how the ipod changed everything

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May 12, 2009

How the iPod changed everythingBy Matt HartleyGlobe and Mail Update

While pirates bled the music industry, other businessesrode the tide and collected the booty. Former Appleinsiders tell how Steve Jobs did it

It was the size of a deck of cards, had enough space for about 1,000songs and no one knew what to make of it.

On Oct. 24, 2001, The New York Times published a story[http://www.nytimes.com/2001/10/24/business/technology-apple-

introduces-what-it-calls-an-easier-to-use-portable-music-player.html]about a quirky new portable music player made by a computer company that was small enough to fit in just about anyone's frontpocket.

The story appeared on page 8 of the newspaper's business section.Not exactly prime real estate.

Analysts were bemused. The device had limited commercialpotential, they said. After all, it was only compatible with less than 5

per cent of the computers in the United States. To the rest of theWindows crowd, "it doesn't make any difference," one observer opined.

Indeed, it was an inauspicious start for the iPod.

The day before the Times story appeared, Apple Inc. co-founder andchief executive officer Steve Jobs unveiled his creation and laid outhis vision of the future to a gathering of technology journalists andanalysts in California.

"Interestingly enough, in this whole new digital revolution, there is nomarket leader," he told them. "No one has found the recipe yet for digital music. And we think not only can we find the recipe, but wethink the Apple brand is going to be fantastic, because people trustthe Apple brand to get their great digital electronics from ... we'reintroducing a product today that takes us exactly there, and that


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product is called iPod."

And with that, Mr. Jobs pulled the white, rectangular device out of thefront pocket of his jeans and held it up for the audience. Politeapplause. Many looked like they didn't get it.

That was just fine with Mr. Jobs. They'd understand soon enough.

Perhaps no other company has benefited from the rise of digitalmedia as much as Apple.

Before music lovers downloaded billions of songs from iTunes, beforewhite ear buds became as common as sunglasses on a morningcommute and before the iPhone was the most sought-after consumer gadget in the world, Apple was a computer company with a small -albeit devoted - following.

Although the Cupertino, California-based company revolutionizedhome computing in the mid-1980s, by 1997, the company was a bitplayer in an industry dominated by Microsoft Corp.'s Windowsoperating system. It's stock price hovered between $13 and $22 ashare (today it's closer to $130 a share).

But consumer demand for digital media, and the iPods to play it on,

transformed Apple from a niche PC maker into a consumer electronics juggernaut. Today, Apple enjoys a stranglehold over themarket for digital music players, controlling a 70 per cent marketshare in 2008, is the largest retailer of music in the United States -digital or otherwise - and with the iPhone, has evolved into one of themost powerful technology companies on the planet and is now wortharound $115-billion.

Not bad for page 8.

Apple Computer Inc. unveiled a new portable music player, the iPod,MP3 music player on October 23, 2001. The device can hold up to1,000 songs.


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However, the story of Apple is merely the tip of the iceberg when itcomes to how digital media has transformed the business world. Fewindustries, from retail operations to artistic production; fromnewspapers to telecommunications have been immune to the shiftinghabits of mass consumption. Digital media has fundamentally alteredfinancial models that existed for more than a century, and in theprocess has redrawn the power map in the corporate world.

Any company in the business of producing artistic content andintellectual property - be it words, music, photos, motion pictures or other forms of interactive entertainment such as video games - nowmust contend with the Internet. The ability to reproduce endlessdigital copies of media by reducing it to the ones and zeroes of binarycode has upended industries that once depended on billions of

dollars of infrastructure devoted to producing, distributing andmarketing physical products.

Apple's Recipe

Matt Hartley speaks with former Apple insiders to get the insidescoop on how CEO Steve Jobs rode the iPod to one of the mostremarkable turnarounds in business history

Download (.mp3)[http://beta.images.theglobeandmail.com/archive/00024/apple_s_recipe_24881a.mp3]

"Every movie has had its price reduced to zero," Chris Anderson,editor in chief of Wired Magazine said in an interview. "Every bit of music, every bit of content, every bit of software has had its pricereduced to zero. Now, it's not the only version in the marketplace,there's also a version in the marketplace that has a price of whatever the creator intended, but it's happened and there's nothing new aboutit."

Record companies and movie studios claim they're losing billions inrevenue. Newspapers such as the Rocky Mountain News and SeattlePost Intelligencer stopped printing while others hemorrhage cash.


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Now, 10 years after Napster set the wheels of The Download Decadein motion, many businesses that remain tied to older business modelsare suffering and being driven to the brink of insolvency in the face of the worst economic recession since the Great Depression.

Digital media acted as a tsunami that crashed through the businessworld, reordering traditional power structures. Now the collapse of global financial markets could be the tide that washes away thosebusinesses not strong enough to fight the current.

Which businesses survive and which are relegated to the textbooksof first-year economics students may depend on their ability to finallystop worrying about digital media, and learn to love the ones andzeroes.

THE DEC ADE THE MUSI C DIE D

Before digital came along, the music industry had total control over itsformat transitions. Labels would introduce new formats slowly towean the public off previous generations, eking out every possiblebenefit. The industry touted eight tracks and cassettes as alternativesto vinyl records because they offered portability and then applied thesame philosophy to the transition from cassettes to CDs.

"In prior shifts between technology platforms - vinyl to cassettes,cassettes to CD - these had been shifts that were stage-managed bythe business end of things," said Graham Henderson, president of the Canadian Recording Industry Association in an interview with theGlobe. "When a new technology came along such as cassette -which might not have been the greatest in audio quality, but it offeredportability - that was gently introduced into the marketplace when thetime was right and the same thing would have been true of the CD."

However, with each format change, control slowly transferred fromthe record companies to the consumer. With cassettes, music fanscould make copies of records, albeit at a lower quality, and theindustry was not happy with the situation. Throughout the 1980s, theBritish Phonographic Industry, a trade group representing the recordindustry, conducted one of the first anti-piracy campaigns. It wasdubbed "Home Taping is Killing Music" and the posters featuredcrossbones beneath a cassette made to resemble a skull, similar to a


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pirate flag.

CDs were seen as a leap forward for the industry, which was nowable to produce high quality remastered original recordings from their catalogues. Although users could still make tapes for their friends, thehigher quality offered by CDs was supposed to keep consumerscoming back.

Although the MP3 file format dates back more than 20 years, it wasn'tuntil 1995 with the release of a program called WinPlay3 that theformat started gaining traction on PCs. Still, with the average MP3weighing in at anywhere from three to five megabytes (MB) and theaverage computer containing only about 500 MB of storage capacity,the MP3 wasn't quite ready for prime time.

Remember, this was at a time when Windows 95 was the dominantoperating system and required just 55 MB of free hard drive space torun, as opposed to Windows Vista, which requires 15 gigabytes,about 300 times as much space.

It wasn't long, however, before hard drives started getting bigger andcomputers got faster. Soon, computer makers were packaging CD-burners in with their PCs.

Suddenly, users could buy a bunch of CDs, rip the music to their computer and create near perfect copies or mix CDs of therecordings on blank discs for their friends.

Then along came Napster in 1999, offering users the ability to takethose files on their computer, skip the burning process, and sharetheir MP3 files with their friends.

Effectively, the ability to share digital files removed the music industryfrom the distribution equation.

" If you look at labels and how much they've shrunk in the last fiveyears, a lot of them have had huge layoffs. The reason being isbecause when you're not selling that piece of plastic any more, youcan't support the infrastructure that delivers that piece of plastic and


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is built to sell that. "- David Usher

It's hard to understate the financial impact that the transition to digitalhas had on record labels.

In just 8 years, the music industry has watched its global revenue fallfrom $36.9-billion (U.S.) in 2000 to $18.4-billion last year, accordingto reports from the IFP I. Although more than 5 billion songs havebeen sold through iTunes and digital music generated $3.7-billionworldwide in 2008, digital sales only account for 20 per cent of theindustry's revenue.

Globally, the industry estimates that of the millions of songs that aredownloaded from the Internet every day, only 5 per cent are actually

paid for, while the other 95 per cent are pirated.Over the past 10 years, the music industry has struggled to catch upto the digital wave. As a result, the industry has been forced to fightfor survival in the courts, while artists take it upon themselves toexperiment with new business models.

After scoring a legal victory over Napster, the industry has continuedto take on file sharing websites and Internet services, including peer-to-peer networks such as Grokster, Morpheus and Kazaa, and have

their sights set now on file sharing search engines that utilizeBitTorrent technology, such as TorrentSpy and The Pirate Bay.

At the same time, the industry has launched its own online services.Some, such as iTunes and eMusic, utilize the a la carte model, whereusers pay a single price to download a song or album. Others, suchas Rhapsody Unlimited, offer a streaming or "all you can eat" modelwhere fans can pay a single price to listen to as much music as theylike for a flat monthly fee.

"At first, the industry thought that MP3s would probably not beattractive to their music customers because their focus for years hadbeen to constantly improve the quality of their recordings," said CarySherman, president of the Recording Industry Association of Americain an interview. "Turns out that free was much more of an attractionthan record companies actually thought. Quality was really not asimportant as free. Record companies began thinking of all sorts of


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ways that they could take advantage of digital, the onlinephenomenon."

The reality is that record companies are much smaller today and cansupport much fewer artists than before. (Even Will Smith has lost hisrecord deal).

Some artists have even begun to abandon record companies on their own, embracing their own new models. Nine Inch Nails frontmanTrent Reznor dropped his record label to develop a closer relationship with his fans. Radiohead invited fans to pay whatever they felt like for their latest album, I n Rainbows , over the Internet,reportedly raking in more than $10-million in the first few days of sales.

Artists such as David Usher, who rose to fame in the 1990s as thelead singer of Moist under the old record company model and whonow performs as a solo artist, have embraced social media as ameans of connecting with and maintaining his fan base.

"If you look at labels and how much they've shrunk in the last fiveyears, a lot of them have had huge layoffs," Mr. Usher said in aninterview. "The reason being is because when you're not selling thatpiece of plastic any more, you can't support the infrastructure that

delivers that piece of plastic and is built to sell that."THE CH ANGING FA CE OF YONG E S T REET

In the early 1990s, the corner of Yonge and Gould Streets in theheart of Toronto's downtown core was somewhat of a Mecca for music fans.

On one corner of the city's strip sat a mammoth, multi-level outletowned by HMV Canada Music Stores Ltd. Across the street stoodSunrise Records. A few blocks south in the base of the Eaton Centrewas one of the first Tower Records locations in the city, whileCanadian-owned Music World Ltd. had its own shop inside the mall.

Just a crosswalk away from HMV, stood the iconic flagship outlet for Sam the Record Man, a Toronto institution thanks in part to thegigantic neon signs emulating spinning records that hovered over its


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entrance.

Then Napster came along.

The spinning records above Sam The Record Man on Yonge Streetin Toronto went dark after the iconic store shut down. Today, theyhave been torn down.

Today, everything has changed. Tower Records has long sincedisappeared. The Music World chain was pushed into bankruptcy in2007. HMV and Sunrise were forced to increase their selection of DVDs, video games and action figures as consumers stopped buyingCDs.

Even the spinning records above Sam The Record Man have gone.The storefront they once adorned has been torn down and thecompany was forced to close the Toronto location it opened in 1961amid competition from iTunes, big box stores such as Wal-Mart andof course, file sharing.

Jason and Bobby Sniderman, the sons of Sam's founder SamSniderman, opted to shutter the business in June of 2007, citingubiquitous music downloads.

"We are making a responsible decision in recognizing the status of the record industry and the increasing impact of technology," saidBobby Sniderman in a press release.

There are now only two Sam the Record Man locations remaining ina chain that once boasted more than 130 stores.

Canada's last surviving national record chain, Music World, filed for bankruptcy protection in Nov. 2007.

"The music industry has gone through tremendous turmoil in recentyears," said Kai Voigt, one of the chain's owners at the time. "Purelymusic retail has a sad epitaph."


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Obituaries for some the largest chains in the U.S. have also beenwritten. Tower Records closed its North American brick and mortar locations in 2006, and Virgin Megastores, the country's last nationalchain of music stores announced in March of this year that it wouldbe shuttering all of its locations by mid-June.

Spencer Dusten owns one of the last remaining Sam's locations inthe Bay of Quinte Mall in Belleville, Ont. He bought his first Sam'sfranchise in 1979 and since then he's lived through great upheavalsin the music and entertainment industries. He watched the transitionfrom vinyl to cassettes, he survived the "Home Taping is KillingMusic" panic of the 1980s and he eventually watched as the vinylsection of his story shrunk as consumers demanded CDs.

At one time, he owned five Sam's locations in southern Ontario. Now,he's down to just one. It's hard to imagine, but there was a time notthat long ago when independent record stores were seen as viablebusiness opportunities.

The winds of change began sweeping through Mr. Dusten's stores inthe mid-1990s. CD sales dropped. People bought computers thatcould download and burn songs. So Mr. Dusten started ramping uphis selection of DVD movies. Now, that business is under siege.Today, his store also sells Mick Jagger action figures, board gamesbased on the television show CS I, t-shirts and other paraphernalia.He's even started selling video games, borrowing a page from HMV'sstrategy.

"I'm looking for revenue streams," he said. " I'm not looking at mymusic sales declining - I see that and I'm trying to do everything I canto stop that - but I'm not saying, woe is me, I'm going to go intogames, and if its not games I'm going to serve cheeseburgers on theside. I don't care what it takes, but that's how we survive."

"That same attitude and belief should be with the music companiesand the movie companies. Downloading is there, but the questionisn't how do I stop it, the question is, how do I bring those people intothose industry, working to make the product better so we can allbenefit."

C OMING T O A DOWNLOAD SI TE NE AR YOU


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But the music industry was just the beginning.

Since the creation of Napster, the movie and television industries aswell as video game producers, book publishers and newspapers haveall struggled to come to grips with the new reality and developbusiness models that work in the online world.

On March 31 this year, the executives at 20th Century Fox woke upto a development that they hoped was an early April Fool's Day joke.

A copy of the unfinished and unreleased film X-M en Origins:Wolverine leaked onto the Internet and was spreading like a virusaround the world.

It wasn't a joke. It was a nightmare. A recurring one.

Wolverine's (Hugh Jackman) berserker rage unleashes hisadamantium claws in X-Men Origins: Wolverine. Twentieth CenturyFox went berserk when the movie leaked online a month before itsrelease date.

A copy of The Dark Knight was available online less than 24 hoursafter its U.S. theatrical premiere last July. I ron M an , starring RobertDowney Jr. was available the day before its release in May.

It's a scene that has played out all too often for the movie industry. Advances in data transfer technology, computer storage and Internetspeeds have allowed movies and television programs to be copied,uploaded to the Web and sent around the world as easily as musicfiles were in the days of Napster.

Sometimes, as was the case with The Dark Knight , the version of thefilm that ends up online is a video recording made by someone in atheatre with a clandestine camera. During Oscar season, copies of films such as Slumdog M illionaire , Frost/Nixon and M ilk are rippedfrom the DVD screeners that are sent out to voting members of theacademy. In many instances, it is not uncommon for downloadedcopies to have a screen stamp saying which studio the film belongs


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to, and that piracy is illegal.

It's not just movies. Within hours of airing, television episodes areripped from PCs and personal video recorders and posted online. AnHD copy of a new episode of The Simpsons , House or How I M et Your M other can be online in less than an hour after airing. In fact,television shows are the most downloaded files from The Pirate Bay,the world's largest destination file sharing search engine.

The Motion Picture Association of America estimates the film andtelevision industries lost as much as $18.2-billion (U.S.) in revenuefrom piracy in 2005.

In Canada, the film and television industries account for as much as

$5.2-billion (Canadian) in production volume annually, provide jobs to130,000 Canadians in the industry and support countless more inmovie theatres, catering companies and other services around theindustry, said Wendy Noss, executive director of the Canadian MotionPicture Distributors Association, the Canadian wing of the MPAA.

"It's common sense," Ms. Noss said in an interview. "All of the thingswe're learning over the last 6 months about market failures in other areas, where things defied common sense, things that defied logic,that were too good to be true. It just defies common sense that

somebody can take something, make money selling it and that thelegitimate market can continue to survive."

Every time a copy of the latest episode of Lost is downloaded fromthe Internet or someone purchases a bootlegged DVD copy of Beverly Hills Chihuahua , the industry counts it as a lost sale.

However, some experts believe that file sharing can lead to sales. Arecent study from the B I Norwegian School of Management inNorway found that those who download music illegally are 10 timesmore likely to pay for songs than people who don't.

Perhaps taking a cue from the destruction of the music industry, themovie and television industries have taken the initiative to get their content online. With demand for online video growing, televisionstudios have worked with broadcasters to make more programsavailable online through network sites, partnership sites such as


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Hulu.com and now YouTube.

"There are more than 275 legal websites around the world thatprovide high-quality digital content online, and that ranges from ad-supported viewing, rental viewing, permanent downloads,subscription downloads, all of those huge arrays of consumer choicewhere consumers can get access to filmed entertainment the waythey want it, on the device they want it, at the time they want it and ata variety of price points," Ms. Noss said.

I WAN T MY INTE RN ET TV

Bram Cohen created a technology that is responsible for distributingmore video around the Web than YouTube. But he's got an image

problem.In 2001, Mr. Cohen was working at a startup in California that ran outof money. Out of work and wondering what to do, he bounced acouple ideas off his friends, one of which was for peer-to-peer technology that could break up files into tiny pieces and make themeasier to download, much like it's easier to move a desk up a flight of stairs once it's been taken it apart.

By 2003, the BitTorrent protocol was fast becoming a Web sensation.

People around the world were using the technology to share not justsongs, but entire albums of music. Video games and other softwarecould be downloaded much faster than before with direct transfers.But it was the large data files used for video that benefited the mostfrom BitTorrent's technology.

Amazing technology, unfortunate reputation

Matt Hartley speaks with Bram Cohen and Eric Klinker of BitTorrentInc.

Download (.mp3)[http://beta.images.theglobeandmail.com/archive/00024/amazing_technology___24921a.mp3]


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Just how popular is BitTorrent? Some experts believe BitTorrenttraffic accounts for as much as half of all the Internet traffic in theworld.

"It really made video on the Web happen," Mr. Cohen said in aninterview with The Globe. "One of the creators of YouTube actuallycredits BitTorrent for his inspiration in starting YouTube in the firstplace."

Unfortunately, even though Mr. Cohen says he has never used thetechnology to download a copyright-infringing file in his lifetime, that'sexactly what most people around the world are using the technologyto do.

BitTorrent has become synonymous with illegal file sharing. Becausethe technology is freely available online, Mr. Cohen and his company,BitTorrent Inc., have virtually no control over how the technology isused by other people.

" We really are a software and services provider, a verystraightforward one. People seem to make assumptions that we'resome kind of pirate community project or something like that. We're

not. We make software that is best in class for its technology andwe're trying to promote it for everyone. "- Brah Cohen, creator of BitTorrent

It wasn't long before so-called "torrent tracker" sites began croppingup online. These sites, which act as underground Google-like searchengines where users can search for downloadable files or "torrents"have replaced peer-to-peer services as the number-one enemies of the entertainment industry.

The music and movie industries have spent millions of dollars in legalfees fighting sites such as TorrentBox, The Pirate Bay and Canada'sisoHunt, arguing that by indexing and linking to these files, these sitesare facilitating copyright infringement.

Last month, a Swedish judge found the four men behind Pirate Bayguilty of aiding in copyright infringement, in what has already been


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dubbed the trial of the year in Sweden. The trial thrust BitTorrent'stechnology into the spotlight.

That's the problem. The Pirate Bay has nothing to do with BitTorrentInc.

"We really are a software and services provider, a verystraightforward one," Mr. Cohen said. "People seem to makeassumptions that we're some kind of pirate community project or something like that. We're not. We make software that is best in classfor its technology and we're trying to promote it for everyone.

"We have created technology that has affected the worldtremendously and we have an enormous user base," Mr. Cohen said.

"It's really a question for us of how do we, obviously we wish to growthat user base, but also there's a real question of how do we

monetize that user base. That's an ongoing question for us. We'redoing a bit better on it now, but we did last year have to do a lot of cutbacks."

That's where Eric Klinker comes in. Mr. Klinker is the chief executiveofficer of BitTorrent Inc., the company Mr. Cohen founded to attemptto monetize his creation. While Mr. Cohen spends his time craftingnew technologies and finding new uses for the BitTorrent protocol,

Mr. Klinker's job is to make money.

"Simply put, we are software that gives users access to this protocol,"Mr. Klinker said. "What users choose to do with it and who choosesto publish content using it is completely outside of our control. Wesimply provide the technology that makes this happen."

Although the protocol is one of the most efficient means of distributingcontent around the Web, the company has received a cold shoulder from much of the entertainment industry.

"Probably one of the major stumbling blocks indeed, it would be hardto argue against it," Mr. Klinker said of the service's reputation. " It's alittle baffling to us; we're a technology provider and arguing againsttechnology is like having an argument with gravity, it's not somethingthat really makes a lot of sense if you think about it. But there's veryclearly an emotional reaction that many mainstream publishers have


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to the brand or its perceived involvement in these activities. It'sentirely misplaced, but it's there nonetheless."

A few years ago, BitTorrent Inc. struck a deal with the MPAA to run adestination site where users could pay to download music using thetechnology.

"If you go looking for that property today, unfortunately you're notgoing to find it," Mr. Klinker said. "We had to submit to some businessrealities there and shut it down as of November of last year. It simplyproved to be not a business that we were particularly well-suited topursue. We're a transport technology company ... and being in themedia business is a very different business altogether."

If only it were just an optics problem.

Mike Lee, Rogers C hief Strategy Officer

Mike Lee from Rogers speaks with Tech Reporter Matt Hartley aboutbroadband, file-sharing and throttling

Download (.mp3)

[http://beta.images.theglobeandmail.com/archive/00024/mike_lee__rogers_chi_24502a.mp3]

For it's not just the entertainment industries which have vilifiedBitTorrent. Internet service providers say that one of the biggestthreats to the integrity of their networks and the ability to offer consistent service to their users is due to people using BitTorrent todownload large files such as movies or games.

They argue that BitTorrent data clogs their networks by using a largepercentage of their traffic space, which leads to a poor experience for the rest of the customers, the same way a lumbering tractor trailer can impede flow on the highway. Their solution has been to "shape"traffic, essentially slowing down certain kinds of Internet activity whilegiving other data priority. Most of the traffic being shaped is BitTorrenttraffic.


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Kevin Crull is the president of Bell's residential services division. Oneanalogy he likes to use to describe the effect of BitTorrent traffic onthe company's high speed networks is that of a buffet restaurant.

"You're second in line, and the person in front of you lets in a busload of people," Mr. Crull said. "We have a dedicated link from your home to our serving office, but then you go onto a shared network.

And if there are only two people using that shared network, each of you gets half of it. If there are only 3 people using that network, eachof you gets a third of it. What BitTorrent does is open up 10s or 100sof strings, so that if you are using the same shared network with aBitTorrent user, you might only get 1/100th of the available capacitybecause it opens up hundreds of links all at once. It's a clever technology."

Bell is by no means the only ISP to institute traffic shaping policies.Rogers does it too. In the U.S., most of the major ISPs, includingComcast and Verizon, employ similar tactics.

Critics of this policy argue that by de-prioritizing certain traffic, ISPsare violating the unwritten democratic principle of net neutrality, whichstates that all Internet traffic must be treated equally.

Bell has come under fire for its traffic shaping policies from the

Canadian Association of Internet Providers, an industry grouprepresenting independent ISPs, which has filed a complaint with theCanadian Radio-television and Telecommunications Commission.The CRTC plans to hold hearings on the matter later this summer.

"Ideally, if it was a perfect world, I'd be happy with the BitTorrent user and I'd just charge him his fair share, but we're not there yet," Mr.Crull said.

With the way that BitTorrent currently operates, RogersCommunications chief strategy officer Mike Lee said it could bedifficult for Mr. Cohen & Co. to turn BitTorrent Inc. into a legitimatebusiness.

"There seems to be a 12-step program for peer-to-peer developerswhere everybody eventually wants to create a legitimate service," Mr.Lee said in an interview. "The challenge I think is that when someone


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has to operate a legitimate business and the gives and takesassociated with that, you find ways to make things work that canaccommodate everybody's interest. The challenge is that they[BitTorrent] don't actually control the protocol any more. The protocolis a separate entity that is more driven around the objectives of either developers or consumers of the behaviour. So it's very difficult topredict. Even now we are seeing a shift from peer-to-peer and someof the behaviour and moving more toward downloading as opposedto full on symmetrical file sharing."

A DOUBL E E DG E D SWORD

Although downloading has since become a headache for CanadianISPs, it wasn't always that way.

In fact, Canada's most powerful cable and telecommunicationscompanies owe a great deal of their fortunes to the rise of downloading.

Back in 1999, Bell had just 51,000 high-speed Internet subscribers.Napster went online in June of that year. By 2000, the company'suser base had jumped 560 per cent to 336,000. By 2002, thecompany boasted more than 1.1 million high-speed clients, many of whom upgraded so they could download music faster. Rogers, which

first began offering high speed Internet access over its cable networkin 1995, saw its user base triple from 186,000 in 1999 to nearly640,000 in 2002.

" Ideally, if it was a perfect world, I'd be happy with the BitTorrent user and I'd just charge him his fair share, but we're not there yet "- KevinCrull, president of Bell's residential services division

Although telecom companies throughout North America had beguninvesting billions of dollars into building out the Internet with high-speed fibre networks before the birth of digital media, the ability to getdigital music on a computer finally gave them the tangible use casethey needed to drive adoption.

"I think you could make an argument that downloading is, just


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generally, has been one of the primary applications where peoplereally understood and experienced the direct benefit from abroadband connection," Mr. Lee said. " It has definitely driven greater capacity demand on the network, but at the same time, if you thinkabout where we were going historically, the different manufacturers of technology and equipment were at the same time solving a lot of those capacity demands with new innovations in fibre, with newinnovations in modem technology, new innovations in compression.So it was a nice symbiotic relationship."

Today, ISPs use services like YouTube to illustrate the speed of their networks, according to Hunter Walk, director of product managementat YouTube, which is owned by Google Inc.

"Products like YouTube help their [ ISP's] consumers understand thevalue of broadband connections in a way that just marketing materialdoesn't do a great job of," Mr. Walk said in an interview. "Oneexample there would be the success we've had partnering with a lotof the mobile operators as they try to help their consumers upgradefrom just voice plans to data plans. They use applications likeYouTube to really drive home what the capabilities of these new IP-connected Web browsing devices would do for that."

ALL ABOU T APPL E

Although this project has been dubbed the Download Decade, itcould just have easily been called the Apple Decade or even the iPodDecade.

Digital media, and Apple's ability to provide it to consumers, hasresulted in the company becoming one of the most famousturnaround stories in the history of business. Apple has consistentlypushed the envelope with products and services that allowedcustomers access to digital media in new ways.

First it was the ability to take music mobile with the iPod, then it wasthe ability to buy music and videos at home through iTunes, now thetwo have been combined with access to iTunes on the go through theiPhone.

The story of the iPod begins in 1997. After more than a decade in the


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wilderness away from the company he founded with his businesspartner Steve Wozniak in the 1970s, Mr. Jobs returned to Apple. Hewas forced out of the company in 1985 after a bitter power strugglewith the board of directors.

Over the ensuing 12 years, Apple tread a relatively pedestrian pathand it remained a bit player in a market dominated by machinesrunning Windows.

Mr. Jobs on the other hand, kept busy. In 1986, he purchased thecomputer graphics wing of Lucasfilm Ltd. and renamed it Pixar

Animation Studios. The company developed animated commercialsfor various companies, but by the mid-1990s moved into makingfeature length pictures. Pixar has since released a long line of

modern animation classics, including Toy Story , M onsters I nc. andFinding Nemo .

When Walt Disney Pictures finally purchased Pixar in 2006 for $7.4-billion, the deal made Mr. Jobs the largest individual shareholder inDisney.

Shortly after leaving Apple, Mr. Jobs got back into the computer business. He founded a company called NeXT, that was devoted tobuilding specialty computers for universities and corporations.

Although sales of its machines weren't great, what made NeXTspecial was its NeXTSTEP operating system.

Apple was one of the first companies to recognize the potential of theNeXT operating system, and in 1996, the company went back to itsdeparted founder and offered to purchase his new venture for $429-million. NeXTSTEP would go on to form the foundation for thecompany's revamped Mac OS operating system.

But what Apple really got out of the deal was a new lease on life, avisionary leader and a springboard for the future.

Mr. Jobs took over as interim CEO shortly after the IndependenceDay weekend in 1997 and immediately began his own internalrevolution within Apple.


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" There was a mission for a long time at Apple to switch from sellingvery few of expensive products to selling very many of inexpensiveproducts. The iPod was seen as one of the first products that was todo that. So there was a lot of hope built around the iPod. "- DavidSobotta, former head of Apple's federal sales division

Suki Dunham remembers it well. Ms. Dunham spent seven years asa business manager in Apple's worldwide product marketing divisionfrom 1995 to 2002 before leaving the company to found her ownbusiness - OhMiBod, a firm that designs and sells a line of iPod-connected vibrators - Ms. Dunham remembers the immediate impactMr. Jobs had on the business.

"I was there in the dog days, when things were really tough and Gil

Amelio ran the company for a while," she said. "You had thecompany, in terms of products, trying to go off in all these differentdirections because there wasn't somebody at the top with this reallyfabulous vision."

At the time, Apple was dabbling in the enterprise market and solddozens of varieties of Mac and Power Mac computers, confusing itsconsumers. Mr. Jobs wasted little time changing the Apple tune.

"We had I don't know how many SKUs of Power Macs and iMacs -

tons - and he brought it down and said, we're doing four," she said.

Mr. Jobs strategy was two-fold. First, he wanted to make thingseasier on the customer; a mantra of simplicity that would eventuallywork its way into every product, service and piece of software thecompany has created.

Second, as David Sobotta, the former head of Apple's federal salesdivision explains, was that the company was moving from being acomputer maker to being a consumer electronics company.

"There was a mission for a long time at Apple to switch from sellingvery few of expensive products to selling very many of inexpensiveproducts," he said in an interview. "The iPod was seen as one of thefirst products that was to do that. So there was a lot of hope builtaround the iPod."


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entertainment business. Those iMacs had no floppy disk drive, camewith an Ethernet jack built in and featured a CD burner.

"The whole idea was that you would get most of what you neededfrom the Internet," Mr. Sobotta said. " It was a cloud computer beforethe cloud."

Apple also needed to start selling its computers online to competewith companies such as Dell and Gateway, who were beating it in theconsumer market. To fix this problem, Mr. Jobs brought in MikeJanes, a 14-year veteran of FedEx, and the first vice president of thepackage delivery company's e-commerce business. Mr. Janes tookover Apple's fledgling online store in 1998 and ran it for more thanfive years.

"Apple was actually very late entering the music space," he said in aninterview. " If you go back and look at the history, you'll see the veryfirst application that Apple launched was iMovie - and that may havebeen influenced because Steve liked video and was still involved withPixar ... but actually with the rise of Napster and the addition of CDburners on computers and all that, Apple was actually pretty late tothe party."

That was something that didn't sit well with Mr. Jobs.

"Apple got burnt really badly on the CD burning thing," said Mr.Sobotta, who now sells real estate in North Carolina. "People wereburning CDs for music, and Apple didn't have a CD burner incomputers until well after other people, and I think that really stungSteve and probably led to him developing the iPod."

Many of the world's top technology companies employ so-called"evangelists" who are brought on board to promote the company'sproducts and spread the gospel. Although these roles are somewhatcommon today, Guy Kawasaki was one of the first in Silicon Valleywhen he was hired in the mid-1980s to interact with the Maccommunity.

"For most of its recent history - i.e. pre-iPod - Apple was a one trickpony, i.e. Macintosh," Mr. Kawasaki, who is now a venture capitalistand the owner of the news aggregation service Alltop.com, said in an


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interview. "The iPod is a completely different pony ... so now insteadof having a one horse sleigh, you have a two horse sleigh."

But what allowed Apple to succeed in the MP3 player category whereso many other players had failed? Companies such as Creative andSony had developed their own stand-alone digital music players, butweren't able to generate the buzz the iPod created.

"Taking your music mobile was not a new concept," said Mr. Janes,who now runs the online ticketing site FanSnap.com. "Sony obviouslyinvented the concept and frankly they should have invented the iPod.They had a major head start. But of course what Apple did wasprobably a recurring design theme or thought process that Applealways goes through ... what Steve would refer to as a chain of pain. I

just want to do XYZ, so why do I have to go through seven steps toget this done? Whether it's building software, building computers,building consumer devices or building phones, they just take theserecurring multi-step processes and distill them down to their veryessence; what is it that the user is trying to get done and how do wemake that as simple as possible?"

Mr. Jobs saw an opportunity for simplification once again.

"Any time you have a device that is hard to use, but has a high

potential for usage, you raise just huge flags for Steve Jobs," Mr.Sobotta said. " It's like waving a red flag in front of a bull. All of asudden he sees something and says, wait a minute, if we do thisreally right, we can own it."

More than anything else, though, the one thing that simplified theprocess of getting music from CDs and other sources onto a user'siPod was a piece of software called iTunes, which was released inJanuary of 2001.

" The iPod was a sliver of what is a larger company strategy. Back inthe day, they were really looking at iPod as, well, this will help usdrive more Mac sales. But now I'm sure that vision has changed a bitand that I think iPod is probably going to be the stepping stone intoother areas of electronics. "- Suki Dunham, Former business


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manager in Apple's worldwide product marketing division

Even before the iPod was released, Apple was enjoying greatsuccess with its music library software, iTunes, which enabled usersto rip their CDs to their iMacs. But the iPod was something more for

Apple, it opened up an entirely new category for the company.

"The beauty of the iPod is not the iPod itself, but the integration withiTunes. iPod without iTunes would be just another MP3 player," Mr.Kawasaki said. "But iPod with iTunes is now a total solution. It's avery different selling proposition. The iPod has ironically helpedMacintosh because of greater brand awareness of Apple's andpeople who are using Macintoshes who might never have usedMacintoshes before have iPods and they are part of the Apple

phenomenon now."More than 275,000 people downloaded iTunes in the first week that itwas released. But people still had to get their music somewhere else,from providers that weren't Apple. Once Napster was effectively shutdown in 2001 and people tired of ripping their CDs, then what? Theonline music stores of the time offered limited selection, and many of their songs couldn't be played on iPods.

In October of 2003, Apple changed all that when the iTunes music

store went online. It launched with the support of the major recordlabels and featured more than 200,000 songs, including exclusivetracks from more than 20 artists, including Bob Dylan and SherylCrow. Every song was the same price - 99 cents - and users couldpurchase them individually or by album with the click of a button. Itwas the closest thing that users had experienced to online file sharingin the legitimate market.

"Apple's insight was, even though all those other services are freeand they're obviously illegal, we think fans of these bands wouldactually be willing to pay to have a really great experience, really highquality music and downloads that happen really fast and paymentsthat happen really fast," Mr. Janes said. "[iTunes] is a great examplethat you can built a product so great, an experience so great, thatcustomers will pay for it even though they can get a lesser version for free. Apple competed with free, and won."


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From there, the numbers speak for themselves. One million songssold in the first week. Five million by June of 2004. Ten million songsin the first year.

Mr. Jobs' plan was working. The iPod strategy was starting to pay off,but to truly expand Apple's share of the computer market though,iTunes couldn't remain a Mac-only product. It needed to go Windows.

Apple Computers Inc. chief executive Steve Jobs unveils the the newiMac computer in a Cupertino, Calif. file photo from May 6, 1998.

On Oct. 16, 2003, the Windows world was re-introduced to the Applebrand when they got a chance to try out iTunes. Users downloadedmore than a million songs in the first three days.

Although more than 150 million iPods have been sold - the devicehas become synonymous with portable digital music players the waythe Kleenex brand name has become interchangeable with facialtissue - and Apple has become a major player in the music industrythrough its iTunes music store, Mr. Jobs' initial intention was not to

take over the record business. He just wanted to sell morecomputers.

The iPod would be Apple's gateway drug; a way to get consumers toexperiment with the Apple brand, and hopefully, get them hooked.

"I remember when we were close to launching [the iPod] and he hadan employee communications meeting," Ms. Dunham recalls. "At thetime I didn't realize it and now looking back I see it all ... he had thisvery longer term, high level vision ... now because of iPod's

popularity, you have people buying Apple computers that didn't reallyconsider them before, and it's because of their experience with theiPod. And he had that vision way back when and he's done it."

"The iPod was a sliver of what is a larger company strategy," shesaid. "Back in the day, they were really looking at iPod as, well, thiswill help us drive more Mac sales. But now I'm sure that vision has


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changed a bit and that I think iPod is probably going to be thestepping stone into other areas of electronics."

Today, Apple is no longer seen as a fringe computer company. Quitethe opposite, in fact. Thanks to the iPod, the slick design of itsproducts, iTunes commercials featuring hit songs from the BlackEyed Peas and U2 and the seemingly never-ending " I'm a Mac, I'm aPC" marketing campaign.

Apple has repositioned itself as a hip, young brand. Indeed, Macbookcomputers are as common as flip flops and school sweatshirts onuniversity campuses nowadays.

"Steve Jobs, for all his corporate life has believed that marketing to

the young is the best way to own a market," Mr. Sobotta said. "That'show the original iMacs started out, they cut the special deals withuniversity students. He believed that by working with young people hewould create the most influence and set the most trends and that'show the original Mac became very successful because universitiesbought them and university kids carried them into their corporationsafter they graduated."

Apple's share of the PC market in the United States has grown fromabout 3 per cent in the mid-1990s, to more than doube that today.

However, Apple's transformations weren't limited to music. With hispast involvement with Pixar and Disney, it was little surprise thateventually Apple expanded into other areas of entertainment, namelyvideo, and has since turned iTunes into the digital equivalent of therecord store in a local mall.

ITunes now offers music videos, full length movies and televisionshows. For the movie industry, iTunes provided one of the firstlegitimate online retail outlets for videos, as they began their ownprotracted battle with piracy after the emergence of the BitTorrentprotocol. Television programs in the U.S. are often available 24 hoursafter they are broadcast on conventional channels.

The iPod also gave rise to podcasting, a means to takingconventional radio documentaries and packaging them in adownloadable format to be listened to at the user's convenience.


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The iPod juggernaut continues to this day. iTunes is now the largestseller of music - digital or otherwise - in the United States, having soldmore than 5 billion songs globally. It has become the single mostidentifiable, game-changing consumer electronics product of the past10 years - with the possible exception of the BlackBerry.

Of course, Mr. Jobs hasn't been content to rest on his laurels, and inJanuary of 2007 unveiled the device that will take Apple and digitalmedia to the next level; the iPhone.

One can almost imagine Mr. Jobs having a sense of deja vu as hesurveyed the smart phone landscape, baring striking similarities tothe MP3 market in 2001. Sure there were entrenched leaders - R IM,Nokia and Microsoft with its Windows Mobile software - but Mr. Jobs

believed, once again, that no one had the right "recipe."When he took the wraps off the iPhone, Mr. Jobs described it as acombination of three devices: a widescreen iPod with touch-sensitivecapabilities, a revolutionary mobile phone and an Internetcommunications device. In essence, it was the evolution of the iPod,one that would carry Apple into another decade.

As devices converge, Apple is in a unique position. With iPod andiTunes it had created a solid base of users and a destination portal

that has become the Tower Records of the online world. By adding amobile phone to the iPod, Mr. Jobs ensured that the one devicepeople will continue to carry with them has a picture of fruit on theback of it.

Of course, the iPhone has already started to change the mobilephone game. With the introduction of the App Store last summer,

Apple created a singular destination for software programs designedto run on the handset. Again, other platforms had applicationsavailable before Apple, but none had thought to consolidate them inone location. By placing the App Store within iTunes, Apple simplifiedthe process.

More than a billion games and other applications have beendownloaded from the App Store in less than a year.

how the ipod changed everything

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