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.

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