Wily Steve Jobs Wins Again

Amazon.com's announcement yesterday of its DRM-free MP3 store is an amazing victory for that wily fox, Steve Jobs. Jeff Bezos has thrown the weight of the Amazon franchise behind DRM-free digital music distribution, securing the future of the iPod franchise.

Apple sells hardware. Software is strictly a way to move the iron (or the plastic, composites and silicon). To sell iPods, Jobs discovered, he needed to fix the fragmented MP3 song distribution system. Thus he begat iTunes, which is really two things: a music store, and software that organizes your electronic music.

As soon as the iPod/iTunes team dominated the market, Jobs issued his famous "DRM Sucks" missive, in which he blamed the evil music companies for forcing him to sell DRM-restricted music. Why? Because once iPod, propelled by iTunes, became synonymous with "portable music player" and had market dominance, its growth needed a robust market for songs. The more songs available in more ways, the more iPods (and other Apple music-playing gadgets like the iPhone) would sell. DRM gets in the way of music purchases which gets in the way of iPod purchases. That is why Jobs declared that DRM is evil.

So now Apple sells DRM-restricted songs for 99 cents, DRM-free songs for $1.29, and Amazon offers DRM free songs for 89 cents. Watch as prices continue to drop and volumes rise. No one knows better than Amazon how to pump online sales volume.

And notice that the graphics on the Amazon Mp3 store beta site are loaded with iPods.

What about the future of iTunes? I don't think Jobs really cares that much, but the iTunes software will remain the iPod user's music organizer of choice and the iTunes store will evolve to help shape the market for music to Apple's liking. And video...

Yes, next is the Jobs attack on the video market, which has just really begun. The video content producers would do well to get over DRM now. Copy protection has never succeeded in the marketplace. Get over it.

Copyright © 2007 Philip Bookman

Technorati: Business Strategy, Strategic Planning, Apple, Amazon

The Gift Of The Windows Monopoly

As the European Union gets more and more aggressive against Microsoft for abusing its Windows monopoly, Americans may be excused for not understanding the logic of EU antitrust decisions. American antitrust law is about protecting consumers. European law is about protecting jobs and companies, with only a passing nod at consumer protection.

Microsoft is not alone in its conflicts with these EU laws. Steve Jobs, whose monopolist instincts make Bill Gates blush, has railed against the EUs attack on the iTunes-iPod tie-in. Google is feeling the heat over its plan to acquire DoubleClick.

Now, there are EU rumblings that bundling an operating system with a computer is anti-competitive. By extension, the same would be true of cell phones. Oh, goody, we can get back to the old days when you bought a computer that sat like a brick until you bought an OS and figured out how to install and configure it. And who can wait to do the same with a billion or so cell phones each year.

The world has benefited greatly from the Windows monopoly. It gave developers a single target which enabled them to produce an amazing array of applications. It gave hardware manufacturers a de facto standard for developing all manner of peripheral devices. It gave all of us a mass market for PCs, driving down costs and spurring innovation. It was at the center and, I would argue, was and is a driving force behind the technological revolution of the last few decades.

One of the EUs main complaints is the bundling of Windows Media Player with Windows. This led to a European version of Windows without WMP, which no one buys. Ironically, WMP is losing usage share to iTunes, not as a result of the silly EU sanction.

The market will decide what an operating system should contain. Consumers use a wide variety of email applications, mainly web-based, event though Windows bundles an email program. Consumers expect a wide variety of capabilities to be bundled in the OS (Apple's OS X bundles most of the same types of applications as Windows). They also will decide when the want something better (Microsoft Money, often bundled with Windows, loses to Quicken by a wide margin).

The EU approach to monopolies in technology will lead to higher consumer prices and slower tech adoption.

Copyright © 2007 Philip Bookman

Technorati: Business Strategy, Management

The Downward Spiral Of Suboptimization

Over the summer I had the opportunity to talk to several CEOs of stall businesses. That is not a typo. A stall business is one whose growth has stalled. What I noticed is that in each case, the CEO knew why the once promising growth curve had flattened out. With a little probing from me, each was able to articulate what needed to be done to restore growth. Each saw how the fix to the growth-stalling problems was critical the their strategy, and each could articulate the strategy and how the critical change fit it. Each could see how to optimize the change to recharge the growth engine.

But in each case the CEO quickly shifted into suboptimization mode as they talked about implementing the necessary change. It was as if they had a split-personality. This shift in thinking assured that they would fail.

Here are two examples, with names changed to protect the guilty.

Sally is CEO of a well-established, well-run, effective services business in a specialty for which there is increasing demand. Growth has stalled for two reasons. First, her key service delivery staff must hold a particular credential that is not trivial to obtain. These folks are in high demand and competition for them is fierce. Sally's company needs excellent recruiting and staff retention. She also needs staff development to assist junior staff in obtaining the needed credential.

Sally's customers are increasingly demanding objective documentation of meeting service contract objectives, due in part to changes in regulations they in turn must meet. Sally needs her service delivery staff to meet these documentation requirements, something anathema to many of the old-hands who do great work but hate the paperwork. She needs to get her staff trained, their performance objectives aligned with the new customer requirements, and her managers need help in motivating their recalcitrant staff.

Sally knows her problem is her HR vice president, with whom she has had ongoing conflict about these and other issues. She is certain the HR VP cannot and will not do what needs to be done. She agrees that she needs to replace the HR VP. But (time for suboptimizing) that would be a distasteful and difficult chore, so Sally is doing all sorts of things to work around this person. This means doing things less well and causing work for others which makes them in turn less productive. Growth remains stalled.

Charlie is CEO of a small contracting firm. He runs operations and his partner runs sales. Charlie's business has stalled because he cannot generate enough profit from his contracts to fuel growth. Competition limits his pricing power. Charlie knows that he can recharge growth by getting bigger contracts, since his overhead and cost of selling are the same regardless of contract size. His strategy is to move the business into the more lucrative contracts. The stumbling block to doing this has been his partner, who needs to bring Charlie in to close bigger deals. After considering several options, Charlie concluded that the long-term strategy of the business would be best met by bringing in someone to run operations (his partner is not an operations guy) so he can focus on growing the large contract sales capability, leaving his partner of bring in the small deals.

But Charlie's approach to bringing in an operations person is to do it as cheaply as possible. This means he will have to keep true leadership of operations under his auspices, so he will only be somewhat involved in going after the big contracts. On the one hand, he is certain that if he hires a seasoned operations manager, Charlie's ability to focus on big deals will quickly more than pay the cost. On the other hand, he cannot stomach the cost of a senior operations manager and wants to hire and develop someone green but cheap. He may get a little growth, but is probably stuck in stall mode.

Stall businesses rarely stay stalled. They either resume growth or decline. The CEO who does not properly execute the steps needed to resume growth is heading for the downward spiral of suboptimization. As decline sets in, cutting costs becomes the primary focus, more and more of the business is suboptimized and the decline accelerates.

Copyright © 2007 Philip Bookman

Technorati: Business Strategy, Management