Is Apple a monopoly?

Ten years ago, Microsoft was the company everyone loved to hate.

The most vociferous Microsoft haters slammed the company for being a greedy industry bully that used its monopolistic, clunky, copycat operating system to force software on users and coerce partners into unfair licensing deals.

But the role of the industry's biggest bully is increasingly played by Apple, not Microsoft. Here's a look at how Apple has shoved Microsoft aside as the company with the worst reputation as a monopolist, copycat and a bully.

Apple the monopolist

The core complaint about Microsoft in the 1990s was that its Windows market share gave it monopoly power, which it abused in multiple ways. Attorneys General and others zeroed in on the "bundling" of the Internet Explorer Web browser, which they claimed was forced on users because Microsoft offered it as part of Windows.

People love iPods . But iPods come bundled with iTunes. Want to buy music from Apple? Guess what? You must install iTunes. Want an Apple cell phone from AT&T? Yep! ITunes is required even if you want only to make phone calls. Want to buy ringtones for your Apple phone? ITunes.

Apple not only "bundles" iTunes with multiple products, it forces you to use it. At least with Internet Explorer, you could always just download a competitor and ignore IE.

Any hardware device that syncs data with a PC as part of its core functionality has software to facilitate that syncing. True enough. But operating systems have browsers as part of core functionality, too. Doesn't Mac OS X come with Safari? Doesn't the iPhone?

And "bundling" works. Steve Jobs bragged this week that Apple has distributed 600 million copies of iTunes to date. The overwhelming majority of those copies were iTunes for Windows. And iTunes for Windows' popularity isn't driven by software product quality.

At least with Windows, you could reformat your PC and install Linux or any number of other PC-compatible operating systems. Can I reformat my iPod and install something else? Can I uninstall iTunes but keep using the iTunes store and my iPods? Apple strongly discourages all that, claiming that the iPod, the iPod software and iTunes are three components of the same product. But that's what Microsoft said about Windows and IE.

Sorry, dad

Here's a scenario for you. A consumer walks into a local retail outlet to buy a Christmas present for dad. The Apple iPod "section" of the store dwarfs the section where all the also-ran players are displayed. IPod is clearly the trusted standard. The consumer buys a shiny new "Fatty" iPod nano with video.

Dad opens the present and is excited. He follows the directions, installs iTunes and immediately splurges on a few dozen songs at the iTunes store. He loves it, and is an instant convert to portable digital music.

The only downside is that he works out every day at the gym, where cardio machines face TVs that broadcast sound over FM radio. Six months later, when his iPod is stolen, he goes to buy another player -- this time, he hopes, with an FM radio in it. Several competitors offer this feature, but not iPods. He's about to choose a new player with an FM radio when it hits him: None of his files -- now totaling 300 songs and 50 movies -- will play on the new player. He bought and paid for all this content, but it only works with iPods and iTunes.

Apple has an iPod customer for life. Microsoft never had this kind of monopoly power. Sorry, dad. I should have bought you a tie.

Sticker shock

Another clue that a company has monopoly power is when you find yourself suffering sticker shock. How many times have you stood in line at the theater megaplex and marveled at the chutzpah required to charge $4.50 for a soft drink, when the same beverage is one-third the price at the quickie mart 50 feet outside the theater doors? But -- so sorry! -- no outside food or beverages are allowed in the theater. The theater has a monopoly on soft drink sales, and you'll pay what they charge.

That same shock rippled through the iPhone enthusiast community yesterday when Jobs announced with a straight face that iPhone ringtones based on iTunes songs would cost the full price of the song, plus 99 cents extra. What? The full song costs 99 cents! How on Earth can Apple seriously charge the same amount again for the ability to hear just 30 seconds of the song -- the same length as the free iTunes "samples"?

Apple fully understands the power of monopoly pricing. The company has sold the 8GB iPhone for two prices in its short, three months of existence: $599 and, now, $399. When the iPhone was the only way to get the whole multitouch, big-screen, Wi-Fi iPod experience -- when the product had no alternatives -- the price was $599. One analyst estimated Apple's cost to build an iPhone is $245.83. I don't know if that's true but, if so, more than half the user cost was profit. That's theater soda pricing. But as soon as Apple introduced an alternative to the iPhone -- the iPod Touch -- Apple dropped the price by one-third.

Imagine if another company were allowed to compete in the OS X media player market. These players would all drop to below $300. Don't hold your breath, though; it'll never happen. Apple has the power to exclude all others from software than runs on its media players. Microsoft could only dream of such power.

Apple the copycat

Ten years ago, Microsoft haters complained that Windows followed the Mac OS to market as a graphical user interface, copying the Mac's features such as folders, trash cans, resizable windows and other elements. That complaint was repeated with each new version of Windows -- Apple was the innovator in the operating system space, and got there first with a host of key features. Microsoft just came along later, duplicated features that Apple pioneered, and reaped the benefit because of its monopoly power.

But who's innovating now? The LG KE850 was winning awards for its full-screen, touch-screen, on-screen keyboard before Jobs even announced the iPhone.

The best thing about the iPhone and iPod Touch -- the warm-and-fuzzy multitouch UI with gestures -- wasn't new, either. Various labs have been demonstrating similar UIs for more than a decade, and even Microsoft demonstrated a fully realized 3G UI in May, well before Apple shipped the iPhone. Microsoft will ship its tabletop UI, called Microsoft Surface, in November, and Apple will likely enter this space with a 3G UI months or years after Microsoft does.

And Wi-Fi in a media player? Ha! Microsoft's funky Zune had that almost a year before Apple did and SanDisk's Sansa Connect with Wi-Fi was released last June. Apple even stole the name for its iPod Touch product, according to HTC, which sells a touch-screen smart phone called the HTC Touch.

Don't get me wrong. I think Apple's execution of these features is far better than its competitors'. And it would be horrible decision-making to not build the iPhone simply because others pioneered key features. But that's not what I'm talking about. I'm talking about Apple doing what Microsoft did: dominating the market with features other companies had first. If it was fair to slam Microsoft over Windows, it's fair to slam Apple over the iPhone and iPod Touch.

Apple the bully

Microsoft used to be the big bully, pushing everyone around and dictating terms to partners. Microsoft has lost its edge in this regard -- most of Microsoft's major resellers brazenly hawk Linux. Even Intel -- the "tel" part of "Wintel" -- is powering Macs these days. Microsoft is still profitable, but it has lost control -- and has lost its reputation as the bully nobody can say no to.

Meanwhile, Jobs has suddenly become the most feared man in Hollywood, bragging yesterday about Apple's scary dominance in digital media sales. Apple has sold more than 3 billion songs and 95 million TV shows via iTunes. While music CD sales crash and burn, almost one-third of all music sales are now digital. As Jobs euphemistically said yesterday, "iTunes is leading the way."

Although full details haven't been revealed, NBC apparently wanted more "flexibility" to charge higher prices for its TV shows on iTunes. Apple said no, and NBC was sent packing. NBC now plans to sell shows on alternative locations, such as its own Web site and on Amazon.com. Prediction: NBC will come crawling back to Apple and beg the company for inclusion, and on Apple's terms. Why? Because iTunes is increasingly becoming the only venue in which media companies can succeed selling music and TV show.

Jobs rules like Bill Gates never did. If you want to succeed in the digital music or downloadable TV business, you'll do things his way.

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Growing trend of ipod

Any talk these days of Apple and the future of mobile computing quickly turns to the iPhone. The company is on its way to selling a million iPhones in the first three months of what Apple says is a multiyear strategy to enter the mobile phone market.

But Apple makes another mobile device. It's called the iPod. And if the persistent rumors are fulfilled Wednesday during the latest episode of The Steve Jobs Show (a product presentation at San Francisco's Moscone Center), the iPod is about to get a whole lot more powerful.

A wide-screen iPod that looks an awful lot like an iPhone seems like the most likely bet for the sixth generation of Apple's ubiquitous music and video player line. It also seems very likely that those new iPods will run the same stripped-down version of Mac OS X found on the iPhone, something even Jobs himself hinted at during a meeting with Apple employees on the eve of the iPhone launch.

You don't need a sophisticated operating system to play songs and TV shows, so at that point, the iPod stops being just a gadget. So, then, what exactly is it? Like the iPhone, it becomes something in between a gadget and a PC, which has been treacherous ground for the PC industry.

The tech industry appears to be at another one of those pesky crossroads. The PC is, well, dated. We all need one, and we all use one, but we just don't get excited about buying a new one anymore.

As a result, the PC industry has been scrambling to find the next big thing. Tablet PCs? Nope. Home media centers? Maybe, but not yet. Digital televisions? Still the domain of the consumer electronics industry.

An iPod with a more powerful operating system and a touch screen could suddenly become an intriguing little device for those who like the iPhone, but don't want to spend 600 bucks or hook up with AT&T.

Apple found its next big thing six years ago when it released the iPod. It wasn't the first company to figure out that people wanted to carry all those Napsterized songs in their pocket, but it has certainly made the most of it. More than 70 percent of people in the U.S. who want a portable digital music player buy an iPod.

But the iPod really does just one thing. It does it well--and yes, you can also store contacts, appointments and play games that would have looked lame 10 years ago--but nobody buys an iPod to make sure they remember that doctor's appointment.

After Wednesday, that might be different. An iPod with a more powerful operating system and a touch screen could suddenly become an intriguing little device for those who like the iPhone, but don't want to spend 600 bucks or hook up with AT&T.

It wouldn't be hard to imagine some of those people put off by the iPhone's price and wireless carrier would shell out $349--the current price for the 80GB iPod--for an iPod that can do far more than just play videos or music.

That is, assuming Apple doesn't overlook what's really needed in a mobile computer. There's no point in putting a sophisticated operating system in an iPod if you wall that device off from the Internet. Apple has resisted adding Wi-Fi to the iPod thus far, but it broke that barrier with the iPhone and perhaps it has figured out a way to add Wi-Fi without killing battery life.

And it would really need to be a phone-less iPhone, with applications like Safari, YouTube and Google Maps. Ideally, it needs third-party applications, such as games or GPS navigation. But it might take Apple awhile to admit that, given that its approach to application development on the iPhone was to limit developers to Web-based applications.

The entire combination could make the $349 iPod more attractive. Apple's revenue growth from iPods has stalled, even though the unit growth is still above 20 percent year over year. That implies that iPod buyers are opting for the less expensive $199 4GB Nano or the $249 30GB iPod.

It's quite possible that Apple doesn't want to make that dramatic a leap just yet. Jobs prizes simplicity and aesthetics, and a large part of the iPod's appeal has been that it does one thing (or a couple), and does it (or them) well.

But a Mac OS X-based iPod could be a compelling device as the industry and its customers try to figure out how mobile computers should evolve. It would avoid the early mistakes of the UMPC, which runs a battery-sapping PC operating system, doesn't fit in a pocket, and at around $1,000, has been met with lukewarm--at best--interest from consumers.

There are other devices out there, like Sony's PSP and video players from Archos, that are trying to do the same thing. But with sales of more than 10 million iPods a quarter--and a whopping 21 million last holiday season--Apple has established the iPod as one of the most widely used handheld gadgets on the planet.
What if it were a computer, too?

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