Why Did Apple Block Potential Profits from Pre Users?
Written on 19 July 2009
by Ruth Fisher, PhD
The latest battle in the Smartphone Wars was won by Apple, who blocked users of the Palm Pre from being able to access iTunes. Since Apple makes a profit on every sale from iTunes, why would Apple want to cut off the potential profit source associated with Palm Pre users buying content on iTunes?
It’s all about maximizing and extracting value.
The scope of content and ease of use of iTunes makes it an extremely attractive source of audio and video content. By making access to iTunes available only to users of Apple hardware (iPods and iPhones), Apple increases the value of its hardware to Apple users. In so doing, Apple is able either to charge higher prices for its hardware and/or to garner larger market shares than its competitors. In contrast, making iTunes available to users of competing hardware would dilute the value of Apple's hardware.
Presumably, the increase in hardware value associated with keeping iTunes exclusive to Apple users is greater than the loss associated with diluting the value of Apple hardware, but making iTunes available to Pre users. Hence the blocking.
As for potential antitrust action against Apple for blocking Palm, here’s an elegant rebuttal:
Naturally, no one seemed to be protesting that iPhone owners couldn't synch their devices with Windows-based music-playing devices or that Pre owners couldn't synch their devices with Blackberry software systems.
In a nutshell, it sure looks like Apple is being held to an extremely unreasonable standard. You can't play Wii games on an Xbox 360. But I have yet to hear complaints that video game packages are not compatible. The principle is the same. Makers of proprietary hardware devices allow software from competitors to run on those devices at their discretion. Period. If Apple doesn't want to support Palm, that's its prerogative.