Is AAC Music Format Ready to Go Big?
The HP / Apple Dance. There are so many angles concerning the recently announced HP / Apple iPod + iTunes Music Store collaboration you could fill pages upon pages of conjecture. Everyone on the web seems to be scurrying about, trying to figure out what in the world Apple is doing moving outside the Mac-related stratosphere and "getting a room" with HP -- a peecee company of all things. Hasn't Apple's strategy all along been to offer "insanely great" software to lure customers into buying their hardware? Is this the same Steve Jobs who in the 80s stubbornly sat on the original Macintosh, refused to license it, and eventually allowed clones only to return years later and squash them all over again?
What makes the alliance so intriguing is that there is zero precedence for it. Apple has never -- ever -- licensed their intellectual property to a third party in such an open way. Not just any third party, but a company that also happens to sell computer hardware. In other words, a competitor.
So what in the world is HP doing re-branding a piece of Apple hardware as their own, and putting Apple's software on their computers? And for that matter, what would possess Steve Jobs to allow another company (a Windows based one for God's sake) to piggy-back on all the success Apple has had with the iPod / iTMS?
Here's how I see it -- HP could have soaked untold millions of dollars in R&D manufacturing their own mp3 player and music service, which at this point would be a risky, tardy investment. Or, they could do what Dell did and license / re-brand third party products just to maintain face and remain competitive in the industry. At this stage in the online music download race, the latter makes the most sense. But if you're going to get in the game this late, would you want to start at the bottom of the ladder, or the very top?
By licensing the iPod and offering iTMS on their desktops, HP moves themselves immediately to the front of the line (alongside Apple). HP will be able to offer their customers (who probably know and trust the HP brand but have never owned anything by Apple) an experience that is superior to any of the other Wintel manufacturers. Literally overnight they become not just a player in the online music race, but a leader.
So what does Apple get out of all this? For one, easy money. Apple will receive cash for every HP-iPod sold without having to do any of the heavy lifting (marketing, distribution, etc.) They also further solidify their position on the almighty Windows desktop, where an alias to an application is worth its weight in gold. And to top it all off, Apple further strengthens the open standard audio format iTMS runs on -- AAC.
And this brings us to what is probably the biggest point of all -- the fight for standardization. Microsoft is pushing their own proprietary audio format, Windows Media, and have succeeded in inking deals with companies like BuyMusic.com and Napster to standardize their services on their codec. In doing so, the aforementioned third parties take a huge (and in my mind, shortsighted) risk by technologically wedding themselves to Microsoft, and by ignoring the most popular mp3 player on the market -- the iPod. In return, Microsoft would work to further strengthen the Windows Media format in both software and hardware design, and eventually try to choke the life out of anyone who dared to enter their backyard. If they succeeded, Microsoft's proprietary audio format would become the de-facto technology behind a slew of products; forcing third party companies (like HP) to license it if they wanted to offer consumers anything that had to do with digital audio. And that alone probably scared the crap out of HP.
This cannot be said enough -- 'AAC' does not stand for "Apple Audio Codec" or anything of the like. It is an MPEG-4 audio format created by Dolby Laboratories and licensable to any hardware / software manufacturer creating an audio encoder and/or decoder. The difference between Apple and Microsoft couldn't be more clear -- Microsoft has everything to gain by selling a Windows Media license, while Apple earns nothing on AAC, other than supporting an open standard their products are based on. Apple would sell more product if the audio format they used was widely adopted, but they are not in the business of selling audio licenses.
For example, if next week a company licensed AAC and developed an 'iPod killer' that was technologically superior to Apple's offering, Apple could be run out of the mp3 player market and would gain nothing from the continued use of AAC. Microsoft on the other hand could offer their own Windows Media portable audio player, and risk nothing if the player wasn't popular for they would still earn money from the codec being used in a variety of other players.
Who's strategy is the smartest isn't the point here, but rather what is best for the consumer in a highly competitive marketplace. Apple's alliance with HP is not just a victory for each company (each will reap millions from it), but for the general marketplace. By further cementing AAC, untold numbers of devices could flood the marketplace and offer consumers a true choice in what they buy.
For an example of what happens when one company holds the purse strings, all you have to do is look at Internet Explorer, which is used by the vast majority of internet users, but faces little competition thanks to tight integration into the Windows OS. And as a result, Microsoft sees little reason to improve the product, and the web stagnates on a browser that is now four years old.
Drawing an analogy between Internet Explorer / Windows Media and HP / Apple / AAC may seem a little silly (and truth be told I didn't think I was going to go down that road when I started typing this), but everything points a much larger battle that is brewing -- the fight for companies like HP hoping to further unhinge themselves from Microsoft in their quest for technological independence.
But getting back to the Apple / HP deal -- clearly Jobs learned something from Apple's past, and realizes the the continued financial growth and overall fiscal health of his company relies on making inroads with the competition. If you hit a home run with a product, as they have with the iPod, and offer the best possible user service with the iTunes Music Store, the right thing to do doesn't include squatting and sticking your tongue out at everyone else, but cementing your accomplishment by allowing your work to be adopted by others. Jobs clearly knows he has a very good thing going with the iPod, and their rapid success (both in units sold and downloads at the store) is their own to lose. But with a partner like HP -- which I should not earns billions per quarter compared to Apple's millions -- Apple has not only strengthened their own platform, but further pushed the online music space in a direction that ultimately benefits everyone. [What Do I Know]
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