Tim Cook's Biggest Failure at Apple

NEW YORK (TheStreet) -- This is the new normal:

With that rhetorically implanted in mind, body and spirit ... let's predict some more crap before it happens.

I spend a ton of my main and spare time wondering about what's coming from Apple (AAPL) and what's next for Internet radio and the music industry.

Even though its focus has always been, remains and should always be on hardware, it's clear Apple has goggly eyes (pun intended) on doing more somehow ... somewhere else. We just don't know exactly where it plans to attack. Some smart money, however, goes on the Internet radio space it meaningfully entered with iTunes Radio. Outside of the now-forgotten Apple Maps debacle, iTunes Radio should go down as Tim Cook's biggest failure as Apple CEO to date. 

When you consider that the $0.99 a la carte digital download single kicked off what is now a $4.6 billion business (that's the iTunes Store, App Store, Mac App Store and iBooks Store combined, as of last quarter), you have faith that Apple can transform the music industry once again. Apple constructed more than an e-commerce powerhouse with iTunes. There's lots beyond direct retail companies such as Apple (and Amazon.com (AMZN)) can do with the data they collect. The to-do list could resurrect iTunes and give iTunes Radio new life, but it can also lift the music industry from its present state of atrophy if record labels and other key cogs in the machine play their cards right.

Here's one way it could look -- a potential recipe for more Apple mindshare, extension of Apple domination and resuscitation of the music industrial complex.

Paul Harvey ... Page Two ...

Here's How Apple Can Rebuild iTunes and Salvage iTunes Radio

First, Apple must shed the old mindset it reportedly operates under.

Given the respect I have for Apple (and, increasingly, Tim Cook), I'm skeptical that what Billboard reported in April is 100% true. According to our friends and lovers at Billboard, Apple's scrambling to save the broken promise of iTunes Radio; it desperately wants to find a way to revive sales of music downloads, which have been trending -- for some time now -- the way of the compact disc. Whether what Billboard says is true or not, Apple has clearly been a step or three behind the curve with respect to the music business and Internet radio's trajectory.

But fine -- Steve Jobs didn't hijack Pandora (P). Instead he stuck with iTunes and facilitated Pandora's monstrous success. Clearly, given the late and underwhelming arrival of iTunes Radio, that was a mistake. Apple missed what was happening with music listener behavior right in front of its face and/or saw it, but stubbornly fought to reverse what appears to be an irreversible trend.

No big deal because there's nobody more nimble than Apple.

So get rid of the fantasy that you'll be able to get people to buy music again. Don't discourage them from doing it -- even find ways to make it attractive -- just don't make that the reason for iTunes Radio or the introduction of a Spotify-like on-demand streaming service (which Apple is reportedly considering). Use these things to build a music-related ecosystem nobody has managed to construct. Not the big boys. Not the pure plays such as Pandora or Spotify.

This could entail banishing Pandora from the App Store. Though, as a few folks pointed out in the comments section of the linked article, Apple might not want to risk consumer goodwill or an antitrust lawsuit with such a move. While I think Apple could get away with ditching Pandora, I see and respect those points. So, maybe Apple should buy Pandora after all and integrate it the way I argue other potential buyers could/should. I don't know. But I do know, however it proceeds strategically, Apple needs to use data to power and creatively monetize the music-related segment(s) of its ecosystem.

Here's how that comes together and looks ...

You have the iTunes Store. So you have not only credit cards, but all sorts of purchase data ranging from what people actually buy to, presumably, where they were before they bought something and where they went afterwards.

You have the App Store. So you have hard data on the most popular music apps. Who is buying them? What is prompting these purchases? And what other apps and such do these people who purchase music and music-related apps buy?

You have the iBooks Store. Are people buying music-related books? If so, how does this behavior relate, if at all, to associated behavior in other areas of the ecosystem ... such as ...

You have iTunes Radio. So you have Pandora-like data on what people are streaming; what they like and don't like; what level of discovery they seek and are comfortable with; how streaming choices (stations created, etc.) relate (or not) to what's in their iTunes music collection; and so forth.

You could have an on-demand, Spotify-like streaming service, which, I argue, would be a more dynamic iteration of people's iTunes behavior/collection. That's because I reckon people tend to use on-demand streaming the way they use traditional music collections, except they can keep more music in the on-demand cloud than they can a purchased music collection due to the cost of one versus the other (it's cheaper to store/basically lease your collection in the cloud than it is iTunes). If that's not how things look now, it will be soon. It'll just take time for consumers to catch on to the utility, convenience and value of subscription-based, on-demand streaming.

Anyway ... you get the picture. Even beyond my examples, Apple collects/can collect a firehose of data that rivals and probably even trumps the firehose Twitter (TWTR) is putting into play and Pandora -- for some unknown and wholly misguided reason -- refuses to put into play.

From its ecosystem of data (it needs to start thinking of it this way) Apple can build incredible consumer profiles, filtered into aggregate subgroups. In addition to historical data, it can see what's happening in its ecosystem in real time. In combination, this information can help inform everything Apple does from what song comes next in iTunes Radio to how to reinvent the iTunes Store experience (musically) to the creation of future hardware features and components.

Apple can package historical datasets and provide self-serve access to real-time data to entities ranging from major and indie record labels, researchers, marketing agencies and brands.

Along the way, Apple can make strategic acquisitions, such as the no-brainer buyout Pandora passed up of Ticketmaster rival Ticketfly. As its data ecosystem becomes more robust, Apple can do more with it internally and charge more for external access to it.

From the music industry's perspective, this is the game changer.

At this point, Pandora clearly has little, if any, meaningful interest in sharing data with record labels, publishers and organizations such as ASCAP and BMI. It's too busy positioning itself against them legally and trying to squeeze them for the best deal possible on royalties. In my view, it uses its data as a weapon, holding out what it claims it can do for the music industry as a carrot in exchange for cooperation. That's sinister and shady. And it's about time somebody stepped in and stole the opportunity to take the lead on data right out from under Pandora. Twitter's off to an admirable start. Apple could take it up several notches.

By mining the data its music produces, the music industry can make better decisions on everything from making records to touring to radio play to moving merchandise to live concert streaming to selling its own advertising. It's curtailed because it has never -- for all intents and purposes, particularly in the digital age -- owned and controlled the main points of distribution and delivery of its content. It leaves its capacity to use data (and, ultimately, its fate) up to third parties such as Apple and Pandora. These companies go on to benefit from playing music and acting on the data it provides while throwing pennies at the music industry in return. Amazingly, the music industry -- thanks in part to its own ineptitude -- cannot extract full value from its own content. It's at the mercy of tech companies with different goals and agendas.

Apple can do the right thing by the music industry (to make up for the wrong "thing" it did when it introduced iTunes Radio). By creating a healthier business there, Apple can make more money, ramp up disappointing initiatives such as iTunes Radio and even do a better job selling hardware. It's a win-win, but it all comes back to the data. The process -- which I have merely surface scratched here -- requires a change in mindset.

Apple needs to view iTunes Radio -- and whatever else is and/or ends up associated with it -- not as radio or music initiatives, but as data initiatives designed to (of course) sell hardware and take the lead in a space Pandora barely acknowledges. It's a potentially lucrative space of finally leveraging -- to the greatest extent possible -- the power of music. Music is critically relevant and can help position and sell products and services in almost every aspect of our lives (that's what Songza is on to). As such, Apple must treat iTunes Radio, not as a jukebox or conduit for digital downloads, but as a soundtrack of information that tells individual and aggregate stories that have the power to personalize, inform and enhance myriad aspects of internal and external commerce.

--Written by Rocco Pendola in Santa Monica, Calif.

Rocco Pendola is a full-time columnist for TheStreet. He lives in Santa Monica. Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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