What Does the Rest of 2008 Hold Part I

Part one of another semi-regular series, this week Apple and Nokia

Apple and Nokia have their horns locked in an intriguing corporate duel, each opening up secondary fronts on their opponent’s turf in a bid to out-flank them: Apple with the iPhone and Nokia with their music strategy. The new ‘away’ business of each is comparative small fry in their opponent’s ‘home’ marketplace but is so disruptive to force their opponent to reassess the rules of engagement. The application of Apple’s characteristically innovative approach to devices to the iPhone has set new standards for what high-end phones need to look and perform like, despite the fact it accounts for a miniscule fraction of global handset sales. Similarly Nokia’s Comes With Music is setting the standard for next-generation music services despite the fact it’s not even been launched yet.

The implied question is what will the defensive counter-thrust of each company be? I’ll leave the Nokia part aside as mobile is not my area of expertise but I’ll take a stab at the Apple part.

Over the course of much of much of this century Apple has innovated hard with the iPod, typically launching the ‘iPod-killer’ before the competition can. The iTunes Music Store (iTMS) however has remained relatively untouched – what changes that have been implemented have been evolutionary rather the often revolutionary approach to iPod refreshes. Apple has simply not been under any serious competitive pressure to evolve iTMS since its launch. It has, since the word ‘go’, been the best-of-breed offering, and for nearly as long the market leader, increasing its dominant market share with each year.

Now with the emergence of new approaches to digital music (subsidized subscriptions, social music, ad-supported) Apple is at risk of looking like yesterday’s digital music offering. (Indeed Nokia seems to be stealing all the press, something Apple traditionally pride themselves on). This matters to Apple because the role of iTMS is to enhance the value proposition of the iPod. If iTMS acquires a market perception of being outmoded, the whole iPod value proposition is affected.

So what will Apple do? I’ll make my personal predictions around one or more of the following happening before the end of 2008:

· A subscription service (probably covering music and video) but with some sort of ownership story for music and a predominately rental story for video. (An optional pay-as-you-go payment model would be well suited to driving additional a la carte sales). Using the licensing territory that Nokia has carved out Apple could offer permanent ownership on iPods and computers, but not CD burning. This would of course make it highly important for the next option…
· DRM-free across all a la carte catalogue. Olive branches need to be extended to the majors, but Apple needs to beat the rest of the pack to universal availability of DRM-free. It would also help Apple address the issue of iPod owners having music optimized phones as a secondary music player
· Pre-installing iPods with content (music and video). A great way for Apple to differentiate at point of sale and to charge premiums for devices in the face of increasing price pressure.
· Social discovery features, perhaps facilitating opt-in profiles that incorporate users’ iTunes based listening behaviour and iTMS purchasing behaviour.

Apple being Apple (i.e. impossible to predict) none of the above may ever happen, but whatever does, Apple needs to do something soon.