2002: The Second iPod and Steve Jobs on Music Streaming
With its revolutionary 'touch wheel' and double the storage, Apple's 2nd gen iPod is the state of the art in digital music in 2002. But the future is online streaming, which Steve Jobs struggles to accept.
After the iPod’s launch in October 2001 — “1,000 songs in your pocket" — Apple sold 125,000 units of the new device by the end of the year. In March 2002, Apple introduced a version with 10GB of storage (approximately 2,000 songs). But it wasn’t until August 2002, with the second generation iPod, that the real growth began. That was when Windows support was added, via software called MusicMatch Jukebox. iPod 2 also doubled the maximum storage capacity, from 10GB to 20GB — enough to hold 35-40 albums, which felt like a proper record collection.
Perhaps the most significant new feature of iPod 2, though, was its touch-sensitive scroll wheel. The first generation had featured a mechanical scroll wheel, meaning it physically moved. In the second generation, it was re-named the “touch wheel” because you simply traced your finger around the wheel’s surface to scroll. This was a harbinger of the iPhone, which would launch five years later.
Towards An Online Marketplace
While Apple was gradually enhancing the hardware and expanding the user base of online music through software, Steve Jobs was working behind the scenes with the music industry. His goal: an online marketplace for music. A legal Napster, if you will. He was greatly assisted in achieving this goal by the ineptitude of the record companies when it came to the internet. In his later biography of Jobs, Walter Isaacson described the sorry situation of the majors:
“Sony joined with Universal to create a subscription service called Pressplay. Meanwhile, AOL Time Warner, Bertelsmann, and EMI teamed up with RealNetworks to create MusicNet. Neither would license its songs to the rival service, so each offered only about half the music available. Both were subscription services that allowed customers to stream songs but not keep them, so you lost access to them if your subscription lapsed. They had complicated restrictions and clunky interfaces.”
Meanwhile, Napster had effectively been cancelled due to lawsuits from the record industry. But other, more decentralised, P2P services had arisen to take its place: Kazaa, Gnutella (which powered clients like LimeWire and Morpheus), eDonkey2000 (with its eMule client), BitTorrent, and others. It was these services that people flocked to for MP3s, not the sanctioned apps of record companies.
As Isaacson explained in his Jobs biography, Apple set out to create a “legal alternative” to the illicit music file sharing scene. But to do that, he’d have to convince the five major record labels — Universal, Warner, EMI, BMG, and Sony — to take part in its upcoming iTunes Store. This took him over a year to accomplish. Ironically, Jobs used the fact that iTunes was not available on Windows as a selling point to the music industry executives. While the second generation iPod worked on Windows, that was via MusicMatch Jukebox, an alternative media player to iTunes. So effectively, the iTunes Store would only initially be available on the Mac — which had just five percent of the PC market at the time.
“Our smaller market share turned out to be an asset!" Jobs later told the author Steven Levy. “We only convinced them to let us do it on the Mac at first. We said, 'Well, if, you know, if the virus gets out, it's only going to pollute five percent of the garden here.' And that's probably what, in the end, enabled us to get them to come along with us.”
Another thing the record companies insisted on was a security system to prevent their copyrighted songs from being easily copied. In both Isaacson and Levy’s telling, Jobs wanted this to be as user friendly as possible. What Apple eventually came up with was a digital rights management (DRM) system called FairPlay, which allowed users to keep their downloaded songs forever (just like with CDs) but that limited playback to authorised computers and devices. Among other things, this provided lock-in to the iPod, because songs bought on iTunes could not be played on competing MP3 player devices. It also inhibited illegal sharing on P2P services, since FairPlay effectively tied each downloaded song to a user ID.
Steve Jobs and Streaming
It became clear over 2002 that Steve Jobs didn’t believe music subscription services would be viable — what we now call “streaming” and associate with services like Spotify and Apple Music. Perhaps the ham-fisted approach of the major record companies put him off (both Pressplay and MusicNet were subscription services).
But more competent streaming services were also launched during the period that iTunes Store was being conceived and built. Most notably, Rhapsody launched at the end of 2001 and by July 2002 it had made agreements with all five major record labels.
Rhapsody was later acquired by Real Networks — the leader in streaming multimedia during the 1990s — which only strengthened its prospects. But even that didn’t change Jobs’ mind. In 2004, Jobs was asked if Apple would ever consider a subscription service. “People want to own their music, not rent it,” he replied. He said a similar thing to Rolling Stone at about the same time:
“People don't want to buy their music as a subscription. They bought 45's; then they bought LP's; then they bought cassettes; then they bought 8-tracks; then they bought CD's. They're going to want to buy downloads. People want to own their music. You don't want to rent your music — and then, one day, if you stop paying, all your music goes away.”
As we know, music streaming eventually became the norm. Jobs wasn't wrong that 'renting' music is risky for consumers, but it's the only way most of us can access everything in the "heavenly jukebox."
It took years for Apple to adapt to streaming, partly because the iPod became such a cash cow. It wasn’t until the iPhone usurped the iPod that Jobs came around to the streaming revolution. In the end, he realised that it didn’t matter whether people owned or rented music — just as long as they played it on his devices.
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