The Palm Pre was favorably reviewed relative to the iPhone. But the iPhone has all those great Apps but the Pre does not. And your iTunes account ties you to the iPhone too unless your phone runs it too. And that was what the Pre did till Apple upgraded iTunes and it was no longer compatible with the Pre. Palm is upset and is trying to get Apple to open up iTunes.
Does Apple’s strategy make sense? Allowing Pre to use iTunes increases sales of music but reduces sales of the iPhone. Where do the two effects line up? It seems iPhone margins are almost 60% as ATT is giving Apple a huge subsidy. And the iTunes profit margin is around 10%. Not sure what the sales figures are but you’d have to see a huge number of songs to counterbalance profits from iPhone sales.
If it’s worried about iPhone sales, Apple is making the right call on making iTunes incompatible with the Pre.
Cheap Talk 
7 comments
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August 4, 2009 at 4:01 am
西木
nice blog. And may I ask when it is called cheap talk? is it related to the strategic information transmission by Crawford and Soble?
August 4, 2009 at 2:52 pm
sandeep
Yes
August 4, 2009 at 8:48 am
jj
Apple has published the technical details of how to access iTunes content so that third parties can write software to interact with a user’s iTunes music library. Palm is free to write its own music organization and syncing software. Instead it is trying to ride on the investment that Apple has made in developing the iTunes software program.
August 4, 2009 at 12:56 pm
sandeep
Thanks. Hadn’t realized that. But people may still prefer the iTunes format they’re used to rather than learn some new program
August 4, 2009 at 11:06 am
brian
Isn’t this the same behavior that killed the apple operating system in the 80s…
August 4, 2009 at 12:57 pm
sandeep
Pretty much. They have changed since then because they allow Apps on the iPhone developed by third parties. This creates network effects that make it hard for new entrants to break their hold.
August 4, 2009 at 1:04 pm
el chief
It would also pre-empt the Justice Department or FCC from forcing them to open iTunes.