Apple's Competitors Take Aim At iPod & iTunes

Yesterday's Wall Street Journal featured a special section on home entertainment. The lead piece focused on Apple's dominance of digital music distribution.

According to the article, iPod/iTunes holds a 71% share of the market, while EMusic is second, with only 10%.

I can't recall that last time I bought a full-priced CD in a retail store. The last time I bought large numbers of CDs was over six years ago, from the now defunct website, CDNow. That's how much Apple has changed the experience of buying, and playing music.

The main point of the Journal's piece on digital music was that none of the also-rans to Apple are trying to take it on directly. Through various approaches involving monthly fees, limited play of free copies of songs, most competitors hope to attract users willing to adopt a different music purchase and/or listening system.

Only Microsoft's Zune is configured to be just like the Apple iPods. That is, the pricing and general content acquisition models are similar. However, the Zune is much bulkier than the iPods, looking as if it had been rushed out prematurely for this Christmas season. The article quotes an analyst as believing that Microsoft is the only company capable of taking on Apple directly with a nearly-identical system for music distribution and playing.

Looking at the 'music leasing' model of several iPod competitors, I wonder how many of those users feel like I do, and want to own their content? I've never personally been interested in paying to lease music I like for a few months. So, realistically, with such high market penetration by Apple already, I doubt any of them have much long-term potential to earn consistently superior returns with their strategies.

As for Microsoft, I see their Zune offering as similar, in a corporate sense, to their XBox division. Microsoft is slowly creating standalone product groups to create new hardware which will pull software along with it. As such, these new groups could just as easily have had different logos and corporate names, even if funded by Microsoft.

This is very close to my earlier recommendations for just such a split among the company's disparate units.

However, since they remain as Microsoft groups, I can't help but wonder if their potential to earn total returns is lost among the still-huge revenue streams from conventional PC software sales. For all the hype about new directions at Microsoft, and new blood, their corporate form pretty much guarantees that most new initiatives won't be sufficiently large to move the share price, and, thus, total return, needle.

Apple by contrast, has a 70% total return just from July. Their nimbleness and focus on growth-oriented product markets is resulting in a much better experience for their shareholders.

From what I read in the WSJ yesterday concerning digital music, I don't see any competitors dethroning Apple any time soon. So many consumers have already bought and stored music in the firm's proprietary format, that I just don't expect they will have compelling reasons to switch brands in the near future.