Will Europe be Apple's Waterloo

Stan Beer
Monday, 19 June 2006 17:04

Opinion and Analysis

For more than two decades, Apple Computer has excelled at creating high quality closed proprietary systems at the top end of the price band, loved by a few and ignored by many. As a trade off for creating its exclusive market, Apple's products until recently remained niche, thus limiting the company's growth. No longer.

With iPod and iTunes, Apple has done with the digital music business what Microsoft did with desktop operating systems and office productivity software more than two decades ago. Apple has carved such a dominant market for itself in the digital music business that it is now almost a monopoly.

In Europe, the powers that be, such as the European Commission, do not like monopolies in general. They especially dislike monopolies held by US technology companies. Just ask Microsoft. While Apple iPods do not quite have the 80% market share in Europe that they have in the US, the share is well over 50% and rapidly climbing, causing various European governments to huff and puff and threaten to blow Apple's house down.

The Scandinavian governments of Norway, Sweden and Denmark in particular have already made threatening noises directed at Apple, which suggest that companies are not allowed to pursue a business model that gives them an advantage over their competitors. Other European countries, such as France, have signalled that they intend to follow suit.

Apparently, the definition of free trade for Scandinavian and other European governments includes giving your competitors a free ride. Because that's exactly what Apple would be doing if it acquiesced to the absurd demand that it makes iTunes songs compatible with portable music players other than iPod. It's no secret that Apple makes very little if anything out of iTunes. In fact, Apple has fought to keep margins to a minimum in order to drive online music sales. The main reason that iTunes exists is to drive iPod sales. The company would have to be out of its mind to open up iTunes to the wider music player market.

While paternalistic European governments claim to have the interests of consumers at heart, the consumers have already voted with their wallets. Kids, including European kids, more often than not ask their parents for an iPod for their birthdays rather than another music player. If the Scandinavian governments kick Apple iPods and iTunes out of their countries, they will put a significant but relatively small dent in Apple's bank balance. However, they will not be doing it with the blessing of their consumers and they will not be striking a blow for free trade. In fact, they will be doing quite the opposite. They will be forcing a form of economic socialism down the throats of their consumers, which limits their freedom of choice and demands that they use only services that are compatible with other services and products, regardless of whether those services and products are inferior.

The questions that need to be asked are: how is that Apple was able to gain a dominant share of the music player and online music downloads market; and are there any viable competitors on the horizon. The answer to the first question is that Apple had and still has a clearly better product and service than anyone else in the same market space, even though it was a very late entrant. The answer to the second question is that there is a not too insignificant company by the name of Microsoft which happens to be on the verge of entering the music player market and has already entered the music downloads space.

So to sum up, we have a company called Apple that raises the ire of European governments because it has the temerity to create great products and has good business sense. These governments demand that the company commits commercial suicide or get out. We also have another company called Microsoft that is looking to get into the online music and music player market. With Apple forced out of Scandinavia and elsewhere in Europe, Microsoft might well consider these places to be ones offering easy pickings. Now we're sure that would make the European governments very happy. {moscomments}