I must apologize. The other day when, after practically the entire music business knuckled under to Steve Jobs, I rattled off the kingdoms that Apple's proprietary digital rights management (DRM) technology (known as FairPlay) gives or will be giving Jobs the keys to (starting with music and movies), I failed to mention telecommunications. Sorry about that. It's on the list. Here's how it works.
We all have cell phones. Our kids have cell phones. In some places in the world, that's all we have (in other words, no landline). It's Apple's DRM technology that gives Jobs the control he has over the music industry. A huge and growing number of people with cell phones all have portable music players (some of which play video like the video iPod). With storage going the way it's going (cheaper, smaller) and batteries getting better and better, it makes no sense -- zero sense -- for any of us to be carrying two devices when we could be carrying one. Another reason it makes no sense is that, with today's wireless networks offering the bandwidth they offer, we shouldn't need an intermediary like a PC or a Mac to (a) handle the transaction when purchasing music and videos from merchants like the iTunes Music Store (iTMS), and (b) load/organize that newly purchased content into your portable device. Why shouldn't you be able to eliminate the middleman and do all of that right from some sort of converged voice/playback handset.
Well, one reason you might not be able to do all that so effortlessly is because the user interfaces on today's phones, let alone some of the converged devices, stink. They're just not adaptable to taking all the friction out the way, say, the iPod, iTunes, and the iTMS have done it for a la carte sales, organization (playlists), and portability of digital music. Motorola, with it's relatively unpopular iTunes phones is pretty good proof. It's a tailor-made problem for a company that specializes in clean, simple UIs that have a reputation for being frictionless. A company like Apple. Throw in a few other applications that make sense over wireless networks -- email for example -- and make that frictionless and then you'd really have a winner.
Via an email interview, Cliff Raskind, director of Strategy Analytics' Wireless practice told me:
From an enterprise perspective, I continue to believe that the iPOD navigation wheel would be a powerful way to scroll up and down a voluminous inbox on a mobile device in the same way it makes going up and down music libraries a snap.
For some time now, many have speculated whether such a device -- a converged phone/digital content playback handset with an iPod-simple user interface -- was in the works at Apple. But now, between the Mobile Me trademark that was filed earlier this year and the revelation that Apple is looking to patent "an invention that allows cell phone or wireless handheld users to interact with an online music store--such as iTunes--and mark a song or video file that can be downloaded to a computer at a later time," I think it's pretty safe to stop speculating about such a device and wait for the next step: usually the one where one of the enthusiast sites like ThinkSecret or Endadget to do what they do so well -- clandestinely get pictures of it. Another clue that such a device is on the way is word that Apple has practically sent out an RFQ for getting it manufactured to the typical cast of characters on the Pacific Rim that are capable of building it.
According to Neil Mawston, Raskind's senior analyst for wireless device strategies:
[Our] position is that the Apple iphone is inevitable, likely in 2007, likely in developed markets (e.g. North American market), but they will not rush it.
Ideally, it will serve Apple best to wait for a peak in portable sales (i.e. maturity), before they launch a mobile device in order to revitalize a slowing product growth cycle.
Apple has more than half a dozen strategic options for mobile that it can take in 2007 to 2010. These include do nothing, become an Mobile Virtual Network Operator (MVNO), launch an Apple-branded phone made by an original design manufacturer (ODM) like HTC, purchase or merge with an existing handset vendor (e.g. Kyocera), sell software-only to one or more mobile vendors (e.g. Motorola Rokr), and so on. All these scenarios involve moderate to high risk for Apple, as they are beyond its core fixed and portable competences (e.g. laptops), and they are entering a mature market dominated by a handful of brands (e.g. Nokia).
My best guess is that Apple will either launch an own-branded phone (made by Tawainese ODMs) with a tier-1 carrier in the US (e.g. Cingular), or it will launch as an MVNO (e.g. Disney), or it will do both.
Both seems more like it considering the freakish control Jobs just asserted over the music industry and how that might lend itself to his role at Disney right now.
So, what does this mean? Today, the network operators sell music as song segments (ring tones) for as much as five times as much as it costs to buy the entire song at iTMS. They can kiss that business goodbye. Much the same way the music industry knuckled under to Jobs, the carriers that sell cell phones (Sprint, T-Mobile, Cingular, and Verizon Wireless) will have no choice but to answer to the demand for a device that makes perfect sense, is the easiest thing to use in the world since...well, since the iPod, and that can play more than 80 percent of the music being purchased on-line. It's Apple's DRM technology that gives Jobs the control he has over the music industry. Without that DRM (which is incompatible with every other device on the market), end users could easily take all the music they've purchase elsewhere. To another portable playback device. Or to another converged cellular/voice/playback handset. With it, users that want to converge won't have much choice and neither will the carriers.
The news isn't all bad for the carriers. Accessing the iTunes Music Store from a portable handset will probably require Internet connectivity which in turn will involve some sort of premium charge. But there too, just like with the music labels, Jobs will be handily in charge of pricing. The conversation is relatively simple. "You charge $10 a month instead of the $80 that you normally charge for Internet access, and I'll let you sell my phone." Maybe it won't go exactly like that. But that is the sort of leverage that Apple's monopoly control (and that's me saying it's a monopoly... not some trustbuster) of digital content sales (afforded to it by its proprietary DRM), that Jobs will have over the wireless carriers. A key to yet another kingdom.