The Relentless Commoditization of Content / by Nathan Jones

This piece was originally published in The Photon Fantastic on June 10, 2010. It appears here in slightly modified form. 

Remember the glorious days when record company executives and their rock bands du jour sailed languidly around the Mediterranean in multimillion dollar yachts surrounded by supple, sunbathing, Scandinavian supermodels? Don’t you long to return the time when CDs cost upwards of $20 — $2 or more per track — that rose-tinted time when Lars Ulrich’s eyes bugged out more than usual as he flew into hysterics over Napster on the Charlie Rose show? Didn’t you love paying for an entire album when all you wanted were two tracks, which made it effectively $10 per song? Ah! The good old days! How fondly we remember them. And we have a personal computer company to thank for taking them away. Who would have predicted that?

Apple singlehandedly reinvented the music business by embedding in the popular consciousness the ideas that songs should cost only 99 c, that using simple software you should be able to select single tracks from an album to download, on-demand, from anywhere in the world, and that you should be able to carry “1,000 songs in your pocket.” These ideas had a powerful and instant appeal, and almost overnight the former iTunes Music Store (later renamed the iTunes Store) became the most influential force in music retail, and, within a few years, the largest. What was Apple’s motivation for doing this? Was it to make money from music sales? Was it to corner the world market in supple and suntanned Scandinavian supermodels? 

Before we address those questions, let’s take a seat in the front row of Apple's 2010 World Wide Developers’ Conference. During his keynote presentation, Steve Jobs boasted that the App Store had served 5 billion downloads. That’s a big number, and certainly worth bragging about. That number should make a software developer’s eyes turn to white saucers with big fat dollar signs on them and play ka-ching sounds in her ears. With the the next slide, Jobs proudly proclaimed that Apple had paid developers $1 billion in revenue from their apps (i.e., 70% of the take — Apple keeps the other 30%). Again, sounds like a big number — until we stop to consider that it amounts to only 20 c per download. Time to put away those saucery eyes with big fat dollar signs on them, and to consider the implications of writing software for the iPhone.

Later in the presentation, Jobs unveiled iAds, Apple’s venture into the advertising business. iAds are to iOS apps what Google ads are to the websites, only with the promise of being more engaging and less annoying. This raises another question: What the heck is Apple doing in the advertising business?

I’ve asked a lot of questions. Now it’s time to have a go at answering them. When Steve introduced iAds, his rationale was, and I quote: “We’re doing it for one simple reason. To help our developers earn money so they continue to create free and low cost apps for users.” Before I address this explanation at face value, let me say that it’s rather slippery of Steve to market iAds this way. It’s slippery because although it sounds very noble and altruistic, the statement is only half complete. 

Way back, near the beginning of time as far as the personal computer is concerned, Apple was rightly convinced that the reason everyday people like you and me bought computers, no matter how pretty they were, was actually to do things with them. And to do things with computers, you needed software. Software made it possible for you to fill in your taxes, or write a letter to your grandma, or maintain a webcam affair with your dominatrix in Tokyo. Without software to run it and make it useful, there would be no reason to buy a computer. To make this idea concrete, then head of software, Jim Hoyt, commissioned the Star Wars-inspired poster “Software Sells Systems” for Apple in 1979. 

Every product has a complement, which is a thing that you typically buy along with it. Products and their complements maintain an economical see-saw relationship. Cameras and film are complements: when the price of film drops, demand for cameras increases, which is part of the reason digital cameras are so popular these days; the cost of “film” has been driven to zero. Likewise, software and hardware are complements; when the price of software falls, demand for hardware to run that software increases. 

Despite countless red herring articles and much pointless heavy breathing about the rivalry between it and software giant Microsoft, the thing to remember about Apple is that it’s not a software company at all, and doesn’t compete directly with Microsoft. Bite into its core and you’ll find that the Apple is not soft, but hard. Apple makes its real money, and a lot of it, by selling hardware

Apple is also a smart company, and like all smart companies, it is pushing hard to raise demand for its products by commoditizing their complements. This is to say that it is consciously and aggressively lowering the public’s perception of what software that runs on the iPhone should cost, as well as lowering the cost of its own apps and sending strong signals to developers to follow suit. From the inception of the iDevice, Apple has strategically promoted the idea that software for the iPhone (and iPod Touch and iPad) should be as close to free as possible, just as a song should cost no more than 99 c. (Podcasts get rougher treatment: they should always be absolutely free.) 99 c songs sell iPods like hotcakes, just as 99 c apps sell iPhones. 

But Apple is in a tricky position here. On the one hand, the company needs software to be cheap or free to entice consumers to buy iDevices, but on the other it needs prices to be sufficiently high to entice developers to devote their energies to the platform. If all software for the iPhone were free, there would be no motivation for developers to produce it. And so we have iAds (and pernicious in-app purchases) as Apple’s solution to this thorny predicament. 

The purpose of iAds may be inferred by a literal reading of Jobs’s statement, i.e., to subsidize developers by giving them a revenue stream in addition to app sales and thereby to allow them to lower their prices. The knock-on effect of this is to boost iDevice sales, which is how Apple makes its money. So, Steve’s statement is better and more completely written as: “We’re doing it for one simple reason. To help our developers earn money so they continue to create free and low cost apps for users. Free and low cost apps will increase demand for iPhones, iPods, and iPads, and ultimately profit and marketshare for Apple.” Less noble, perhaps, but truer.

The iPad is supposed to be the miracle device that saves the “printed” word. But all I see is a regurgitation of the same advertising model that has been used to subsidize the printed word for aeons. It has never made sense to me that funds raised by selling advertising space to Bloomingdales should be used to support reporters risking their lives to deliver news from Afghanistan. One of the most vital aspects of a liberal democracy, an unfettered press reporting and analyzing news, both local and international, thereby rests on the whims of spring season shoe-shoppers. And I foresee that content creators will continue to be marginalized, iPad or no.

Should we photographers, writers, programmers, and designers, we the people who create stuff, be worried about this endless commoditization of content — our content — the original, inspired, beautiful things we produce? Yes. I believe we should. I believe that our work has inherent value, and that we should be able to make a living from the stuff we make. We should not need to be subsidized by advertising. Who in this world wants more advertising? 

Perhaps there is hope. Perhaps there is room on the jungle floor for producers of niche content to carve out a reasonable living by making and marketing the things they love to small, passionate audiences. At least that's the view of Ben Thompson, the author of Stratechery (essential reading for anyone interested in the intersection of tech, culture, and business.) Personally, I take courage from this graph of Ben's, which he includes in the article "Differentiation and Value Capture in the Internet Age." The key, or course, is differentiation, which is a topic for another day.

(The original, erroneous title of this post was The Relentless Commodification of Content. The problem was my mistaking "commodification" to mean "commoditization." The Marxist idea of commodification is to take something that was previously not saleable and to make it saleable. Commoditization, on the other hand, is to take something that was previously differentiated and to make it generic.)