Reshuffling

HP just announced it is to stop selling rebranded iPods. The ex-CEO, Fiorina, never really understood tech. A more bolshy HP is potentially trouble for Apple, seeing as how, thanks to its purchase of Compaq, HP owns some of the patents to the original hard disk-based mp3 player, the PJB-100, released back in 1999. A bunch of the people on that project jumped ship to PortalPlayer, and should HP decide to start squeezing companies for tech royalties, it would prompt PP to raise prices across the board, reducing Apple’s pricecutting leeway.

In fact I think we’re entering a period of legal battles in the mp3 market. Apple is too entrenched for most people to succeed quickly in the marketplace within the next few years and so many of the big players are now retooling to focus on mundane, boring legal wrangling to even the playing field, a kind of dull attrition strategy designed to complement the gradual whittling of Apple’s ~75% market dominance down to ~35% of so using basic market fragmentation. In that light, SigmaTel’s recent purchase of DNNA’s Rio mp3 player patents is significant: Rio bought the IP of Diamond, which basically invented the mp3 player back in 1998 (well, there was the MP3 Man before that, but those Koreans never applied for US patents). SigmaTel already makes a big chunk of change selling its chips to, among others, PortalPlayer and Apple. Owning the original patents will let it raise prices significantly while reducing the options for PP/Apple to jump ship for cheaper options.

HP withdrawing from the fight is significant. It may feel that it stands a better chance of making some real coin by extracting royalties from dominant and emerging players, rather than competing itself. Apple’s fundamental weakness in this space is that it was far from being an early player and relies on commodity hardware, chipsets, and off-the-shelf components. Beyond some facile user-interface widgets and patents, it has no fundamental, defensible patents for the core technology of an mp3 player. That leaves it vulnerable.

And as for history, what did the record industry think of mp3 players originally?

We sincerely doubt that there would be a market for the MP3 portable recording devices but for the thousands and thousands of illegal songs on the Internet.