When the iPod first released in 2001, I was one of those who thought it would fail. It was expensive, it was heavy, and although it held much more music than the competition, using a hard drive as the storage medium seemed to me a risky choice as far as reliability went. There were few, if any, manufacturers who wanted to design housing secure enough for a hard drive to withstand the drops. All other portable music players at the time used flash memory to store music, which meant they were lighter, they held less music, and you could drop them without fear of the damaging the data storage device. With the exception of drive space, technically these devices were superior, but an interesting thing happened: consumers liked the software, and they liked the iTunes store, and Apple soon had a lineup of iPods to fit every price point.
It is important to note that before the iPod had made its entrance, the market was oversaturated with MP3 players -- everyone was making them, from big brand manufacturers like RCA and Sony to computer peripheral manufacturers like Creative Labs and Diamond, to manufacturers in China, pumping them out at prices ranging from $100 to $300, all while the starting point of Apple's iPod was $400.
I offer a theory for this, and that is in the beginning the iPod made things simple. Putting music on the device was ridiculously easy and quick, burning CDs or purchasing music required little computer knowledge, and once you had an iPod, everyone knew what it was. Purchasing a case for the iPod was easy, because everyone was making cases for it that accomodated the controls, meanwhile if you were buying Sony or Creative, no one other than the manufacturer was making cases or accessories for their product. This became even more apparent after other iPod models were released; within weeks of announcing a new iPod, cases, clips and all manner of accesories were available and custom fit for the newest iPod. By taking away the choice of different music players, you were granted an even wider selection of accessories and music.
The problem with technology is as it continues to move forward, it is quickly outdated -- and people are always wanting the latest and the greatest, so Apple built in a a battery with a two year lifetime, which made sure that if the product wore out, it would be replaced with a newer model -- preferably another iPod. People who use their iPods consistently become dependent on the device and replace it upon breakage, because the thought of being without personalized playlists is too much to bear.
Apple has brilliantly captured the market in music -- while outlets like Amazon and Walmart also offer music downloads, these alternatives from iTunes suffered from a problem in the past: compatibility. While currently most of these services have surrendered DRM in favor of just supplying an MP3 music file, this is a decision made by economics (mainly because there was no demand for music files which could not be used on an iPod). In contrast, iTunes music only works on Apple devices, which means that while the minor percentage of non-iPod music players is closed to them, it is a percentage that doesn't outweight the benefits of having Apple's iPod locked with DRM, which results in the sales of DRM-music and iPods. It is interesting to note that this is the same strategy Amazon is attempting to execute with the Kindle.
The transformation of all these services to one that is DRM-free is not just because the iPod is essentially a closed platform, but also because everything plays MP3 now. Cars come with stereos that can read MP3s, cellphones have built-in music players, and even personal devices like the Amazon Kindle have the ability to playback MP3s, and yet I don't see the market for iPods shrinking substantially -- each generation of iPod has more storage space, more functionality, more features, but the core function of playing music is still the main use of the device. The reason the iPod sells well is because there is plenty of media available for the users to consume, and while Apple would prefer that they buy from the iTunes store, items without DRM play fine on iPods. The media companies, on the other hand, are still frightened of releasing movies and tv shows DRM-free, and are unhappy with their contracts with Apple. NBC/Universal has pulled their shows off iTunes, and speculation has been that this is due to pricing and NBC wanting a percentage of iPod sales.
Video is the new media being sold, common sense dictates to me that while one might want to carry their music collection with them, having the complete season of Lost with them isn't as much a priority. Apple is rumored to have negotiated with Fox for a movie rental service on iTunes, which should be interesting to see, and may give a boost to their ailing AppleTV product line. In addition to AppleTV, their video-capable iPods are poised to benefit from the rental market, as well as any computer with iTunes installed. While I don't see this as being a huge market right now, since DRM for video isn't going away anytime soon, Apple may as well pick up some revenue in this field while they can.
It is of interest to note that Apple loses little when other companies decide to drop DRM. In the big picture scope, it means that there is more media available for the consumer, and the users of their devices. As they are currently the market leader, most likely a DRM-free file is being used on an Apple product, and not their competitior. While it does mean that the file was not purchased from iTunes, the bulk of the money that iTunes generates goes to the label, and not to Apple. Apple's main source of revenue in this venture is the sale of iPods.
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