Back when we had commies to worry about, someone came up with the concept of “engage and contain”: eg, rather than avoid them as we’d been doing, we should trade and talk and travel there, and by doing so be able to contain their evil.

Similar ideas exist today on China and Iran (And, honestly, people — do we really worry about being attacked by Iran? Really? Is this even on our RADAR?) Google is infamous recently for installing government-censored Google in China, with what I think were the purest of intentions — the idea that more knowledge naturally makes the country more democratic.

But even Google executives have recently said they think they’ve made a mistake, because by getting too close to the Chinese government, they’ve had to make compromise after compromise, until finally Google finds themselves an accomplice to evil instead of an adversary to it.

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So it is with iTunes. Apple has engaged two of the most cock-thirsty and money-grubbing conglomerates in the United States — the movie and record industries — in what we all wanted to believe was an attempt to engage and contain them. And, initially, we all agreed Apple was doing good: they had, for the first time, made legal downloads more compelling than stealing music. For a single data point, I’ve personally bought 915 songs from the iTunes music store, and hundreds of TV episodes and dozens of movies. I own six iPods and have bought 18 iPhones to give away.

And we all took heart when Steve published that letter saying how much he hated DRM, and how he’d drop it if the labels would, and even if the rumors are correct and EMI was already planning to drop DRM and Steve just rushed in and took credit, it was still a bold stance for him to take; a challenge to the rest of the industry. And I immediately upgraded all the tunes I could to iTunes Plus, and bought a bunch more albums. And it was good.

—

But recently, well… the generous view would be that Apple’s screwing up, and the non-generous view would be that they are just plain getting greedy.

No, I’m not talking about the iPhone price reduction. Honestly, I was happy to see the price go down, even though I could have personally saved $3,000 if I’d waited to buy the 15 phone I bought before the reduction. I mean, c’est la vie, it’s technology, baby.

But why is the iPhone locked to a single carrier, so I can’t travel internationally with it? There’s really only one viable reason: Apple wanted a share of the carrier’s profits, which meant giving AT&T an exclusive deal. Which meant, we get screwed so Apple can make more money. It’s that simple.

And the iPhone is a closed system, like the iPods before it, so third parties can only develop software for it if they are EXTREMELY close to Apple. This is an incredibly frightening trend. As Apple gets more and more of its revenue from non-Mac devices, they are also getting more and more of their revenue from devices that simply exclude third parties.

I know Steve Jobs; he’s actually amazingly like my old business partner Mike Matas. They both love closed systems, for a simple reason — they both know they’re smarter than anyone else on the planet, and they don’t need anyone else mucking up their systems. Steve would rather have no third parties for Mac OS X if he could get away with it — Apple, of course, would do a much better job on anything, but since customers insist on Photoshop and Office and other apps, he puts up with them. (Well, except, now Apple has their own office suite.) Steve knows that on a computer, having a broad spectrum of apps is more important that having them all be Apple-perfect.

But on iPods, Airports, Apple TVs, and now iPhones, Apple wants every app perfect. Which is nice, in theory. In practice, it means innovation only happens at Apple’s pace. The marketplace of ideas is much smaller, and the devices are much poorer because of it. (Example: Why can’t I stream music from my iPhone or iPod touch to my Airport Express?)

There are some third parties making money from the iPod — hardware accessory makers. But even then, Apple is trying to charge them a “Made for iPod” sticker tax… for adding no value. And since Apple controls the stores in which iPods are sold, they have a pretty effective stick to use against those who don’t comply - you won’t be where the players are. But with the latest iPods Apple’s gone a step further, and disabled some docking stations that don’t have a special chip in them provided by Apple; forcing customers to use only Apple-approved accessories. Apple’s emulating the most pernicious qualities of Nintendo and the Microsoft XBox — you pay us a tax or you don’t work with our systems.

But Apple’s “approval” just comes from Apple getting a cut. It’s a measure of greed, not quality. We’re not talking about THX-certification here, we’re talking about extortion. This kind of lock-in seems very appealing for the company doing the locking early on, but it always, ALWAYS ends up biting the company in the butt. Ask IBM with their ubiquitous 970 servers and their extortionist service contracts. Oh, wait, those don’t exist any more.

Consumers suffer from this. We suffer from increased prices and decreased competition and innovation. We suffer so Apple can make a few more bucks, when Apple is clearly not hurting for money. The core of Apple users has supported Apple for years — we were there when Apple was hurting, we stuck with it, we nursed her back to health. It’s our money she has now, and she’s turning on us now that she’s rich off it.

Then we come to ringtones. Every phone I’ve owned in the last ten years has allowed to make my own ringtones. I could upload MP3s all I wanted. Many had little tune editors built into the phone.

But since Apple is so close to the record companies, and they are already so grumpy with Apple, Apple did a deal that benefits record companies and Apple. Not artists, certainly not consumers. In order to use a 15-second snippet of some random song, I now must buy it not once, but TWICE. The amazing thing is that I must buy it THREE times if I own the song on CD — I have to buy a DRM’ed version from the Apple Store, then buy the the ringtone, on TOP of the CD I already bought.

Oh, but wait, most artists haven’t given permission for their songs to be used as ringtones. The vast majority of my collection simply can’t be put on my iPhone as a ringtone. I could, if I wanted, manually press play on those songs whenever I see a friend calling, but that single “if” statement it’d require for the phone to do it — well, that’s simply Not Allowed.

Not that, uh, we have to pay attention to what the record companies think is Not Allowed, because we have already licensed the song for playback on any device if we bought a CD — we are allowed to play it on our iPhone already. Just not in response to someone calling us. The record companies have MADE UP some new, retroactive copyright and Apple is enforcing it for them. The result is, a million customers don’t get to do something cool with their iPhones.

Because of greed.

Honestly, I can see Apple saying, “Well, you see, the record companies would have been upset with us if we hadn’t charged anything for ringtones.” Yah, well, that’s the price you get for engaging. The price for owning the distribution of the content and the hardware and the software is that you end up making compromises in the hardware and software in order to protect the content.

These are EXACTLY the compromises Sony has been making for years — and because Sony’s music and movie arms have been telling the Sony hardware arm to never do anything new or interesting without building in a ton of customer-unfriendly restrictions, Sony is now completely in the toilet. They have gone from an incredibly respected brand to a complete joke. Every time they introduce some new, crippled standard the industry kind of looks away in embarrassment, like Sony is the oafish guy at the party who is parked in front of the meatballs tray eating directly from the dish.

Now we see that iPod owners who upgrade to a newer iPod must re-buy the games they’ve already bought, because the new iPods are incompatible with the old. No credit given for having already bought an identical game. Imagine upgrading to a new computer, and having to buy a brand new copy of Windows Vista for it… Oh, wait, Microsoft does that, don’t they? MICROSOFT does.

—

What should Steve do? Well, for starters, give up on trying to control everything. It’s only going to keep hurting Apple, more and more, to control content and hardware and software. It’s going to make them into the kind of mega-monopoly that we always, ALWAYS end up hating. Absolute power corrupts absolutely. 100% of the time.

Apple should license FairPlay, or allow iPods to play PlaysForSure (ha! I love that doublespeak) music. Either one. Basically, Apple should allow other music stores to sell DRM’ed music that works on iPods and iPhones.

Why? It’s simple — then Apple could tell record companies “go fug yourself” if they don’t like Apple’s terms, but Apple would still have a full range of music to play on its iPods. Remember, Apple makes all its money selling the hardware, not the songs. All Apple needs to do is to make sure there is a broad range of content available for iPods, it doesn’t have to sell all that content itself.

And, in fact, it hurts Apple to sell all the content itself, because it makes Apple a focus for battles between the record industry and consumers. If there were a range of stores selling iPod-compatible music, with a range of different DRM rights, then the market could decide what terms it liked best.

The iTunes store could be the white knight — it would only sign deals with record companies willing to “give” consumers the same rights they’ve had for years with CDs; eg, we can do whatever we want with our music as long as we don’t broadcast it or give it to others. Other music stores could sell restrictive DRM’ed music, and, well, if the record companies are right, people would go to those other stores, and we consumers would all get what we deserve.

But if I’m right, then those other stores would be soundly ignored, and the record companies would come crawling back to Apple with their tails between their collective legs (where their balls should be, but aren’t) and agree to reasonable terms.

Sure, we’ve seen some of this with Apple’s negotiations with NBC, but unfortunately this one is all-or-nothing for Apple, because there’s no alternate method for NBC’s content to get onto iPods. Apple needs to be able to say, “Look, NBC, you want to be dumb-asses and try to sell people crap they don’t want, fine — we’re still going to sell iPods that’ll play your programs, we just won’t sell your programs on the nicest internet store in the world. Your loss, suckers, call us when you change your mind.”

Second, Apple should announce that it’s going to write frameworks so third parties can write applications for iPods and iPhones. No, it won’t be easy. But, seriously, there’s no excuse. I mean, with the iPhone they could hide behind AT&T wanting assurances people won’t use their phones off-network, or behind consumers wanting their iPhones to never crash. Which are both reasonable points, I admit. And, for the record, I’ve never written a line of code for the iPhone, although one of my employees has (in his spare time). I don’t like to screw with undocumented APIs, life’s too short.

But with the iPod Touch, what’s Apple’s excuse for locking up the platform? Why can’t I write programs for this device? Who might it hurt? Why is Steve announcing that he’s playing cat-and-mouse with developers who intend to do so? Is Apple so far removed from its customers that even when the latter overwhelming votes for extending a device (by downloading iPhone programs in the hundreds of thousands), Apple’s response is, “No, you can’t do that. We know what you want, you don’t. You want AJAX apps, you just don’t know it yet.”

That sure reminds me of the old, crappy Apple. The one that almost went bankrupt because of its hubris.

I don’t write programs for Apple because I worship Apple. I write programs for them because they have the best development environment. But I’ve always said that I will move from the platform the day Apple starts acting like a monopoly — trying to make money by using its marketing position to extort money from users, instead of innovating so quickly that users willing throw money at Apple.

Sure, Apple’s still doing a ton of innovating. I love Leopard. I love iPhone (x19). I love my iPods (x6). And I love the engineers at Apple and all my friends throughout the company.

But Apple has to always remember that simply making money CANNOT be its point of existence. The point of any company should be to make customers want to give it money, NOT to get money from customers. It’s a subtle distinction that is the difference between good and evil.