Zune v. iTunes

David Robinson, guest-blogging on Ed Felten’s Freedom to Tinker blog, makes an interesting observation about Microsoft’s offer to relicense and retrieve mp3s already purchased on iTunes for free. The market actually works:

Will copyright holders be getting the same amount from Microsoft, when their songs are re-purchased on behalf of migrating iTunes users, as they will get when a user makes a normal purchase of the same track in the Zune system? The copyright holders have a substantial incentive to offer Microsoft a discount on this kind of “buy out” mass purchasing. As Ed pointed out to me, it is unlikely that users would otherwise choose to re-purchase all of their music, at full price, out of their own pockets simply in order to be able to move from iTunes to Zune. By discounting their tracks to enable migration to a new service, the copyright holders would be helping create a second viable mass platform for online music sales — a move that would, in the long run, probably increase their sales.


Bottom line: Markets are often surprisingly good at sorting out this kind of thing. Technology policy watchers underestimate the power of competition at our peril. It’s easy to see Microsoft or Apple as established firms coasting on their vertically integrated dominance, but the Zune buyout is a powerful reminder that that’s not what it feels like to be in this or most any other business. These firms, even the biggest, best and most dominant, are constantly working hard to outdo one another. Consumers often do very well as a result — even in a world of DRM.

What’s neat about this move is that it shows that there are more degrees of flexibility that most of us had thought. Critics viewed iTunes/iTunes Music Store as a monolithic lock-in system, but here a clever market participant figured out a combination of contractual and technological measures to work around it and create competition.