Apple Logic

Apple Computer announced yesterday that its iTunes music service customers had downloaded over 25,000,000 songs to date. This would be quite an accomplishment if it weren’t for the fact that Apple loses money on very song downloaded.

Now don’t get me wrong. The Mac is a great machine and the iPod sets a standard for portable digital music players that will not be surpassed for some time to come. But it takes some convoluted logic to beat your chest about running the biggest money pit of a music service in the industry.

I know, I know, iTunes is a loss-leader for iPod sales. At some point, however, the math has to catch up. If every iPod purchasers goes to iTunes and downloads bunches of music, it’s got to eat into those hefty iPod profits. From a business viewpoint, there is a finite market for players but a much, much larger market for the music to play on them. As player sales level off with the market being saturated with happy iPod owners, they will continue to download more and more music from iTunes. iPod profits will level off while iTunes losses will grow. To make things worse, iTunes is the only place to get Apple’s proprietary AAC format. They can’t even hope that some other poor fools will pick up the music biz side of the problem. How do you explain that to Apple investors? (“But, but, it’s such a cool player…”).

ipod.jpg

Apple has a long history of making kick-ass products while kicking themselves in the ass on the business side. Call it Apple Logic.

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This page contains a single entry by published on December 16, 2003 3:12 PM.

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