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`Coolest Inventions: Invenlion Of The Year: The 99116066 Solution -- Printout -— TIM E
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`Monday, Nov. 17, 2003
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`TIME Coolest Inventions: Invention Of
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`The Year: The QQAW
`Solution
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`7
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`By Chris Taylor
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`When Steve Jobs holds forth in public, it's usually to a mob of fawning Apple—ites--the true believers who
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`still develop software and accessories for Apple products. Not so last month at the Moscone Center in San
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`Francisco. This crowd was more mack daddy than Macworld. Bono, Mick Jagger and Dr. Dre made video
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`appearances. Grateful Dead drummer Mickey Hart was in the audience. Sarah McLachlan sang her latest
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`hits live. What was pulling these musical supernovas into J obs' magnetic field? A software product that just
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`might save their free-falling industry: the i’l‘unes Music Store.
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`It's a disarmingly simple concept: sell songs in digital form at for less than a buck and let buyers play them
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`whenever and wherever they like-—as long as it's on an Apple iPod. Jobs had proved the idea hack in April
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`when he launched the Music Store for Mac users, who represent only 3% of the computer world but
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`promptly gobbled up a million tracks in the first week of business. By October he was ready to set the
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`Music Store aloft in the 97% of the world that uses Windows PCs, and the prospect of converting millions
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`of music pirates into credit—card wielding music buyers was enough to in ake even the most jaded rock stars
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`take notice. How did Jobs do this trick? In a word: simplicity-ethe transparent ease of use that is the
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`halhnark of Apple's entire product line, including the Music Store. "I'm a complete computer dummy,"
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`McLachlan told TIME after the event. "If I can use this, anyone can."
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`And, it seems, just about anyone is. Three days after the Moscone event, PC owners had downloaded a
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`million copies of the software and paid for a million songs (adding to the 14 million music downloads
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`already made by Mac users). In a year when record labels hit a sour note by suing students, grandparents
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`and 12~year~old file sharers, Jobs had effectively brokered a peace agreement: he had shown the music
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`industry how to win friends and turn a profit on the very Internet that was being used to steal their songs.
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`Other inventions this year may have more altruistic intentions [like Dean Kain en's water purifier) or he
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`more visible on sheet corners [like those ubiquitous cam era cell phones]. But for finally finding a middle
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`ground between the footndragging record labels and the freeufor—all digital pirates and for creating a
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`bandwagon onto which its competitors immediately jumped, Apple's iTunes Music Store is TI ME's Coolest
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`Invention of 2003.
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`Long before the Music Store came on the scene, frantic record—industry executives had been searching for
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`some way to combat their nemesis: Napster, the original file~sharing service, but to no avail. Their first
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`online ventures, MusicNet and PressPlay, were disasters, largely because the labels didn't trust their users-—
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`or one another. I-Iigh‘subscriptjon fees and poor selections turned off would-be customers; most skulked off
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`to the underground services, such as Kazaa and Lim ewire, which had sprung up after Napster's demise.
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`Enter Jobs. Back in April, Apple's CEO revealed that he had spent the previous year negotiating an
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`unprecedented deal with all five major labels and thousands of independents. His iTunes software, which
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`had previously been nothing more than a place to store and play digital music on a Mac, would become a
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`gateway to the Music Store, where you could easily find and save music to your hard drive, CD or iPod
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`music player--no subscription necessary, just 99¢ per song, or $9.99 for an album. Competitors tried to
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`match that price but couldn't come up with a service as free of restrictions. They said Jobs had been given
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`a sweet deal by the labels because Apple, with its minuscule share of the computer market, was never
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`going to be a real distribution threat. "The Mac world is a walled garden," said BuyMusic.com vice
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`president Liz Brooks. "The PC environment is lilte the Wild West."
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`Then came iTunes for Windows, and suddenly there was a new Sheriff in town. Not content with creating
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`a music store for PC users that was a perfect clone of its Mac counterpart, including all of the 400,000
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`songs Apple now has the rights to resell, Jobs added a couple of cool new features. The best is a monthly
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`allowance you can set up for your kids to govern their online purchasesuna godsend for any parent trying to
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`curb an offspring's downloading habit.
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`Jobs has another reason not to be concerned about the competition. "The dirty little secret of all this is
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`there's no way to make money on these stores," he says. For every 99¢ Apple gets from your credit card,
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`65¢ goes straight to the music label. Another quarter or so gets eaten up by distribution costs. At most, Jobs
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`is left with a dime per track, so even $500 million in annual sales would add up to a paltry $50 million
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`profit. Why even bother? "Because we're selling iPods," Jobs says, grinning.
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`That may at ake iTunes the most benign-looking Trojan horse in software history. The Windows crowd can
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`get iTunes free, and it offers almost all the same functionality as the paid versions of MusicMatch and Real
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`One, two PC-based rivals. But iTunes is the only music application that will work. with the enorm ously
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`popular iPod, and it has features—dike its powerful search function--that are unrivaled. "Once people are
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`locked into using iTunes, the game's over," says Charles Wolf, an analyst at the New York City--based
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`Needharn & Co. investm ent bank. "They could sell an extra 2 million iPods because of this." And the
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`margins on these devices make the Music Store's arithmetic look like child's play. Each $4 99 iPod returns
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`as much as $175 in profit, Wolf says.
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`Such calculation may also explain why iTunes doesnt support Windows Media Audio files-—a Microsoft
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`Coolest lnwn’rions: Invention Of The Year: The 993100010: Solution -- Printout -- TIME
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`format that Bill Gates had hoped would become the music-industry standard. If iTunes beeom es the player
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`of choice for PC users, it would be a blow for Microsoft‘s grander audio ambitions-and may well unearth
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`the hatchet that Jobs and Gates buried back in 1997.
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`For now, Jobs faces some smaller hurdles, like filling in a few significant gaps in the iTunes Music Store
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`selection (the Beatles are the most glaring omission). Even so, Jobs continues to score points with
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`consumers for making available songs so easy to find and so easy to download The music industry, of
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`course, is anything but simple. That's probably Why Jobs, an inveterate challenge seeker, likes it. But can it
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`grow his business? Stay tuned.
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