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Why "iPhone Killers" Must Target iTunes


Until its rivals address the software part of the mobile-devices equation, Apple's success will only be limited by its agreements with telecom carriers.

"What did I learn as a kid on Western? Don't sell a guy one car. Sell him five cars over 15 years."
-- Dave Moss

Contrary to popular belief, Apple's (AAPL) lifeblood isn't the iPhone. It's not the iPod, it's not the new iMacs, and it's certainly not the iPad.

What keeps Apple going is a little piece of free software called iTunes.

Let's take a brief look at the evolution of iTunes:

2001 -- The Birth

Even Apple didn't know what it had on its hands when it launched iTunes in 2001 -- otherwise it wouldn't have been called iTunes. Back in those days, iTunes was an Apple-only piece of software dedicated to helping Mac users manage their iPods and music collections.

2003 -- iTunes Music Store/iTunes for Windows

This is when iTunes really look on a life of its own. The iTunes Music Store latched the burgeoning digital-music market to the iPod because iTunes-bought music doesn't work on competing portable music players. Selling music has never provided Apple with much profit, but it brought users into the fold while making it difficult to leave.

ITunes also became one of the all-time great Trojan horses, infecting millions of Windows users with a free taste of life with Apple; it took down the competing Musicmatch Jukebox software, bringing Microsoft (MSFT) Windows-based iPod users completely into the Apple Kingdom.

2008 -- The App Store

In 2008, the App Store opened, allowing folks to purchase apps directly from Apple for use on their home computers, iPhones, and iPod Touches. The App Store directly followed the "lock 'em in" strategy of the iTunes Music Store, and set the stage for 2010's iBookstore.

2012 -- The App Store, But Bigger

By 2012, I fully expected Apple's App store to have moved beyond the bite-sized Apps served up for the iPhone, iPod Touch, and iPad, and into full software packages. The only thing Steve Jobs likes more than black turtlenecks and Mom jeans is vertical integration -- adding big software applications to the iTunes App Store fits that bill.

The Big Picture

ITunes has evolved from a piece of music-management software into something that 1) manages all your media, contacts, and appointments and 2) activates, syncs, and backs up the iPhone/iPad.

In other words, iTunes is now the personal operating system for millions of people, giving them a good reason to stay within the Apple ecosystem. When you buy a new Apple gadget, you plug it into your computer, and voila -- iTunes updates everything and you're ready to go, no thinking or effort required.

It's the most comprehensive piece of plug-and-play software on the market, blowing away the likes of Microsoft's Zune ecosystem and Research In Motion's (RIMM) Blackberry Desktop software.

So the theme here is simple -- iTunes is the glue holding Apple together, and the piece of the puzzle competitors need to focus on if they want to hurt Apple.

No Apple product is an island, because each one cleanly ties together as part of an overall strategy -- get the people inside the house, and slam the door behind 'em.

iPhone Killers

Apple's competitors -- Microsoft, Hewlett-Packard (HPQ), Dell (DELL), and so on -- have played the hardware game way too aggressively over the past decade, whether we're talking smartphones, PCs, or mp3 players.

For them, business has always been about making today's flavor of plastic packaging and silicon -- not about providing a comprehensive user experience, or producing anything that keeps people coming back for more.

That's why I laugh every time I hear "iPhone Killer" -- a term that's been used to describe everything from the HTC EVO 4G to the original Motorola (MOT) Droid to tomorrow's expected Blackberry 9800 slider phone.

The idea that an iPhone killer is on the horizon is pure fiction, because while we're seeing a lot of great mobile hardware being produced, there's absolutely nothing cooking in software that even comes close to countering iTunes.

Until its rivals address the software part of the mobile-devices equation, Apple's success will only be limited by its agreements with telecom carriers.
No positions in stocks mentioned.
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