Will Apple's control issues hurt the company?

November 8, 2007: 9:20 AM ET

Jobs has thrived by owning the user experience – but rivals hope he's going too far

Steve Jobs
Apple CEO Steve Jobs greets attendees after an iPod event in September. Photo: Jon Fortt

Remember when Apple was the tech industry's underdog?

It's not anymore. As rival device makers seek ways to dethrone Apple's iPod and derail the iPhone, they're increasingly casting Apple (AAPL) as a selfish mega-company that plays by its own digital rules, manhandling software developers and and alienating a helpless Hollywood.

Apple has done plenty on its own to act the part. At a time when the rest of Silicon Valley, led by Google (GOOG) and Facebook, is building "open" technology playgrounds that encourage outsiders to invent new business models, Apple CEO Steve Jobs has not really played along.

Instead, by Jobs' decree, the iPhone will be closed to outside developers until February, when Apple has promised to welcome new software on somewhat limited terms. And besides some deals to offer MP3 downloads on iTunes, Apple has not moved to make the bulk of its products compatible with competing devices or services.

So it's no surprise that the anti-Apple rhetoric continued to simmer this week. Sony Electronics (SNE) President Stan Glasgow alluded to Apple's strong-willed reputation earlier on Monday, when in a conversation with reporters he contrasted Apple's tactics with Sony's recent openness with its Walkman media players. Of course, Sony itself has long pushed its own proprietary technology and it was only after the failure of its Connect online music store that it moved to embrace openness.

"Apple's fully proprietary in almost everything they do – they get away with it because they have some great stuff going on," Glasgow said. "So you can be successful proprietary, but I think the better wave is being open and allowing consumers to make their choice."

New Sony Walkman lineup takes aim at iPod (Photos 1/6)

It wasn't the first time Apple has faced accusations that it's too closed. Earlier this fall, Nokia (NOK) ran ads that pointed out that its N-series handsets are more open to new software than the iPhone.

There's a strong case that all this talk about a closed Apple amounts to little more than barbs from jealous competitors. After all, Jobs & Co. have almost single-handedly created a multi-billion-dollar market for sleek, pocketable computers that double as music players and phones. (Before the iPod and today's iPhone hype, such gadgets were hardly objects of mainstream lust.)

And to drive those markets as quickly as he has, Jobs clearly needed to exercise some control. Tapping Apple's expertise in designing both elegant hardware and intuitive software, he was able to create a delightful experience that has helped Apple sell more than 120 million iPods, and maintain better than 70 percent market share in the category.

Even software giant Microsoft (MSFT), a company known for breaking into markets by forming powerful technology partnerships, is taking more of a go-it-alone attitude on the technical end as it chases the iPod with its fledgling Zune media player. Zune marketing director Jason Reindorp says that, in the short-term, Microsoft has decided to sacrifice openness for elegance.

"Looking at who we were up against, and how they got to their success, we made the decision to go the sort of closed route," Reindorp said of Microsoft's decision to make its Zune music store link specifically to its player. "That is kind of against Microsoft's DNA, because we tend to be more of a platform and partner-type company. That said, we needed to make sure we could guarantee a certain quality of experience from beginning to end."

Microsoft's Zune: The sequel (Photos 1-4)

But there's one area where Apple's control-freak tendencies are beginning to truly work against the company: Content.

iPod nano
Some in the recording industry feel Apple wants to sell music too cheaply because it drives iPod sales. Photo: Jon Fortt

The recording industry, which hailed Apple as a savior, now regards it as something closer to a robber baron. The reason? They feel Jobs wields too much control over song prices on Apple's iTunes store, which has become the Wal-Mart (WMT) of downloadable music. Jobs says he wants prices uniform at 99 cents per song to preserve simplicity; record labels suspect he just wants to keep prices low so Apple sells more iPods.

Just as the recording industry has soured on Apple, so have some television networks and movie studios. After NBC's very public spat with Apple this summer over how much Apple should pay for the most popular shows, NBC Universal chief Jeff Zucker said Apple "destroyed the music business in terms of pricing," and that "if we don't take control on the video side, they'll do the same" to TV. News Corp. President Peter Chernin put it in gentler terms a couple of weeks later, telling a Reuters reporter that Apple shouldn't be the one setting the price of video downloads.

Will disgruntled Hollywood moguls be able to derail the iTunes/iPod train? On their own, probably not – as much as they might resent Apple, it's so far the main place where consumers have shown a consistent willingness to pay for video downloads.

Apple's new iPod lineup: An analysis (Photos 1/5)

The real threat might come from rivals like Sony, SanDisk (SNDK), and particularly Microsoft – companies that would be glad to sell Hollywood's wares under more agreeable terms than the Tinseltown execs can get from Steve Jobs. None of the companies yet has the right combination of devices and services to challenge Apple, but they're working hard at it.

That's why Microsoft Chairman Bill Gates, who doesn't involve himself in every corporate project, is spending a notable amount of time with the Zune team. Reindorp, the Zune product manager, said that in an earlier stint at Microsoft, he went five years without coming into personal contact with Gates; in the past year and a half with Zune, he has been in four meetings with Gates, and "I see him around our building all the time."

In a meeting about a month ago, Reindorp said, Gates told the Zune team to focus on what Microsoft does best – and a key part of that is to "make best friends with all the content owners."

It sounds like a winning strategy to Reindorp. His take on why might sound rather ironic, coming from a company that controls 90 percent of the world's PC operating systems and has been known to throw its weight around. Microsoft has learned from its hard-charging past, Reindorp said – so the software giant's reputation in music is such that industry executives "know that we have a long history of being a good partner, while Apple unfortunately has kind of proven themselves to be a bit of a bully."

We'll see whether Steve Jobs' assertiveness continues to be part of Apple's winning formula. Competitors are clearly banking on it becoming a tragic flaw.

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