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Steve Jobs' Other Mistake

Apple CEO Steve Jobs' decision to offer a $100 refund to early iPhone adopters following last week's $200 iPhone price reduction is a good start. But it's not enough. Jobs also needs to re-think whether his company wants to serve consumers or shackle them.

Apple is trying to serve two masters: its customers and the media companies that sell content through iTunes.

Apple makes beautiful consumer electronics and, for the most part, it delivers a great user experience. I've owned various Mac models since 1985 and have always been happy with my purchases (even if lockups under OS 9 were a pain).

With the growth of its iTunes Store, however, Apple has become a digital media distributor of unprecedented power and it is starting to show the same hostility that Hollywood and the music industry exhibit toward their customers. That hostility is manifest in trying to limit consumers' ability to manipulate digital content in order to prevent copying -- both the illegal kind and the legal, but profit-hindering kind -- and to maximize opportunities to re-sell the same digital content in other formats.

And Apple's allegiance may shift even further from consumers to media producers: From what I hear, Apple is looking to create original content for its iTunes Store and is staffing up in the U.K. to do just that.

During the early years of the iPod, Jobs was able to serve consumers and media companies at once by offering porous DRM to protect digital songs purchased through iTunes. Music companies saw Apple as at least semi-friendly to their interests and customers could bypass the DRM by burning purchased songs to a CD then re-importing them as unprotected MP3 files. Everyone was happy, sort of.

But Apple has become less interested in giving its customers what they want. Despite Jobs' forward-thinking efforts to encourage the music industry to abandon DRM, he isn't offering Apple customers the same flexibility when it comes to ringtones on the iPhone.

Apple wants iPhone users to pay 99 cents to make a ringtone after having paid 99 cents to buy a digital song.

This is absurd, even if many telecom companies make money this way. The only reason the ringtone market exists in its current form is because phone makers are allowed to restrict what consumers can do with mobile handsets.

Purchasing a song, either on a CD or as a digital download, should entitle the user to use it for any legal, noncommercial purpose without restriction. But Apple wants to charge users twice for the same music: one fee to play the song as music and one to trigger the playing of a portion of the song when someone is calling.

Now other companies recognize how silly it is to charge for ringtones when you have access to music and a computer. Ambrosia Software, for example, makes $15 software called iToner that lets you transfer any sound file you've edited to the iPhone.

But Apple appears to be trying to prevent this practice to preserve its nascent ringtone business. Its recent iTunes update broke a variety of unsanctioned third-party applications for creating ringtones from existing music files. Many of those apps, however, have since been updated to work again.

Apple's unwillingness to let its users do what they want with its devices can be seen in reports that the company has imposed restrictions on its new iPod Touch. Apparently, Apple has removed the ability to add events to the iPod Touch using the mobile version of Apple's Calendar app. This decision seems to be an effort to further differentiate the iPhone and the iPod Touch, even though there's no evident hardware distinction between the two devices that would preclude the ability to add Calendar entries.

Now Apple isn't the only company to cripple its hardware, to shackle its customers, or to try to maximize profits. But it used to make a point to "Think Different."

Steve Jobs needs to get back to thinking like the co-founder of Apple Computer rather than like the media mogul who sold Pixar to Disney.

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