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Steve Jobs in a Box

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‘Apple turned the tide,” Shawn Fanning was saying as we consumed a copious lunch at my favorite taqueria in Austin, Texas. This was two years ago, at the South by Southwest music festival, where I’d come to talk to Fanning, the renegade progenitor of Napster, about his next venture, a start-up called Snocap. “What Jobs showed the labels was that people were willing to pay for music, even though they could get it other places for free. It changed the environment from where the industry was hostile to where people saw the opportunity.” Fanning leaned backed and adjusted his Red Sox cap. “But the music business doesn’t want just one or two retailers to control the entire market. And the à la carte, 99-cent model isn’t the only way to go.”

Two years later, Snocap is handling the technology for one of the key players in the online music world: MySpace, the social-networking colossus owned by Rupert Murdoch’s News Corp. The system the companies have concocted allows bands to sell their music directly from MySpace pages. Unlike with iTunes, the songs are sold at whatever price the bands decide. And they’re delivered in the MP3 format, which has no DRM, letting consumers stick them on any music player, including the iPod.

MySpace and Snocap are not alone. Last month, Amazon.com announced it would, at long last, dive into music retailing and open up a download store by the end of the year that will offer DRM-free MP3s. At the outset, the Amazon storefront will be stocked only with tracks from independent labels and one major, EMI. But the widespread expectation is that other majors will soon hop on the bandwagon. Universal, for one, is already experimenting with unprotected files in Europe. And the company is reportedly talking with Google about a deal to sell MP3s.

Any movement this conspicuous would never escape Jobs’s attention. Seeing a parade about to pass him by, he raced out it front of it and promptly declared himself grand marshal—first penning an open letter to the music industry calling for an end to DRM and then, last month, launching a DRM-free service called iTunes Plus, selling unprotected tracks for $1.29 each.

But DRM-free is only one cannon shot in a fusillade of digital-music developments. There’s the proliferation of Internet-based subscription services such as Rhapsody, Yahoo Music, and the reincarnated Napster, all of which let users stream millions of songs for a monthly fee. (They can download, too, just not to iPods.) Then there’s the wave of music-discovery Websites, including Pandora (personalized Internet radio), the Hype Machine (music-blog search and listening), and Last.fm (social networking), which was just purchased by CBS for $280 million.

“All this stuff is Apple’s blind spot,” says Fred Wilson, the New York venture capitalist and rabid music buff. “Right now, the download model is necessary because I want to take music in the car or to the gym. But once we have true mobile broadband, the streaming model is going to take off. Then there’s never really going to be a need to own files at all. It’ll all just be there in the cloud.” As for music discovery, Wilson says, “I’ve never found one single artist or song on iTunes … It’s an online version of Tower Records, only worse.”

MusicNet’s McGlade, whose products compete with iTunes, agrees. “The issue with download purchases is that every time you want to hear a track, you’ve got to make a buying decision,” he says. “I gotta tell you, once you put people on a subscription service, they can’t go back.”

What does all this mean for iTunes? The impending end of its hegemony. The success of iTunes has been built on being a stupid-simple, aesthetically pleasing way to buy music online—and the carefully cultivated perception that it’s unique in providing that experience. But iTunes is rapidly being eclipsed, rendered ordinary, even antediluvian. As Martin Stiksel, a founder of Last.fm, told me last month in London, “Apple served their purpose already. They validated the space. Thank you very much, Steve, for that, but now we don’t really need you anymore.”

The ramifications for the iPod are less dire, but still grim. In a world of abundant, unprotected MP3s, in which the leverage from iTunes is diminishing, the iPod is likely to confront a more competitive landscape. “They’ll still be the biggest fish in the pond, but their margins will get squeezed,” says a Silicon Valley pooh-bah who counts Jobs as a friend. “It’s Economics 101: When there are no barriers to entry, prices fall to equilibrium. But that level won’t be interesting to Steve. MP3 players will be like CD players—cheap commodities.”


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