CNN Money reports that Microsoft is about to unveil its "iPod killer":
"Under the Zune brand, we will deliver a family of hardware and software products, the first of which will be available this year," said Chris Stephenson, general manager of market for entertainment and services at Microsoft, in an statement. "We see a great opportunity to bring together technology and community to allow consumers to explore and discover music together."
In economics, there is a concept known as "first mover advantage," which is defined as the "edge that a company gains by entering a particular market before any competitors." In particular, first entry confers a first mover advantage where there are some resulting barriers to entry that prevent competition. All of which leads up to my question: Does the iPod have a first mover advantage?
To be sure, the iPod was not the first mp3 player on the market, but it has taken a huge lead in that market. As a result, it seems fair to say that while Apple was not the first mover, it was the first competitor to obtain a first mover-like advantage.
In any case, there are various ways in which a first mover can create barriers to entry. The one that seems most relevant to the iPod is a form of path dependence:
Switching costs: The first mover has the opportunity to create large switching costs which (once critical mass is achieved) have the effect of excluding competitors. Strong network effects, as in the case of eBay, can enhance this effect. Another example of switching costs is Microsoft Office, which has created lock-in through its proprietary closed formats and erected formidable consumer re-education barriers. (Link)
Apple has managed to create a proprietary system in which music downloaded from iTunes can be played only on iPods (hence, France's recent attempt to legislate opening the iPod format). If you've been an iTunes user for some years, as I have, you've got a huge investment in downloaded music. The costs of buying all that music over again so as to use it on a Microsoft Zune strike me as prohibitive. (I suppose there might be third party hacks that would let me convert my iTunes collection into generic mp3s. Are they legal? Moral? Useful?)
Toss in herd behavior, whether you call it a fad or brand cachet, and Apple looks to have pretty serious lock-in effect. It's hard to think of any other Microsoft competitor that had such a built-in protection against competition. Netscape didn't. WordPerfect didn't. In both cases, there were few barriers to switching. Perhaps Sony's Playstation is the only comparable example, and in that case while the xBox has dented Playstation, it surely hasn't been a Playstation "killer." So it's very hard for me to believe Zune will prove an iPod killer.
