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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."
Personally I think IPod is the stubble.
Take it from someone who's attempted to shave with their IPod. It is neither razor or blade.
I'm a big tall mofo.
It's really practical, even as a guy, to have a bag strapped over the shoulder- Unfortunately, guys never used to do that, because it's what used to be called a Man Purse which was considered pretty weird and goofy.
Then, out of nowhere, people started calling them messenger bags to link them with the cool, stylish image of a messenger courier- For no good reason, this now has enabled any guy to carry a shoulder bag while remaining "cool".
In the same way, it used to be a bit dorky to run around with a mp3-playing computer doodad in public even though it's fun and more practical than a CD player.
Apple leveraged their "coolness" to rebrand the uber-geeky mp3-computer into a fashion item, so that people can use a practical tool without feeling weird and goofy.
Could it be that the iPod is neither the razor nor the blade, and that the razor/blade business model doesn't apply?
Everyone talks about the iTunes/iPod bundling as being esential, but I'm sure there's lots of people like me who love the iPod, but could care less about iTunes
sorry 'bout the mess...
Why only make money on the razors or the blades when you can charge full price for both?
"Learning is not compulsory... neither is survival."
--Dr.W.Edwards Deming
Apple's strategy is very simple:
All inclusive high end computing.
Unlike most PC manufacturers, Apple did pretty much everything. Computer, Keyboard, Mouse, Printer, PDA, etc. etc.
Apple's advantage is their stuff works very well together (those legendary plug-and-play sinareo's). Not to mention it's easy to use, well designed, and very good looking.
Apple's plan with the iPod is just that: A simple to integrate, well supported music player on the Mac. Since most other mp3 players before the iPod didn't support the Mac.
Apple expanded to the PC industry simply because of the success and market.
Why sell music? Simply because it had the platform and opportunity to again, provide a way to easily and gracefully get good quality music onto your Apple product (see the simplicity theme?).
Apple had Quicktime, and you can bet DRM was in the works well before iTunes. DRM was the talk of the day around that time. Apple knew it needed a music player to rival winamp, and windows media player. Hence iTunes was born.
Digital photography became big. Unlike past trends, they used USB, and had a FAT32 filesystem, so the Mac was unoffically support on just about all. So what did they do? Created iPhoto, just to make life easy.
Apple's business plan is simple: be the high end quality product. All inclusive, all included.
I could ask you the same question...
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!
"There is more worth loving than we have strength to love." - Brian Jay Stanley
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.
Two wrongs don't make a right, but three lefts do.
Yeah, it's really bizarre. There are non-Apple-based movie stores that work just great and plenty of non-iPod portable players to watch them on (from Archos, Creative, etc.), but it's not interesting news until Apple is rumored to be doing it. Gimme a break.
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.
hang brain.
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."
l 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.
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_Month
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.
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.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
Now Apple sells:
- music consumption tools (AirTunes, iPod)
- music creation tools (Mac, iLife, Logic)
- a music distribution service (iTunes)
Apple doesn't seem to be making much money with their distribution service. Most of the money goes to the traditional labels because they have the content people will pay for.But if iTunes can be established as a music distribution service, Apple is in a very nice position to create a "Do-It-Yourself" label service whereby dedicated hobbyists can put their works into a real distribution channel. Apple takes less money than the traditional big labels but they get more money than being dealers of the big labels copyrights.
Of course, the big labels will abandon iTunes if they get a hint that Apple is becoming a content provider. But in two years time, who knows, iTunes may be a service that a big company couldn't back out from.
There might be hints of Apple doing the same thing with other content. They already have a wonderful set of video creation and consumption tools; once badnwidth grows they might compete with the video/movie distribution channels. And then move in toward being a content distributor/provider in the same manner as they might do with the music market.
As a fellow who remembers what a Steve Jobs Apple can do with absurd pricing models (e.g. late eighties mac and laser printer markets), I do still find it very exciting about the creative possibilities this could open up in music and video. I really hope Apple kind of succeeds in their challenge. What would be even better would be for a Libertarian/Open Source/Linux company to come in and do something similar.
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.
I post, therefore I am
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.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
I agree that there is a component of hype, that cannot be ignored or really even questioned.
But I don't think I agree with this part of your staement:
If we would compare devices on usability and features alone products like Apple's iPod and the Mac mini would not be able to compete with a lot of other products from manufacturers that aren't able to excel in marketing and hyping a product like Apple does.
Yes there are other music players. But if you consider the whole environement the player lives in, no other player has as compelling a usability case as the iPod/iTunes/ITMS. So even if you take away the hype (which can't really be done) then the iPod offers a compelling enough reason to own that it enjoys a significant level of base sales - and it is the significant base of reality behind the hype that keeps driving sales and also keeps the hype fed.
If you compare the Mac mini to other mini-ITx style solutions, again you have to consider the environment as a whole. I was looking at mini-iTx boxes before and was going to get one soon... but althoguh technically the Mac mini is just on par with many of these devices it also offers things like the ability to share songs purchased from ITMS, or view iPhoto libraries shared from other computers in the house. In short it leverages other networked assests in ways no other miniTX can match.
Of course if you've stayed away from that world then those reasons mean nothing to you - but even then you have the very compact size (smaller than other boxes I was looking at) and quiet nature as well that I think make it a compelling purchase on its own merits, even without the network effect from other uses it might have that other boxes cannot match. So again there is a level of sales that is based on fundamentials and not just hype (thoguh I agree that since a lot of the inital sales are sight unseen the element of hype is more at play to start with than for other products). Ovewr time if the Mac mini does not deliver, hype alone will not sustain sales and you will see it fall. I think the Cube had a lot of hype as well but that ended up falling flat, in ways I think the Mac mini does not.
Just to show I'm not a total Apple tool, I'd like to close with the consideration that I do not think the iPod photo will be that big of a seller - there's a lot of marketing and hype behind that, but fundamentially it's just a thicker color iPod with good battery life and the photo bit is a part I don't think a lot of people will end up using much. So I think sales of that device will be flat, mostly driven by people that like the extra storage.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
If you read some forums like xlr8your mac (or whatever it is) people are expirmenting with ways to play back HD video on 1.25GHz powerbooks (roughly the same as the Mini), and have got it working for at least 720p. The Elgato software simply does not use the video card for acceleration at the moment which is why the requirements are off the chart.
Even true 720p support from movies is a step up from the 480p current non-upscaling players provide. An online movie store does not have to be 1080i, a lot of people would think 720p was pretty good.
However I agree with you that I do not think Cringley has a very good pulse on what Apple is doing. I don't even think Apple released the Mac mini with any thought to it being an HTPC as it stands right now, and tend to agree an online mvoie store would be targeted at least at a next generation Mac mini.
I just happen to think that it's capable of the task right now with a bit of persuation and there are so many people that want that to happen, that it will (not the Apple store part but the Mac mini as HTPC part).
"There is more worth loving than we have strength to love." - Brian Jay Stanley