Opinion: HP's iPod Moves Could Hurt the Industry

Last summer, HP announced a sweeping push into consumer electronics and released more than 100 new consumer-oriented products in one day. The move drew a bit of press attention, but nothing like the front-page news assault that Apple Computer generated last week for its comparably weak announcement of expensive, new, and smaller iPod devices, portable audio players that won't be available for months. Attempting to latch on to Apple's marketing success, last week HP made the incredible decision to license Apple's iPod player and iTunes software, and the move predictably catapulted HP into the spotlight for a day. But as the dust settles, HP's customers are rightly asking some hard questions about the decision because, as Microsoft is pointing out, Apple's technology offerings are an island of incompatibility in an otherwise widely compatible PC world.

Here's the problem: Apple's iPod plays back the popular MP3 audio format as well as the standards-based Advanced Audio Coding (AAC) format. But the Apple iTunes Music Store sells songs only in the more limited Protected AAC format, which is compatible only with iTunes and the iPod, giving Apple the type of corporate lock-in for which Microsoft is often (and, in the case of digital media, unfairly) criticized. Incidentally, RealNetworks' recently announced RealPlayer 10 also works with the AAC and MP3 formats (and with Windows Media Audio—WMA--RealAudio, and other formats), but RealNetworks uses yet another completely incompatible AAC version for its music store, a format that doesn't work with iTunes or the iPod or with any other music software. To its credit, however, RealNetworks is offering higher-quality AAC files than the iTunes Music Store offers because most customers will likely want to convert the RealNetworks' AAC files to the more compatible MP3 format for the short term.

Enter HP, which makes a variety of digital-media products, including Media Center PCs, iPAQs, and media set-top boxes--none of which are compatible with the Protected AAC format that HP will be supporting through the iTunes Music Store or with HP-branded iPods. Microsoft representatives I spoke to politely called HP's decision to go with Apple's technology "interesting," although the loser in this situation isn't Microsoft, it's the millions of people who use HP's products now and will use them in the future. "Windows is about choice," Microsoft General Manager of Windows Digital Media Division Dave Fester said during the recent 2004 International Consumer Electronics Show (CES) in Las Vegas, Nevada. "You can mix and match software and music player stuff. We believe you should have the same choice when it comes to music services." Indeed, this choice characterizes the PC market. Whether the choice is Musicmatch Downloads, Napster 2.0, the Wal-Mart Music Store, or virtually every other online music store, each service uses the same WMA format for the songs users download, and all the songs are compatible with the same range of software and devices--including, incidentally, all the devices, portables, and Media Centers PCs that HP makes.

During CES, I asked HP representatives how the company would respond to the widespread incompatibilities that its new Apple relationship would cause, and I generally understood that during the ensuing few months, the company would work to iron out some of the details. A contact close to HP told me point blank that HP was requiring Apple to add WMA support to the iPod, a feature that's natively enabled in the iPod's firmware but that Apple disables before the units ship to customers. If it happens, this requirement will solve some of the incompatibility problems. However, with HP getting a portion of the profits from the songs its customers purchase from the iTunes Music Store, a bigger concern centers on how HP will make its many products compatible with the closed and proprietary Protected AAC format Apple uses.

In the HP booth at CES, employees clearly had been briefed about the technological concerns, but I got the impression that none of them actually had a handle on the problems. When I asked an HP representative how the company would solve the incompatibility problems, he told me, incorrectly, that the Protected AAC files users download do, in fact, work on HP's products and that converting them is a simple task if they don't.

Even HP executives are downplaying, if not outrightly misrepresenting, the seriousness of this problem for the company's customers, most of whom won't understand why their music and devices refuse to play nice together. "The next big thing isn't the next gizmo or killer app or hot box," HP CEO Carly Fiorina told "The New York Times." "Customers want all this to work together, and they want a seamless approach. We're very much going to make sure that the Microsoft and Apple worlds work together. That's part of the power we bring to this thing." I hope she's right, but the widespread use of WMA in the Windows world makes the necessity of this daunting task seem almost pointless. In the week that HP announced its blockbuster deal with Apple, Microsoft announced shipping schedules for the Portable Media Centers and set-top boxes that will remotely access Media Center PC content around a home and on the road--both supported, as usual, by a range of hardware companies. Again, choice is what we expect in the PC industry, and HP seems to have given up this choice for a chance to temporarily grab headlines and go with a single, incompatible, portable digital-audio hardware vendor.

From Apple's point of view, the HP deal is a major milestone. iPods have sold phenomenally well, and with 30 million paid iTunes Music Store downloads, one could even argue that the Protected AAC format is on a roll by default. But the PC market is many times larger than that figure, and potential music sales to all PC users is an order of magnitude larger than anything Apple could handle by itself. With HP at its side, Apple has a chance to change the world (something that Apple has always promised but never really accomplished)--if the companies can find a way to offer users more choice. Contrary to the opinions of some Apple fanatics, I don't care which media coder-decoders (codecs) or platforms win in the market. (And, for what it's worth, I own two iPods and have downloaded more than 200 songs from the iTunes Music Store.) But looking at the Apple and HP agreement from a customer's point of view, I think that HP has made, well, an interesting choice. If this deal only furthers compatibility problems in the digital-media arena, Apple and HP have just set back the convergence of PCs and consumer electronics an untold number of years. I hope HP's choice isn't one that comes back to bite the company's millions of customers--my number-one concern.

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