• What do iPod/iTunes and Skype have in common?

    by  • December 9, 2005 • Web / Internet • 1 Comment

    More than headphones and wireless ambitions… its all about the ‘free-stuff’.

    ipodskype20They are both audio-centric product/services that are dependent on the internet. Skype is a P2P application made valuable by a device, (your PC, or more recently, your mobile phone or PDA) while the iPod is a device made valuable by P2P applications.

    Both were initially designed to require headpones, and both have just made their first tentative steps into wireless. Skype through its September ’05 deal with Germany’s E-Plus, and Apple with its deal with Motorola and Cingular to sell the iTunes-equipped Motorola E790 mobiles, with more wireless deals and developments to follow for both companies no doubt.

    Both have been the catalysts for a growing cluster of interlinked third-party products

    3appsThe two things that really strike me as similar are firstly, the way both Apple and Skype have managed to move these products beyond being single propositions, to each being the catalyst for a growing cluster of interlinked third-party products. Skype have done this by releasing their API which has spawned a growing batch of extensible ‘Skypbrids’ (Jyve, Yapper, Spontania etc) that have dramatically extended the companies influence. Apple have achieved a similar result by fostering a plethora of third party vendors who have produced scores of iPod add-ons and accessories. (and this is to say nothing of the fortuitous gift of Podcasting… Wow, what a lucky break that was!) In short, both companies are well on their way to turning their products into standards or platforms, depending on which way you define those terms.

    skype_talkfree3Both Skype and the iPod have also become functional participants in global-scale ‘free-stuff’ consumer movements. Skype, by being the best-known conduit for free global voice calls, and the iPod, by being the best recepticle for playing digital music, in a world that is literally awash with free music. These factors have allowed Apple and Skype to harness some very powerful network effects, and network effects are what enduring success in the information economy is all about, just ask Bill Gates.

    A network-effect is said to occur when the value of a product or service increases with the amount of people that use it. If this increasing value is highly prized, a product can become almost invincible, because the more popular it becomes the more value the user receives. Network effects apply to Skype in exactly the same way that they are often explained in relation to the telephone. i.e. the more telephones there are, the more people you can call, so the more useful the facility becomes. Skype is climbing that curve, and has been assisted by the way it clusters users into myriad subsets, in what David P. Reed calls the ‘sneaky exponential’ of ‘Group Forming Networks’.

    However, in regard to the iPod, the Network Effect theory is not so obvious. One iPod or 10 million iPods, how does the value increase per user? To achieve the power of network effects, Apple had to finesse its way through a potential mine-field to build value for the iPod from another part of music’s value-scape. (have you worked it out yet?)

    Unlike the telephone, Microsoft’s claim to ‘Network Effect’ status was not so much because of the inherent usefulness of the product, but the value of the countless third party software titles made for the platform. Bill’s system became increasingly useful because it gave customers access to all that software. Steve’s iPod and its cross-platform virtual counterpart iTunes, are useful in the same way; they give the user the best method of interfacing and listening to all that music, and most of it is not coming from the ITMS.

    As at Q3/2005, Apple had apparently sold approximately 500 million songs from the ITMS and approximately 22 million iPods, so this equals roughly 22.7 ITMS songs purchased per iPod and this in turn equates to only around 0.7% of a 3,000 song iPod. with many iPods potentially holding up to 15,000 songs. Although some of that vast iPod hard disk space is being filled by copying personal CDs, this still represents a massive freeing of music from the CD format taking it one small step away from broad dissemination on the internet. So, it is fairly clear that one of the main reasons that the iPod has been so successful is that it has tapped into the most controversial and pervasive internet phenomenon of recent times, music file-sharing; and this is where Apple has (indirectly) benefited from those very useful network effects.

    It works like this. The more songs that are available on a file sharing network, the greater the value of that collection to downloaders. This is why all the major P2P file-sharing networks are open systems that interlink their massive virtual music libraries. The iPod and its sister product iTunes sit smack in the middle of this massive ocean of music in much the same way that MS-DOS and then Windows sat astride an ocean of PC software. The Pod/Tunes is simply the best way to convert, sort and listen to digital music. (but don’t tell BMG and Warner Music, they are finding the relationship with Apple a challenge as it is!)

    Obviously, the Video iPod has been designed in exactly the same way, with a legitimate shop-front in iTunes, but a flexible functionality that allows for much wider usage.

    One Response to What do iPod/iTunes and Skype have in common?

    1. March 21, 2009 at 9:37 pm

      Below are previous comments made by users at previous blog URL:

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      I think the more interesting battle is the one we saw start nearly 10 years ago, between Richard Stallman who created “free software” as an explicitly political anti-propertarian action, and Eric Raymond and Tim O’Reilly who set out to rebrand the phenomenon as “open source”.

      Their disagreement is not whether this is a good thing. As Stallman says, the two sides can happily work together on practical and tactical issues. The argument is how to understand the phenomenon. The “left” definitely see it as about creating and promoting “commons” as opposed to private property. The Raymondite right tries to spin it as a new “kind” of property which simply works by different rules.

      Stallman thinks copyright is ethically wrong. O’Reilly thinks it’s a question of pragmatic choice.

      It’s interesting to see how this is evolving. On the surface it looks like the right won : more people use and understand “open source” than “free software”. The overtures from O’Reilly and Raymond persuaded many capitalist enterprises that they could participate in and apply openness in a commercial context. As, indeed, they can.

      But more recently O’Reilly is more concerned with the whole Web 2.0 thing, and Raymond has devolved from internet visionary into a petulant warblogger; while the anti-propertarian banner has been picked up by Lawrence Lessig who’s leading an extremely explicit “commons” oriented movement. (With perhaps Yochai Benkler as new poster-child).

      The point about Shai Agassi and Bill Gates is that *their* business model of selling licenses to use their IP is directly threatened by this phenomenon *however* it’s theorized. Of course they’ll try to spin it as negatively as possible. Even though a new generation of capitalist enterprise will simply adapt.

      But I think you’re wrong about the challenge to property posed by this new phenomenon. Property isn’t God-given; it evolves. And throughout capitalist history there has been a consistent trend to “enclose” and define more and more things as property (ie. things that can be bought, sold and allocated according to the market, rather than allocated as a commons or on first-come-first-served principles.)

      That’s part of the nature of the capitalist system. As something becomes prominent, people start to try to find ways of making money from it, and that typically requires that the government formalizes and enforces the rules of ownership and transfer so that people can start buying and selling it.

      Apart from the abolition of slavery, the only popular movement *against* this direction of enclosure is the current one formented by the free-software movement, and analogous commons-based movements.

      What they’ve highlighted, and made people very obviously *notice*, is that property rights are created by government, often in response to special interest groups in society. Suddenly factions of the left and the libertarian-right have a common analysis and tactical goals : to prevent the really powerful interest groups from using government to enclose more of the commons for themselves.

      In doing so, they raise the really subversive question : how do we evaluate what sorts of things “ought” to be property and what “ought not”? People shift from thinking of property as “natural” and start thinking of it as “pragmatic”.

      Posted by Blogger phil jones | Wed Jun 21, 04:23:00 AM

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