Apple Stomping Pandora’s Turf?

By Malcolm Manness - September 8, 2012 | Tickers: AAPL, P | 0 Comments

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Is Apple ) stomping Pandora’s (NYSE: P) turf? 

According to the Wall Street Journal:

Apple is in talks to license music for a custom-radio service similar to the popular one operated by Pandora Media Inc., according to people familiar with the matter, in what would be a bid by the hardware maker to expand its dominance in online music.

Fellow Fool Eric Bleeker discusses this in his article, Two Companies Being Crushed by Apple. I however have a different reaction.

I am skeptical.

In my article on Apple’s success, I point out that S = (O + V) * F, where the F stands for focus. I wrote:

Another level of focus: focus on which problems? Jobs said “We continually reject many great ideas to focus on the few we can do.” [paraphrased] 

So my question to the decision by Apple to enter radio streaming space is “WHY?” I do not see a compelling reason here. Why should streaming music be one of the few? 

Sure, they might do it to “solidify their grip” on the music industry. People seem to think that Apple is in the business of selling music. But they are not. (That is to say, while they obviously ARE in the business of selling music - they sell a lot of it - it is NOT their core business. They are not in business for the purpose of selling music. That is my meaning here.)

We must look at Apple moves as always focused on their key objective as repeatedly put forward by Steve Jobs: “To create insanely great products.” Anything that does not contribute to that is not on the table.

“Then why,” one might ask, “are they competing with Google Maps?” The question there (as I explained here) is that they identified mapping as a key core ingredient of their mobile products, AND it was provided by a near-monopoly provider AND this provider is also a major competitor. Therefore, Apple felt it needed to move to cut this reliance.

So what about streaming music? Isn’t music a key core component to their mobile devices? Yes, of course it is. But it is not a major revenue stream and so they would not look at it as a financial driver. It is, however, the very core of their cloud connectivity system. It ties all their products together. So perhaps they would see a threat to this if customers are passing up music purchases for streaming services.

But is this really the case? Are iTunes music sales flagging? Don’t people who use streaming also want to own at least some of their music?

Additionally, there are several competing providers of streaming music, and none of them are competitors to Apple core products in the sense that Android is.

So here it is once again: I am skeptical. Of course I may be wrong (it would not be the first time), but I do not see a reason for Apple to be distracted from its more important tasks by entering this market.  

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Malcolm Manness has a Masters degree in Computer Science, and has worked for 14 years in development, technical publications and software quality assurance. He has been investing for 20 years. Currently, he does writing, and FileMaker Pro programming on contract.

His short fiction can be found (under pseudonym J. Seunnasepp) at http://50centflash.com/.

==== Understanding Apple series

You may love Apple and their products, or hate them to the core, but you cannot deny that Apple now has the highest market cap of any company, their products are trend setters, and currently they are trading at rather low multiples, especially regarding forward earnings.

Warren Buffett has the maxim: “Invest in what you know!” So, for those who want a unique perspective on Apple’s success, I have a series of articles Understanding Apple. I hope you will find them helpful and provocative.

Let me know what you think.

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