I have just finished reading an opinion piece that, even by the lenient standards of opinion pieces, does a severe injustice to Apple, Inc.

The sensationalist attack starts with the article’s title: “The Pusher of Cupertino.” The author, James Daley (who apparently works for The Independent newspaper of the U.K., though the piece appears on the MacNewsWorld Web site), goes on to speculate that Apple sabotages its iPods with software updates with the intent of disabling them.

His sources for this very serious accusation are the unfortunate iPod experiences of his wife and the anecdotal stories of friends and people on unnamed Internet forums. No facts, figures or studies, despite his claim of a “growing body of evidence.”

Daley even admits in his first sentence that “there’s no solid evidence that Apple deliberately kills iPods through software updates,” but the entire piece is predicated on the assumed truth of that allegation.

He is upset because his two-year-old iPod has started to malfunction. His wife has had several iPods, including a 30 GB fifth-generation model that went south.

Meanwhile, her iPod Nano still works fine despite being over two years old because, Daley implies, it has never been synced with a computer. According to his theory, syncing iPods exposes them to the deadly software updates.

Oddly enough, Daley says that despite his suspicions about Apple, he will almost certainly buy another iPod because he “loves” it. But he again faults Apple. The allure of the iPod has seduced him beyond reason: “Even though I know I should take my business elsewhere, it’s an addiction.”

Another 30 GB iPod his wife bought “never-used” almost immediately began having issues. “Short of it being a defective unit, the only obvious explanation was that it was struggling to get to grips with the newer software,” Daley says. How could he be certain his wife simply didn’t receive a defective unit, a considerably more obvious explanation than his software sabotage theory?

I happen to have a 30 GB fifth-generation iPod that I bought in January 2006. I sync it with my Mac frequently. I install every software update. Yet it still works.

I’m not saying my experience proves anything, but neither does Daley’s. I can’t say with certainty Apple is not sabotaging iPods to get people to replace them with new ones. After all, the company did brick unlocked iPhones. But as a journalist I’d need solid proof before I’d accuse a company of this degree of wrongdoing.

Perhaps a significant percentage of iPods do fail after two years. But how many last three years? Or four?

For that matter, what’s the failure rate of competing MP3 players? Better than Apple’s? Worse? The same? Daley offers us no data, just unsubstantiated opinion.

I too have read complaints that iPods don’t last much longer than two years, but I haven’t seen any research that gives hard numbers on what customers can expect. And I certainly have never read any suggestions that Apple is deliberately killing iPods.

There’s usually nothing wrong with offering up some opinions based on anecdotal evidence. You want to complain about the shorter-than-expected life span of your iPods, fine.

But Daley is accusing Apple of a criminal act. I think that calls for stronger facts than his wife’s conspiracy theories, his friends’ problems and some rants he read in a few Internet forums.

Posted by David Zeiler at 2:29 AM | Permalink | Comments (12)
                    

Not only are Apple’s three primary businesses each doing extremely well, but each retains significant potential for growth, Tim Cook, the Cupertino company’s chief operating officer said yesterday.

In a wide-ranging question-and-answer session at the Goldman Sachs Investment Symposium in Las Vegas, Cook fielded queries about “missing” iPhones, the possibility that the iPod market has become “saturated,” why the Mac’s market share has seen explosive growth and what Apple hopes to achieve with the Apple TV.

Much of what Cook had to say wasn’t new, although it was far more engaging than the sleepy, redundant comments he and CFO Peter Oppenheimer serve up to analysts during those quarterly earnings conference calls. Frequently he sounded very much like the Apple cheerleader he is paid to be, but at times Cook offered clues about Apple’s broader strategies.

Let’s look at what Cook said by category (he switched among topics frequently during the session, which you can hear for yourself here):

The iPhone: Cook said the iPhone has received the highest customer satisfaction ratings of any product Apple has ever shipped, a notable achievement for a company that routinely scores very highly in customer satisfaction.

When asked a question that has been buzzing on the Web for weeks – what’s become of the million or so iPhones Apple said it has sold but have never been activated – Cook acknowledged most of them have found their way to countries in which the iPhone is not yet available.

Without addressing the shared revenue Apple loses from its partner carriers when an iPhone is unlocked for use on another network, Cook said the company “smiles” at the problem. “It means there’s great demand for the iPhone,” he said.

The company will apply the lessons it has learned from selling the iPhone in the U.S. and three European countries as it proceeds with plans to expand availability of the product elsewhere in Europe and in Asia this year, Cook said.

Most intriguingly, he said Apple is not “married to any business model,” suggesting Apple could deviate from having one exclusive carrier per country. Cook explained that different market conditions could require a “different business model,” and in some places “being exclusive might not be in our best interests.”

This may be the first public indication that Apple is considering different approaches to the iPhone-carrier model, at least in some nations. However, Cook only had nice things to say about Apple’s relationship with AT&T, a disappointment to those hoping for a re-evaluation of the exclusivity deal in the U.S.

Cook indicated Apple expects the issue of unlocked iPhones to diminish as the device becomes available in more countries, and ominously hinted at a “series of actions” aimed at thwarting iPhone hackers (presumably those unlocking it, not those installing software on it).

Better news for iPhone owners was Cook’s frequent references to the week-overdue announcement and release next Wednesday (March 6) of the iPhone SDK, which will permit developers to write software legitimately for the iPhone and iPod Touch.

The iPod: Cook reiterated Apple’s position that the iPod Touch is a fresh platform for the company and that developing that platform is a priority. He artfully answered a question about flat iPod sales in the holiday quarter by pointing out that while unit sales increased by only 5 percent, revenues increased by 17 percent, primarily due to the higher margins on the iPod Touch, introduced only last fall.

Meanwhile sales of the low-end, lower margin Shuffle slipped 17 percent worldwide. Cook said Apple cut the price on the Shuffle to $49 Feb. 19 because “we believe there’s elasticity in the market,” whatever that means. He added that the price drop should boost sales a bit in “emerging markets” (such as China and India) as well as in the U.S.

The Mac: “The ceiling for the Mac is nowhere in sight,” Cook said in discussing the Mac’s market share. He noted that Apple sold 7 million Macs in a PC market of 260 million, leaving a lot of room for further growth.

In responding to a question asking why the Mac has become more popular with customers – he said the platform grew 44 percent in the last quarter alone – Cook described the Mac’s gains as “almost a movement.” He continued: “I think it’s gone, in many people’s minds, to asking not why buy a Mac, but why not?”

He cited two statistics showing the Mac’s resurgence in the education market. One was Student Monitor’s annual survey of college students conducted each summer asking which type of computer they planned to buy; this past summer those who said they were buying a Mac rose to 44 percent, 20 points higher than the previous year. Cook gave no source for the second statistic but said the company learned Monday that “Apple has surpassed Dell as the number one supplier of portables to higher education for 2007.”

Apple TV: Cook waffled a bit on the Apple TV, last year described by CEO Steve Jobs as a hobby and the low sales of which led to some Apple critics deriding it as a failure. “We say no to a lot of things,” he said in explaining why Apple expended resources on developing Apple TV. “We do products where we can make a difference and where we control the primary technology.”

Later Cook acknowledged Apple TV is a “niche product,” but said the company thinks that “something cool cold come out of this product.” He essentially admitted the company had erred in treating video like music, expecting customers to buy video as they buy music at the iTunes Store.

Somehow Apple missed that most people watch movies just once and would rather rent than buy them (wasn’t Blockbuster a big enough hint?) The availability of movie rentals combined with the recent changes to Apple TV – essentially releasing it from the bonds of the PC so it can download movies directly from the Internet –sets up the video realm as “an area that could be big for us,” Cook said.

Posted by David Zeiler at 4:58 AM | Permalink | Comments (8)
                    

Starting in March, Baltimore-based Polk Audio will be selling two of its iPod-related products in the Apple Store – both the online version and the brick-and-mortar mall outlets.

Baltimore area audiophiles have long known of Polk Audio, which makes speakers and an assortment of other audio equipment. Of course, in the 35 years since its founding Polk has become a nationally and even internationally known brand name.

According to an article in This Week in Consumer Electronics, the two Polk products “are the I-Sonic ES2, an iPod-docking iTunes tagging tabletop stereo with HD radio and the miDock Studio, a portable AC/DC iPod speaker.” The I-Sonic will cost $499 and the miDock Studio $229.

Stereophile magazine noted that getting Apple’s blessing to be carried in its retail outlets means the products have met Apple’s “Made for iPod” (MFI) criteria. Stereophile quotes Apple Senior Vice President of Worldwide Product Marketing Phil Schiller explaining that the MFI program “seeks to formalize how accessory makers work with Apple – while also preventing consumers from getting stuck with knockoff products that don’t perform as advertised.”

Knowing Polk’s fine reputation, it’s no surprise it earned Apple’s stamp of approval.

Posted by David Zeiler at 7:14 AM | Permalink | Comments (0)
                    

“For some users, there’s never enough memory,” Greg Joswiak, Apple Vice president of Worldwide iPod and iPhone Marketing, said in yesterday’s press release announcing memory-enhanced versions of the iPhone and iPod Touch.

Apple is banking on it.

The new model of the iPhone boasts 16 gigabytes of storage capacity, twice that of the existing iPhone. The catch: you’ll pay a $100 premium for that extra 8GB of memory. Apple will continue to sell the 8GB version for the same price, $399, with the new one going for $499.

The iPod Touch got a similar upgrade. The existing 8GB and 16GB Touches do not otherwise change and will be sold at the same prices ($299 and $399) while a new 32GB model will go for $499.

Here we see Apple applying a lesson it learned with the introduction of the iPhone last year. Recall that originally Apple sold a 4GB model selling for $499 and an 8GB model priced at $599. Just two months later came the infamous $200 price cut on the 8GB model and the elimination of the 4GB model, which wasn’t selling nearly as well.

Apple learned that 1) the original iPhone price was too high and 2) most customers willing to buy a premium mobile phone also were willing to pay an extra $100 for the model with the most storage.

Fast forward to yesterday. Instead of following the pricing strategy it typically uses with new Macs and iPods -- offering beefier specs for the same price as the models they replace -- Apple is offering static prices on existing models while counting on the extra memory to entice customers to fork out $100 more.

Silicon Valley Insider did some math based on iSuppli’s breakdown of the cost of the iPhone’s components and calculated the 16 GB iPhone will reap a profit of $201 versus the 8GB model’s $141. (I’m ignoring the AT&T contract factor, since it provides the same profit in both cases.)

On one hand, this move is good for Apple as a company and good for AAPL shareholders because it gooses the iPhone’s profit margins. But it stinks for customers, who aren’t really getting $100 worth of added value with the new models. Flash memory is not that expensive. Silicon Valley Insider surmised that Apple’s profits could be even higher than its estimates, assuming that flash memory prices have dropped further since iSuppli did its analysis last July.

Why might Apple do this? I’m guessing that the ever-growing number of unlocked iPhones – for which Apple does not collect any revenue from a service contract with one of its partner cellular carriers – has thrown the strategic planners in Cupertino for a loop.

Apple has tried bullying customers to preserve that lost revenue by bricking unlocked iPhones with software updates. But that was a public relations catastrophe. Perhaps fearing damage to its relationships with its partner cellular carriers, Apple also has passed on another option -- selling unlocked iPhones at a higher price.

Beyond the problems with preserving high profits, Apple’s lofty goals for making the iPhone/iPod Touch into “the first mainstream WiFi mobile platform” means it needs to sell a lot of both in 2008.

So we get new models with premium prices based on a solitary improvement (albeit an alluring one) provided by a component Apple can obtain increasingly cheaply.

Small wonder Apple’s customers sometimes can’t decide whether they love the company or hate it.

Posted by David Zeiler at 10:42 AM | Permalink | Comments (8)
                    

The Mac’s resurgence will continue over the next several years, according to Gartner research, resulting in the platform’s doubling its market share in the U.S. and Western Europe by 2011.

That prognostication led off Gartner’s list of 10 key predictions for the tech industry the firm released yesterday. While crediting Apple’s business model for much of the Mac’s success, Gartner notes that “failures” of Apple’s competitors also are playing a part. Here’s what the company had to say:

“By 2011, Apple will double its U.S. and Western Europe unit market share in computers. Apple's gains in computer market share reflect as much on the failures of the rest of the industry as on Apple's success. Apple is challenging its competitors with software integration that provides ease of use and flexibility; continuous and more frequent innovation in hardware and software; and an ecosystem that focuses on interoperability across multiple devices (such as iPod and iMac cross-selling).”

Gartner has figured out what veteran Mac users have known for years. The Mac’s ease of use holds great appeal to people who just want a computer that does what it’s supposed to do. That demographic includes most home users, which is where the Mac has made most of its gains.

Gartner doesn’t name names after citing the “failures of the rest of the industry,” but it’s obvious the primary guilty party is Microsoft. Dashing expectations after years of anticipation, the latest version of Windows – Vista -- has met resistance in its first year of release. Many PC vendors, including Dell, had to start offering XP as an option on new PCs.

But the Gartner statement hints at more than the PC industry’s missteps; if you read between the lines, it’s also an indictment of the PC business model. That would be the chaotic system in which one company makes the operating system (Microsoft) while many others build the hardware (Dell, HP, Lenovo, Acer, Toshiba, Sony). And that doesn’t include all the third-party peripherals that may or may not work with your Windows PC.

Apple has long endured criticism for its vertical integration philosophy. “If only Apple would open up its hardware and software, it could compete and gain market share,” they would opine.

Of course, Apple did allow clone making briefly in the mid-1990s, but instead of growing the Mac’s market share the clone-makers gobbled up Apple’s best customers. Steve Jobs killed that bad idea shortly after his return in 1997.

Now Gartner is lauding Apple’s “software integration” and its “ecosystem that focuses on interoperability across multiple devices.” Apple’s ability to integrate its hardware, software and peripherals is what makes it all work so well. Somebody finally gets it.

One other prediction on Gartner’s list also bodes exceptionally well for Apple. By 2012, the company predicts half of traveling workers “will leave their notebooks home in favour of other devices.”

Gartner explains that workers will tire of notebooks’ size and weight: “Vendors are developing solutions to address these concerns: new classes of Internet-centric pocketable devices at the sub-$400 level; and server and Web-based applications that can be accessed from anywhere.”

Again, Gartner does not mention any names. Can you think of any devices that fit the criteria? Name begins with an “i”? Yep, the iPhone fits the bill perfectly, right down to its $399 price tag. But the $299 iPod Touch, particularly with its newfound software capabilities (mail, maps, weather, notes and stocks), may fit the bill even better.

Apple knows it and is already poised to exploit it. CFO Peter Oppenheimer referred to the iPod Touch as “an entirely new type of iPod” in his comments during Apple’s earnings conference call last week. “This new iPod has the potential to grow the iPod from being just a music and video player into being the first mainstream WiFi mobile platform running all kinds of mobile applications.”

While other companies surely will be competing in this space, Apple is the best equipped to make it work as people will expect it to work; its expertise in hardware-software integration will prove an immense advantage here. In a few years, the iPod Touch, along with the iPhone, could completely dominate this sector.

Just FYI, AAPL closed at $133.75 today.

Posted by David Zeiler at 6:29 PM | Permalink | Comments (3)
                    

Reading through the transcript of Apple’s conference call with analysts yesterday, I ran across several intriguing nuggets of information. Such as:

iPod Touch: On several occasions, Apple Chief Financial Officer Peter Oppenheimer referred to the iPod Touch as “an entirely new type of iPod.” From his opening remarks: “This new iPod had the potential to grow the iPod from being just a music and video player into being the first mainstream WiFi mobile platform running all kinds of mobile applications.”

Many pundits (and Touch owners) have declared the iPod Touch the ultimate PDA, but I don’t recall Apple having been this emphatic about it before. This could be a sign that Apple plans a lot of future enhancements to the iPod Touch, both in the software and the hardware. Evolving the iPod line in the direction of a pocket computer is logical as well as a good business move. Despite its recent successes, Apple recognizes that it can’t stand still.

Apple Retail Stores: Apple opened six new stores in the quarter, and now has 204. The company expects to add 35 to 40 locations in 2008, including more outside he United States. The average revenue per store was $8.5 million, up sharply from $6.6 million in the year-ago quarter. Traffic increased by 10 million visitors from last year, to 38.4 million, which translates to 14,700 visitors per store per week. No wonder it always seems like the Apple Stores are packed.

On a similar note, Oppenheimer said Apple plans to expand its presence in Best Buy stores from 286 to 600 over the next six months. The total number of “storefronts” carrying the Mac has increased to 9,500 from 7,700 a year ago. “We have done that because of the momentum we see in the Macintosh business,” explained Apple Chief Operating Officer Timothy Cook.

MacBook Air: When asked where the MacBook Air fits in Apple’s product roadmap, Oppenheimer uncharacteristically responded with a general description of the target customer: “We think that the MacBook Air will appeal to travelers, to professors, to all different kinds of people who want to access the computer very quickly wherever they are.”

He added that pre-orders for the laptop have been “very strong.” The super-slim MacBook Air has been lambasted by critics who say it omits too many features to suit the needs of most customers. Steve Jobs and his deputies obviously believe otherwise.

Leopard: Sales of the latest version of Mac OS X have far outpaced that of its predecessor, Tiger. Leopard revenue was $170 million in the quarter compared to Tiger’s $100 million in its first quarter. Oppenheimer attributed the growth to both a larger installed base of Mac users and that Leopard comes pre-installed on every new Mac, which sold in record numbers (2.3 million) in the December quarter.

One more thing: In a separate announcement yesterday, Apple added a new color to the iPod Nano line, pink. Available now, it’s perfect for people “searching for a special Valentine’s Day gift,” according to Apple Vice President of Worldwide Marketing Greg Joswiak. Other than the color, the particulars are the same as the other Nanos: 8 gigabytes of storage for $199. Too bad I already bought my Significant Other a Nano for Christmas. Ahh, she hates pink anyway.

Posted by David Zeiler at 12:00 PM | Permalink | Comments (2)
                    

One week before Steve Jobs takes the stage in San Francisco for his annual Macworld keynote, the Mac universe is abuzz with the usual rumors and speculation.

Regulations governing Apple pundits require that I contribute to the collective cacophony or forfeit my license to blog on Apple. In that spirit, here’s my take on what might be coming – or not – on Jan. 15:

Mac Pro update – Apple completely shocked me by announcing new pro towers (and server models) this morning. I don't recall Apple ever making such a major product announcement just one week before a Stevenote. So these rumors panned out early. The twin quad core CPUs (giving this Mac 8 cores of processing power) are standard as expected, but there is no mention of Blu-ray DVD support. Steve will mention this, but not spend much time on it.

Retail stats – Steve will probably open the keynote with a rundown of assorted statistics demonstrating Apple’s prodigious business successes. We will hear about how many millions of people visited Apple’s retail stores, and that half of them were “new to the platform.” Steve will tell us how many new stores opened in 2007, and may announce new stores in such countries as China, Brazil and Mexico.

He should gloat about yesterday’s Bernstein Research report that showed Apple’s annual sales per square foot of retail space light years ahead of other retailers. At $4,491 per square foot, Apple not only clobbered Best Buy at $991/sq. ft. but also handily outshone other upscale retailers such as Saks ($388/sq. ft.), Coach ($1648/sq. ft.) and Tiffany and Co. ($2,746/sq. ft.).

Leopard stats – Steve will tell us how many copies of Mac OS X 10.5 have been sold since its launch at the end of October. Whatever the number, it will be the best operating system launch in Apple history. Leopard also will have had the fastest adoption rate of any Mac operating system version.

Office for the Mac 2008 – Craig Eisler, the new general manager of Microsoft’s Mac Business Unit, will join Steve onstage to introduce Office for Mac 2008. There will be a tedious demo.

Other software – Since iWork and iLife both were released in August, we won’t hear of them in the keynote. In fact, it’s hard to say what other software might get mentioned, since Apple got most of its upgrades out over the summer. He might spend a few moments on the prosumer video editing program Final Cut Express, which was updated in mid-November.

Video – The other week I predicted some major video-related announcements at the Stevenote. We will hear about the new iTunes movie rental service, heretofore unannounced by Apple but widely reported in the mainstream media. Various news reports over the past few weeks have said Apple is on the verge of making deals with almost all the major film studios, including 20th Century Fox, Walt Disney, Warner Bros., Paramount and Sony, MGM and Lionsgate. Availability is the major question here; if the deals aren’t final, the service may not launch for a few more months.

Apple TV – Going hand-in-hand with the iTunes Store movie rental news should be an announcement of a new, improved version of the Apple TV. This is not a shoo-in, but it would make a lot of sense for Apple to fix this product by adding the ability to record TV shows (like a TiVo) and access the Internet independently of a computer. The pièce de résistance will be integration with the iTunes Store, so that music, videos and movies could be ordered directly from the user’s sofa with the included remote control.

New iPods – You got ‘em in September. Let’s not be greedy.

iPhone updates – Some think Steve will announce a 3G iPhone next Tuesday; my gut feeling is that it’s too soon. Even if he does announce it, you won’t be able to buy one for several months. One thing we will get at some point during the keynote: stats on how many iPhones have been sold, and a recap of the product’s launch in the U.K., France and Germany. Steve might announce the next nation(s) set to get the iPhone (Spain? Italy? Japan?), but I haven’t read any rumors that further deals are near.

Steve will definitely mention the software development kit that will allow third-party developers to write programs to run on the iPhone. Although Steve has said the SDK would be available in February, he might wow the crowd by announcing its immediate availability.

One more thing ... One product the rumor sites have convinced themselves is coming at Macworld is some sort of Mac subnotebook, something smaller and lighter than a MacBook. This device could incorporate the same touch screen technology used in the iPod Touch. It could use flash memory in place of a hard drive, or at the very least will use flash memory to speed boot times. It will use a LED display (Apple has committed to using the more environmentally friendly LED technology in all its displays.) Despite the prevalence of rumors about this, no one is quite sure what such a beast will look like. But the odds are high we will see some incarnation of a MacBook Mini.

For anyone who’d like to follow the keynote live (it starts at 9 a.m. PST, or noon Baltimore time), several Web sites will be posting updates during the event. I prefer Engadget, but a full list of sites offering coverage will appear on MacSurfer the day of the event.

Posted by David Zeiler at 7:55 AM | Permalink | Comments (1)
                    

I have been ruminating for days over the antitrust lawsuit filed in California Dec. 31 charging Apple with monopolistic behavior in the digital music market. While the case looks weak, it also draws attention to some questionable Apple policies.

This suit came to light late Thursday when Information Week broke the story.

The suit accuses Apple of using its dominant position in the digital music market to stifle the competition in several ways. One way is the iPod’s lack of support for Microsoft’s Windows Media Audio format (and by extension its accompanying digital rights management), employed by almost all other digital music players and online download stores.

Another way Apple “locks out” rivals is its refusal to license the FairPlay DRM it uses in the AAC-formatted songs sold from the iTunes Store, so competitors don’t have the option of offering FairPlay-compatible devices or music.

After reading through the lawsuit myself, I must say I was astounded at the misinformation and exaggeration it contained. A few examples:

The suit on several occasions refers to how Apple’s behavior has restrained “what little competition remains in the digital music markets.” Although some digital music operations (both hardware makers and online stores) have scaled back or withdrawn, that sort of shaking out happens in every industry.

Furthermore, the struggles of a few have not discouraged new entrants on both sides of the market: Microsoft with its Zune player in 2006 and Amazon.com with its MP3 download store this past fall. If Apple had monopolistic control of the digital music market, new challengers would not dare enter it.

Apple in fact has plenty of competition. Consumers can easily avoid Apple’s products and services if they so choose. It’s been obvious for years that most choose Apple’s products because they like them better, not because they feel they have no choice.

The suit talks a lot about how iPod owners are “forced” to buy online music from iTunes, and that purchasing FairPlay AAC songs from iTunes “locks” that the buyer to the iPod, as the songs cannot be played on any other music player.

First of all, the aforementioned Amazon.com store sells MP3s with no DRM that can play on any player made by any vendor. For that matter, the iPod can play unprotected MP3s obtained from any source (including illegally).

Second, Steve Jobs said in his “Thoughts on Music” essay last year that only 3 percent of the music on the average iPod is purchased from the iTunes Store. Most iPods are filled with music ripped from the owner’s CD collection. Even the FairPlay stuff bought from iTunes can be burned to a CD and re-ripped back to a computer in a DRM-free format.

While the link between the iPod and the FairPlay music sold on iTunes does exert some pull in keeping customers inside the Apple ecosystem, it’s not as ironclad as the lawsuit claims. There’s a fence, but the gate is unlocked.

The suit further alleges that Apple’s monopoly control over the market allows it to “sell the iPod at prices far above those that would prevail in a competitive market.” If the iPod is so overpriced, it should be easy for rivals to undercut it by large margins on price in an effort to lure bargain-conscious buyers. But for the most part, Apple’s competitors sell their music players for about the same price as comparable iPods.

Yet as preposterous as this lawsuit is, it raises persistent troubling issues with the iTunes-iPod ecosystem. Apple may not be in violation of antitrust law, but its refusal to license FairPlay or make iPods compatible with Microsoft’s WMA format will continue to irk some consumers.

The most valid part of the lawsuit notes that many consumers, unaware of the competing DRM formats, could reasonably believe that all online music would be compatible with any digital music player, in much the same way they expect all CDs to play in any CD players.

Now I can’t blame Apple for not wanting to license WMA from Microsoft. Why would Apple want to pay its historic rival an annual licensing fee for a second DRM format (in addition to FairPlay)? There’s no benefit in it for Apple. Not to mention the irony of licensing a format for the iPod that no longer works in Mac OS X – that’s right, DRM-laden Windows Media files won’t play on a Mac. (The excellent Flip4Mac utility only works with unprotected WMA files.)

But why not license FairPlay? In his “Thoughts on Music” Jobs explained Apple did not want to license its FairPlay DRM because it feared that giving the code to other companies would increase the chances of it being leaked on the Internet and cracked by hackers.

That argument feels flimsy; Microsoft has licensed its WMA DRM for years. While it is breached from time to time, a patch has always followed fairly quickly. For that matter, Apple’s refusal to license FairPlay has not prevented it from being breached and requiring occasional patches.

I suspect Apple will keep its iPod-iTunes-FairPlay fence intact as long as it can. Its gaps give Apple a defense against these antitrust lawsuits, but its continued existence helps maintain the business model. Still, it smells just a bit unethical and not at all consumer-friendly – a trait Apple supposedly champions.

Of course, this entire issue will go away whenever DRM-encumbered music does. Business Week reported Friday that the last of the four major labels, Sony BMG, had agreed to start selling unprotected MP3s on Amazon’s online store. So far only EMI is selling DRM-free songs on iTunes, but now that Amazon has signed the others it could only be a matter of time before they all go DRM-free on iTunes. (Well, maybe not Universal…)

With no FairPlay and no WMA DRM music to worry about, accusations of “lock-in” will crumble. Apple almost certainly will continue to dominate the digital music industry, but its foes will need to find a new attack vector.

Posted by David Zeiler at 2:10 PM | Permalink | Comments (11)
                    

While shopping at Target over the weekend I was fortunately able to prevent what could have been a Christmas morning tragedy.

In addition to shopping for my daughter – whose birthday falls exactly one week before Christmas – I was doing my part to enhance Apple’s December quarter results by purchasing an iPod Nano for that special someone in my life.

While I was in the iPod aisle, a middle-aged lady came by and, seeing the display for the rival Zune directly across from the iPods, declared, “There’s the iPods!”

I quickly informed the lady that the product she’d discovered was not the iPod, and that the person for whom she was shopping would almost certainly be disappointed if they had in fact asked specifically for an iPod. I pointed out the iPod display behind her.

“This isn’t the same thing?” she asked, looking at the Zunes.

“It’s made by Microsoft,” I replied. “Need I say more?”

The lady nodded in acknowledgement and turned around to face the iPod display. Another successful intervention by Apple Man! (Though my black cape and tights with the white Apple logo on the chest were at the cleaners that day).

This isolated incident has me wondering whether the iPod’s market dominance eventually could have the unwanted side effect of turning the brand name “iPod” into a generic term, like Kleenex or Band-Aid. In other words, the technically challenged among the population could start calling all MP3 players regardless of manufacturer “iPods.”

If people shopping for iPods don’t realize that only Apple Inc. makes the genuine article, there is some risk that they could inadvertently purchase a rival product such as the Zune, just like the lady I saved at the Target.

Apple someday may need to take this into consideration in their marketing of the iPod to avoid it becoming a “genericized trademark.”

Either that or Apple will need to recruit an army of superheroes to watch over the electronics sections of all retail outlets where iPods are sold.

Posted by David Zeiler at 12:08 PM | Permalink | Comments (30)
                    

One year after introducing its Zune music player with the slogan “Welcome to the social,” Microsoft is going to Plan B.

The emphasis on the Zune’s primary advantage over Apple’s iPod – its ability to “squirt” songs to another nearby Zune wirelessly – turned out to be a poor sales strategy for a new product trying to break into an established market. That the songs expired shortly afterward didn’t help, either.

Microsoft built an ad campaign on a function most Zune owners rarely were able to use. It’s hard to be “social” when you’re the only one at the party.

While Microsoft has publicly stated it’s pleased with Zune sales, the product nevertheless sits in fourth place with less than 3 percent of the total MP3 player market It trails Sandisk, which has 10 percent of the market and Creative Labs at 4 percent. The iPod, of course, dominates with over 70 percent.

So on the cusp of the arrival of the new Zune models on Nov. 13 as well as the crucial holiday buying season, Microsoft has decided to bag the old campaign for a fresh one from a different ad agency, according to an Advertising Age article published yesterday.

The new campaign is more than a fresh approach; it essentially inverts the message of the original. From the AdAge piece: “Zune is dropping its original strategy, which painted the iPod as an isolating device and Zune as more social because its tunes can be shared among users. Now the campaign is centered on the individual and tagged ‘You make it you.’ ”

Hmmmm ... probably not a contender for next year’s Clio Awards. It may be worse than “Welcome to the social.” And then there was Vista’s underwhelming but costly “The Wow starts now” campaign. You’d think Microsoft would use its bloated bank account to hire better talent.

Microsoft’s only chance at taking significant market share from the iPod is to promote features of the Zune that are different or better. At least the first campaign tried something along those lines, no matter that it was ill conceived.

But a campaign to convince people the Zune is more personal than an iPod? In what way? In both cases, the user personally chooses every song and video he or she loads on the device. There’s no difference. The campaign makes absolutely no sense.

The Zune is a decent product, but it doesn’t particularly stand out in the crowd of portable media players. As the underdog in this category, Microsoft needs to show consumers why they should buy a Zune over not just an iPod, but over any music player.

The “it’s good enough” strategy only works when you have a monopoly.

Finally, I’d like to point out one more priceless tidbit in the AdAge article. Mike Harris, partner-strategy for T.A.G., the ad agency responsible for the new campaign, derided the iPod as “a superficial status symbol” as he praised the Zune as more personal.

Thus, the objective of Microsoft’s new campaign is to get the ignorant hordes to realize that since they bought an iPod only to impress their friends the only thing to do is to toss their Nanos sheepishly into a trash bin before rushing out to buy a Zune.

Good luck with that.

Posted by David Zeiler at 5:01 AM | Permalink | Comments (14)
                    

While it won’t be available until 2009, Korean electronics company Samsung unveiled a new type of flash memory chip that it says will enable the manufacture of 128-gigabyte memory cards. Oh, what Apple could do with a 128 GB flash card.

Apple uses flash memory in many of its products, most notably its iPods and iPhone. Flash memory requires less power and is far less fragile than a hard drive, but provides much less storage space -- at least in the capacities available today. While the hard drive-based iPod Classic comes in 80 GB and 160 GB versions – capable of holding 20,000 songs and 40,000 songs respectively – the 16 GB iPod Touch, Apple’s largest-capacity flash-based product, holds just 3,500 songs.

The availability of even 64 or 32 GB flash memory would invigorate the entire iPod product line. A 128 GB Nano would almost certainly kill the iPod Classic. And the introduction of higher-capacity iPhones would help keep that product moving off the shelves.

But it’s not just iPods and iPhones that would benefit from beefier sizes of flash memory. Apple and other PC makers would love to replace the hard drives in their laptops with flash memory to help stretch battery life and provide a hardier storage mechanism less prone to damage if the device is accidentally dropped. Apple is supposedly planning to include flash memory in future Mac laptops to enable much faster startup times.

Knowing Apple, uses like that would just be the beginning. I can envision the Apple skunkworks in Cupertino dreaming up entirely new products. In the near-term, such chips could be very valuable as part of Apple’s long-rumored “mini-computer” that allegedly uses the same touch screen technology as the iPhone.

Over the past several years Apple has gained a reputation as a flash memory hog, gobbling up supplies worldwide from many chipmakers, including Samsung. If I were Steve Jobs I’d be on the next plane to Korea.

Posted by David Zeiler at 1:55 PM | Permalink | Comments (3)
                    

Apple boss Steve Jobs posted a note on Apple’s Hot News section of its Web site this morning in which he changes the company’s position on allowing third party applications to be written for the iPhone – an issue that prompted many of the controversial iPhone hacks.

While this issue has not been as contentious as the ability to unlock the iPhone for use on other cellular networks, it nevertheless had irked many, if not more, iPhone customers. This change will take the iPhone a big step closer to realizing its potential as an ultra-portable mini-computer.

It should also help repair Apple’s relationship with those upset over the closed nature of the iPhone, although I doubt the people who had already hacked their phones – and had them “bricked” by Apple’s recent software update to the device – will forgive the company any time soon. (I know many feel such people created their own problem by hacking the phone in the first place, but most of them blame Apple. Sigh.)

Some may still grumble because the iPhone SDK (software developers kit), the tool developers need to write programs for the iPhone, will not be available until February. In his statement Jobs counsels patience “because we’re trying to do two diametrically opposed things at once – provide an advanced and open platform to developers while at the same time protect iPhone users from viruses, malware, privacy attacks, etc.”

Jobs also responds to critics who had ridiculed his previous explanations about why the iPhone was a closed platform: “There have been serious viruses on other mobile phones already, including some that silently spread from phone to phone over the cell network. As our phones become more powerful, these malicious programs will become more dangerous. And since the iPhone is the most advanced phone ever, it will be a highly visible target.”

I personally can’t speak to how easy it might be to create malware for a mobile device like the iPhone, but in the brief time it has been publicly available many determined people have managed both to unlock the iPhone and create unauthorized third party applications. So I think Jobs’ caution is justified.

In a “P.S.” note tacked on the end of his statement, Jobs mentions that the SDK will work with the iPod Touch, sort of a “one more thing” like those he so often drops on audiences at his keynotes. That should please many iPod Touch owners, who hadn’t been nearly as vocal about this issue as had iPhone owners.

Posted by David Zeiler at 1:03 PM | Permalink | Comments (5)
                    

The new Zunes are coming! The new Zunes are coming! But will anyone care?

Just weeks after Apple raised the bar with a refreshed lineup of iPods, Microsoft is poised to release a refreshed lineup of Zunes. Microsoft Chairman Bill Gates showed the new Zunes, scheduled to go on sale in mid-November, to reporters yesterday. The original Zune now has an 80-gigabyte version; two new flash memory-based models come in 4 GB and 8 GB versions as well as several new colors, though none of the new Zunes is brown.

Going simply by the specifications and prices, the new Zunes match up closely with their iPod counterparts, the iPod Classic and the iPod Nano. (If you want to see all the details, Engadget has created a chart.) The Zune flashes even have a physical shape much like the old, vertical iPod Nanos. The general impression is that the Zune is trying hard to match the iPod, rather than exceed it; it doesn’t differentiate itself enough to get noticed in a market where the iPod is king.

The new Zunes can “squirt” music to each other, as did the first generation. That feature did not prove to be a particularly strong selling point, perhaps because the songs expire after three plays. The Zunes still have an FM radio receiver, which the iPod does not, but frankly I use my iPod to avoid listening to the radio. And the new Zunes can sync their music from Windows PCs wirelessly, which is great if you hate the dreadful inconvenience of having to connect your unit into a USB port.

That’s not going to be enough to lure consumers from the iPod. As Gartner vice president Van Baker told the Los Angeles Times, “They’re not going to gain against Apple because there is nothing really innovative about what they’re doing.”

Microsoft has said it sold 1.2 million Zunes in the first half of 2007. Apple sold 20.35 million iPods in the same period. That ratio almost certainly will not change in the upcoming holiday shopping season. Microsoft needed to do something a lot more dramatic with the Zune to have any hope of eating significantly into the iPod’s 70 percent-plus market share.

Even Bill Gates seems unimpressed. “For something we pulled together in six months, we are very pleased with the satisfaction we got,” Gates told the New York Times. “The satisfaction for the device was superhigh. The satisfaction on the software actually is where we’d expect to see a huge uptick this year. It was just so-so on the software side.” Commenting on the integration of Zune’s hardware, software and music store, Gates added, “I’m sure a year from now we’ll do even better. But I’m blown away by what they’ve been able to do in a year.”

Uh, way to give Zune the hard sell, Bill. In years past, Gates famously touted new versions of Windows as the most robust ever, most secure ever, most feature-rich ever, blah, blah, blah. The hyperbole was staggering, and often misplaced. But it was his job as head of the company and chief figurehead to sell the product. Heaven knows Steve Jobs is legendary for marketing Apple’s new wares, though he usually has the goods to back up his claims.

As it stands, the new Zunes don’t figure to dampen Apple’s holiday cheer, while the increasingly negative reaction to Vista should help boost already rising Mac sales in the final quarter of 2006.

Posted by David Zeiler at 3:48 PM | Permalink | Comments (9)
                    

Shortly after the new iPod Touches hit the streets complaints about a glitch with the screens began popping up on the Web. Those afflicted with the bad iPod Touches report that they play video very darkly, with black shades so exaggerated they resemble an old film negative.

A post on a Web site called Apple-Touch.com actually included videos comparing a flawed iPod Touch playing the same scene side-by-side with an iPhone, which also sports a 3.5-inch screen. The difference in quality and the issue with dark areas in the iPod Touch’s video is obvious.

Some unhappy customers asserted that the flaw resulted from Apple using a poorer quality LCD screen in the iPod Touch relative to the one used in the iPhone. Some exchanged their bad unit for another bad unit. In forums, some customers countered that their new iPod Touches looked perfectly fine.

With accusations flying in every direction, I decided to stop by the Apple Store in Towson Town Center yesterday to have a look at the iPod Touch for myself. The store had four on display. I looked at some video on each one and could detect no hint of the problems I saw depicted on several Web sites. In fact, I thought the video on the iPod Touch looked pretty darn good.

I then moved over to the iPhone table and repeated the exercise (for the record, I played videos stored on the devices, such as the Ratatouille trailer, not YouTube videos). Frankly I could not discern a quality difference between the iPhone and iPod Touch, although I could not study them side by side since all the devices were tethered to their respective display tables.

One of the store employees said the staff there knew of the problem (although they learned of it by reading about it on the Internet; the Mother Ship hadn’t supplied any info yet) but had not seen any defective units, either in the store or brought in by a customer. In fact, he said they checked their entire iPod Touch inventory just to make sure.

My guess is that a bad batch of early-run iPod Touches slipped past the quality checks into Apple’s retail channels. If Apple was leaning on its suppliers to make deadline for the product launch, it’s not hard to imagine them shortchanging quality assurance procedures to satisfy Apple’s demands. I don’t think the iPod Touch screen is innately inferior to the iPhone’s. It is possible, but until there’s hard proof otherwise I’ll give Apple the benefit of the doubt.

Which brings us to perhaps most critical issue raised by all this: What’s Apple doing about it? Walt Mossberg, in an uncharacteristically muted review of the iPod Touch in yesterday’s Wall Street Journal, indicated that Apple was taking action:

Also, some early iPod Touch units have had defective screens, where images appeared too dark. Apple says this problem affected a small number of units and is being remedied. My two test units displayed beautiful images.

However, there has been no official word from Apple akin to the iPhone price drop apology and subsequent coupon. My hope is that Apple moves sooner rather than later to replace the defective iPod Touches. One of the company’s many strengths is its consistently high level of customer satisfaction. Apple can’t afford to appear callous when serious problems surface in any of its products.

I’m reminded of the problems that plagued the first MacBooks when they debuted last summer, primarily the “mooing” of the cooling fan and a yellowish discoloration on the wrist rest area that appeared within weeks of use. Apple issued a firmware update to fix the mooing and eventually agreed to replace the MacBooks that exhibited the discoloration.

I bought an early MacBook myself and fortunately experienced no problems with it. Perhaps my ears, ruined by years of listening to loud rock music, simply couldn’t detect the mooing. But the lesson here is that most defects reported in Apple products only involve a small number of units, percentage-wise. Unfortunately, many of those who end up with bad units also have their own Web sites. Within a day or so the entire Mac Web is talking about it, tainting the product’s – and Apple’s -- reputation.

Apple needs to act quickly to prevent the iPod Touch from getting stuck with a bum rap that will cut into its sales. Steve Jobs proved he’s capable of a rapid response to a widespread customer meltdown during the iPhone price cut affair. He needs to make a habit of it.

Posted by David Zeiler at 12:26 PM | Permalink | Comments (18)
                    

As expected, Steve Jobs unveiled an entirely revamped line of iPods at an Apple Special Event in San Francisco today. Most of the models received respectable upgrades, but the iPod Nano got a significant overhaul. The show-stealer, however, was the iPod Touch, a new member of the iPod family that’s essentially an iPhone without the phone.

The iPhone itself got no major upgrade this time around, but Jobs announced a huge price drop on the 8GB model (which has been selling in far greater numbers than the 4GB model) from $599 to $399. According to an Apple press release the apparently discontinued 4 GB iPhone “will be sold while supplies last.” The $200 price cut on the 8 GB model should get the attention of a lot more customers. It looks like the analysts had better re-think their iPhone sales projections again.

Jobs also announced some enhancements to the iTunes Store: iPhone ringtones that can be created from songs downloaded from iTunes and the ability to download songs over a Wi-Fi connection to your new iPod Touch or iPhone.

Yes, that’s right. The iPod Touch, like the iPhone, can connect to Wi-Fi networks and can do all the cool things an iPhone can do, such as browse Web sites and view YouTube videos. In fact, the iPod Touch looks almost exactly like an iPhone, but it’s slightly thinner.

The iPod Touch comes in two sizes, 8 GB at $299 and a 16 GB at $399. Because the iPhone is the same price as the high-end iPod Touch, customers must choose between phone capabilities and twice the storage space when spending their $399. You’d have to think the iPhone is the obvious choice, but one must assume Apple has a good reason for doing this.

The iPod Nano looks completely different now, fatter and squatter than its predecessor. The main reason for the change in form factor is to accommodate the 2-inch color video screen. The iPod Nano now comes in just two capacities rather than three: a 4 GB version for $149 and an 8 GB version for $199. (This compares to $199 for the previous 4 GB version and $249 for the 8 GB version.)

The original iPod – the one that uses a hard drive for storage rather than the flash memory used in the others -- has been renamed iPod Classic. The main change here is a massive increase in capacity. Instead of 30 GB and 80 GB models, Apple now offers an 80 GB model for $249 and a mind-blowing 160 GB model for $349. Jobs said that’s enough storage for 40,000 songs. Which begs the question: are there 40,000 songs worth having? The iPod Classic also has improved battery life: 30 hours for audio and 6 for video on the 80 GB model, a whopping 40 hours for audio and 7 for video on the 160 GB model.

The smallest of the iPods, the Shuffle got no hardware upgrades or price cuts (it’s still 1 GB for $79), but will be available in several new colors.

Finally, Jobs announced a partnership with Starbucks Coffee in which in extra icon will appear on iPhones or IPod Touches that get close enough to a Starbucks’ Wi-Fi location. That icon will show you the name of song the Starbucks store is playing and allow you to buy it from the iTunes Wi-Fi Store. I can’t get terribly excited about this, but then I rarely go to Starbucks.

All told, Jobs gave iPod fans most of what they wanted in this long overdue update of the product line. And as he noted several times during his presentation, these sexy new consumer toys have arrived just in time for the holiday buying season. I smell profits.

Posted by David Zeiler at 3:35 PM | Permalink | Comments (0)