The industry originally envisaged a situation where multiple digital music players will play DRM-protected music that could be purchased from multiple online music stores. This was the original design for the Microsoft PlaysForSure DRM, which is used by digital music player manufacturers such as Archos, Creative Labs, and iRiver. However, this idealized modular approach did not provide enough security to satisfy the record labels, nor a user experience that satisfied consumers. Modularization necessitates moving away from the outmost frontiers of technical advancement. As digital music players were still under-serving customer needs, an integrated solution provides much better performance.
Christensen predicts that when product functionality is not yet good enough, vertically integrated companies that produce proprietary solutions make the most money. In the new value chain involving digital music, customers were most needing improvements in the area of the device. Apple’s iPod was the first music player to provide a superior integrated solution, playing only music bought from their iTunes music store protected using their FairPlay DRM. Apple, unlike Microsoft and its hardware vendor partners, was a unique company that could take advantage of this situation, having both software and hardware production capabilities in-house. Competitors who had modularized could not take advantage of this phase-shift in the value-chain. Interestingly, Microsoft’s recently launched music player Zune is not compatible with their PlaysForSure DRM, following the vertically integrated model of Apple’s iTunes.
But how long will this last? Not long. If Apple’s history is any gauge, it’s continued growth is dependent on its ability to keep up a constant stream of innovations at the technology frontier. It is not a company that has a culture of embracing modular systems – its recent move to the Intel platform for its Macs perhaps a propitious exception.
