Why Is This Hill So Steep?

by Steve Jordan

  So some customers decided to take matters into their own hands. When music-dedicated websites were shut down over copyright violation notices, peer-to-peer (or “P2P”) software that connected computers over the web was applied, creating a new form of website, an aggregate link site that held no actual content on its own, but that provided connections to content on other people’s computers. This distributed the music sources—and the blame for sharing copywritten music—across hordes of computers instead of a single server, a worldwide network that would be impossible to completely crush.

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  Despite the aggressive attempts by Sony to market a new digital recording standard, consumers had already settled on the MP3format, and were rapidly developing it into a de-facto digital standard. Though the music industry resisted it, third parties and independent programmers embraced the format and began writing MP3 playing apps and burning software to assist creation of new MP3 files. Eventually Sony gave up on the idea of turning its digital standard into the mainstream choice, and began incorporating the publicly-adopted MP3 format into its own devices. Other companies, eager to enter a new market providing playing hardware to a growing market of MP3 listeners, quickly added MP3 to their short list of supported music formats. MP3 players proliferated quickly once a standard format was established, and they helped to push the remaining stragglers into line behind the MP3 crowd.

  But although companies were now making money off of hardware, the majority of the actual music was being burned from personal collections, or shared and collected from P2P networks… in short, the music industry itself was not profiting from the MP3 boom. Efforts to scare consumers into refraining from copying and sharing music, via the first highly-publicized trials against file-sharers, only exacerbated the “us against them” mentality that had been fomenting between the music industry and consumers. For the first time, content “piracy” was becoming a mainstream issue, eclipsing the same concerns over software piracy that had filled the previous decade.

  Further, independent “garage bands” and trend-setting professionals were finding ways to get their music out independently of the music industries, using MP3 files offered on private websites, and ably demonstrating that they offered viable alternatives to the music industries.

  A rift was beginning to develop between the music corporations and the music enthusiasts, both sides feeling like the other side was not providing for their needs, and in fact, was acting directly against them. Artists were largely caught in the middle and feeling squeezed by both sides, and in the meantime, the peripheral industries that supported music (other than the MP3 hardware industry) were sinking into obsolescence and obscurity.

  It took an outside player, Apple, to bring the factions together through its well-integrated combination of hardware, music store and acceptable pricing and security models. Though many disbelieved it would happen, iTunes became accepted on all sides of the issues (with the exception of the physical production industry). Thanks to Apple’s lead, the once-contentious digital music industry was moving ahead to a brighter future.

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  Of the major differences between the development of digital books and of digital music, probably the single largest is music’s relatively quick adoption of one overriding digital format standard. Standardizing onto MP3 allowed industry and consumer alike to concentrate on the tools and delivery mechanisms for digital music, as opposed to fighting over competing formats and their multiple delivery systems (as e-books have done since their inception). Even when industry and consumer disagreed on issues, they were all able to progress much quicker under a unifying format.

  Both industries concentrated on devising special hardware for the playing of their media. The difference was, as e-books did not have a standardized format, hardware and software makers could not keep up with the multiple changing formats, nor provide the ideal customer experience or ergonomics, due to the extra effort involved in satisfying the multiple format issues. Digital book delivery systems were not well-integrated into the various dissimilar reading hardware, and hardware pricing was all over the map. Individual companies unwittingly wasted time supporting formats that would eventually disappear, leaving them with orphan products, and leaving consumers with orphan readers and e-books. A lot of ultimately needless frustration resulted in that lack of standardization early-on in the e-book development process.

  And even if the publishers decided on a unifying format today (as many are certain the OEB, or ePub format, will eventually be), there still remains a sizable hardware and software infrastructure dedicated to other formats, and a huge potential loss of income if those other formats are abandoned now. The architects of the Tower of eBabel recognize the areas where they went wrong, but are unwilling to tear their work down and start over; rather, they hope it will somehow fix itself to their present design’s satisfaction, and not cost them as much grief as they clearly expect it will.

  Both industries are similar in the way they applied DRM to their products. Neither industry found a way to justify their DRM decisions satisfactorily to the public, or even made much of an attempt other than claiming that an unknown and unquantifiable segment of their consumers were thieves, and that they had no choice in the matter. Moreover, their security methods were completely ineffectual, taking the teeth out of their bite and further holding themselves up for ridicule by their customers.

  Both industries initially struggled with pricing of their digital products. But the music industry settled on a price range fairly quickly, one that was satisfactory to music customers and brought in a healthy profit for the industry. In contrast, e-book sellers price e-books everywhere from a single dollar to the equivalent of hardback prices, and customers cannot even agree on whether a single dollar is too much for an e-book.

  The e-book industry looks to the music industry in the hope that they will avoid its pitfalls, and somehow be even more successful. But so far, the music industry has managed to do more right things than the e-book industry in the same situations, and there seems to be no indication that the lessons learned by e-music are actually being applied to e-books.

  16: Apple—iTunes to the rescue

  When Apple released the iPod, it was very late to the digital music party: A horde of MP3 players had been available for years by then, from literally dozens of worldwide companies, major and minor. There was no way to distinguish its playability or quality from any save the most pathetically-built players out there, including some by companies that had been major names in audio components for decades.

  But Apple was already known for its innovative hardware and sophisticated, consumer-friendly software. Consumers believed that when Apple released a new product, it might be late to the market, but that was because more work had been put into making it better than everything else, and therefore it was worth the wait. In the case of the iPod, Apple did not disappoint.

  The iPod featured a new interface unlike any others, a well-designed “scroll-wheel” that made content navigation quick and easy. They also developed a unique, Apple-like design, complemented by matching white earbuds, giving the iPod a designer look in a field of mostly utilitarian-looking MP3 players (and all-black earbuds). The music-playing software was comparable with the higher-end players; and when combined with the innovative and attractive design, and a frenetic and stylish marketing campaign, the iPods were runaway successes.

  I remember the impact the iPod had on society: Formerly, MP3 players were secreted away in pockets, and black earbuds and cords were barely noticeable on passersby, except up-close; suddenly, people carried iPods in their hands (so as to use that cool scroll-wheel at any moment), and the white earbuds and cords could be seen half a block away, making them uber-visible in public. From a device that was at best unobtrusive, we literally jumped into a world of conspicuous music listening… from a largely unknown quantity to seemingly everywhere, almost overnight. I suspect it was akin to the impact on a largely black-clad early automobile industry made by t
he first brightly-painted production cars.

  But Apple didn’t stop there. Though the iPod could play MP3 files, it was also designed to play Apple’s proprietary music file system. This feature wasn’t too evident to the first iPod users, because it was not designed to be part of the burn-and-play activities that the early users took to. But it would dovetail with a new service, one that Apple had intended from the start to be part of the iPod infrastructure.

  When the iTunes digital music store was opened and promoted as a quick and easy way to get professionally-recorded music into your iPod, the music industry knew they finally had a way to get back into the developing digital music business. iTunes established a well-run digital music sales model, including an acceptable pricing structure for individual songs and albums. That was in-turn tied into an attractive and easily-operated software interface that automatically connected with the iPod hardware and allowed smooth interaction, a rare feat with computer software and peripheral hardware in those days. iPod users bought into the iTunes concept eagerly, were sold on its ease of use, and in no time, sales of digital music took off.

  The iPod/iTunes combination became an unbeatable force in the digital music arena. Apple found the popularity of the iPod rose even faster than it had previous to iTunes, and as the technology improved and memory capacity grew in smaller and smaller forms, Apple was able to develop new versions of the iPod for more and more customers. Each iPod played the same files as previous models, and accessed them the same way, so the only real difference from one model to the other was the container itself (and its storage capacity). Apple was also able to authorize a series of accessories for the iPod lines, further enhancing their utility to consumers… and the device’s standardization made the manufacturing of those accessories exceedingly easy. In no time, non-iPod users were becoming jealous of the many gadgets that could plug into an iPod, and some were moving to iPods when it came time to replace their old devices.

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  At first, Apple struggled to win the cooperation of music publishers to include their music in the iTunes store. There was serious concern in the industry, inspired by the problems they’d had with peer-to-peer sites swapping published music, that their music would be bought by only a few and shared with many. This led the publishers to demand Digital Rights Management (DRM) be applied to their products. Apple agreed, though officially with protest: Their expectation was that the online music was so cheap and easy to get through the store that sharing would not be that serious an issue. In practice, the DRM was easily ignored by iPod users who did not share music, and as easily circumvented by those who did, leading most consumers to declare it a waste of time. Still, music sold better through the iTunes store than the music industry had expected, and Apple gained a modicum of respect and bargaining power thanks to that success.

  Once Apple’s success had put it in the driver’s seat, it began pressing for a removal of DRM from the store. The music publishers continued to resist, but Apple had its own sales successes to point to as an indicator that they knew what they were talking about, what would make the customers happy, and how much more they would buy as a result. Eventually a few publishers agreed to try non-DRM’d music, with a slightly higher price (to offset what they expected would be more piracy compared to DRM’d sales).

  Instead of the same or lesser sales that the music industry expected, music sales actually increased, not just with the non-DRM’d material but throughout iTunes. Apple has touted this as proof that lack of DRM does not negatively impact music sales, and has since pressured more music labels to lift the DRM restrictions on their products. So far, sales figures have indicated the lifting of DRM, and the subsequent pleasing of their customers, has been a runaway success.

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  Many e-book enthusiasts have pointed to the success of the iPod/iTunes model and asserted that e-books should be able to achieve the same successes under the same model. The most significant part of the Apple model, the lack of DRM that has demonstrated increased popularity and sales, is arguably the part of the model that most e-book fans would like to see emulated.

  There are, however, enough significant differences between the e-book arena, and the iPod/iTunes model, to suggest that adoption of the Apple model may not be all that straightforward. Surly the most significant is the fact that there are more common e-book formats, and different kinds of hardware for e-book reading, most of which do not use directly compatible software… nothing like the digital music industry, which uses essentially the same formats and access methods on all hardware. (Though iTunes does not interface with any music players besides iPods, the only thing specifically stopping it from doing so is the DRM software.) A great deal of the e-book replicating and sharing activity is due to users’ need to convert those e-books to other formats, since many e-books do not come in every format. To replicate the iPod/iTunes model, a unified format and universally-compatible access method would have to be devised for all e-book readers; and to date, the hardware makers have not shown an interest in implementing such a universal setup.

  The second major difference is in the way e-books and music are enjoyed: While listening to a specific piece of music is generally a brief experience, demanding a quick and easy interface to grab that music and go, literature is experienced over much longer periods of time. Moreover, an e-book is a product that lends itself to more extensive and elaborate pre-purchase examination (browsing through comments, reviews and excerpts, etc), and can be experienced in many different ways (reading straight through, checking references, making notations). This makes e-books less of an impulse purchase than a piece of music, and more of a deliberative process, thereby requiring a different level of marketing and references to be offered to the consumer before purchase. The iTunes store does provide a few marketing tools, but nothing as extensive as the tools e-books can use.

  Thirdly is the average cost of e-books, which is also significantly different from that of music. Most individual pieces of music are sold for a price roughly equal to a US dollar, considered by most to be an insignificant, nigh-disposable amount suitable for an “impulse” purchase… they are like digital versions of the candy bars for sale at the market checkout. Most e-books sell for $5.00 to $10.00, and more, amounts that are considered more substantial and less “impulse”… a sit-down meal by comparison. This also tends to force consumers to put more time into reviewing the product before making a purchase.

  A few e-book companies duly attempted to tie their format, or the dedicated reading devices they sold, to desktop software designed to tap into online sources of books, make purchases easy, and facilitate downloading of the purchased material to the device. Their models were similar to the iTunes model, at least in intent. However, none of the companies involved had significant access to a catalog of e-books that equaled the range of material that iTunes held over the music industry. And most sites’ content was not playable on all available readers, limiting the potential clientele to those who happened to have readers that could read that sites’ content. The industry was still too fractured to make a service like that workable for the majority of e-book users.

  The iTunes model was designed to make impulse purchases of musical “snacks” quick and easy. E-books require more thought, deliberation, and more time to properly enjoy, and there is no unifying format and hardware design, making the actual iTunes model look less ideal for e-book purchases. But businesspeople and enthusiasts persisted: Was there any way to create an iPod/iTunes-like model that would successfully bring e-books, publishers and customers together? And if it could be done, would it be what the e-book industry needed to really get it started on the road to commercial success?

  It would take one of the dot-com boom’s greatest success stories to finally address those questions, and to provide some answers.

  17: Amazon.com—The game-changer

  The ascendance of Amazon from just another dot-com to global powerhouse was a surprise to some, because initially it seemed to d
efy the established rules of dot-com growth and development. Whereas most dot-coms started out with a popular idea and an infusion of someone else’s capital, and either shot upward like a rocket or exploded violently upon launch, Amazon started with a simple, mundane idea—selling books—and plodded along with modest success, and a large red area on its balance sheets, for years.

  Amazon was not playing the dot-com game. It was playing an older game, that of the traditional capitalist business: It worked steadily to build its market share, improve its infrastructure, learn its business, and grow little by little; until one day, the world woke up to discover that Amazon was suddenly in the black. It had become successful the old-fashioned way, by good old innovation, hard work and perseverance.

  Amazon was a reseller, a middleman; it was not a publisher, and did not make its own products. Yet it provided an incredibly rich set of web-based tools, designed to make it easier for people to find the books they wanted. Optimizing those tools made the site the best place to go to find books of any kind, and it continued to grow and prosper. Soon it began expanding to other products besides books, and opening up its services to an international audience.

  At some point, the likelihood that e-books would be a major part of book sales was impressed upon Amazon. It was already selling various models of e-book reading hardware through their store, and it was certainly aware of the growing volume of e-book content developing worldwide. It was also aware of the cry for an “iTunes for e-books” by businesses and consumers. However, it was also aware of the many formats, incompatible reading hardware, complaints about reader screen quality and security concerns that dominated the market at the time. Amazon decided that that was not a market it wanted to be a part of.