Benedict Evans is partner at Andreessen Horowitz. Previously, he was a strategy consultant in London, and worked in strategy at NBC Universal, Channel 4 and Orange. Follow him on his blog, and on Twitter @BenedictEvans.
Apple’s Beats deal is a Rorschach Blot: people’s reactions slot into their existing view of whether Apple still has ‘it’. If you think Apple’s lost it, the Beats deal is confirmation. If you don’t, it’s… perplexing. But either way, Apple doesn’t rule digital music anymore. Streaming and YouTube ended that. And smartphones. Instead of a library of paid-for tracks locked up with proprietary DRM, you can play anything you want on any device you want, and can switch between different music services at any time. The iPhone’s multi-touch screen itself broke the iPod’s monopoly on good user experience — now anyone can make a decent music player experience on any device, in code.
This reflects a broader change: Content isn’t king anymore. Music has gone from a key strategic lever in the tech industry to an afterthought. The same is true for movie and TV libraries — media has gone from being a choke point to a checkbox, a commodity feature that every platform has to offer but where none has any particular advantage. So for a platform owner or device maker, the content you can offer is no longer a strategic asset. Content doesn’t sell devices — because they all have the same content (or, in the case of TV, have the same gap).
In parallel, the money in content — music in particular — is dwarfed by the smartphone explosion. iPod was a lovely business, but it’s pretty much over. Apple has sold 392 million iPods since 2001, bringing in around $67 billion, but sales are shrinking fast; it sold 6 million in the December 2013 quarter, versus 13 million a year earlier. Smartphones are what matter now. There are over 1.5 billion smartphones on earth right now, and close to 300 million are sold every quarter. The iPhone alone generated $26 billion in revenue last quarter and has made $313 billion since it launche. The entire recorded music industry brought in about $17 billion in 2013. The amount of money involved is such now a small percentage of Apple or Google’s revenues that they might as well offer it at cost, just to have the feature. This is what Beats caught on to: the real money is in the player, not what‘s played.
The question for Apple, then, is whether there is scope to provide a unique experience — a reason to buy its devices — around how you listen, rather than what you can listen to. A lot of music services today give you a search box, 20 million tracks and say ‘There you are — good luck!’ Beats is pitching something different. While Apple’s record in this field isn’t great (remember Ping?), it seems to think it can make music an Apple story again.