Cracking The 'Pod
I know I wasn't the only one who was irked when it was revealed last Friday that the latest generation of iPods being sold were going to contain a checksum function to block non-iTunes apps from communicating with Apple's funky little music product.
And I am sure I wasn't the only one chuckling when it was announced this past weekend the crack to bypass this feature has already been created.
The upshot of all of this hooey-booey is that Linux users will still be able to use their music management software to converse with new iPods. While I don't own an iPod, I still find this good. I went and looked at my daughter's iPod documentation and I did not see anything that said you had to exclusively use iTunes, even on Windows or Mac. As a Linux user, I certainly wouldn't have bought the thing if that were the case.
The blogger who made the announcement, who goes by the slightly awkward handle of ipodminusitunes, voiced the sentiment that I am sure many of us in the community were feeling: why does Apple even bother with DRM, when it's so ridiculously easy to crack?
The answer, of course, points to something key about Apple's revenue plan: they aren't making much money selling the hardware--the real money is coming from the music sales through iTunes. No big secret, but it does highlight and even oddly validates the revenue models promoted by open source.
If I own a cheese store, it will certainly help my bottom line if I sell the big 100-kg wheel of Gruyère to Mr. Big Bucks. But unless Big Bucks comes in every week or every month and makes similar purchases, my business is not going to succeed for long. Better to have Mr. and Mrs. Middle Class and all of their friends coming in on a regular basis and buying slices of Swiss.
This repeatable-revenue model is the basis for all successful companies, and it is not endemic to open source software firms. Even Redmond wants repeat customers, which is a big reason it keeps changing its Office formats, so people have to upgrade to keep up with other users.
What I like, though, is how affordable open source solutions are. Since I am not paying for a one-size-fits-all license, and only for services, I can tailor my needs to my checkbook. The open source company still gets my repeat business, but instead of trying to get all of my money at once, they get a little at a time, while pulling in revenue (ideally) from many other small sources.
I know, it's probably a reach to use the predatory example of Apple's DRM revenue plan as a metaphor for solid open source business plans. But if the shoe fits.
The answer, of course, points to something key about Apple's revenue plan: they aren't making much money selling the hardware--the real money is coming from the music sales through iTunes.
With net sales of $6.7B so far on a product line that retails about 60% higher than it's material cost, I highly doubt they "aren't making much money selling the hardware".
During the same time period net sales on "other music related products and services" was $1.9B. Consider that the wholesale cost of the "product" accounts for about 70% of the ITMS sale price. Then you have to factor in transaction processing with the bank, network bandwidth, delivery infrastructure. At the end of the day margin is likely lower on content on top of significantly stronger sales.
If you hadn't framed it in terms of their current revenue then you would have had an argument, since content has shown a consistent increase in growth quarter over quarter. The hardware market is nearing saturation and they face stiff competition from increasingly competent product offerings, not to mention to rising impact of music functionality being bundled by cell phone manufacturers.