Much has been made recently of the battle between Apple and Real Networks. After their attempt to partner up with Apple were rebuffed, Real Networks introduced a new product called Harmony, which allowed songs bought in the RealPlayer music store to be played on an iPod. Of course, Apple was shocked and threatened lawsuit.
In a way, the reaction by Apple was to be expected as they were trying to create a new bundle around the online music business. Their model is not one of album sales but one of an integrated media package that includes both a device (the iPod) and a service (the iTunes music store). This contention is encapsulated in the way they present their offering on the Apple site. The tab at the top of their pages clearly states “iPod + iTunes” and the company sees them as part of the same offering.
By introducing a different way to buy and manage music on the iPod, Real Networks attacked the heart of Apple music strategy, unbundling the device from the service. While Apple may win a lawsuit against Real, the damage is now done as people now realize that Apple is working on creating a lock-in around the iPod but it is possible to undo it. Virgin has already filed a lawsuit about the impact of that effort so it looks like Apple will have to relax its control in order to win in the long term.
So what should Apple do in order to ensure that they are not taken down by this issue. First of all, they should realize that fighting the issue is a loosing battle. In a way, their reaction is similar to the reaction other digital assets handlers have had: Ignore the problem, panic, litigate, and accept. By ignoring advances from Real, they created the problem. Then, with Real announcing Harmony, they panicked and threatened to litigate. The only way they can win is to accept that the business fundamentals have changed and look for a better approach. In their case, the question is whether they want to win in the short term (keeping their stance and letting another vendor eventually offer something better) or play a somewhat less dominating role in the future (agree to a Fair Play market where others can sell music to go on the iPod and keep sales of the device strong while innovating to stay competitive on the music store end).
To borrow a turn of phrase from Oscar Wilde, the only way to get rid of a modular by design issue is to yield to it.