The Marketing Genius of Steve Jobs

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Apple – Thoughts on Music Steve Jobs is out today with an essay “Thoughts on Music,” where he basically says DRM is stupid and that the music labels need to drop DRM entirely and sell unprotected music. In this essay he gives some history and background behind the current state of DRM and suggests that it simply is not working. And of course he is right. But this is beside the point.

About a year ago I penned an article called “iTunes, One Billion Suckers Served.” In the article I argued that those who were buying tunes from the iTunes music store were suckers. That by purchasing locked down music that is not portable for $1 a song that they were getting a bad deal. I still feel this way.

In his message about music Jobs tries to dismiss the fact that iTunes music buyers would feel any lock in pain by using a statistical fact that only about 3% of music on an average iPod was purchased from iTunes with DRM.

“Today’s most popular iPod holds 1000 songs, and research tells us that the average iPod is nearly full. This means that only 22 out of 1000 songs, or under 3% of the music on the average iPod, is purchased from the iTunes store and protected with a DRM. The remaining 97% of the music is unprotected and playable on any player that can play the open formats. Its hard to believe that just 3% of the music on the average iPod is enough to lock users into buying only iPods in the future. And since 97% of the music on the average iPod was not purchased from the iTunes store, iPod users are clearly not locked into the iTunes store to acquire their music.”

The problem with this math is in the averaging. The problem is that not all 90 million iPods have exactly 22 iTunes on them. In fact, I would bet that the majority of these iPods don’t have more than 3 iTunes on them at most and that, like most things, there is a small group of individuals that make of the lion share of the iTunes purchases and for these individuals leaving iTunes would be a lot more painful than merely walking about from the $22 that they spent on 22 songs at iTunes. I’m sure that there are many people who have spent over several hundred dollars on iTunes and these are the people in my mind who are the suckers.

So Jobs basically today admits that DRM is a boneheaded idea, but justifies it by using the, hey, it’s not me, line, it’s the big bad record labels.

And of course he’s right and even though he doesn’t admit it, the small group of major iTunes buyers are still suckers. And they are a small group, not 90 billion people with 22 songs each.

Still, it’s somehow refreshing to hear Steve Jobs come out and say that DRM sucks. And this is where the marketing genius of Steve Jobs comes out.

Steve Jobs made the deal of a lifetime when he launched iTunes. He basically told the music industry, I will give you all of the profit for the music, and I will take all of the expense of the distribution, if you’ll only do a licensing deal with me. The music industry scratched their heads unable to figure out why anyone would make such a bad deal and then said, sure, why not. They were seeing their business eroded by pirates anyway and maybe at least this could stop the bleeding a bit.

But it didn’t. The bleeding continued and by legitimizing the iTunes store they allowed Steve Jobs to push forward with the most successful tool for pirated music since Napster. The iPod. And of course Steve made much, much more on iPods than the music industry made on their 2 billion songs and he laughed about it (secretly inside) all the way to the bank. And Apple’s stock price soared. And anytime anyone mentioned piracy, Jobs could just point to the iTunes store and their best efforts attempts.

So what in the world is going on now? Well, at this point Apple has gained enormous popularity. iTunes has gained enormous popularity. And Jobs is comfortable that his deal with the record labels is firmly in place. So the question left on the table is why should Jobs take all the heat for DRM? Everybody hates DRM. It’s unpopular and Apple is not in the business of being associated with unpopular things. So today’s message by Jobs is more of a political thing to publicly distance the Apple brand from the concept of DRM. Rather than put up with an indie underground that makes stickers like this, Jobs would rather bash the record industry, lose a few friends maybe, but get a bunch of attaboys from everyone else in the world.
DRM, Defective by Design
And this is exactly what is happening in the blogosphere right now. Everyone is falling all over themselves with how cool and hip and right Steve Jobs is. It’s pretty simple from a marketing and PR perspective and it worked.

So why the PR push now? Because the iPhone is coming out very shortly and Apple wants even more of a glow than they already have.

Apple fans are zealots. And they are zealots for a simple reason. Apple makes superior hardware to anyone else out there. And not just from a fashion and design perspective. They just make stuff that works. They are gaining important market share in computer sales (disclosure, I recently switched to a Mac myself and they featured my blog post about it in the Apple “Hot News” section.”).

Listening to Jobs give the keynote address of CES this year on the iPhone (yes, I say that in jest as he completely stole the show at CES by announcing his iPhone during CES), he had an unbelievable amount of charisma. He felt like a cross between Bill Clinton and a southern preacher who could just completely mesmorize the crowd. And they were mesmorized. At Podtech’s CES bloghaus where I watched his keynote he had the entire room glued to his every comment and as soon as he was done the blog posting went nuts.

So rather than be tied down with a DRM image, Jobs penned his anti-DRM missive today largely to only further increase the hipness of the Apple image. And because of that he will sell more iPhones and he’ll sell more Macs. It’s smart. He won’t lose the labels and his popular message resonates with the masses. And this is why Steve Job’s is a marketing genius.

Oh, and incidently, about the DRM thing and the fact that the labels should just give up and allow him to sell DRM free music?

Yeah, he’s right about that too.

Yep, Steve, You ‘da Man.

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19 Comments

  1. FWIW, what music I buy from the iTMS I burn to CD then re-rip to unlocked mp3 (two things that iTunes supports out of the box). Yes, it’s more work than should be necessary, but iTunes is a convenient music source, considering its lower price and instant gratificaion, and it’s more reliable than the irritating world of P2P. Add in seamless integration with my existing software and hardware, and iTunes isn’t too shabby. It would never be my primary source for music, but it isn’t too shabby.

    I’m no fan of DRM, but the “fact” that we’re a bunch of suckers is nearly as tired and incorrect as the “fact” that iPods can only play music purchased through the iTMS.

  2. greywulf says:

    What you said. Jobs gets it right, 99% of the time. The other 1%, here’s ahead of his time :)

    I love my iPod but hate iTunes. I don’t like that everything seizes up when it’s writing ID tags. I don’t like that it locks my iPod while it’s transferring songs. Heck, I don’t like it’s entire not-understanding-this-multitasking-thing at all. It’s just one huge monolithic mess. Pretty, though.

    So, I don’t use it, no need for it. That’s due in part to the beauty of the iPod and the ingenuity of it’s users. There’s more than enough tools for Linux without needing a copy of iTunes, ever.

    As to DRM, if it’s not dead already it’s going to die. The music industry will slowly learn, and try to come up with yet more ways to screw consumers and artists alike. Maybe they’ll wise up and make mp3 players of their own, preloaded with tracks but no external connection. Wouldn’t be surprised…….

  3. Good post Thomas. It’s also puzzling to me that while Apple controls the vast lionshare of the media player market, in his essay he goes ‘anti-DRM’ but then asks everyone else to pressure the music industry. With their domination in the market isn’t it reasonable that Apple itself do some of that pressuring?

    Maybe with Vista’s DRM sledgehammer just getting started, Apple could zig to their zag and really push for DRM-freedom – if thats what he *really* wants (I still have my doubts).

  4. Evan Light says:

    I think that you’ve misunderstood Steve’s motivation, Tom. This is almost certainly a counter-FUD approach by Apple to push back against the European countries (France, Germany, and Norway, offhand) that are giving Apple and iTunes FairPlay DRM a bad rap.

  5. Anonymous says:

    And there’s another self-serving reason: Apple’s negotiations with the labels are coming up.

    He’s just getting the market to be on his side when he confronts the labels with this, and thus reduce the cost he’ll have to pay to get it. Remember that Universal’s going in position is a few dollars per iPod sold, a la its Zune deal.

  6. Anonymous says:

    Of course there are self-serving reasons, but most bloggers have got the wrong one. Go check out http://www.macworld.com/news/2002/03/04/jobs/ where it says, and most Jobs fans remember: “If you legally acquire music, you need to have the right to manage it on all other devices that you own,” said Jobs.”

    This is a year before the iTunes store opened up on 4/28/2003. I think Steve found the labels didn’t agree with him, but his desire to open up the store led him to give in on it.

    Note also that Apple bought Fairplay from Veridisc sometime around the end of 2002 (couldn’t locate the exact date). There’s good reason to believe that Apple was not working on DRM but had to get it in order to open up the store.

    As for self-serving reasons: MS holds key DRM patents, which makes enhancing FairPlay for new innovative uses difficult unless Apple is willing to pay MS for licenses.

  7. Anonymous says:

    Consider also that a DRM-free iTunes Store will basically kill the music subscription model. $15 a month comes out to 180 songs a year – songs that are yours to keep or pass on to kin like you would a CD. I’m not sure I listen to that many new songs each year, and I’m sure most people are similar to me in that regard.

    I also feel Jobs penned this open letter because this is one arena where he does need popular support at a massive level. The music companies, despite their addiction to control, still have to respond to mass consumer movements. Just take a look at the thrashing Sony took over its rootkit incident. With popular support, Steve Jobs has that extra ammunition to make the label agree to DRM-free licensing (probably kicking and screaming at first, until they start seeing all the money that is coming in).

    I would also point out that Jobs’ proposal for DRM-free music will be attractive to even the also-rans of the music business, as it gives them a fresh change to compete against iTunes + iPod. With consumers and retailers both clamoring for DRM-free music (Walmart might actually be salivating at the idea of selling music online again), that kind of pressure will be hard for the labels to resist.

    And I would argue that Jobs is making this statement now because he is in a position where the labels really can’t retaliate against him or the iTunes Store. They’ve become too dependent on Apple to move music even though they probably are putting their hands up to their ears and going, “I can’t hear you! Can’t hear you!”

    Hope it happens, and places like Norway start expending their time and energy on the labels slinking like weasels in the shadows instead of aiming for the bright shiny target that is Apple (which will, in the scheme of things, change nothing except that Norwegians will no longer have iTunes).

  8. Anonymous says:

    Another defining difference: It is inconcievable to anyone that you’d ever hear this coming out of Bill Gate’s mouth.

  9. TravisP says:

    Hey Thomas,

    Saw this article and thought of you with your new found love of the Mac.

    http://www.guardian.co.uk/commentisfree/story/0,,2006031,00.html

  10. Anonymous says:

    Darmik.com gives artist the power to sell thier music in the format of their
    choice and also gives them the ability to allow thier fans to sell and
    redistribute their music for them in social netwotks as well as blogs.

  11. Anonymous says:

    Wow – someone actually decides to say something truthful about Apple that isn’t complementary. Go figure. You sure won’t get that in the mainstram media. Good Job!

  12. sam says:

    Anonymous said…
    Another defining difference: It is inconcievable to anyone that you’d ever hear this coming out of Bill Gate’s mouth.

    uh, not really…

  13. I hope he fails, I love DRM. Yeah, that’s right, I love DRM. It’s encouraged me to all but abandon major-label releases in favor of the non-DRM indie stuff on emusic.

    In so many cases the difference between majors and indies is marketing, not quality, I hope DRM lives a long and happy life encouraging other people to discover this.

  14. Anonymous says:

    “And this is exactly what is happening in the blogosphere right now. Everyone is falling all over themselves with how cool and hip and right Steve Jobs is.”

    After reading reactions – all over the internets – to Jobs’ comments, I’d say the opposite was true. Most responses I’ve read have been, at least to some degree, cynical.

    I prefer to believe that SJ is using the power he has accumulated to promote something that he believes is important to the future of digital music. That he will probably profit from a DRM-free future shouldn’t be held against him.

  15. glaurent says:

    I believe you’re wrong here, Jobs had the same position back in 2003 :

    http://www.rollingstone.com/news/story/5939600/steve_jobs_the_rolling_stone_interview/

    “When we first went to talk to these record companies — you know, it was a while ago. It took us 18 months. And at first we said: None of this technology that you’re talking about’s gonna work. We have Ph.D.’s here, that know the stuff cold, and we don’t believe it’s possible to protect digital content.”

  16. Chris says:

    Perhaps Steve wrote this letter to get some public support for DRM-less tunes from EMI on iTunes like emusic just reacently got according to Wall Street Journal?
    Google search for WSJ article

  17. Kevin says:

    It’s incredibly arrogant of you say they’re suckers just because they have different values to you.

    Any purchase has limitations and trade-offs, just because buying music with DRM is a deal-breaker for you, doesn’t mean it is for everyone else.

  18. Anonymous says:

    You are why music sucks. Go steal it then ya prick. My kids are going hungry. Enjoy more crap with no DRM. Cause thats all your gonna get.

  19. Brenda Bratone says:

    I’ve been following the network marketing tactics of GW Williams the last couple years.
    He was a huge success selling tools and marketing on ebay.
    But a strange thing happened, GW Williams quit ebay and started selling music he wrote and recorded.
    At first I thought well how long will that really last.
    But some how he’s so skilled in marketing products, that he created an image for his music and is now considered by many one of the leading world class guitarist, just imagine that, that’s marketing at it’s best.
    This guy is amazing.

    His new songs, Electric Rock Guitarist and Acoustic Guitar Rock N Roll Blast Off , are becoming huge world wide.
    Watching GW sell his 10 song album makes me realize that the art of selling can be done anywhere if you can find a way to create a good business buzz and you know how to sell.
    Anything is possible.
    It also taught me that even though I am not a guitar player or singer I can, manage others online who are and make money.
    There’s many ways to make money in network marketing and using the Internet if we only can see the vision and dream !!