Russell Beattie

The thing I'm amazed at over the last few days is how little any of the stories focused on the real winner from Yahoo's new Music Store announcement: Microsoft. When I wrote about Microsoft's Consumer Electronics Endgame back in January, I didn't know that the YME existed. But within days I heard about it and was amazed. This is exactly what I was talking about: one more service based on Microsoft's DRM. Urgh! We're just handing them the keys to the kingdom!

Let me mention my disclaimer: I work at Yahoo, but have nothing to do with the YME or the big decisions surrounding this sort of thing and of course I wish us nothing but the most success possible with our music strategy. Honestly, I don't blame my peers at Yahoo - what other system could they choose which had the hardware support? By choosing to license PlaysForSure from Microsoft, Yahoo was able to launch YME with 10+ devices right out of the gate. Yes, none of those are iPods (I've used both the iRiver H10 and the Zen Micro and they both *suck*), but the fact is that the support for subscription music was there. Going a proprietary route would have been ridiculous - yet another DRM standard? The press/market would've went nuts. Even Real of all companies went with Microsoft's DRM. It's the obvious choice. But take a step back and look at it: It's bad.

Actually? It's even worse than bad. Microsoft's XBox 360 is going to be a home media center as well as a game machine, despite what Bill Gates claimed the other day. And I think that this will be just the first foray into a more broad CE hardware initiative from Microsoft, all centered around the DRM system they, and they alone, control. Microsoft has a monopoly on the desktop, and soon they'll have a monopoly on everything else as well: not the OS, but the DRM on which all the media is based. Think to yourself for a minute why this is bad - remember the secret APIs, lock-ins and restrictive contracts from Windows early days? You don't think that's going to happen again? Damn straight it is.

Currently the guys in Redmond are licensing WMV/PlaysForSure to all comers - Yahoo, Real, Nokia, TiVo... whoever. Well, isn't that nice? And these competitors are all building services and hardware and giving Microsoft a little more power (and cash) on every unit sold. Think about the long view: As the OS diminishes in importance going forward in time, the only thing that's going to separate one system from another is the DRM which is laid on top of it. Microsoft is ensuring their long life by getting their codec in everything from cellphones to set top boxes. It won't matter if Linux catches up to Windows or OS X kicks Longhorn's ass if we're all depending on paying Microsoft yearly fees to enjoy to our media, no?

I'm one of those paranoid guys (if you can't tell) that thinks the main threat to Yahoo's business is not Google but the old enemy Microsoft. Y! is making more forays into Hollywood, but we're basing our services on Microsoft's techology! That's insane! I guess, hey, this isn't really new - I'm sure 90% plus of the people using Yahoo! right now do it on Windows and IE. But this is different - DRM adds a new level of control which will allow Redmond to eventually push competitors out of the market with proprietary extensions and or future licensing changes.

Again, I see the same game being played in the DRM space as in the OS space. First Microsoft creates a standard platform which they let others base products on, then they extend that platform with proprietary extensions or hooks that others don't know about or just the license itself is less restrictive for MS, I don't know. Something. Maybe in the near future, Microsoft products seem to have a little better quality or maybe Microsoft has licensed the ability to play *ALL* their licensees content, so if you buy a Microsoft hardware (like the XBox 360) you can enjoy your media seamlessly. On a Microsoft device, you can listen to Yahoo Music and watch your Movielink movies, but if you buy a TiVo, you can only see their proprietary content. See what I'm saying? Which are consumers going to buy?

So all this and I really didn't mention Apple. Yes, Apple has lock in right now for their 10 million iPod users. Big Woop. It's such a small piece of the pie it's not funny and they're going to get crushed like a bug. The thing is, by holding the only competitor to the Janus codec (FairPlay) so close to their chest, Apple is not only bringing about their eventual demise in the media market, but also everyone else as well. I'm sure Yahoo (like every other Music/Media service out there) begged Apple to open up their codec for the YME and Apple said no. That just gave Microsoft a little more power. It's like 1989 all over again when everyone was begging to license the Mac OS. Two years later Windows 3.0 showed up and Apple is now at 2% market share. If you don't think the same thing is happening in the media space, you're dreaming.

-Russ