Apple iPod

The future of Apple’s iPod

''It's absolutely clear now why five years from now, Apple will have 3 to 5 percent of the player market.''

Rob Glaser, founder and C.E.O. of RealNetworks

"Sometimes the best product does win. This may be one of those times."

Steve Jobs, Apple Computer

As of November, 2003, Apple had sold about 1.5 million iPod music players, leading the market in music player sales. There are at least 7 competitors, although none offer iPod’s combination of elegance and performance.

Like Apple computers, the iPod inspires passion among its owners, even those who don’t own Macs as well. The technologist Richard Weissberg wrote to say why he loves his iPod:

"It's beautiful -- a work of art at many levels ... it looks good; it feels good; it has an elegant and brilliantly functional user interface (a work of art in itself). And of course it's great to have my entire CD collection with me at all times. I had forgotten many of my CD's. Now that access is so easy, I am becoming reacquainted."

A breakthrough product is a wonderful thing -- for customers, the pioneering company, and its competitors. It accelerates growth for all by opening new markets and attracting new spending.

A breakthrough product is usually wonderful for investors as well. Apple’s stock is up 50% for the year, a bit ahead of the Nasdaq (which is up 48%). Because the iPod represents a strong potential growth platform for Apple for a number of years, we could expect strong performance to continue into 2004.

Except Apple has been in this situation before. Back in 1986, when Apple introduced the Macintosh, or even in 1980, when the company pioneered the personal computer, it saw its fortunes and market share rise with the product’s introduction and then decline as competitors entered. Competitors provided a more open architecture, a similar set of technical capabilities, and a lower price.

Competitors are faster and more numerous now than they were in 1980 or 1986. This Christmas, you can buy an iPod for $400 or so. Or, for example, you can buy a Dell Digital Jukebox for $250.

Most of the users commenting on CNet say the Dell product is not as good as the iPod, but it’s a lot less expensive, and it has longer battery life.

Rob Glaser, the CEO of RealNetworks, looks at Apple’s history and predicts that the iPod will go in the same direction as other Apple innovations – sacrificing business logic to Apple "ideology." The decisions that Apple has made regarding iPod pricing and proprietary data standards are similar to those Apple made with the Mac many years ago. Apple’s first tendency has been to go it alone, and this has hurt it in the past.

But the player market is quite different from the one for personal computers. Here are three reasons why the iPod could be more durable than previous Apple innovations:

Apple will aggressively protect its iPod design. Samsung wanted to make an iPod lookalike, with a wheel for a control. It changed its design after Apple threatened to sue.

The price premium is not too large. In absolute terms, it’s $150. While this represents 60% more than Dell’s prices for its Jukebox, it’s less than 10% of the premium Apple gets for its computers.

Apple’s brand protects the iPod; the iPod extends the brand. The iPod provides affordable access to a premium brand and product. You might not be able to afford a Mac, but you can get the Apple feeling with an iPod.

Like Porsche Design sunglasses or Amedei Porcelana chocolates, the iPod represents affordable indulgence. Clay Gordon, the owner of chocophile.com, explains affordable indulgence this way:

"The most expensive bottle of wine is way out of most people's reach; the most expensive bottle of balsamic vinegar costs more than a thousand dollars. But the most expensive chocolate bar costs only $9."

With the iPod, an extra $150 delivers both a premium brand and a better product. As long as this remains the case, the iPod will be a winner for many more years.

For More Information:

On 30 November 2003, the New York Times did a long story on the iPod. That’s where I got the quotes from Rob Glaser and Steve Jobs. Here’s a link: http://www.nytimes.com/2003/11/30/magazine/30IPOD.html

On 3 November 2003, CNet’s Eliot Van Buskirk provided five reasons not to buy an iPod: http://reviews.cnet.com/4520-6450_7-5102324-1.html.

The Clay Gordon quote on fancy chocolate comes from a 3 December 2003 New York Times article on the luxury chocolate explosion: http://www.nytimes.com/2003/12/03/dining/03CHOC.html

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