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Who's knifing what?

Microsoft just declared the Zune end of life. This makes it a good time to look back to some notable episodes in the evolution of digital media distribution. First, an episode from 1997:

During two days on the stand, Tevanian accused Microsoft of seeking to divide the multimedia market and then “sabotaging” QuickTime’s ability to work with Windows computers when Apple declined to go along with Microsoft’s plan. Justice also is accusing Microsoft of attempting to illegally allocate the Internet browser market.

In particularly colorful testimony on Nov. 5, Tevanian described an April, 1997, meeting between two Apple and two Microsoft officials. Tevanian, who was not at the meeting, said Microsoft officials suggested that Apple abandon its business of providing “playback” software that enables users to view multimedia content on the computers. Instead, they offered Apple the much smaller portion of the market for the tools that developers use to create the content. In Apple’s mind, though, the playback software was its baby.

According to Tevanian, Apple executive Peter Hoddie asked Microsoft officials, “‘Are you asking us to kill playback? Are you asking us to knife the baby?'” He said Microsoft official Christopher Phillips responded, “‘Yes, we want you to knife the baby.’ It was very clear.”

Business Week Online/Microsoft Watch on the cross-examination of Apple’s Senior Vice-President Avadis “Avie” Tevanian Jr. during the Microsoft antitrust trial.

Ten years later:

“We came into the [media player] market, a market in which they are very strong, and we took, I don’t know, but I think most estimates would say we took about 20-25% of the high end of the market,” “We weren’t down at some of the lower price points, but for devices $249 and over we took, you know, let’s say about 20% of the market. So, I feel like we’re in the game, we’re driving our innovation hard and, uh, okay, we’re not the incumbent, he’s the incumbent in this game, but at the end of the day, he’s going to have to keep up an agenda that we’re gonna drive as well.”

Steve Ballmer on Zune, iPhone (CNBC interview) .

Four years later the Zune is no more. Besides being interesting anecdotes, what patterns emerge from these episodes?

The evolution of the bases of competition for media distribution between 1997, 2007 and 2011 is striking.

  • In 1997 the struggle was between specific modules (formats, players and technical standards.)
  • In 2007 the basis of competition was devices integrated with music services (which encompassed formats, standards and players).
  • By 2011 the competitive standard that the iOS ecosystem is putting forward is at an even higher level of integration. Not only are the sub-modules integrated into a whole, but now apps bespoke to a platform are attracting a virtuous cycle of third party innovation.

Now consider how the two protagonists evolved (or didn’t) during this 14 year saga.

Apple has maintained its attention steadfastly on products while Microsoft has maintained unwavering focus on the distribution and control over value chains. During the 1990s one strategy worked and the other didn’t. During the following decade they changed places. The locus of the two strategies did not change. What seems to have changed is what the market values.

So we have to ask: Is the end of the Zune a matter of poor execution or is the cause for failure something more profound? Is Microsoft’s real problem that they have prioritized that which is no longer valued?