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OCTOBER 22, 2003
By Charles Haddad Apple's Bridge to Tomorrow Its iPod music player is truly becoming a whole new platform, independent of Macs or Windows. That's giving Jobs & Co. new life Steve Jobs is not one to readily admit error. But with the iPod, he's copping to a big one. In pushing Windows compatibility for his portable music player, he's making a backhanded acknowledgement that he screwed up big-time in the early 1980s. Back then, he insisted that the Mac OS remain a closed system, that the mountain of consumers and computer makers come to Mohammed. Instead, the mountain went to Bill Gates, who adapted the best features of the Mac OS for Windows. Then Gates and Microsoft (MSFT ) basically gave Windows away to computer makers if they agreed to use it exclusively. We all know how well that worked. With his iPod strategy, Jobs is saying, in effect, never again. This time, he's going to the people rather than sitting back and waiting for the people to come to him. The iPod has been Windows-compatible since July, 2002. Apple (AAPL ) enabled Windows users to transfer and manage their iPod music files through the MusicMatch software that's installed on at least 40 million PCs. The strategy sounded better than it worked. MusicMatch functioned crudely compared to Apple's own iTunes, and at the time I feared yet another failed attempt by Apple to cross the great divide between platforms. But I soon found that my fears were misplaced. In the class I teach at Emory, I overheard a bunch of students lovingly fussing over an iPod. LEGIT BUSINESS. These same students had complained bitterly about having to use Macs in my writing lab. Most of them had grown up on PCs. Why their sudden change in heart now? Simple, they told me: The iPod wasn't a Mac. It was something new -- and wonderful. Granted, MusicMatch "sucked" as a file manager for the iPod, but that was no biggie. They simply tracked down freeware that worked better. Nothing would come between them and their iPods. As these students unwittingly attest, Jobs has created a new platform. Since the iPod's introduction in October, 2001, Apple has sold 1.4 million of the digital music players, representing 31% of the market. How many of those buyers were Windows users? Analysts estimate that at least 50% of them. That's astounding considering that Apple has less than 5% of the overall PC market. And the hits keep coming. Mac and PC users alike have so far downloaded 13 million songs through Apple's iTunes software. That's a paltry number compared to the tens of millions of files stolen through piracy over the years, but clearly enough to make a legitimate business out of digital music. NEW PROMOS COMING. Indeed, the iPod and iTunes are starting to remake Apple. In the fourth fiscal quarter, it sold 336,000 iPods, generating $121 million, 7% of the quarter's revenue. In comparison, Apple's consumer laptop model, the iBook, took in $154 million, representing 9% of revenue. If iPod sales continues to grow at this pace, it's not inconceivable that iPods will outsell iBooks a year from now. Certainly, Jobs is building for that day. Last week he launched a Windows version of iTunes. It's off to a strong start, with Apple reporting some 1 million free copies of the software downloaded already. Interest should grow even more in coming months, thanks to two big promotions: AOL (TWX ) has agreed to embed iTunes as part of its own online music services. And Pepsi (PEP ) is giving away 100 million songs on bottle tops, beginning Feb. 1. The bottle caps entitle users to pick any song from the iTunes collection. Still, imitation is the surest sign of success, and again it threatens to swamp Apple. MusicMatch and BuyMusic have both recently released iTunes knock-offs. Roxio is preparing to release a Napster-branded online service at the end of October. It would be easy to panic at this onslaught. But Apple is not without advantages. It was first to market with a consumer-friendly download service, and the iPod is still the leading MP3 player. CROSSING OVER. Equally important, I think, are Apple's deep ties with the music industry. Musicians have long preferred producing music on Macs. A bond exists here that no one -- especially Napster, with its contentious history with the labels -- can match. Indeed, Jobs has already skillfully used that bond to win freer rights to copy and transfer digital music than other online services -- and those rights are key to iTunes' popularity. Super Bowl 2004 marks the Mac's 20th anniversary. Wouldn't be ironic if the New Year also marked Apple's successful crossing of the platform divide, with the iPod serving as the bridge? I believe the iPod will become the product that defines Apple, its Mac of the 21st century.  Haddad, Atlanta-based correspondent for BusinessWeek, is a long-time Apple Computer buff. Follow his weekly Byte of the Apple column, only on BusinessWeek Online Edited by B. Kite
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