How come iTunes sales haven’t hit a wall?

Virtually every product sold in America that requires consumers to have expert computer system administration skills has experienced rapid growth among early (geeky) adopters and then hit a sales wall. Even VCR programming was something that most Americans couldn’t be bothered to learn. The first million people who bought VCRs read the manual carefully and time-shifted all of their favorite shows. The next 200 million bought them, lived with the flashing 12, and rented tapes.

Let’s consider iTunes. A music-loving consumer purchases 400 albums worth of music from Apple. Assume there are 10 tracks per album at a cost of $1.30 per track. That’s a $5,200 contribution to Steve Jobs’s Gulfstream fund (will pay for about one hour of fuel and overhaul reserves). These are downloaded to the consumer’s $3,000 desktop Macintosh and used to feed his home music system. The hard drive dies. If our consumer is one of the 80 percent of home computer users who don’t have a  backup regime in place, this $5,200 investment in Apple’s low-quality compressed music files evaporates. (Of course, our music lover might have a copy on an iPod, but in order to protect the recording industry from its consumers, Apple software prevents him from copying the data back from the iPod onto his new $3,000 Macintosh.)

After a few such incidents, you’d think that word would get around and people would stop paying big money to listen to music while they pick cotton on Steve Jobs’s plantation.

How could a product that requires home computer users to be expert sysadmins continue to enjoy expanding sales? Especially as an increasing number of consumers have migrated all of their data onto cloud-based services, such as Hotmail, Flickr, Google Docs, etc.

25 Comments

  1. Glen Raphael

    September 12, 2009 @ 1:05 am

    1

    It’s Apple; they’ve thought of that. When mac users lose their whole library, something or somebody tells them to google “redownload lost iTunes” to find stories like this. After which they have a joyous customer satisfaction experience they can blog about for the next guy to find.

  2. None

    September 12, 2009 @ 1:07 am

    2

    You can copy files purchased in iTunes from an iPod to a computer. (This a recent change. You would have been right about that a year ago.)

    There have been reports that iTunes will let you download your music again in such a case, but you have to ask for it.

    But hopefully the people who invest in $5,000 worth of music would buy a $100 external drive as a backup. If they’re running Leopard, they only have to plug in the drive and click ‘Yes’ to start the backup.

  3. Mike Scott

    September 12, 2009 @ 1:10 am

    3

    While your main point is well taken, you can in fact copy music purchased through iTunes (but not other music) from your iPod onto any PC or Mac that’s authorised for your iTunes account. So it’s pretty trivial to restore your music from your iPod onto a new computer.

  4. philg

    September 12, 2009 @ 1:18 am

    4

    Thanks, guys, for the update. I’m not sure that it changes the substance of the posting, though. An iTunes customer is still someone who is willing to take custody of a lot of digital data and maintain it over a period of decades (plenty of people were able to keep record collections together for more than 50 years; there are plenty of IT departments at companies that have failed to keep data accessible for anywhere near that long). You would think that Apple would have exhausted the supply of people in the U.S. (or the world) by now who are willing and able to do that.

    [Separately, Apple says that they will only help a consumer re-download his or her iTunes purchases once. After the first sysadmin failure, the consumer is expected to become infallible for the next 47 years or whatever. Now the market is (1) people who are expert sysadmins, and (2) people who can become expert sysadmins after one backup strategy failure.]

  5. None

    September 12, 2009 @ 1:35 am

    5

    You’re right, it doesn’t change your conclusion. I think that for these reasons, Apple is going to move to either a subscription plan (unlikely) or a hosted service — i.e. you ‘buy’ the content, and it’s downloaded to your computer, but if you delete or lose it, you can download it again later. The vast majority of computer users and music listeners can’t be bothered to manage all this on their own, and they shouldn’t have to! Right now, that means they just hope nothing happens, but at some point that won’t be good enough.

  6. machacker

    September 12, 2009 @ 2:12 am

    6

    Old guard mac hackers like me help other mac users maintain, upgrade and back up their systems. BTW, Time Machine is the first “no brainer” backup system EVER. It’s even easier to use than rsync! :-)

    I’ll buy music from the iTunes store when they stop making CD’s (and stop selling them at the thrift store) Don’t have to burn a CD, because it comes with data.

    Say what you want about Steve, he doesn’t remove your media, the way Bezos burns books on your Kindle. Evil has limits (except at Amazon and Microsoft, of course.)

  7. Michael Teper

    September 12, 2009 @ 3:01 am

    7

    Two possible explanations, and I think both contribute to current iTunes growth:

    1. New consumers are entering the market. I suspect this is happening from two demographic camps: older folks who are finally giving in and joining the digital revolution, and young kids picking up their first music player. The first segment will obviously shrink, but the second one will expand until iTunes users start dying off and a balance is reached.

    2. Given small incremental cost and ever-growing selection, consumers keep buying music. The person in question simply does not stop at $5,000.

    So that’s two ways of saying the market is still expanding and has not reached saturation. To your point, however, why the market hasn’t hit the IT wall, the explanation is that the market is still very young and the people who have faced hardware failures are a negligible minority. Consider also that previous storage media also deteriorated (LP’s, cassettes, CD’s, VHS tapes, DVD’s, all eventually degrade and fail, faster with use). At least with digital music its binary: you either have it or you don’t, which can be considered an improvement. Until you lose it, that is.

  8. Dodo

    September 12, 2009 @ 5:26 am

    8

    Spotify anyone?

  9. John

    September 12, 2009 @ 7:30 am

    9

    Phil,

    Interesting thoughts, but I think you misunderstand what people are buying when they buy a song on iTunes. You’ve described someone migrating their entire music collection. Instead, I think iTunes thrives on people being willing to pay $.99 or $1.29 or whatever to hear a particular song one time, right now. That’s probably a slight exaggeration, but not by much.

    If someone hears a song (or a piece of a song) on the radio, they used to buy the album (or the 45) at a price of $10 (or $1 or whatever). That vinyl version allowed them to listen to the music over and over. And it didn’t require great skill to keep it alive, just put it in the sleeve when you’re done and try not to scratch it. It wasn’t permanent, of course, because those records could be broken. People didn’t worry about that because records didn’t become unplayable very often, and they just wanted to have a way to listen to the songs they just heard on the radio, without having to wait for the DJ to play it again.

    CDs improved the odds of the music staying playable (minor scratches are no big deal), but it was still possible to lose or break the CD without having any way to recover the music. When CDs came out, most people didn’t migrate their entire music collection onto the new medium

    The old methods kept the music longer than necessary for the buyer’s purpose, though. For example, I owned a couple hundred records in high school, but I didn’t buy all of those songs on iTunes. In fact, I don’t listen to most of that music any more (my tastes having changed), so I have probably bought one or two songs, total, out of that storehouse of possible songs to “replace” what technology has made obsolete (vinyl albums). But, what really made the albums obsolete was my change in musical preferences. The old technology kept the data alive beyond its useful and necessary life.

    Rather than compare the music on iTunes to a record collection used for archiving music, compare it to listening to the radio. Buying a song on iTunes is the equivalent of catching a song and being able to play it again a bunch of times. In that sense, it is us paying to make something more permanent than it was previously, and if it’s not as permanent as our vinyl albums were, that’s ok. The old technology was solving the same problem (“I’d like to hear that song from the radio again, as many times as I’d like”), but does so in a way that is faster, easier, and (probably) less permanent. But, it’s still permanent enough to serve the true purpose for which most people buy music.

    As for the folks who are migrating the music from their albums to CDs to iTunes, the $1.29 is a small price to pay to avoid digitizing the vinyl at home. The same story would explain video.

    Maybe a shorter way of saying the same thing, the price is low enough per song that people don’t care about the risk of data failure and no easy recovery. If the data goes away, they’ll just buy a new copy of the songs they really listen to. The new $1.29 is just like buying a new 45 if the old one broke, and it doesn’t happen that often. The $1.29 for replacement songs is also the price of not worrying about backing everything up. Folks without much music that they would want to replace won’t worry about it (because the price of replacing songs–discounted for present value AND the likelihood of failure–is less than the price of backing up in terms of cost of hardware and time spent learning how to do it and keeping up the sysadmin chores).

  10. Christophe

    September 12, 2009 @ 8:50 am

    10

    Who wants to keep the same music for 50 years anyways? Phil, do you still use some grammophon you inherited? Besides, the problem of backups is much more general and also more serious with data personally generated — think of the sorrow caused by loosing all your digital photos. People are learning, sometimes the hard way, about it; and in fact, Apple is one of the few companies actively simplifying the backup process.

  11. philg

    September 12, 2009 @ 11:21 am

    11

    John: I think yours is the best explanation that I’ve seen. Thanks.

    Christophe: I still have the LP records that I bought in the 1970s. Bach, Mozart, and Beethoven haven’t lost their popularity (at least among the blue-haired subscribers to the Boston Symphony). The sound quality on my “grammophon” (Linn Sondek) is a lot higher than what you get from iTunes (128-256 kbps depending on when purchased), XM (64 kbps), or terrestrial digital radio (96 kbps). I also have LPs that my parents bought in the 1950s. Even pop music fans might still be enjoying their Michael Jackson albums from the late 1960s.

    Apple is simplifying the backup process? Were you joking? Let’s just look at what a consumer can get out of one company, Google: archived, backed-up, and searchable email; archived, backed-up, searchable, and Web-accessible photos (Picasa); archived, backed-up, and searchable documents, spreadsheets, and PowerPoint-style slide shows (also optionally Web-accessible); archived, backed-up, searchable and Web-accessible videos (YouTube). No “process” is simpler than “no process.”

    Separately, given that Apple’s market share of 3% is mostly Unix-loving computer nerds, it isn’t surprising that a lot of them do make an attempt to back up. If the Macintosh were used by average consumers it would probably have the same percentage of unbacked-up machines. Plugging a Seagate external hard drive into a Windows machine doesn’t require a lot of skill and any required software is included on the drive or in the operating system. But it requires a consumer to take time away from his family, his job, his TV, etc. and shop for the hard drive, unpack the hard drive, plug in the hard drive, and click the mouse a couple of times. A computer nerd like me who owns a couple of external hard drives can say “Those consumers really ought to eat more vegetables, trade in their SUVs for Priuses, stop smoking, and take a few minutes to set up a backup system.” That doesn’t mean they are going to do any of those things.

  12. Reinharden

    September 12, 2009 @ 12:01 pm

    12

    Previous studies showed that the vast majority of consumers were ripping MP3s from their own CDs, *NOT* buying tons of songs from Amazon or iTunes.

    Also, for those who purchase the music online, with the elimination of DRM on the songs, there’s nothing that keeps them from keeping backups or extra copies.

    Finally, while hard drive failures do occur, the failure rate is relatively low. In 25+ years of working on computer related stuff, I’ve had but a hand few of drive failures and only one of those was on a laptop.

    Frankly, it’s not the $0.99 or $1.29 songs that concern me when it comes to drive failures — it’s the $14.99 movies that are actually difficult to backup!

    To address your specific case… You posit “a music loving consumer” who purchases 400 CDs worth of music and stores them on their $3000 computer. This behavior is so far from the mainstream that changes in their behavior would little matter. The average iTunes user doesn’t purchase 400 CDs worth of music.

    In fact, when last I did the math, the average iTunes user looked to be purchasing about 30 songs a year from the iTunes store. This is somewhat understated since it simply divides the total number of iTunes tracks by the total number of iPods and iPhones — and obviously some number of the devices have fallen out of use.

    Anyway, the short answer with regards to your scenario — you posit a user that spends 100 times as much time and money on iTunes as the average user. It’s easy to assume that someone who’s so into their music collection would also spend the $100 necessary to have a 1 TB backup disk to which their music collection was automatically backed up.

    #####

    As to owning ephemeral bits and the inherent risk of that? Well, that’s a more challenging problem and one that we’re only just starting to explore. Having a collection of a few hundred 2+ gigabyte movies disappear will definitely get someone’s attention. And Apple might not be so polite about letting you re-download that as those data transit costs will add up. So perhaps the cloud is still the future…

    reinharden

  13. Dom

    September 12, 2009 @ 3:52 pm

    13

    If you use a Time Capsule as your wireless base station for your Mac, you just click one “Yes” button once and all your files get backed up automatically.

    Also, I think John is right. Any song I’ve heard about 200 times bores me and I don’t want to hear it again. (I can use iTunes’ play counter to look up how many times I’ve heard each song, not counting the radio at work of course.)

  14. Daniel L. Taylor

    September 12, 2009 @ 8:50 pm

    14

    Most Mac users are the polar opposite of “Unix-loving computer nerds.” Most don’t even know Terminal is sitting on their hard drive, much less any command lines they could type into it if they accidentally launched it. UNIX to them is just a label, something inside their Mac like “Core 2 Duo” or “DDR3 SDRAM”.

    As to backups, using Google means taking the time and effort to consistently use their services and get your information into their cloud. If you love to put your stuff on YouTube and would do it any way, then YouTube makes a pretty good backup. If you have no interest in displaying your videos on YouTube then it’s not so effective. Google is not a replacement for a good, complete home backup.

    Apple’s Time Machine really is easier and better than anything else I’ve seen. I wish Apple would release it for Windows because I have a number of small business clients who use Windows who a) have backup software which doesn’t consistently work, and b) fail to check on it and manually backup. I don’t know what’s so difficult about writing backup software for Windows, but every major package fails at least some of the time to execute scheduled backups. It drives me nuts.

    With Time Machine you plug in an empty hard drive, click Yes, and never worry about it again.

  15. philg

    September 12, 2009 @ 10:58 pm

    15

    Daniel: It doesn’t make any sense for people who aren’t computer experts to buy a Macintosh. They can buy a perfectly serviceable Windows machine from Dell for $270. People would not spend $1000-$3000 extra on a Macintosh unless they had (or thought that they had) some special knowledge, ability, or requirement. Anyone who spends 4-10X as much as necessary on a product is someone who thinks he is an expert of some kind. The computer novice knows that he wants to browse the Web, play videogames, watch DVD movies, play Internet radio stations. The $270 Dell will do all of those things and therefore the novice won’t spend more because he has no way of knowing why he should pay more for something different.

    There is no reason for computers to be different than other products. Someone who knows nothing about cars will buy the cheapest sedan that seems large enough to hold his family. A car nerd might look at engines, suspensions, and other design feature and conclude that it was worth paying 2-4X the price and get a BMW.

    Anything that happens on computers that cost more than average is by definition something being done by computer enthusiasts and nerds.

  16. Michal Jaskolski

    September 13, 2009 @ 8:56 am

    16

    iTunes will die soon, unless they introduce all-you-can eat streaming subscription. I live in Europe, so I can use a service called Spotify which works on that very basis. The cost of premium account is around $15 and for that price, I can listen to thousands of albums with 320 kbps quality. In some countries, free account with audio ads is also available. Spotify client application is very well written – you can feel as if the entire world music library was on your hard drive, because there is no delay between clicking “play” and hearing the song. Spotify application is also available for iPhone OS and Android, so you can access to almost every music album on earth even outside your home. I’ve heard that Spotify could be available in the US at the end of this year, but some people from the US are using it already using proxy servers.

  17. philg

    September 13, 2009 @ 10:21 am

    17

    Folks: What is the difference between Spotify and Rhapsody? I was a Rhapsody user, but gave it up after (1) some sort of software glitch resulted in my library being deleted (not the files, as those are streaming, but the list of those tracks that I wanted to hear), and (2) albums kept going in and out of their library, perhaps due to licensing disputes with record companies (so after a year of having an album in one’s playlist it would disappear; sometimes the same music could be found in another place but you ended up having to maintain your library due to unpredictable behind-the-scenes decisions). I didn’t realize that Spotify was 320 kbps. That is much better than Rhapsody (128-192 kbps for streaming).

    I’m kind of surprised that the music industry itself doesn’t get together and market something like Rhapsody that is universal (i.e., every album ever published by an American record company available). If it could get $10/month from every American household, that would be more revenue than it ever got from selling CDs.

    [Folks: Please stop with the comments about how the Macintosh and Time Machine are the world’s easiest systems to use. We’ve already got some above. We don’t need any more amplification from full-time professional computer programmers and system administrators about how Macintosh OS X is easier to use that a Nokia cell phone. The interesting question is whether ownership and maintenance of digital files will be the long-run way that people pay for music or whether a subscription service will eventually dominate. Also, it just occurred to me that, as more than 90% of the world’s desktop machine are Windows-based, it is likely that the majority of iTunes customers are keeping their purchases on Windows computers (which, according to the Steve Jobs fan club comment here, are virtually impossible to back up). Which leads us back to our original question… given that Windows machines are provably unlikely to be backed up by the average home user, why are they buying tracks on iTunes rather than waiting for a subscription service that meets their needs?]

  18. Aaron Davies

    September 14, 2009 @ 2:05 am

    18

    interestingly, iphone/itouch apps are (afaik infinitely) redownloadable. possibly this is because they’re generally very small, possibly it’s because the **AA isn’t involved…

  19. Aaron Davies

    September 14, 2009 @ 2:06 am

    19

    re: subscription services, perhaps with the well-publicized failure of a different one every couple of months, the message is finally getting through to the masses that music that must be reauthorized by someone else every time you play it is even more ephemeral than music that disappears if your computer dies.

  20. Glen Raphael

    September 14, 2009 @ 11:19 am

    20

    Version 9 of iTunes that just came out last week has some features relevant to this discussion. If you have multiple home machines running iTunes – say, a desktop and a laptop, or his-and-hers laptops – it used to be a pain to keep them coordinated. The music you buy on one machine wouldn’t automatically be available on the other. As of last week, they fixed that – there’s a feature called “Home Sharing” whereby from one machine running iTunes you can easily browse the music on other machines and have new music or movies or iPhone Apps you buy automatically show up in both places. So now as soon as you have more than one machine you use at home that runs iTunes – whether macs or PCs – your data is likely to be backed up. (In addition to the iPod/iPhone copy most people have, which can be restored from in a pinch).

    Now if only iPhoto did the same….

  21. Jared

    September 14, 2009 @ 12:27 pm

    21

    Why hasn’t the record industry come up with a subscription service? The labels don’t want to work together. They delude themselves into the old model is still viable. They try half-heartedly (how many re-launches has Napster had?) and aren’t willing to trade short-term losses for long-term success. It’s kind of analogous to GM.

    Even among the Apple faithful, there is little love for the iTunes application, but it is the easiest (and only supported) way to interact with an iPod. Apple’s restrictions on access to the player and the convenience of buying songs inside the program rather than having to browse out to Amazon to get them combine into a pretty big barrier to entry into that market.

    As people are more used to “living in the cloud” and always needing to be connected, I imagine subscription services will become more popular. Google Docs (ignoring offline access since Gears/HTML5 is definitely a geek-only thing) would not be terribly usable on a high latency connection. As mobile bandwidth improves and its adoption increases, so will mobile music downloads, thus making subscription services more attractive.

  22. Daniel L. Taylor

    September 15, 2009 @ 4:42 am

    22

    “Which leads us back to our original question… given that Windows machines are provably unlikely to be backed up by the average home user, why are they buying tracks on iTunes rather than waiting for a subscription service that meets their needs?]”

    People aren’t going to wait for record labels and technology companies to work out an easy to use subscription model when they can hear their music now at $1 per song. $1 is nothing. It isn’t even a large soda at McDonald’s. And music is not a long term investment. It’s an impulse buy that yields the greatest satisfaction now, not a decade down the road.

    You cite backups and longevity as an issue, but it’s not nearly as big of an issue as it seems. With the exception of a few favorite songs most people won’t care about the music they listen to today in 10 years. And if you can keep your digital music collection going longer than 10 years you’re actually doing pretty well by consumer technology standards. (Most LPs, cassettes, and video tapes are now landfill.)

    If you’re using iTunes you probably have at least one iPod, a pretty effective backup. On top of that Apple will let you restore your purchases at least once. That’s enough to get most people through the decade or longer.

    You’re right that a subscription service would be better and more reliable. But until there’s one as popular and simple as an iPod, nobody is going to care.

  23. Joe Internet

    September 15, 2009 @ 4:22 pm

    23

    I get everything from BitTorrent and keep a copy on an external hard drive. I guess I am an expert sysadmin. Problem averted.

  24. JP

    September 17, 2009 @ 3:54 pm

    24

    Phil: Do you really think that consumers are rational and calculating and consider the long term in purchases like this? You spend a lot of time in this blog citing numbers that don’t add up in massive arenas like health care and finance. It trickles down to household budgets too. Who thinks of TCO when there is a beautiful piece of brightly colored aluminum endowed with a display in front of them? Real people don’t think of technical intricacies of preserving their data for 50 years. Maybe they should, but most people don’t think beyond whats on television tonight.

    Furthermore, how many of these people believe their hard drive will die? Sure, somewhere in the back of their mind they know that the computer will get old and die someday, but most people think it simply will not happen to them.

    It seems to me like Apple is one of the most consumer hostile companies out there, yet they are such a powerful cultural icon that people don’t notice. Apple has positioned itself as a high end product maker, and a lot of people go so far as to fetishize those products. A 2008 documentary called “Welcome to Macintosh” demonstrates this. People don’t buy this stuff because logic and reason and ROI and TCO calculations tell them to. They buy it because its pretty. Here is an IMDB page for the documentary: http://www.imdb.com/title/tt1247703/

    I saw it on Netflix (On demand). If you watch it, Guy Kawasaki is a great guy to pay attention to. He basically says, Apple is about making people like what Steve Jobs tells them to like. He’s darn good at it, and without him, Apple is not so good selling it.

    PS: I own a Macbook because I told myself I wanted to use Final Cut Pro on a Unix-like system instead of the competing Adobe video editor for PC. I back my stuff up. I’m also a programmer and sysadmin so I don’t count in that part of the discussion here. I could easily have gotten a Dell cheaper but it doesn’t look as nice, and I didn’t care about the point of diminishing returns in the cost/benefit analysis. I believe Apple makes beautiful products. They also do everything they can to rip out all the consumer surplus. Certainly they don’t care about maximizing value for the consumer. People have always paid extra for beautiful things- women, cars, and even Picasso’s.

  25. yischon

    September 25, 2009 @ 11:34 am

    25

    Buying from the iTunes Music Store has been the easiest way to quickly buy and listen to music on a portable device, especially if that device is an iPod touch or iPhone. You can buy and listen on the device within seconds after literally only three taps. Who’s thinking about long term backup strategies at that point?

    Subscription services on portable devices have been very clumsy to use (requiring going back to the desktop for various reasons) or require consistent internet connection for streaming. Also, the upfront cost is more with a subscription. This is just beginning to change with the Zune HD and the Zune Pass subscription service.

    Bottom line is that the iTunes Music Store has made it easier to buy and listen to music on a portable device than to use a subscription service.

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