The announcement of the iPad 2 last week, following what I've described as the trail of tears and broken dreams for Android tablets, has certainly put Apple in the cat bird's seat as we move into the post-PC age of personal computing.
The iPad has like 90% market share and there seems to be little chance that any of the misbegotten and overpriced offerings from competitors will catch on anytime soon. Microsoft is said to be years away from even introducing a competitive tablet operating system. All of this has prompted folks like Dan Frommer to declare "game over."
But the tech world has been here before and there's a growing vulnerability for Apple at the intersection of its bad behavior around subscriptions and the power of the copyright holders aka Hollywood studios, big record labels, TV networks and other content publishers.
Two quick lesson from recent history.
When Apple's iTunes store had already built up a hefty market share a few years ago, record labels wanted a price increase. Unsatisfied with a measly 99 cents a track, they wanted $1.29. Sure, it was a recession and, sure, digital sales were not even rising fast enough to offset the decline in CD sales, but, hey, they wanted more dough. Apple balked.
So what did the record labels do? Give up in the face of Apple's seemingly dominant position? No way. They went to the fingerling online music stores, primarily Amazon, and they offered them a deal -- music tracks recorded at a higher-quality 256 kbps and without hated digital rights management imposed. Apple was stuck with 128 kbps quality and the hated DRM from all but one of the labels. Amazon's digital music share started growing fast and guess what happened? Apple caved and agreed to the 30% price hike despite the recession. Sales of digital music slowed a lot but revenue increased slightly.
Then there was the case of electronic books. Amazon got way out in front with the Kindle. Until last year, it was coming down to a two horse race between Amazon and Barnes & Noble. The big six publishers, or at least five of them, started to freak out as they feared print sales would be cannibalized by the cheaper ebooks. Amazon and Barnes & Noble priced new best sellers at $9.99, though many, many new ebooks were priced between $10 and $15.
So despite the seemingly dominant position of Amazon and B&N, the big publishers went looking for someone to offset that power and found a peevish Steve Jobs, fresh off the record label humiliation, a ready partner. They got together and ginned up a wholly new business model for ebooks dubbed the "agency model." Publishers would control the retail price consumers' paid and ebook sellers would get a fixed 30% cut. Destroying much of the basis for retail competition, they reined in Amazon and B&N and let Apple's high-priced iBookstore into the game.
Now it appears that Apple may be the one overplaying hand. The iOS app subscription rules it unveiled last month stink of anti-competitiveness, excessive greed (even in a business context) and hubris. The rules only apply to subscription services but I'm sure Hollywood and other big content makers are watching, too.
Perhaps Steve Jobs & Co. think their monopoly position is unassailable.
But what if fearful content makers started offering magazines, music, movies and TV shows at much more favorable terms only off the iPad. Like that content locker in the sky we all want -- access to all the content you've purchased downloadable whenever you want on any of your devices. The key is they keep selling to Apple on the old terms, so they're not risking much loss of revenue from iOS world. But they're putting the screws to Apple just like they did over music and just like they did to Amazon and Barnes & Noble over ebooks.
The worse Apple behaves, the bigger the risk.