The untold part of the iPhone story and FairPlay to get fairer?

Between CES (last week), a holiday weekend, and Mashup Camp and Mashup University this week, I've been too distracted to circle back to Apple's iPhone that many said upstaged all of the Consumer Electronics Show in Las Vegas. From a press perspective, that may indeed be true.

Between CES (last week), a holiday weekend, and Mashup Camp and Mashup University this week, I've been too distracted to circle back to Apple's iPhone that many said upstaged all of the Consumer Electronics Show in Las Vegas. From a press perspective, that may indeed be true. Almost in shock, my father who is by no means a gadget-head, but who is a regular reader of Time called me to ask:

Did you see how many pages Time magazine devoted to the iPhone? It was like a five page article. For Time to devote that many pages to a product is unprecedented.

So, from a total column inches point of view (in the media, particularly in print, "column inches" is unit of measure that equates to how much room some article or coverage takes), the iPhone may have beat CES. But I'm not so sure about that. There were hundreds if not thousands of people walking CES floors with still image and video cameras in Vegas and I'm still discovering much of the coverage that came from the show (both "official" press and consumer generated), some of it very good.

For example, here's a collection of 42 well-done videos from Nicolas Charbonnier, including coverage of Pepper's Fedora-based Linux running on the One Laptop Per Child PC, the OQO Model 2 (which I captured on video as well), Tiffen's Merlin digital video camera stabilization system (very cool but $750 on Amazon), and variety of iVDR-based removable hard-drive products and prototypes (iVDR will probably end Iomega's lock on the removable hard-drive business and I'm surprised it has taken 20 years for such a standard to emerge). Charbonnier's comprehensive coverage represents the output of just one of an untold number of bloggers and journalists that were combing the show floor in Las Vegas.

My sources tell me that more than 1,000 journalists and analysts attended Pepcom's multi-vendor Digital Experience event on the Sunday evening just prior to the show.  While attendance to Digital Experience (an event that's not officially sanctioned by CES) is not representative of the total number of content gathering and publsihing attendees to CES itself (that number is much more), in a post-event status report to its exhibitors, Pepcom officials said that it was "the largest turnout we ever had." The room was indeed packed when I was there.

 

The iPhone may have been perceived to get more coverage than CES, but I very much doubt that any honest inventory of coverage would prove that to be true. Another example? CNET (and all its properties like News.com, ZDNet, etc.) for example had a solid handful of editors and bloggers devoting attention to the iPhone. But, in addition to an onsite television studio in the Las Vegas Convention Center, we had an army of editors and Web production personnel at CES that far exceeded any editorial effort that was applied to the iPhone.

So back to the iPhone. From an assessment point of view, I don't have too much to add to what's already been said. Given what Synaptics showed at CES (a concept phone with a glass touchpad over a drag n drop GUI), I don't believe it to be nearly as revolutionary as some have made it out to be. Kudos however do go to Jobs and company for finally cranking up the pressure on the rest of the phone makers out there to start thinking way more out of the box when it comes to designing handsets.

Relative to the $99 Motorola Q (which involves three players: Motorola, Microsoft, and the wireless carrier), if Apple's iPhone and Research in Motion's Blackberries prove anything, it's that two's company and three's a crowd. The iPhone and Blackberry are proof that the results will be better when the handset operating system and the hardware come from the same company leaving room for only the wireless carriers' personal interests to muck things up. Once you split the OS and the hardware provider into two, things get complicated. Maybe too complicated to produce a great product. 

There's one other important lens to peer through when looking at the iPhone. The iPhone is really the culmination of the company's long-term razors and blades strategy to get higher margin blades on the market. I've been talking about this verbally and am quite surprised at the number of people who don't understand the razors and blades principle. If you're a razor company like Gillette, the majority of your revenues don't come from the razors, but rather the blades people buy as the ones they currently have wear out. The razor and blade approach invariably involves one thing that lasts a long time or forever (the razor) and something else that eventually needs to be replaced.

Printers have long been the razors and blades poster child of the technology business. For the events I run like Mashup Camp and Mashup University, I need to give each attendee a badge. For a previous event, we outsourced the badge printing and, for $200, were very disappointed in what we got. A bunch of badges with no logo and the names of the attendees in 12 point type. I was personally shocked that someone who oversaw the printing of those badges didn't think to themselves, "Gee, as badges, these are of no use at all."  Nevertheless, the company we outsourced the badges to delivered them to us as though they were useful. Last weekend, I went to Sam's Club and purchased an HP 2600n Color LaserJet for $300 (it's $400 at other retail outlets like Staples). The total retail cost for a set of HP-authentic black, magenta, cyan, and yellow toner cartridges for the 2600n is $325. Can you guess where HP is really making its money? The same place Gillette does. On the blades.

Now let's take a look at the iPhone. At first blush, it's easy to say the movies and 99 cent songs you buy from the iTunes Music Store are the blades and the iPod (and now the iPhone) are the razors. After all, like real razor blades and toner cartridges, the the part that gets "inserted" into the other part must be the blade, right? And the host of what gets inserted is the razor. Right? Wrong.  Look again. Which is the part that lasts for ever and and which is the part that eventually needs to be replaced? As long as you're careful (don't lose your only copy of your music through a device crash or a real loss), the music you buy will last forever and its the devices that break, wear out, or get lost and that eventually need replacement. Those music collections out there are the razors.  The iPods, the iPhones, and now the AppleTVs? Those are the blades. And not just any old ordinary blades.

OK, so the AppleTV is only $300 (comparable to some iPods). But the 8GB iPhone (what self-respecting iPhone buyer would take the 4GB version?) is a whopping $600. Despite the fact that analysts already see price drops coming, this provision of companion (AppleTV) and very high-margin (iPhone) "blades" is where the proprietary nature of Apple's FairPlay digital rights management scheme (which prevents iTunes Music Store-purchased content -- aka "the razor"  -- from working with non-Apple gear) should really ramp up Apple's revenue engine. If you're an Apple stockholder, the strategy is quite brilliant. If you have a collection of iTunes Music Store-bought content, you may one day wish you could put a non-Apple blade on that Apple-only razor. 

Finally, there's a rumor circulating that Apple is finally about to give certain third parties access to its proprietary FairPlay DRM scheme.  According to Tech.co.uk, there will be two announcements:

The iPod maker is expected to make two announcements, possibly as early as this week - the first will be to allow streaming of protected AAC content via USB; the second will be to licence its Fairplay DRM to the company's Made For iPod licencees....This will have the effect of enabling you to play songs bought from the iTunes Store through third party devices like hi-fis using digital connections. It may also mean that devices like iPod docks will be able to display more information - artwork and other track info, for example - which is stored alongside the protected audio.

If it's true, that would be welcome news for certain third party vendors as well as customers that want to participate in the iTunes ecosystem. But as far as I can tell (based on the very limited information that's available), it's at best a peripherals strategy designed to give consumers access to the sort of gear that isn't or wouldn't be a decent-margin business for Apple (and that's also a response to the way Microsoft is structuring its Zune ecosystem). Expect Apple to keep the real crown jewels for itself. In other words, if you own an Apple razor (a collection of iTunes Music Store-bought content), you should expect to be buying your blades from Apple for a long time.

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