Tuesday, July 3, 2007

Apple iTunes and Universal Music: Does Microsoft Zune Have any Role?

Now that iPhone is launched and the craze has somewhat subsided, it's a good time to look at iPod [and iTunes]--the second leg of Apple's transformation from Apple Computers to Apple inc.

In the midst of the hype surrounding iPhone, there was an announcement from Universal Music. Business Week reported that:
The music label is balking at renewing a deal that gives Apple unfettered access to Universal's massive music catalog and limits Universal's ability to strike exclusive distribution deals with competing download services.
But sources close to Universal say the company has moved to what's known as an "at will" arrangement that enables it to strike exclusive distribution deals with other digital music providers for individual artists or tracks, though it will continue to sell music through iTunes. Under the new arrangement, for example, Universal could charge another music e-tailer (or Apple, for that matter) a premium to sell Jay-Z's latest single exclusively for a limited time.

This announcement highlights the need to adopt a broader network perspective in analyzing the relationships. It is not just about Apple and Universal. Universal needs Apple and vice versa. But, there are other players. It is equally about Universal and Microsoft (yes--Zune that you may have discarded as an also ran offering!). If Apple iTunes was the only game in town, Universal may sing a different tune. Microsoft's Zune may not win any design contests but it is myopic to discount Microsoft's capability to orchestrate a network of complementors to make its platform succeed.

The strategy message for the network era is: Behind every announcement between two companies, look for the invisible role (often implicit) of a third company that is seeking to rebalance the power.

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