The Wall Street Journal reports today that digital music also-rans RealNetworks and SanDisk are teaming up to launch a proprietary music downloading system to compete with Apple’s dominant iPod-iTunes system. This news comes on the heels of Microsoft’s announcement of its proprietary Zune music system, launched in close collaboration with hardware maker Toshiba. Samsung is also preparing to enter the market with its own proprietary system, in partnership with MusicNet, and Sony, too, is peddling a proprietary system. As Om Malik points out, Apple’s “walled garden” strategy, wherein hardware, software and content are tightly integrated, has long been mocked by competitors, who have argued that an open system based on standardized, interchangeable hardware and software components would ultimately triumph, as it did with personal computers. Now, those same competitors are abandoning open systems, like Microsoft’s “plays for sure” system, and building their own walled gardens.

What’s particularly fascinating here is how the market’s development contradicts the received wisdom about the evolution of technology markets. As Clayton Christensen argues in his book The Innovator’s Solution, complex technologies tend to evolve from proprietary “integrated architectures” to open “modular architectures” as they mature. An integrated architecture, controlled by a single company, is necessary to make a new technology perform well enough to be embraced by customers. But when the performance of the technology becomes “good enough” for the general market, a modular architecture takes over, as it enables lower cost production and greater flexibility and also allows many companies to contribute innovations.

“When there is a performance gap,” Christensen explains, “companies must compete by making the best possible products. In the race to do this, firms that build their products around proprietary, interdependent architectures enjoy an important competitive advantage against competitors whose product architectures are modular, because the standardization inherent in modularity takes too many degrees of design freedom away from engineers, and they cannot optimize performance.” But “ultimately, companies that have excelled in the race to make the best possible products find themselves making products that are too good.” At that point, “nonintegrated competitors,” who are able to “introduce new products faster because they can upgrade individual subsytems without having to redesign everything,” begin to take over the market, “disrupt[ing] the integrated leader.”

In a Business Week interview in January, Christensen predicted that the digital music market would follow this same path, dooming Apple’s integrated iPod-iTunes system. When asked whether Apple could sustain its dominance, Christensen replied:

I don’t think so. Look at any industry – not just computers and MP3 players. You also see it in aircrafts and software, and medical devices, and over and over. During the early stages of an industry, when the functionality and reliability of a product isn’t yet adequate to meet customer’s needs, a proprietary solution is almost always the right solution – because it allows you to knit all the pieces together in an optimized way.

But once the technology matures and becomes good enough, industry standards emerge. That leads to the standardization of interfaces, which lets companies specialize on pieces of the overall system, and the product becomes modular. At that point, the competitive advantage of the early leader dissipates … the same thing will happen in the iPod world as well. Apple may think the proprietary iPod is their competitive advantage, but it’s temporary. [Apple’s current situation is] comparable to the fork they faced when they chose not to open up the Mac in the 1980s, when they let Microsoft become Microsoft.

But that prediction is not, at least so far, panning out. In fact, suppliers are actually abandoning attempts to standardize interfaces and instead building their own nonstandardized proprietary systems. As the market matures, it is getting less modular.

Now, this still may prove to be just a temporary aberration – modularity may still prevail. Or the digital music market itself may be an aberration. It certainly has some unusual qualities. For one thing, it hinges on copyrighted content (songs), and the owners of that content want to control, through digital-rights protection schemes, customers’ ability to copy it. At the same time, most of the systems support an unprotected version of the content – MP3 files – which remains, by far, the most popular version. MP3s, in other words, form the gap in the garden walls – a standard module shared by otherwise proprietary systems.

But even such unusual characteristics don’t explain away the strange path of evolution of the digital music market. What we’re seeing here is a pattern of technological progress that goes against the grain of what’s expected. I think what it shows is that the advantages of standardization may be overrated, at least in certain consumer markets. Given the existing standards in computer hardware combined with today’s flexible global supply chains, a single company, like Apple, may be able to design a proprietary system that is modular enough to counter most of the benefits of open systems while also maintaining the performance advantage that a closed system can provide. At the hardware level, after all, the iPod is constructed of standard modular components like flash drives and USB ports, produced by outside suppliers. It’s the software that makes the system proprietary.

And it surely doesn’t hurt that it’s easier to fine-tune the fashionability of a complex consumer product when you control all of its parts. Elegance matters.