Is iPod the Razor or the Blade?

Kelly McNeill writes "Robert Cringely has another update to his 'I, Cringely' series. In this piece, Cringely analyzes the business model of the iPod and how it compares it to the age old, marketing 101 'give away the razor and make money on the blades' business model. In his editorial, he demonstrates that Apple one-upped Gillette by making money on both blades and razors. The article is structured in a back and forth dialog with one of his readers who provides a very interesting analysis of the direction that Apple will be going with its rumored movie download store and how it relates to the Mac mini. On the same note, osViews has an editorial about Apple's direction in the movie download business as well, which suggests that there is evidence to suggest that Apple will use satellite networks for its Movie download store."

Comments

I, Cringe

[Anonymous Coward]

If Slashdot (aka michael) is going to post everything Cringely writes, could you at least make him his own section so I can exclude it? If I wanted to read his "insightful commentary on technology" I'd visit his site.

Do we still like Apple?

[Anonymous Coward]

I must have missed the memo. I thought we were still fawning over Google.

Get it coming and going

[EvilTwinSkippy]

Why only make money on the razors or the blades when you can charge full price for both?

Re:Neither?

[EvilTwinSkippy]

Amen.

A better analogy would be a CD player and CD's to feed them. Or a casette deck and tapes to feed them. And note that the "cheaper" element isn't a comodity, it is an intellectual product.

People really have got to stop thinking there is only one operating system, one economic system, one religion, and one business model.

Basically...

[Richard_at_work]

So basically, Apple has two products (iTunesMS and iPod) and is making money on both of them? Are we supposed to be shocked and appalled or something?

Right.

[0x20]

Because every time Apple does something, it's always the first time in history that it's ever been done. Or if it's not the first time, somehow they did it better.

Totally inappropriate analogy

[SuperKendall]

The thing is, the whole razor/blade analogy just doesn't fit at all no matter how you look at it.

Fundamentially, what you have is a set of products. Each makes some money (varying levels of margins), each helps to sell the others. This includes the whole realm of Mac products, as iPods help sell computers help sell computers help sell iPods. And the whole set of items in turns helps sell branches of accessories.

So really to say that one product helps sell the other is seeing only half the picture, it's ignoring that each product is built to support an interconnect with as many other products as possible. That's the recipie for Apple's sucess, just try to make products that fit into easy use with as many other Apple products as possible. Thus the combination flashdrive/music player nature of the Shuffle. And it even makes the iPod photo make more sense (from the Apple point of view) since it integrates with various parts of the iLife package that the older iPods did not. I was actually rather surprised the iPod photo did not also display slideshows from Keynote which would have made a lot of sense.

I'm not really sure what kind of analogy you can draw from this as I can think of few other examples with such a wide variety of products that do such a good job of supporting each other. Where any one product (even just the ITMS) is such an avenue to being sucked into the world of other supporting products. Perhaps other people can think of good examples from the past.

All I can say at the moment is that Apple is most like itself!

Difference between Apple and Gillette

[G4from128k]

There is no surprise why Apple does not need to use Gillette's strategy. The difference has to do with intrinsic and perceived value. First, whereas a Gillette razor handle is useless without a Gillette razor blade, an iPod is immediately useful with ripped CDs, MP3s, etc. iPod preceded iTunes download service and people where willing to buy iPods without the download service. iPod and iTune do complement each other, but not in the same obligatory way of razor handles and razor blades. Second, Gillette had a problem of lowering the hurdle of adoption -- people refused to buy the razor handle at full price not knowing if the new shaving system would work for them. In contrast, Apple's reputation for "stuff that just works" meant that they had no such hurdle. Apple fanatics would buy iPods sight unseen, tell the world, and drive adoption without Apple needing to discount the initial price of the player.

If anything, Apple's strategy is the reverse (TFA points this out) -- making little or no money on music and enjoying handsome margins on the hardware.

Re:A Better Analogy: iPod=Messenger Bag

[christopherfinke]

Although both statements have the same technical meaning, they have different implied meanings (to me, anyway). The first says that people who had iPods were the exception and were cool for it. The second statement says that people who don't have iPods are now exceptions, and are uncool for it. (Even if the grandparent poster meant to say that "Now, you aren't cool if you have an iPod," which is how I initially read it.)

Meh...

[kotj.mf]

Is anybody else sick of hearing about the Transcendence of Gadgetry?

I mean, Apple (and the drinkers of its Kool Aid) are probably more guilty of it than anybody else, but I see it all over the place.

I like toys as much as anybody, but that's all they are to me: toys. It's been said over and over again to the point that it's now becoming trite, but these days, you're defined by what you buy. I never really got it until I noticed the market for knitted iPod cozies and lameass journalists who do nothing more than feed the marketing machine.

We live in an age where most of the popular music sucks, the art is derivative, the churches are shills for either the GOP or NAMBLA, and people don't care what kind of horseshit the politicians shove down their throats, so long as they can buy it at Chipotle while dowloading ringtones.

If I ever start waxing obsessive about my Zaurus, please punch me in the face.

Maybe I'm getting old. Or maybe I'm just bitter that I'm currently too broke to afford most of these pleasant diversions. Whatever.

Re:How about neither?

[the_2nd_coming]

umm... how about setting up a single library file that all people can access on the network... just give everyone permissions to the folders and the XML file...duh.

or you could turn on library sharing!!! OH MY GOD!!!!

Re:How about neither?

[the_2nd_coming]

umm... try shrinking it... it has a player mode that makes it nice a small for ya.

A word on Netflix.

[ryantate]

In this article, the columnist gets into a discussion of the Mac mini as "the Netflix killer," writing, "Apple has eliminated the most costly part of the NetFlix model while maintaining all of the good pieces."

First of all, this is factually wrong. I just pulled up the Netflix 8-K annual report, which clearly shows annual DVD costs of either $103 million or $80 million (depending on whether amortized) and annual "fulfillment" (postage and packing) cost of $56 million.

Second, while I agree the mini Mac is a promising digital video dellivery device, it is not a NetFlix killer. The smartest thing about NetFlix is not the great delivery and rental model, but the way it exploits copyright law. Once Netflix has purchased a DVD, assuming it does so at full price outside of a special contract it enters, it is allowed to rent/loan that DVD out an infinite number of times. That battle was fought and won on its behalf by the VHS rental industry long ago.

What this means is that Netflix is happy for you to cycle through loads of different DVD titles every month, so long as postage doesn't eat too deeply into its profit margin. Essentially, its product is postage bound, not copyright bound, which is a fantastic position to be in.

Any digitally streamed movie product from Apple, however, will almost certainly be copyright bound. Unlike Netflix, Apple will need special agreements to cover every movie it delivers. The easiest sell to movie studios is an a-la-carte movie purchase system like the music on iTunes. They then need to keep the cost per movie underneath Average_Netflix_Monthly_Fee/Average_Netflix_Monthl y_DVD_mailings to be competitive, but that's not all. They have to be cheap or fast or cool enough to ALSO justify the purchase of a new computer and/or the hassle of hooking a digital video stream up to a consumer television.

The other model for Apple is a monthly subscription with all-you-can-watch streams, possibly combined with the a-la-carte model to attract the greatest number of users. But this will be, in my estimation, a very tough sell to the studios, and even if you get it up and running, it would need to be first price compeitive with Netflix and second sufficiently cooler to justify the cost and headache of connecting the TV to a computer and possibly buying a new computer.

Re:A Better Analogy: iPod=Messenger Bag

[hondo77]

For no good reason, this now has enabled any guy to carry a shoulder bag while remaining "cool".

No, it hasn't. Somebody's been pulling your leg. Now take that thing off before someone notices.

Makes the same mistakes as other critics

[SuperKendall]

Many of Apple's critics seem to feel that Apple only sells products because the are "hip and Cool".

Why not open the mind to the reality that Apple makes some damn fine products that really do make some things people like to do easier? It's a chicken and egg situation, how did Apple manage to sell any iPods before they became "hip and cool"? Perhaps the reality is part cool but a large part is also devoted to usability. Swatches were "cool" too, but how many swatches do you see now? The iPod has been successful long enough that I think you can rule out mere fad for the reasons behind its success.

Take that guy in the story with the iPod asking if anyone else owned one. For people that like listening to music, the iPod and iTunes combo is an excellent tool to get you music you like when and where you want it. When people think it's odd you do not have an iPod, it's the same way that people might think you odd for not having a car - not because it's hip or cool to own a car, but because the car (and the iPod) are useful tools to help you do more than you'd be able to otherwise.

If the Mac mini sells really well (and I think it will) it's not just because it is cool, but because it's a very practical computer for all sorts of uses and just happens to have gotten a lot of things right. Yes mini-ITx was there first. But Apple put it in a package a lot more people (beyond just the PC elite) could take advantage of. In a way the great thing about the Mac mini is not how cool it looks on the outside - it's that it's small and quiest enough to be HIDDEN from sight and blend into the background. Which is where computing wants to go in the first place and flys in the place of a "cool" device, which must be "on display" to show how cool you are.

Analogy not applicable

[gumnam]

The razor-blade analogy is not really applicable to iPod-iTunes.

Blades are *essential* to use the razor. And blades get consumed and have to replaced. And Razor by itself has no purpose. Its the blade which provides the value/service

iTunes is not essential to use the iPod. iPod by itself provides the value/service to the owner. That explains the high margins on iPod.

iTunes is not consumable in the sense that the songs you download dont become unusable (Though their entertainment value or may go down)

In my view razor-blade analogy does not apply to iPod-iTunes at all.

Re:Analogy not applicable

[jerkychew]

To extend your statement a bit, another reason that the Gillette blade is essential to the handle is that it is the only blade that will work with that razor.

Other services work with the iPod. Sure, they may not be as easy to configure for your iPod as iTunes is, but they're not impossible to use. It's a lot easier to use an iPod with Napster than it is to duct tape a Schick blade to your Gillette Mach 3 Turbo.

However, the analogy was close: If the iPod is the razor, then the interface is the blade. You're not necessarily paying for an ipod per se, you're paying for the experience of the user interface. Same with iTunes, and the same with the Mac. This was always Apple's cornerstone: Don't sell the hardware, sell the experience. But make the hardware so tied to the software that users were forced to pay inflated premiums just to get to The Experience.

What's funny is, that has been Apple's strategy for the past 20 years (at least, the years under Jobs). But it's never really worked out... Other manufacturers came along and produced a platform that, while it wasn't as elegant as the Mac Experience, it still got the job done for far cheaper.

Here Apple goes once again, with the same strategy. But this time they've learned what to do: Corner the market on the most important part of the business - The content, and produce hardware that has a unique, slick experience, and is still somewhat competitive with other manufacturers' prices.

In essence, Apple is doing what Microsoft did 15 years ago with the PC platform, while still retaining the Apple Experience that it so holds dear. Apple's razor has always been its experience; it's just taken them 20 years to bring it to market effectively.

Re:Analogy not applicable

[Ohreally_factor]

Interesting, if confusing, idea.

Perhaps what confuses me is the mixing of term. You say that Apple is selling the interface or experience. OK, I can accept that equation. interface = experience. Not a stretch.

Then you say that Apple has a corner of the market in content. If you mean that they have a corner in the market on songs, clearly this is incorrect for a variety of reasons.

So you must mean something else by the word content. Are you making a third equation, or redefinition, where content = interface = experience? This is my best guess as to what you mean.

If this is the case, then I think you are wrong on this specific point as well, as all the other MP3 players and all the other online music vendors must also have interfaces for their products to work.

Perhaps our difficulty in understanding this is that interface, or more generally experience, is not fully commoditized. There is room for qualitative differences, and the market itself shows that there is a great deal of value in these qualitative differences. People will pay a premium for the qualitative differences in an Apple product, whereas they probably wouldn't if Apple was selling a true commodity product like coal. Would you pay more for Apple branded coal if there was no true difference between it and other brands of coal? (This question assumes you're a normal person, and not the stereotype of an Apple fanboi.)

If nothing else, I think this points out that computers have not yet reached the stage of being a true commodity, and possibly never will. I won't argue that certain component have become a commodity, but so long as it's people using computers, there will be a segment of the market (people who use computers, oddly enough) that will choose their computers based on qualitative differences. If this were not so, we wouldn't have a variety of linux distros, nor a variety of interface choices on linux (KDE, Gnome, X11).

One of the things "holding linux back" from becoming a commodity OS has been this richness of qualitative difference, whatever one might argue about marginal costs.

I believe Jobs was working toward QuickTime/MPEG4

[alfredo]

as the format for the movie industry. Instead of film in a can, movies would be transmitted by satellite to theaters. Looks like it will be to the home to the Mac Mini.

Re:For sure the Razor

[Anonymous Coward]

Apple is a household name now... Before it wasnt.

You're fucking kidding me.

Apple's been well known since the '80s, and only people who care about computers even knows what a Mac mini is. The rest of the world (A *very* big chunk of it) doesn't give a shit.

Believe it or not, most of the world doesn't revolve around Apple.

Re:They also do things worse...

[the_2nd_coming]

wtf? all of apple's drives have eject buttons they are fucking ATAPI IDE drives you buy in a store... the difference is in that you have to unmount your CD in an apple computer by clicking eject or trashing the CD... you are not serious that you actually used the paper clip in the manual opening system to open the optical drive are you? are you a fucking retard?

Tool or Toy

[SuperKendall]

There is indeed a fine line between a tool, and a toy.

For me, the iPod is a tool - because it lets me do things I would not practically be able to do otherwise and frees me from some efforts on my part.

In particular what I really use my iPod for is to listen to music in my car. So for me it has replaced the need to constanly move CD's around, and the damage involved to them (I had a cd player in one car that if a CD was ever so slighlty thicker than standard, would leave a huge gogue straight across the surface).

To me not listening to music in the car is not really an option. And since radio stations pretty much have poorer selections than a single CD, the iPod makes an excellent tool to replace both radio and CD in one fell swoop and give me more time for other things.

So I would say, if there's something you do all the time anyway, and a device makes that thing in some way better - then it is a tool, not a toy.

You can also reverse the process for other things. Take a table saw. Tool, right? Possibly, but a lot of people buy them just because they are big and cool and then hardly ever use it. So, I would submit that it is a toy and not a tool for many people. People are even quite happy to admit this because it is "cool" to own large power tools.

So, it should not be so surprising that some things that might seem like toys are really tools to some people, which is why they get offended when you claim that it is in fact a toy.

The excitment comes from...

[SuperKendall]

The exceitment over an Apple Movie store comes not from them being the first to do so, it's that they have a track record of opening media stores that people actually use.

How many sales do you think MovieLink gets per month? How many do you think an Apple version of the store might get?

Now the technical reason behind the potential for an Apple store succeding comes not from any hardware, but from Apple's ability to talk media companies down off the ledge of DRM. Somehow, they talked big companies into releasing music you could actually share (in a limited way but with limuts that did not impede the way most people use music), tranfer to portable devices, and even burn to CDs! Becauses all online stores now support these abilities it does not seem like a big deal but consider what any other mainstream online music store at the time was allowing you do to. It was a shambles of arbitrary DRM restrictions.

So the possibility here is that an Apple movie store would let you actually buy a movie online, instead of what Movielink lets you do. That means you could burn it to DVD, or transfer it to your laptop for a flight. Can you use Movielink movies detached from the network? I doubt it very much, as I am almost sure it needs to talk to a licence server from time to time.

It seems really unlikley that any studio is going to let you burn a DVD from a downloaded $5 movie, doesn't it? Hard to imagine really. Yet Apple pulled something similar before and people are hoping they can do it again.

Personally I have no idea if they are even planning such a store, and not sure how interested in it I would be. But I do know if it's just a download rental restricted scenario, I'll stay with Netflix thanks. And I don't think the store would be much of a success in that case, no matter who is behind it (just like Movielink).

However I really can't see that Apple would be interested in opening up a store that was just like the others around, there would be no reason to use that store instead of any other. And Apple if nothing else likes to announce products with a twist, so you know if there's going to be a movie store there is some twist they feel is enough to make it compelling in ways online movie stores right now are not.

Re:Meh Indeed

[DLWormwood]

We live in an age where most of the popular music sucks, the art is derivative, the churches are shills for either the GOP or NAMBLA, and people don't care what kind of horseshit the politicians shove down their throats, so long as they can buy it at Chipotle while dowloading ringtones.

First off, I'm a long time Mac user and software developer, so by rights I should feels some kind of satisifaction from seeing Apple "transcendant" again. That said, for all you people talking about iPods as if it was the greatest thing since sliced bread and how the Mac mini can usher in a new age of media convergence...

SHUT UP!

I'm getting sick of this... the Mini was the "iCheap" that people wanted just to be, well, cheap. It's not a flying car or a Mr. Fusion; it's just a computer. And the iPod is just about music, not science or medicine. The fawning idolitry I'm seeing here lately towards Apple is making me sick, even if it is making easier for me to get a paycheck nowadays. I can't believe the excessive rumors and pie-in-sky conjecture around Macs that I've seen over the last few months...

</RANT>

bittorrent? yeah right.

[Anonymous Coward]

coming on the heels of the "long tail" article (which said that more than half the money to be made in digital media is on the stuff nobody buys), bittorrent falls on its face as a distribution medium. if you only have 2 other people who want to watch "vampire sluts from outer-space", bittorrent is going to suck serious ass.

once again, cringely misunderstands a technology, while expounding it to the heavens.