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Wednesday, October 25, 2006

Following Up on the iPod and iTunes Hack: It May Actually Help Apple

Because of all the earnings out there, the story regarding another iPod and iTunes hack has been in the backseat. There is an interesting story out on Apple (AAPL) regarding a hack on the iTunes and iPod restrictions, although this is sort of a continuation and follow-on article to what Doug McIntyre already wrote this week. It seems that now more is known and the ramifications are clearer. About an hour before the open today the Associated Press ran a story discussing an Apple iPod and iTunes hack.

This is regarding notorious source code breaker Jon Lech Johansen, or "DVD Jon," who previously broke the code for encrypting DVD and other downloads. Now this is on FairPlay.

So while iPod and iTunes are exclusive, this cracked code allows users to bypass the inter-dependability and turned it into interoperability. He reverse engineered the code. Apple may not like this one red bit, and you can bet their attorneys are going to block this all they can. But the issue here is that Apple touted itself for years as the alternative system, yet now the iPod/iTunes dominance has taken what used to be the Win-Tel alliance (Microsoft-Windows and Intel-Pentium) alliance to a new modern day extreme.

Yes, this gets into a controversial area. Everyone loves their MP3 players (if that term isn't old-school already), and iPod users take this to the extent that it is THE must-have fashion accessory.

"DVD Jon" has set up an entity named DoubleTwist Ventures to capitalize off this and other efforts. As noted, Apple isn't going to like this one red bit. But at the end of the day they have already established dominance to the point that if they open up some of the hardware and download systems as interoperable instead of inter-dependable it may actually help the company.

This is obviously very controversial territory. In no way is this meant to be an endorsement of hackers or copyright violations. But entirely closed systems and incompatibility is something that the public doesn't want to last forever. Apple has already established itself as THE leader here and that probably won't change any time soon: PERIOD. For a while last year Audible.com (ADBL) was almost giving away MP3 audio/video players to those who signed up for long-term contracts, yet iPod/iTunes still rules the roost and finding Audible.com subscribers isn't exactly an easy task. Go ask Napster.com (NAPS) how well their "Own Nothing" campaign of just leasing unlimited music went, since now the company is trying to find a buyer for the entire company. Microsoft's (MSFT) Zune is still yet an unknown entity and SanDisk (SNDK) just felt the wrath of the demanding stock markets on its margins and outlook.

Apple is not going to like this, but this won't be the death of Apple's stranglehold iTunes and iPod have on music downloads in any real way. If the hack (or shall we call it a 'workaround') actually does get to legally stand, the funny thing is that it could actually work favorably for Apple because they have created such fanatical brand loyalty. Time will tell.

Jon C. Ogg
October 25, 2006
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