Apple, iPods, Network Effects & Interoperability
I’ve enjoyed reading Dave Hoffman’s post on the iPod phenomenon and Josh Wright’s rejoinder. I wasn’t too tempted to jump in until Frank (in the comments) blamed the iPod’s success on network effects. Interestingly, Apple has long been the victim of network effects in the personal computer sector. Although I had a Mac computer in 1988, I soon had to switch to IBM clones in order to be able to communicate with co-workers, clients, and courts. By making a product with hardware and software that was not interoperable, even though its product was arguably superior, Apple lost market share to the makers of cheaper computers that all used interoperable operating systems and software. Now, Microsoft Word tries with each new version to come closer to what MacWrite achieved in the 80s and Apple tries to rebound in a world where many people have two computers and technology has allowed some material to go between the two systems.
So, I am interested in the madness behind duplicating this strategy in the mp3 industry of creating a product that stands out but stands alone. One can go to any electronics store and buy a cheaper mp3 player that will use MusicMatch, or one can buy the much more expensive iPod that requires the use of iTunes (unless you have access to someone with a computer science degree). First, why would Apple go down this road again? Second, why is this scenario working better this time? The only difference I can see is the point that Dave makes — mp3 players, while pricey, are almost disposable. Perhaps network effects are not going to favor the interoperable here over the superior first-mover because the initial outlay is not as substantial. If I’m buying an expensive computer, I want to be able to use it for awhile, communicate with others and possibly resell it on the open market, but if I’m just buying something that lasts a year, I’ll buy the cool one. Any other explanations? (Yes, I have an iPod, but our other $150 mp3 player broke twice in one year also.)