C|Net News reports on the "iPod Tax" -- the push by Apple to collect 10% (of wholesale price) royalties on externally made devices that plug into the "dock connector" on the iPod. The hook would that only those who pony up could display the "Made for iPod" icon on their products. In exchange, the accessory makers would get a guarantee of continuing compatibility with new models.

The iPod is a certified phenom, as Apple shipped 6.5 million of them last quarter, and total sales have been somewhere around 25 million. At least 400 connecting devices are on the market, and their sales are somewhere over $250 million/year.

Naturally, some accessory makers are grousing, but the idea makes good sense.

Even in the world of physical goods, there has always been a business model of providing add-ons to basic products -- think of all the industries spawned by automobiles. But the computer and the Internet have increased the range of possibilites. A major business of eBay, Google, Amazon, Microsoft, and now Apple is to provide a platform on which independent entrepreneurs can build. It is an ingenious way of allowing enterprises to be the proper size for the functions they perform. The platform provides economies of scale, as appropriate, and the add-ons provide entrepreneurial energy.

It is both economically logical and fair that access to the platform be paid for, for all sorts of reasons. For example, price discrimination is a major reason -- by shifting costs to the customers who buy the most add-ons, and thus presumably value the package most highly, the platform proprietor can lower basic costs of access to the platform.

It is all part of the innovative genius of the market.

posted by James DeLong @ 10:25 AM | Markets: Business, Investment & Innovation

Link to this Entry | Printer-Friendly | Email a Comment | Post a Comment(0)