By Jon Fortt
July 31, 2007
July 31, 2007

When I saw the headline, it made me grin: Apple (AAPL) announced that its iTunes music service has sold three billion songs along the way to becoming the third-largest music retailer in the U.S., passing Amazon.com (AMZN) and Target (TGT).

But I remember when, just before the launch of iTunes, Apple was coping with a digital music failure.

It was January 2001. The iPod didn’t exist, and no one had yet dreamed up the iPhone. Steve Jobs, Apple’s co-founder and CEO, was on the Macworld stage, apologizing. Apple had blown it, he admitted. Over the past year, while competitors like Hewlett-Packard (HPQ) and Dell (DELL) had built CD-burning drives into their PCs, Apple had ignored the trend.

Apple had instead tried to spark a revolution in desktop video production when people really wanted music, and Mac sales were lagging as a result. Rather than CD-burning drives, Apple had focused on DVD burners and movie-making software.

That morning, Jobs promised that Apple would fix that mistake, and charge into digital music in a big way. And he announced iTunes, a nifty piece of Mac software for ripping songs from CDs, organizing digital tunes into playlists on a Mac hard drive, and burning mix CDs (on Macs with CD burning drives, of course). Apple wasn’t making a version of iTunes for Microsoft (MSFT) Windows computers yet, and there was no iTunes Music Store for downloading songs to a computer.

But that was the moment when, I believe, Apple first publicly charted the course that has made the company a digital media powerhouse. That was the moment – Jobs on stage, apologizing for a bad call.

Now, 80 months or so later, Apple is a different company – and music is a drastically different business.

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