP's pocket) but if it turns out to be a fad, then haven't spend tens of millions in R&D and they can walk away. If it works out great, then five years from now, they can build their own in-house if they think they can do it better than Apple.
This is a HUGE win for HP and I bet it has Michael Dell slappin' his head sayin "I could'a had a V8!"
I only came here to do two things; kick some ass, and drink some beer...looks like we're almost out of beer.
Wait and watch how iMacs and such won't be licensed out. Jobs is probably taking medication to avoid exploding while HP makes stuff based on Apple technology.
Licensing out the technology for iPods and iTMS makes a tremendous amount of sense because they are dangerously close to being commodity products. There already are competing and very similar products for both services, many of which are of at least acceptable quality. Apple probably has the better products right now (hence their price premium) but there is little reason to believe that their current technology advantage is sustainable. They are the first movers, but our good friends at Microsoft have proven time and again how little that really means. Apples computers are different enough to avoid much of the direct competition but I would propose that the iPod and iTMS do not share this advantage.
So what can Apple do to combat this inevitable erosion of marketshare due to competition? Either they have to keep some form of value advantage (such as features not available elsewhere), have network effects which make switching other services less attractive or they have to scale the business to gain cost efficiencies from economies of scale/scope.
Apple appears to be doing a little of all three. They keep improving the iPod and iTMS which gives them a technology advantage for now. I do not believe this is sustainable in the long run (lots of other smart engineers out there) but it gives them good margins and a big head start. They've got a better mousetrap but that is only useful to a point.
By producing a Windows iPod, making it work with iTMS and licensing it to HP they are trying to build up network effects that make them the platform of choice. It's the same reason everyone chooses Microsoft Office; not because it is great, but because everyone else has it. Again I'm not conviced that the network effects here are the strongest, but if "everyone" buys iPods, that will make iTMS more attractive and vice versa. HP will undoubtable sell more so we might see people buying iPods and using iTMS because their family and friends use them. Not clear, but possible.
The other advantage of licensing to HP is they gain some economies of scale/scope. HP will sell more, making Apple's per-unit costs better, meaning they can fight low cost competition more effectively. The scariest opponent for Apple here is Microsoft because they can bundle with Windows and gain instant economies of scale and they have a much bigger war chest than Apple. If apple can sign up a few of the major OEMs (Dell, Toshiba, IBM, etc) to the same deal as HP, then Apple will be less vulnerable to Microsoft, though it would still be a problem.
In short, licensing iPods and iTMS makes a lot of sense. They don't need/want to do it for their computers because they are not easily duplicated and have significant strategic protection beyond simply the hardware and software. iPods and iTMS are much more vulnerable to competition and need to be treated as the different business it is.
I submitted a similar article earlier today, but I guess I didn't beat the person who posted this article. However, one point that I made in my submission, and that nobody has made here: Check the press release. Notice something? Apple is claiming that the "Allowance" feature of the iTunes Music Store is patent pending. This smacks of the One Click patent that Amazon.com secured. Obligatory call for prior art examples goes here. :-)
The part that almost never gets reported was that part of the deal was an "undisclosed" money transfer as an informal settlement for all the technologies that MS stole from Apple over the years, as well as an agreement that would allow MS to buy future Apple developments. (This has a lot to do with why XP looks so much like a Macintosh OS in some ways.)
What MS got out of it was an end to their legal wranglings with Apple, a weakening of the case that MS held a monopoly on computer operating systems, and the ability to legally use Apple as a sort of out-sourced R&D department.
The real winners in the deal were us. As consumers, we got to see systems from both Apple and the PC world get much, much better over the last three years.
Information wants to be anthropomorphized.
Gah. For the 10,1000th time. Apple has been and always will be a SOLUTIONS company, not a hardware or software company.
Apple is about a total computing environment.
--- I do not moderate.
Despite the real gains it has made in OS improvements, Apple's cachet remains largely in its sexy, elite image. The schizophrenia that's marked its retail relationship with Target and other vendors - iPods for sale one day, then not, then back on again - points to the problems of dealing with the unexpected success of having a mass consumer hit on its hands.
And when is it ever a problem to dominate a mass consumer market? Well, it's a problem when you need to protect the refined sensibilities of your loyal base when at the same time you want to get a little, uh, action with consumers on the other side of the tracks. Put another way: how do you retain the people who don't shrink in horror at declarations that your product is "lickable" while reaching out to guys who dwell at Wal-Mart? They're mutually exclusive markets. You can't exactly make the ickyPod, now, can you? (Or can you? Look at the colors on those miniPods, jeezus!)
So this is Apple's challenge, then: continue selling iPods as avatars of youthful upmarket hipness, while growing the business by shifting product to another market segment via a ho-hum go-between. Enter HP with plenty of succesful experience in being ho-hum...