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Will Schmidt Help Apple Set iTunes Free?

The election of Google CEO Eric Schmidt to Apple's board of directors isn't surprising given the famously clubby relationship enjoyed by most Silicon Valley CEOs.

Schmidt and Apple CEO Steve Jobs have known each other for many years, going back at least as far as when Jobs was CEO of Next, the company he founded after leaving Apple in the mid 1980's, according to one industry source.

But there is clearly more than simply friendship at issue.

Several challengers to Apple's lucrative iTunes business have emerged in recent years, including, most recently, Microsoft's Zune.

Apple may thus be wise to hedge its bets.

Tim Bajarin, principal analyst with Creative Strategies, a Silicon Valley-based high-tech consulting company, believes that free iTunes may be on the horizon.

"Where Google has broken incredible ground is adding the advertising component to what is, in essence, a free service," said Bajarin.

"If at some point the [media] market moves in that direction, advice from Schmidt on how that could impact Apple, and Apple's potential response, could be very valuable," he said.

Clearly, Apple is not on the verge of changing its business model.

But the Internet is garnering significant amounts of attention from traditional media companies that may at some point be willing to offer their content free of charge.

Moreover, Universal Music, one of the country's top music distributors, is reported to be launching a free, ad-based music service.

"You can't look at the various companies trying to get into media distribution over the Internet and not realize that some of it at some point is going to map the original television model [which was free]," said Bajarin.

"What Apple is good at is taking the temperature of the times and acting appropriately."

Google has been at the epicenter in a seismic shift in how companies do business on the Internet, and would be an invaluable tutor should similar changes affect the way people consume music and videos.

"What Schmidt learned at Google, especially interacting directly with consumers and creating a new form of revenue via advertising, could eventually serve Apple very well," said Bajarin.

Another analyst, who preferred to remain anonymous, was less sanguine about the potential benefits of Schmidt's election to Apple's board.

He noted that boards of directors don't necessarily influence corporate strategy.

JupiterKagan analyst David Card also expressed a more tempered view of the relationship.

Nonetheless, Card said, "the idea of Schmidt helping Apple with online advertising is intriguing."

Apple's Board of Directors may be more involved in the day-to-day operations of the company than most.

In its most recent proxy filing, the company notes that "governance is far more than a 'check the box' approach to standards or procedures."

Schmidt cut his teeth in the enterprise space, first at Sun Microsystems and later at Novell .

But his real claim to fame has been his leadership at Google.

Jobs alluded to that in a statement, saying that "Eric is obviously doing a terrific job as CEO of Google, and we look forward to his contributions as a member of Apple's board of directors.

"Like Apple, Google is very focused on innovation and we think Eric's insights and experience will be very valuable in helping to guide Apple in the years ahead."

For his part, Schmidt proclaimed his longstanding admiration for Apple.

"I'm really looking forward to working with Steve and Apple's board to help with all of the amazing things Apple is doing," he said in a statement.

Schmidt also sits on Google's board of directors and Princeton University's board of trustees.