Today Apple announced that all songs from EMI will be available free of DRM (digital rights management) limitations. In the past it was like this for EMI music on iTunes:
Starting in May 2007, all EMI music will also be available as follows:
This affects not only music but music videos. From the press release:
iTunes will also offer customers a simple, one-click option to easily upgrade their entire library of all previously purchased EMI content to the higher quality DRM-free format for 30 cents a song. All EMI music videos will also be available in DRM-free format with no change in price.
Famous business man, Warren Buffett once said: “In business, I look for economic castles protected by unbreachable ‘moats’.”
“In days of old, a castle was protected by the moat that circled it. The wider the moat, the more easily a castle could be defended, as a wide moat made it very difficult for enemies to approach. A narrow moat did not offer much protection and allowed enemies easy access to the castle. To Buffett, the castle is the business and the moat is the competitive advantage the company has. He wants his managers to continually increase the size of the moats around their castles.
When looking to purchase a business, Buffett pays careful attention to a business he understands not just in terms of what the business does but also of “what the economics of the industry will be 10 years down the road, and who will be making the money at that point.” He is “also looking for enduring competitive advantages.” This, in a nutshell, is what makes a company great: the width of the moat around the company’s core business.”
Apple has decided that the enormous moat it has in DRM is not as valuable as making customers feel unlimited by their technology. This is like Apple sending forth from its impenetrable castle and scheduling a battle, say next month on the open valley, Apple against everyone, all sportsmanship like. This kind of courage and confidence is something unique indeed. So what of Buffet’s moats and competitive advantage analysis? I think it still holds, it’s just that Apple’s sustainable competitive advantage is their deep trust in the inherent value of their products and the experiences they provide. Almost no one has that these days.