In an interesting article for PBS, tech pundit Robert X. Cringely says the iTunes Music Store is Apple’s future — not the iPod. He says Apple will license out the iPod technology at the right time to become a software-only company when it comes to digital music.
“Ultimately, what Apple wants to do is make its money through iTunes, where the profit margins are better in the long term and the system is easily scalable,” Cringely says. “It was necessary to create the iPod platform to make this happen. But downward price pressures will eventually hurt iPod profit margins and affect Apple’s stock price, so the trick is to know when to switch the business from being a mix of hardware and software to one that is software-only. That switch, which I believe to be inevitable, will happen shortly after Apple begins to license iPod clones.”
“As Apple’s profit drops on each iPod it makes, eventually the per-CPU figure will approach what Apple might receive from licensees,” he says. “At that moment it makes more sense for Apple to license clones than it does to make more iPods. Licensing clones at the right time would lead to huge clone sales, effectively killing any significant iTunes competitor. And in the long run, iTunes is where the money is.”
Cringely also notes that (previously mentioned) unused icons in the version of iTunes included with Mac OS X v10.4 hint that new audio format support and a video iPod are just around the corner. “And 10.4 gives us a peek at another evolution of iTunes, which is the inevitable expansion of the system to carry additional audio file formats,” he says. “Looking at the unused iTunes icons that shipped with your new version of 10.4, you’ll notice icons for currently-not-supported ogg vorbis and Windows Media Audio (wma), as well as several others including a variety of video formats, too.”