Posted by: Peter Carrescia | 03-11-2010

It’s Good for Customers, Until It Isn’t

I received a number of comments regarding my last post on Apple’s apparent heavy-handed approach to extending song samples to up to 90 seconds. The comments were unanimous that extended sample lengths were good and that consumers wanted it. Frankly, I too prefer longer song lengths!

I think back though on naturally occurring technology monopolies of past (eg. Microsoft Windows) and find that what drove these products to monopoly positions were in fact a maniacal focus on what the customer wanted. The tying of Microsoft Office and Internet Explorer (and other technologies) to Windows were things customers wanted. Most customers wanted similar interfaces, tight integration and standard setup regardless of if you bought a Dell or a Compaq. These were the exact things though that made competitors and partners furious and ultimately claim abusive use of a monopoly position. In fact an integral part of Microsoft’s defense was exactly that – customers were getting exactly what they wanted and quite the opposite from harming them, they were getting benefits.

I do see similarities here. Apple apparently for months tried to negotiate a change to the sample length with publishers but got nowhere. So then right before the Christmas season, Apple unilaterally dictates a change and says "take it, or pull your catalog". Since iTunes now accounts for the majority of music sales, and iPods/iPhone music players dominate the market, a publisher risks cutting off their largest retailer right before a key selling season if they don’t agree.

The unilateral dictating of terms based on what’s best for customers is exactly how it started with Microsoft and its OEM partners. And while it’s legal to do in a competitive market, it’s not in a monopoly.

Apple risks attracting the attention of regulators if they are not careful. The government has eventually interfered with the activities of all other "network-effect" monopolies in the past and it will do so again if necessary.

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