- Have a comprehensive selection of content
- Be easy to use
- Its prices (if it sells goods and services) don't have to be the lowest, but they must be reasonable
The second key is ease of use. There were plenty of online music sites before iTunes, but they were hard to use and imposed draconian DRM schemes on users. The motion picture companies had the same problems with their early attempts at making movies available over the Internet.
The final key is reasonable pricing. Early on, record companies tried to demand more money for digital downloads than they did for CDs, and they tried to force consumers to purchase entire albums rather than single tracks. Apple sold them on the idea of a fixed price per track and discounted prices for entire albums. Now, Amazon is rewriting the pricing model for eBooks by selling almost all its titles for $9.99 or less.
Apple was the first company to get all three keys right, with the iTunes Store. Tight integration of iPods and iTunes helped the company get the ease-of-use part right. Amazon learned from Apple and implemented a similar model with the Kindle, which also gets all three keys right but is somewhat vulnerable due to the technical and ease-of-use limitations of the Kindle itself.
On the video/movies side, YouTube leads by far in the free content space. Hulu has gotten the ease-of-use key right and has the biggest selection of legitimate content from the US television networks, but many users are frustrated by convoluted policies that make episodes available for only a limited amount of time or restrict the number of episodes available. Netflix and Amazon are both working to make more movies and television shows available for immediate viewing, but they're not there yet, and both their ease-of-use and pricing models are "works in progress".
TiVo and Roku are both positioning themselves as "super-aggregators", in that they already offer access to both Netflix's and Amazon's libraries, plus content from an expanding number of producers and aggregators. TiVo got ease-of-use right a long time ago, but its Achilles' heel is its monthly service charge. Roku's user interface is less mature, but it doesn't charge a monthly fee to use its set-top boxes. However, its weakness is that its set-top boxes are only sold direct, not through outlets such as Best Buy and Wal-Mart. Without high-volume outlets, Roku will always be playing catch-up with its better-distributed competitors.
In music, Apple has locked up a dominant position, and Amazon is well on its way to doing the same thing in eBooks. In video, television and movies, however, the only truly dominant player, YouTube, is free. It's far from certain that YouTube can maintain its dominance once it starts to charge for access to some content, which is widely rumored to occur in 2010. For these media, the field is still wide open.