Slashdot Mirror
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
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.
Yeah, because no one at Apple would ever think of putting a stipulation in the contract to bar HP from undercutting Apple ...
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.
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.
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.
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.