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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."
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?
Warning: Do not shave with iPod Shuffle.
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.
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.