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Analysis: With iTunes, Apple becoming the Sony of this century

By
Jon Fortt
Jon Fortt
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By
Jon Fortt
Jon Fortt
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January 19, 2007, 5:18 AM ET
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Back in 2000, my editors accused me of being an Apple (AAPL) fanboy; I wanted to write about the company all the time. Apple was the biggest part of my beat for the San Jose Mercury News, and I thought it was the biggest emerging story in Silicon Valley. The Cupertino crew was finally ready to ship the next-generation operating system execs had promised for years, the legendary Steve Jobs was back to stay, and there were rumors of a breakthrough handheld device. What’s not to like?

Fast-forward seven years and it’s quite a different story. With the iPod’s success, the Mac’s seeming resurgence and the stock’s buoyancy, everyone in the world now thinks Apple’s the biggest emerging story in Silicon Valley. Meanwhile, Apple fans are convinced I’ve got something against the company.

“Good lord, this can only be Microsoft FUD marketing at play. LOL,” Pete commented on my last Apple-related blog post.

“Most everything you scribble about Apple, their products or employees is tainted with a foul stinch,” Notjonfortt added. “It this something you get paid to do or is this your “signature” for attention.” My former editors would be shocked.

Truth is, I don’t have a thing against Apple. My wife and I own three Macs, not counting the ones we have on our desks at work, and each of us owns an iPod. It’s just that I’ve always liked to think about Apple’s future in ways that run counter to the mainstream.

Which brings us to the current state of the company.

Apple is at a crossroads where it must decide what it will be over the next decade. It’s not the first time, either. In the late ’70s it set itself up to be the inward-focused, proprietary computing wunderkind it became in the ’80s. In the late ’80s, it set itself up to be the flailing, disorganized disaster it became in the ’90s. In the late ’90s, Steve Jobs set Apple up to be the streamlined, user-focused, iPod-fueled juggernaut it is today.

So it’s the late ’00s. How’s Apple setting itself up this time around?

Let me be the first to say that anyone who claims the ability to specifically divine Apple’s future is delusional; the best any longtime Apple watcher can do is read between the lines. That’s what I’m doing here.

And to me, it looks as if Apple’s positioning itself to be the Sony (SNE) of this century, only without making clock radios, movies and TV shows. Apple’s focus remains on crafting software and hardware that’s an indulgence and a delight for everyday people, it just wants to take that philosophy beyond the computer and into more facets of life. (Sony followed a very similar path after its early success with tape recorders and transistor radios.)

At the foundation of this move by Apple is not the Mac, not the iPod, but iTunes.

It should be noted, though it rarely is, that while the iPod gets all the attention, iTunes is really Apple’s secret sauce. Every iPod user installs iTunes, and uses it to sync music and video between iPod and computer. Every time Apple gets a customer to embrace iTunes – buy and manage songs there, download video, create playlists – it gets harder for that person to switch to a competing music player. In that way, iTunes has staying power reminiscent of Microsoft (MSFT) Windows.

And that’s why every new device Apple introduces – Apple TV, iPhone, you name it – will connect to iTunes. Apple wants to grow iTunes into the control panel for our digital life. Sure, the iPod you buy might cost $400. But the value of the downloaded music you organize in iTunes, plus the time you spent creating playlists, ranking songs and writing reviews, is actually far higher.

So it seems that in the next decade Apple will continue this iTunes-based expansion into the digital lifestyle, as it crafts devices and software that it believes will make everyday items easier to do. The company carefully picks devices that have huge addressable markets and some interface problem it believes it can solve profitably.

But at the same time, dangers lurk. Apple TV might not live up to the company’s vision of making it “the DVD player of the 21st century” – people are used to buying DVD players or ordering on-demand content, after all. And the iPhone might run into stiff competition from phone makers, who have global brands, distribution networks, carrier relationships, and knowledge of how to position their products.

Either way though, Apple is still the most intriguing story in Silicon Valley. And as 2010 approaches, I still find myself wanting to write about it all the time.

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