Vertical Integration

Horace Dedieu shows that aps are rapidly overtaking songs as Apple’s most popular digital retail product:

The difference, of course, is that while I do buy both songs and aps from iTunes, I also buy songs from EMusic, from Amazon, etc. The iPod was launched as a device with a fairly general ability to play music files that competes with other music players, and then Apple also launched a music store that competes with other music stores. But Apple’s app store doesn’t work like that — it’s not just a convenient venue for buying iOS devices, the devices have been designed so as to make Apple the exclusive retailer of iOS-compatible apps.


It’s natural that players in the market will seek this kind of control over the digital retail distribution channel, since with zero marginal cost obtaining some form of monopoly power is critical. What’s interesting is that the logic of the situation is that this sort of monopoly power ought to be obtained by the network operators (Verizon, AT&T;, Sprint) who control the genuinely scarce resource of broadband spectrum. Apple’s defeated that logic, thus far, by being smart slash lucky but in the long-run it seems to me that the rents will eventually flow to the operators.