iPod on long road downhill as iPhone halo effect kicks in

[AppleInsider]

A new forecast has the iPod's influence on Apple dropping steadily over the next few years as the iPhone cannibalizes its sales and generates a halo around the Mac.

In a new report to investors, Needham Research expert Charlie Wolf turns around his financial institution's predictions for the iPod and now estimates that Apple will sell 95 million iPods in 2017 -- just 10 percent more than the 87 million in use today and 30 percent less than Needham had previously believed Apple would sell, hinting at a very slow growth rate compared to the dramatic leaps made in earlier years.

The change partly reflects a saturation of the market but is ultimately about the iPhone, Wolf says. At $200, the iPhone is now thought to almost certainly cannibalize a significant portion of iPod sales, especially for high end users who would otherwise have chosen one of Apple's more expensive stand-alone players.

That drop, in turn, will reportedly have a cascading effect on the iPhone itself. With more users buying the iPhone merely in place of an iPod rather than alongside it, sales of the handset in the long-term should also take a tumble relative to earlier predictions. While still positive, Needham now expects 8.5 million iPhones to be sold in the US this year and 14 million in 2009, leaving international shipments to play a major part in meeting Apple's 10 million-unit goal for 2008.

"Our previous shipment forecast was unrealistically high," Wolf says.

However, even with reduced early shipments and a lower price, Apple isn't expected to have any problem using the iPhone to grow its business. A cost analysis of the 8GB iPhone suggests that the company spends just $175 to produce and sell an iPhone 3G, leaving Apple with a roughly 60 percent margin on each unit that it sells to AT&T at an estimated $400 unsubsidized price.

The margin is twice as much as Apple is believed to have made on the original iPhone and would help soften the blow from the absence of monthly carrier revenue.

Apple's switch in pricing strategy also has the potential to increase share independently of the price. As the phone maker is no longer tied to a particular subscription model, roughly 15.6 million iPhones could sell outside of the US in 2009, including to customers on prepaid services that are more popular in some areas.

American share could also go up as other carriers are given access to the phone through the new model, which specifically detaches Apple from AT&T. "In a world where the iPhone is subsidized just like other smartphones, AT&T no longer brings anything unique to the table," Wolf says.

This also discounts the wildcard of the App Store, which could drive more users to the iPhone but is described as impossible to gauge with the store still under wraps until July.

The presence of the iPhone should also create a second halo effect that Needham analysts hadn't previously anticipated, Wolf explains. While the decline of the iPod will mitigate some of the impact, relatively few iPhone owners outside of the US are likely to already own iPods and will thus be exposed to Apple's products for the first time, filling in where the iPod stopped short.

Such added exposure leads Wolf to boost his very long term estimates for Mac sales, which could now climb to as many as 44 million computers by 2017 and could already create an upside as early as 2009, when the iPhone's effect should first become clear.

[walshbj]

Tons people are always going to want an iPhone and a smaller ipod for the gym and whatnot. And even if they decide to make small iPhones people will want the bigger one for video and browsing.

Here's what Apple needs to work out next: A simple way to have multiple phones on the same account. So I can take my nano-phone to the gym and my iPhone classic on my trip to Switzerland. Both phones need to be operable without me having to move a cumbersome card or anything like that. Maybe they'd have to make it so only one works at a time - but that's what I want. I don't want to have to be stuck with a single iPhone.

[aiolos]

Well, the problem is now that the iPhone is too cheap, it's definitely gonna cannibalize some iPod sales. Apple seriously needs to bring down the iPod Touch price. No wonder they're giving them away in the back-to-school promo, they need to generate interest in them now that they're basically a stripped down and more expensive iPhone (except for the 32GB model of course, which offers the extra storage the 16GB iPhone doesn't).

[wizard69]

I'm not sure what to make of such offerings, I do hope no one makes business decisions based on such.

There are lots of reasons to want a device that is an iPod but does not have a built in phone. The rather stiff sales of Touch is a testament to the attractiveness of even a storage limited device. That doesn't even take into account the people that have several devices and make sue of them all.

Frankly Apple still has an opportunity to blow iPhone 2. If people see it as being way to restrictive with respect to Android platforms Apple will have a lot of catching up to do.

It is interesting that the market seems to already think that iPhone 2 will be a smash hit. It certainly can be right now so don't get me wrong on that note. The difference is that alternative hardware will be coming on line right about the time Iphone 2 starts to move in volume. If any of those presents a viable platform Apple will have to make some mid course corrections.

Dave

[SpamSandwich]

Originally Posted by aiolos

Well, the problem is now that the iPhone is too cheap, it's definitely gonna cannibalize some iPod sales. Apple seriously needs to bring down the iPod Touch price. No wonder they're giving them away in the back-to-school promo, they need to generate interest in them now that they're basically a stripped down and more expensive iPhone (except for the 32GB model of course, which offers the extra storage the 16GB iPhone doesn't).

If they move the Classic line into Touch territory and keep the larger HD sizes, this would mitigate any iPhone cannibalization.

[jasonfj]

"That drop, in turn, will reportedly have a cascading effect on the iPhone itself. With more users buying the iPhone merely in place of an iPod rather than alongside it, sales of the handset in the long-term should also take a tumble relative to earlier predictions."



I don't understand this sentence. It makes no sense. Does it?

And while I'm on it, when will these analyst fools get their head around the fact the iPhone IS an iPod - with a *phone* in it. It fulfills exactly the same function as the iPod, ie. to drive consumers to the Mac platform and earn Apple $$$.

[mistergsf]

I'm almost positive that I'm not the only one that prefers to have a separate music device (iPod) in addition to my iPhone. I use my iPod nano at the gym every other day. I do not want to lug my iPhone around while working out. It's too big and heavy. As it is now, I hardly even use my iPhone for music, only the occasional viewing of video. I love my iPhone as a phone/PDA/internet device and relish the fact that with my iPhone, I don't always have to travel with my MacBook.

[solipsism]

Originally Posted by SpamSandwich

If they move the Classic line into Touch territory and keep the larger HD sizes, this would mitigate any iPhone cannibalization.

As the MBA tests have shown us, but the power usage and page read results between a 1.8" HDD and Flash were close enough that Apple could come out with an iPod Touch with a higher capacity HDD. But Apple tends to look way ahead and may see HDDs are old tech that it doesn't want to bring to OS X iPhone.

[solipsism]

Originally Posted by mistergsf

I'm almost positive that I'm not the only one that prefers to have a separate music device (iPod) in addition to my iPhone.

You're not, but the iPhone cannibalized my iPod w/Video and iPod Nano. I now have an iPhone and an iPod Shuffle. 1GB is more than enough for the gym for me.

[guinness]

I find the touch ui not nearly as efficient as the iPod clickwheel, so I would rather buy an iPod, as for browsing music, I find it much better.

[axc51]

How will the iPhone really cannibalize iPod sales? Yeah it's $199, but last time I checked you'll need to pay AT&T $720 just for the data plan over 2 years, plus whatever their voice plans cost! With the iPod it's a one-time fee, and no hidden subscription costs.

[mistergsf]

But my point is that I use my iPhone as a phone and not as a music and/or video player. I just prefer to have a separate device for that. I have a nano for the gym or when I'm bike riding or running; I have my iPod Video that contains as much of my music and video library that I can put in it for daily commuting and traveling. The bottom line is if I used my iPhone as my iPods I would always be concerned with the battery usage and making sure it was always properly charged. The last thing I need is to be away from home and unable to use my phone because of a low battery.

.

Originally Posted by solipsism

You're not, but the iPhone cannibalized my iPod w/Video and iPod Nano. I now have an iPhone and an iPod Shuffle. 1GB is more than enough for the gym for me.

[Ambrose Bierce]

One should keep in mind, the ipod filled a need...listening to music. period. Hopefully Apple will not forget this. Unlike the iphone, the success of the ipod is its ability to do one thing well. Mass market means selling to non-techies, there are still a lot more of them than you think, and the iphone with it's apps and all has little interest to them.

[solipsism]

Originally Posted by mistergsf

But my point is that I use my iPhone as a phone and not as a music and/or video player.

That is fine. It doesn't mean that everyone, or even a majority, of Apple customers are going to cannibalize their iPod. But you should be aware that this will happen with some that, like me, want to consolidate their iPod and cell phone. You may not use the media aspect of your iPhone, and having Safari on it is certainly a good reason to have it, but many others are.

[SuperMog2002]

Let me get this straight. This analyst thinks he knows how many iPods Apple is going to sell 10 years from now? How? 10 years ago, the iPod didn't exist yet. Computers cost well over a thousand dollars, and a good one ran at a bit over 200 MHz with about 32 MB of RAM. Laptops were second class citizens that couldn't keep up with the big boys. 2 GB hard drives were darn near impossible to fill. Portable CD players with 20+ seconds of skip protection were all the rage. The idea of selling music (much less video) that you downloaded rather than getting it on tape or CD was laughable. After all, nobody had the bandwidth to download that media, nor the disk space to store it. Need I go on?

That was only 10 years ago. What will the industry look like in 2017? We have absolutely no idea! Predicting how many iPods Apple will sell in 2017 just makes no sense. Odds are better than not that MP3 players as we know them today will be long gone, and we'll look back and laugh about the days when we got a measly 160 GB of storage. What will replace them? I couldn't tell you now any more than in 1999 I could you tell you that an Apple manufactured MP3 player would single handidly kill the portable CD player market.

[mistergsf]

Oh, I realize that. Don't get me wrong. It's just that this article refers to "iPod on long road downhill" and I think that is a bit premature. I think convergence is great. I'm glad to have and iPod as well as a camera on my iPhone and really, once in a while I'll listen to some tunes on it while waiting for a call.
And on another note, say the iPhone had a decent camera. I'd still much prefer to have my Canon Powershot in my pocket too. Cheers!

Originally Posted by solipsism

That is fine. It doesn't mean that everyone, or even a majority, of Apple customers are going to cannibalize their iPod. But you should be aware that this will happen with some that, like me, want to consolidate their iPod and cell phone. You may not use the media aspect of your iPhone, and having Safari on it is certainly a good reason to have it, but many others are.

[iDave]

Originally Posted by guinness

I find the touch ui not nearly as efficient as the iPod clickwheel, so I would rather buy an iPod, as for browsing music, I find it much better.

^ What he said!

iTouch and iPhone will work fine for music in a pinch. But for walking, exercising, or in the car, a click wheel iPod is far superior. You can operate it without even looking.

[teckstud]

The iPod will definitely endure because not everybody wants an iPhone with AT&Fee.
Most people do not even listen to music on cellphones, with the exception of the iPhone ,that have that capability. At least here in NYC all you see is iPods everywhere not iPhone - at least not yet. Verizon is huge in New York- the best reception -bar none.

[siaubas]

Originally Posted by SuperMog2002

Let me get this straight. This analyst thinks he knows how many iPods Apple is going to sell 10 years from now? How? 10 years ago, the iPod didn't exist yet. Computers cost well over a thousand dollars, and a good one ran at a bit over 200 MHz with about 32 MB of RAM. Laptops were second class citizens that couldn't keep up with the big boys. 2 GB hard drives were darn near impossible to fill. Portable CD players with 20+ seconds of skip protection were all the rage. The idea of selling music (much less video) that you downloaded rather than getting it on tape or CD was laughable. After all, nobody had the bandwidth to download that media, nor the disk space to store it. Need I go on?

That was only 10 years ago. What will the industry look like in 2017? We have absolutely no idea! Predicting how many iPods Apple will sell in 2017 just makes no sense. Odds are better than not that MP3 players as we know them today will be long gone, and we'll look back and laugh about the days when we got a measly 160 GB of storage. What will replace them? I couldn't tell you now any more than in 1999 I could you tell you that an Apple manufactured MP3 player would single handidly kill the portable CD player market.

I couldn't agree more. This "analyst" is on crack. Ten years from now we could have portable devices built in out heads, or someone else coming out with a phone/mp3 player killer.

[solipsism]

Originally Posted by mistergsf

Oh, I realize that. Don't get me wrong. It's just that this article refers to "iPod on long road downhill" and I think that is a bit premature.

hehe, Yeah. I tend to skim over these articles by pundits that have no knowledge of the tech industry. I am not sure whether they believe their hyperbolic statements or not.

[Ambrose Bierce]

Originally Posted by teckstud

The iPod will definitely endure because not everybody wants an iPhone with AT&Fee.
Most people do not even listen to music on cellphones, with the exception of the iPhone ,that have that capability. At least here in NYC all you see is iPods everywhere not iPhone - at least not yet. Verizon is huge in New York- the best reception -bar none.

I'm waiting for the day when all you need is a touch with voip (skype?)..we will all be a lot better off when Apple gets out of bed with the phone companies. I have to say the ATT deal reeks of greed, Apple has survived by being a maverick company. Maybe those days are gone, but the long-term benefits of playing to its user base instead of big business will pay off. I only hope Apple hasn't forgotten who got them where they are.

[solipsism]

Originally Posted by Ambrose Bierce

I'm waiting for the day when all you need is a touch with voip (skype?)..we will all be a lot better off when Apple gets out of bed with the phone companies. I have to say the ATT deal reeks of greed, Apple has survived by being a maverick company. Maybe those days are gone, but the long-term benefits of playing to its user base instead of big business will pay off. I only hope Apple hasn't forgotten who got them where they are.

The SDK permits VoIP with WiFi. I expect Skype will be ready pretty quickly with an app, though I cant find any information as to whether they are one of the 4000+ developers. But I would imagine so with their PC and Mac development and as it will help sell more units in the EU, where Skype seems to be huge.

[SuperMog2002]

Originally Posted by siaubas

I couldn't agree more. This "analyst" is on crack. Ten years from now we could have portable devices built in out heads, or someone else coming out with a phone/mp3 player killer.

Now that I think about it a bit more, the whole crux of this analyst's argument is the iPhone. Two whole years ago, the iPhone didn't exist yet. What's going to come out the next two years that's going to destroy everyone's predictions?

[Ambrose Bierce]

Originally Posted by SuperMog2002

Now that I think about it a bit more, the whole crux of this analyst's argument is the iPhone. Two whole years ago, the iPhone didn't exist yet. What's going to come out the next two years that's going to destroy everyone's predictions?

I'm still waiting for the Dick Tracy wristband iphone, hell, throw in a speed radar detecter to keep those chippies of my ass!

[solsun]

Originally Posted by aiolos

Well, the problem is now that the iPhone is too cheap, it's definitely gonna cannibalize some iPod sales. Apple seriously needs to bring down the iPod Touch price. No wonder they're giving them away in the back-to-school promo, they need to generate interest in them now that they're basically a stripped down and more expensive iPhone (except for the 32GB model of course, which offers the extra storage the 16GB iPhone doesn't).

iPod Touch = $299

iPhone = $199 + $70 x 24 = $1879

As you can see, If somebody only wants a music player that is touch capable, the iPod touch will cost them significantly less than an iPhone.

[Ambrose Bierce]

Originally Posted by solsun

iPhone = $199 + $70 x 24 = $1879

With all the hype concerning the $199 iphone, I still can't figure out if there is any country where you will be able to buy an unlocked one for this price.

[Ninja_Monkey]

relatively few iPhone owners outside of the US are likely to already own iPods and will thus be exposed to Apple's products for the first time, filling in where the iPod stopped short.

I've read over this sentence a million times and it still doesn't make sense to me.
If you have an iPod are you not more likely to buy an iPhone. Also it sounds as if he is saying, few people outside the US with iPhones have iPods and will therefore be exposed to Apple products for the first time.

These Analyst reports are filled with sentences that Stephen Hawking couldn't make sense of!

[solipsism]

Originally Posted by Ambrose Bierce

With all the hype concerning the $199 iphone, I still can't figure out if there is any country where you will be able to buy an unlocked one for this price.

Not even close for many reasons. The $199 price is a subsidized price, the import taxes and VAT raise the price considerably, and there are already countries listing a much higher price for the unlocked iPhone.

[solsun]

Originally Posted by Ninja_Monkey

I've read over this sentence a million times and it still doesn't make sense to me.
If you have an iPod are you not more likely to buy an iPhone. Also it sounds as if he is saying, few people outside the US with iPhones have iPods and will therefore be exposed to Apple products for the first time.

These Analyst reports are filled with sentences that Stephen Hawking couldn't make sense of!

It sounds like he is saying that with the iPhone launch in 78 countries by year end. The iPhone will make it to places where the iPod is not.. At least, I think thats what he's saying.

[Ambrose Bierce]

Originally Posted by solsun

It sounds like he is saying that with the iPhone launch in 78 countries by year end. The iPhone will make it to places where the iPod is not.. At least, I think thats what he's saying.

Too bad the ipod hasn't covered the globe first. I still believe there are millions of people in the world who would buy an ipod before they would an iPhone.

[solsun]

Originally Posted by Ambrose Bierce

Too bad the ipod hasn't covered the globe first. I still believe there are millions of people in the world who would buy an ipod before they would an iPhone.

In the past year Apple has sold 6 million iPhones and approximately 50 million iPods, so yes, you're absolutely correct. I don't think anyone questions that fact.

[tundraboy]

I am deeply suspicious of any analyst who rolls out the old cannibalization saw about how Company X's product A cannibalizing their own product B is a bad thing. It smacks of off-the-shelf fill-in-the-blanks canned research. I can almost see him going through the standard checklist of research talking points and checking the cannibalization box as he goes along.

Let me go through the routine again: iPhone cannibalizing iPod sales is a good thing for Apple because thatt means it's not RIM or Nokia or Samsung or whoever who is cannibalizing iPod sales. If your products are not cannibalizing each other at all then that means you are leaving a gap in your product line through which your competitor can enter and cannibalize your products.

[ouragan]

"Our previous shipment forecast was unrealistically high," Wolf says.

Now, there's an analyst, i. e. someone not mixing wishful thinking with FACTS.

[davesmall]

Originally Posted by solsun

iPod Touch = $299 iPhone = $199 + $70 x 24 = $1879 As you can see, If somebody only wants a music player that is touch capable, the iPod touch will cost them significantly less than an iPhone.

Don't forget that an iPhone with 16GB of flash memory is priced at $299 not $199. Someone planning to use their new iPhone as a music player replacement will be likely to give Apple that additional $100 premium. The 16 GB model will be a far better iPod substitute than the 8 GB model. It will also have a much higher margin for Apple.

I currently have both an iPhone and a click wheel 5th generation iPod. I'll probably replace both with a 16 GB 3G iPhone.

But I don't see the iPhone as primarily a phone or an MP3 player. For me it is first and foremost a mobile web device. It's a stock quotes machine. It's a real-time traffic map machine. It's a source of news bulletins. It's Google maps (soon to include GPS). It's Gmail. It's a portable WiFi hotspot finder. Voice communications is perhaps the 5th or 6th reason to own one. Music playing maybe 7th or 8th.

I think nearly everyone would rather have an iPhone than an iPod Touch. But that minimum $70 per month AT&T contract is a hard one to swallow. Rather than cannibalize iPhone sales, the iPhone will create a market for the iPod Touch. And it will be a huge market. The iPod Touch is the thing to buy if you're someone who would really like to own an iPhone but really can't afford that AT&T monthly contract. There are going to be lots of customers in that category.

[solipsism]

Originally Posted by solsun

iPod Touch = $299

iPhone = $199 + $70 x 24 = $1879

As you can see, If somebody only wants a music player that is touch capable, the iPod touch will cost them significantly less than an iPhone.

That is all true, but there are several other factors to consider. Most people are already paying for a cell phone that probably does do the internet in any usable fashion and probably hate their current cellphone. I know I have paid any average of $50-60/month for service over the years and that didn't include anything fancy or excessive. Paying an extra $20 over their current iPhone bill for a phoen they like, a consolidation of their iPod and phone into one, the use of the internet, and the (pending) consolidation of a standalone GPS unit. Those may make it a much better choice than an iPod Touch, crappy cellphone with no worthwhile internet access, and a (pending) GPS unit.

[davesmall]

Originally Posted by solipsism

That is all true, but there are several other factors to consider. Most people are already paying for a cell phone that probably does do the internet in any usable fashion and probably hate their current cellphone. I know I have paid any average of $50-60/month for service over the years and that didn't include anything fancy or excessive. Paying an extra $20 over their current iPhone bill for a phoen they like, a consolidation of their iPod and phone into one, the use of the internet, and the (pending) consolidation of a standalone GPS unit. Those may make it a much better choice than an iPod Touch, crappy cellphone with no worthwhile internet access, and a (pending) GPS unit.

I think you are exactly correct. The decision to get an iPhone is pretty much a no-brainer when you are already paying $50-60 per month for a crappy phone.

But what if you are the "dad", have a family of five, and everyone in the family wants their own iPhone. Each person wants one for different reasons. The kids want it mainly for social networking and music playing.

Unless AT&T comes out with an attractive family plan you're unlikely to purchase 5 iPhones with 5 IPhone two year contracts. The kids may be getting an iPod Touch for Xmas.

[iVlad]

And that's when Apple will introduce next killer iProduct.

[solsun]

Originally Posted by solipsism

That is all true, but there are several other factors to consider. Most people are already paying for a cell phone that probably does do the internet in any usable fashion and probably hate their current cellphone. I know I have paid any average of $50-60/month for service over the years and that didn't include anything fancy or excessive. Paying an extra $20 over their current iPhone bill for a phoen they like, a consolidation of their iPod and phone into one, the use of the internet, and the (pending) consolidation of a standalone GPS unit. Those may make it a much better choice than an iPod Touch, crappy cellphone with no worthwhile internet access, and a (pending) GPS unit.

Understood.... My post was simply to explain the difference in price from the person who said the touch is too expensive compared to the iPhone.. If you need phone and internet, by all means get an iPhone.. If you want only an iPod.. The touch is the much cheaper way to go despite the initial lower cost of the iPhone..

Also, the GPS is nice and all, but without text to voice and the ability to speak turn by turn directions, I don't think it will replace the Garmins and Tom-Toms any time soon. The iPhone GPS requires too much user interaction to be used safely (and legally in California) while driving..

[GQB]

Originally Posted by wizard69

Frankly Apple still has an opportunity to blow iPhone 2. If people see it as being way to restrictive with respect to Android platforms Apple will have a lot of catching up to do.


Dave

Its hilarious to see people sing the doom of iPhone because it doesn't fulfill the wishes of every last developer.
For the ones who count (the actual purchasers) there will be more great applications coming at them than they know what to do with. And finding/installing them will be easier than any other platform (and I'll wager that includes Android-based apps.)

Gab by developers on this list reminds me of Washington insider talking heads who think the world stops and ends at the Potomac and don't have a clue what's going on in the rest of the country.

BTW, how is that Apple has to 'catch up' with something that doesn't even exist in the wild yet?

[Charel]

Originally Posted by solipsism

The SDK permits VoIP with WiFi. I expect Skype will be ready pretty quickly with an app, though I cant find any information as to whether they are one of the 4000+ developers. But I would imagine so with their PC and Mac development and as it will help sell more units in the EU, where Skype seems to be huge.

eBay owns Skype, and was even featured in the WWDC's presentation. Expect a Skype application soon, but only if Apple allows it.