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Hewlett-Packard and Apple forge partnership on digital music

Posted on: Sunday, 11 January 2004, 06:00 CST

Hewlett-Packard has said that it will begin selling a version of Apple's iPod digital music player and bundling Apple's iTunes online music store with its personal computers.

The partnership, announced on Thursday, points to a major realignment of forces within the computer industry. The agreement, which was reached only after an extensive bargaining session that ran long into Wednesday night between Hewlett's chief executive, Carly Fiorina, and Steve Jobs of Apple, represents a significant departure for both companies.

For the first time, Jobs has stepped away from the self-enclosed Apple-only strategy he has pursued since he returned to run the company in 1997. Meanwhile, Hewlett, the world's second-largest computer maker, has put its software partner, Microsoft, on notice that it will not necessarily follow its lead in every case.

The deal calls for Apple to manufacture its popular iPod player in a Hewlett corporate blue hue, while Hewlett, starting this summer, will place an icon on the desktop of its consumer PC's, directing its customers to Apple's software and music store. Financial terms were not disclosed and the alliance does not include, at least not yet, the new mini iPod that Apple announced earlier this week.

The partnership is a coup for Jobs, who has gained significant leverage in the past year because of Apple's success in the burgeoning digital music business. The move gives Apple, which has long been pigeonholed as a niche player in the personal computer industry outside the Microsoft-Intel mainstream, access to major marketing channels and retail chains like Best Buy, CompUSA and Office Depot where Hewlett has a powerful presence.

For Hewlett, the alliance provides instant access to Apple's technology and music rights and the opportunity to offer a full range of popular digital products to consumers while gaining newfound independence from Microsoft and a significant advantage over Dell Computer, which sells its own music players only online.

Despite being two of the companies that most clearly define Silicon Valley, Apple has never been particularly close to Hewlett.

The love-hate relationship between the two firms is part of the Valley's lore. As a teenager, Steve Jobs brazenly called William Hewlett, Hewlett's co-founder, to ask for parts for an electronics project. Later, Jobs's Apple co-founder, Stephen Wozniak, then a Hewlett employee, asked his bosses if they wanted to market a personal computer before he started Apple with Jobs in 1976.

But with those days long gone, the new alliance underscores the feverish deal making now going on as computer makers, consumer electronics companies and content providers all jostle for position in the uncharted territory converging around digital entertainment.

It's frenetic out there, said Gary Johnson, the chief executive of PortalPlayer, a hardware design company in Santa Clara, California, that contributed to the design of the first iPod. The world of the PC and consumer electronics industry are combining and digital music is becoming a key service.

The advent of legal online digital music sales and subscriptions has touched off a gold rush of companies racing to stake a claim with consumers, whose interest in digital entertainment while at home and on the move has re-energized an industry that still is struggling to revive corporate spending on information technology.

The growing importance of digital media is fracturing the monolithic world long dominated by Microsoft's software and spurring the creation of an array of alternatives.

These new software platforms are a brand new opportunity, said Mark Anderson, president of Technology Alliance Partners, a Seattle- area consulting firm. It's a completely different game.

Microsoft has said that it plans to offer its own MSN music store later this year. On Thursday, the company appeared unprepared for the Apple-Hewlett agreement, which clearly stung Microsoft executives. They said the agreement would limit choice and harm consumers.

Windows is about choice, you can mix and match all of this stuff, said David Fester, general manager of Microsoft's Windows Digital Media Division. We believe you should have the same choice when it comes to music services.

He said Hewlett would end up confusing its customers because the company has supported several other Microsoft media products that are not compatible with the iPod, including its Windows Media Center software, which Microsoft sees as the key digital hub in the home.

Hewlett responded that it was probably better positioned than any other company to bridge the gap between Apple and Windows.

The next big thing isn't the next gizmo or killer app or hot box, Fiorina said. Customers want all this to work together, and they want a seamless approach. We're very much going to make sure that the Microsoft and Apple worlds work together. That's part of the power we bring to this thing.

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