Oligopoly Versus Monopoly for the Future

To an extent, it might seem that Apple has the beginnings of a monopoly going with the iPod. I was thinking this, and then Mark commented that the fact that iTunes Music Store only works with Apple products smelled of a monopoly. It is true that Apple has what is approaching a monopoly, but right now, we have something a lot more like a oligopoly, at best. Right now, there are three major ways of getting music: compact discs, Apple iTunes Music Store/FairPlay, and Microsoft Windows Media/PlayForSure.

For the moment, neither Apple nor Microsoft are in any position to exercise anti-competitive behavior (the only part of being a monopoly that is illegal), simply because digital music is still a minute chunk of the market. But, both companies are behaving the way they usually do, so we can pretty much guess what things will be like once digital downloads become the dominate form of distribution by analyzing the two companies' track records.

Apple is a vertical kind of company. They create as much as possible in house so that it works in a simple and elegant fashion. You'll pay a bit more and you shouldn't wait for compatible clones, they ain't happing. That isn't the Apple way. This is the same as many other segments of the industry — for instance, the electronic gaming industry, where you would never expect a Nintendo Gamecube to be able to run Sony PlayStation 2 software. You could probably expect a lawsuit to occur if Nintendo even tried, just as Sony sued Connectix in the late nineties for making a Virtual PlayStation. And that's perfectly reasonable and legal.

Microsoft has a very different approach, partially because Microsoft is only a software company (normally, at least), unlike Apple, who has always been mostly a hardware company. Microsoft has always sought to open the hardware portion of the business up, because they aren't in that business. Yet, Microsoft is the company that has violated the Sherman Anti-Trust Act, quite likely for a reason that is lost on no one: they do not make the hardware, but by establishing a firm software monopoly, they have essentially taken all but a facade of control away from individual hardware makers. HP, Dell, Gateway and others who are beholden to Microsoft cannot afford to make Microsoft mad, lest they be cut out of volume discounts and development partnerships. This is true, even in the post-DOJ v. Microsoft world.

How does this factor into music? It factors in perfectly. Apple has chosen to keep FairPlay close to home, licensing it only to a fellow member of the PowerPC AIM trio (Apple/IBM/Motorola). Apple did, apparently, also approach Sony last year, only to be turned down, but essentially, Apple doesn't license stuff. The closest you'll likely see, I believe, would be more HP-like deals where Apple will co-brand iPods like PalmOne did in the past with Palm PDA's. Apple never tries to hide this. Microsoft, on the other hand, is on track to create the same kind of abusive monopoly in media players that they have in computers — all they have to do is topple the Apple iPod phenomenon. Think about it. Try to name one major media player, other than the iPod, that doesn't use Microsoft technology. You won't think of one, save for the dismal failure that is the Sony MP3 player.

That's right. Part of your purchase price for a Creative NuVo, Rio, Dell DJ, RCA Lyra, iRiver, etc. goes back to Redmond as licensing for Windows Media support, now known as PlayForSure. Likewise, think of online stores and try to name just one that uses something other than Windows Media, save for iTMS and Sony's store. This is very important. Microsoft has essentially secured control of both sides of the equation just like Apple has done with the iPod/iTMS, only there remains a facade of competition that will become increasingly hollow, presuming Microsoft manages to secure a majority share of the market.

Given that Apple seeks only to control its own platform, and not everyone else's, we can be confident, I believe, that even if the iPod remains the dominate player, Apple will never secure a real monopoly, simply because the iPod will not be the best player for every single person. However, Microsoft's plan allows for a very real ability to create another abusive monopoly, since Microsoft seeks to play the role of puppet master rather than actor on the stage of multimedia.

The media player war is only the beginning. Both Apple and Microsoft are trying hard to get their competing formats accepted as part of the next generation DVD standard. Whomever holds this will likely be given easy passage to dominance in the majority of multimedia on TV, the computer and elsewhere. While a win for Microsoft will usher in an era of the proprietary Windows Media Format, Apple's entry is only partially proprietary. It is true that the PlayFair DRM is proprietary, but AAC, the format of iTMS, is based on the open standard MPEG-4. In fact, the parts of QuickTime that Apple is advocating for DVD playing are also components of MPEG-4. What Apple has done with media formats is much like what it has done with Mac OS X. It has a proprietary element, but Apple has also willingly used an open foundation in both cases (MPEG-4 and the now FSF-approved APSL-licensed Darwin, respectively).

So, which is worse? An oligopoly where Apple controls its portion of the market, but is never dominate and even uses open standards as its foundation, or a competitively facaded monopoly dominated by Microsoft (and the companies beholden to the same) as one prong in its Trusted Computing Initiative?