A while back I offered a theory as to why Apple doesn't license FairPlay. I've given it more thought, and fleshed it out a bit. Let me explain my theory, and then let me know if you think I'm right or wrong. It's a bit complex, but please try to follow along:

Apple has often said that they don't expect the iTunes Music Store to be profitable; they say the purpose of the store is to sell iPods. But the real purpose of the store is to establish FairPlay as the dominant DRM (Digital Rights Management) system. If that happens, then Apple will be in a position to license it to other stores and to other manufacturers of portable music players. They'll have a nice revenue stream. It's the Microsoft model, and it works very well. Only one thing stands in their way: Microsoft!

The competition for FairPlay is Microsoft's WMA (Windows Media Audio). Almost all portable music players and online music stores use WMA. You'd think the ubiquity of WMA would work in it's favor, but it hasn't because everyone wants an iPod, and the iPod uses FairPlay instead of WMA. FairPlay has ridden to success on the coattails of the iPod. And despite what Apple claims, it's really the iPod that drives sales at the iTunes Store. iPod users buy songs there because it's the only place they CAN buy FairPlay songs. They're locked-in to one store, and that's why they have 70% of the online music market.

The iPod still has the best combination of features & ease of use, but it won't be long until competitors catch up. They don't even have to be as good as the iPod -- they just have to be "good enough." If Apple licensed FairPlay to other online music stores, here's what would happen when good iPod competitors become available:

Buymusic.com and Napster and all the others would offer customers a choice of FairPlay or WMA. Only the iPod plays the Apple format, but there are literally hundreds of other music players that play WMA songs. Combine the choice of multiple music stores with "good enough" iPod competitors, and neither the iPod nor the iTunes Store will have a compelling advantage over competitors. WMA would become dominant, and FairPlay, the iPod, and the iTunes Store will all be relegated to niche status. Sound familiar?

Apple desperately wants FairPlay to beat WMA. (More accurately, Steve Jobs desperately wants to beat Bill Gates.) To avoid the above scenario, they must avoid interoperability at all costs. That's why they got so hysterical about Real's Harmony.

The real test will come when the "good enough" iPod competitors come on the scene. Apple must establish AAC/FairPlay as the dominant format before that happens.

	Yes, that's the real reason Apple won't license FairPlay!
	No, you're wrong. The real reas is... (please explain)
	Other... (please explain)

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