Tethering vs. Tying
A couple of weeks ago Siva Vaidhyanathan wrote an editorial for us titled "The Trouble with Tethering", which argued that Apple's efforts to keep RealPlayer from selling online downloads that'll play on the iPod were ultimately bad for both consumers and Apple. The piece genereated a lot of interesting discussion, and Greg Scher, who blogs for our sibling sites The Spam Weblog and The Unofficial Microsoft Weblog, asked us if he could write up a little response to Siva's piece and we were more than happy to oblige.
Go read Siva's original editorial here, then read Greg's so you can see what he's talking about.
Tethering is a touchy subject. Before we can discuss the technology tether further, we need to distinguish Tethering from Tying. Making this distinction between business models and technologies is important because new entertainment services coming down the pipe will involve tethering. The business, legal and cultural communities should understand the premise of these technology implementations so as to be able to both think and act critically about the subject.
Neither tying, nor tethering, nor corporate consultants, are by default anti-competitive. The proof, as with many things, is in the implementation. To rule out products according to binary conclusions would not be good for business, policy, or consumer decision-making. The competitive question is whether the standards employed are available, or unavailable, to competitors and whether these standards jibe with consumer demand for the products.
Designing products such that the "parent" product is not complete without the addition of some add-on, or completing piece, is called Tying. Most all of the "tether" examples offered by Siva actually involve the historically common practice of tying. Video game platforms and games; ink jet printers and cartridges; coffee makers and espresso pods; Fairplay-wrapped iTunes files and iPods. Technology, not your free will, limited your choice of completing products to proprietary, or company-approved providers.
Tethering involves making your use of a product remain within the limits of, or contingent upon, some agreement with the owner, or provider, of the product. Think of the bumper cars you used to ride at the amusement park. Within the limits of the driving space and your granted time, you could choose any car you wanted, drive around and crash into both friends and total strangers. However, you could not drive outside of the game space and when time ran out, your car rolled to a stop- much to your disappointment. There was even a metal tether brushing against the ceiling accepting the electric charge that powered the bumper car. Technology, not your free will, limited your use of the product to the terms of your agreement, whether or not this agreement is fully understood.
In entertainment offerings soon coming to market, tethering will enable those who subscribe to music services to move files onto portable players within the terms of their subscription. While some object to the idea of "renting" music, those who do not object will gain the ability to move files beyond their local machine and internet connection. Whether or not these technologies will work as planned, be applicable to myriad portable players and be fully understood by consumers is information that will reveal itself over the next few months.
You are surrounded by tied products. The WinTel platform is a tied experience. Your personal computer would be quite a boring experience without a video card. In general, however, you have a choice over the video card in your machine. On the other hand, when a handgun is designed to only work within the hands of its owner, most consumers would not argue this contingency to be anti-competitive. When only your key is the key that will unlock your automobile, most car owners would not object to this limitation of use. Extreme examples, but provided to make the point more clear.
Like iTunes' protected files, MP3 files are tied to the presence of a standards-compliant player in order for you to hear the music. MP3, contrary to some assertions, is not an open format in the truest sense of the word "open". Makers of software and hardware players must pay a license fee to the owners of the MP3 standard in order to produce compliant products. The portability of MP3 comes at a price that is paid for by developers of MP3 players and encoders, like Apple. As a consumer, you should be aware of this. Someday, the ability to play an MP3 file may not be as free as it is today.
The controversial way in which Real has challenged (or maybe not challenged) the DMCA should be understood. The DMCA places restrictions on those who might create technologies that circumvent the copy-protection schemes in place to limit use of certain media files and entertainment services (or even garage door openers). Real, through the Harmony implementation, has not circumvented the Fairplay DRM in use within iTunes, but instead has chosen to replicate the DRM. This little twist on the theme will is making for interesting fireworks.
Apple's choice to close the iPod to competing, protected formats, combined with their expressed business model around the iTunes/iPod combination, plays counter to traditional tied business models. Normally, the hardware is sold at cost while the "software" (razor blades, ink cartridges, music) is sold at a profit. Instead, Apple has claimed that selling music is profitless, while selling hardware holds the long-term profit potential. Given this agenda, it would seem counter-intuitive that Apple would object to any party being able to play the files of their choice on the iPod. The more iPods sold, the better.
There is no true bind between the iTunes and the iPod. Any file you purchase through iTunes can be burnt to CD, thus stripping the files of any copy-protection that previously limited your use of the files. The iPod will play any combination of MP3, AAC, AIFF, Apple Lossless, or iTunes protected audio. To claim the iTunes/iPod system is a closed system is not truly appropriate… for the moment.
Apple's response over the next few weeks could reveal a surprise: the long-term success of the iTunes/iPod platform is dependent upon margins in both worlds - music and hardware. While music is sold with little margin, the promotional value of the store pathway is worth money. Over time, Apple's ability to squeeze large margins out of iPod sales will diminish with the growth of competing players, stores and services. The company needs both products, iTunes and iPod, to offer a financial return.
