Apple to Introduce a Cheaper iPod
Maker Plans Budget Model
In Effort to Fend Off Rivals
And Broaden Its Market
By Nick Wingfield
Staff Reporter of The Wall Street Journal
Apple Computer Inc.'s iPod was the season's must-have holiday gift, despite its daunting price tag. Now, just weeks after pricey versions of the sleek portable music player were flying off the shelves, Apple is expected to roll out a significantly cheaper version.
Apple is expected Tuesday to introduce a new iPod that costs much less than its current $299 entry-level model, according to people familiar with the matter. (The top-of-the line 40-gigabyte iPod holds 10,000 songs and costs an eye-popping $499.) Analysts believe Apple could price the new iPod as low as $200. While that's more than the $100 figure that has circulated on Apple rumor Web sites in recent weeks, it's still a sharp enough markdown that Apple hopes will attract a much larger audience of music and gadget lovers.
Apple's move is expected to put pressure on a new crop of rivals to trim their prices.
Apple declined to comment on any new products it may be introducing this week, expected to be announced at the Macworld conference in San Francisco.
Introduced in October 2001, the iPod was the first digital music player to combine huge song storage capacity in a style that hipsters could feel proud about clipping to their belt buckles. The gadget featured a navigation wheel that is regarded as one of the most-efficient ways to comb through a large number of songs.
Apple has previously said it has sold more than 1.4 million of the devices, which have become icons of cool among everyone from traditional gadget-heads to music heavyweights. In the video for his hit song "P.I.M.P.," hip-hop star 50 Cent is seen scrolling around the song collection on his white iPod. A slew of slick iPod cases and accessories are available from companies trying to ride the craze.
The first iPod cost $399 and had a PC-like hard-drive with five gigabytes of storage -- enough to hold upward of 1,000 CD-quality songs downloaded from a user's computer. Apple has subsequently crammed more and more storage into the iPod -- the $299 10-gigabyte version stores upward of 2,500 songs.
The iPod was a huge hit this recent holiday season, driven in part by a major advertising campaign, featuring songs from the bands Black Eyed Peas and Jet. Amazon.com Inc. and other retailers periodically sold out of their stock of iPods in the Christmas shopping frenzy. Charlie Wolf, an analyst at brokerage firm Needham & Co., estimates Apple sold 450,000 to 600,000 iPods during the holiday quarter.
"It was right up there with the most popular products this holiday season," says David Weisman, senior director of home merchandising at Crutchfield Corp., a retailer that ran out of its iPod stock at different times during the holidays.
Needham's Mr. Wolf says the underlying components of the iPod, mainly its hard drive, have dropped enough in price that Apple could profitably charge customers $200 for a low-end device with enough space for 1,000 songs, but they likely couldn't slash the price to $100.
The reason, he says, is Apple could potentially steal some market share from the low end of the digital-player market, which is studded with cheap devices that can't hold as many songs in part because they use a different storage technology than Apple. One such device, the Nomad Muvo, costs a mere $63.20 on Buy.com, but stores only about 12 songs -- less than a CD's worth.
Pricing low is risky for Apple, which has made the iPod the linchpin of a broader foray into the music business. Apple also sells downloadable songs for 99 cents each through its iTunes Music Store, but the company has said it makes little profit off the site. Apple Chief Executive Officer Steve Jobs has said he views the music site as a way to sell more iPods. A $200 iPod would likely offer profit margins in the "single-digits or low double-digits" compared with profit margins ranging from 20% to 45% for its higher-end models, says Mr. Wolf.
Apple is also beginning to face tougher competition from big companies in the class of high-capacity music players that it currently leads. Dell Inc. last year started selling a $249 music player with 15 gigabytes of storage, or space for about 3,745 songs. That's cheaper than Apple's lowest-priced iPod and more storage capacity. SonyCorp. and Hewlett-Packard Co. are expected to introduce devices that are more competitive with the iPod. Some competitors are emphasizing features like long battery life for their products. IPod has come under criticism from some users for batteries that don't last long enough.
Apple has a long history of introducing ground-breaking products that are eventually duplicated by competitors. The company's Macintosh computers were the first popular machines to sport user-friendly graphical interfaces, but Microsoft Corp. ended up far surpassing the Mac market with Windows. Some analysts predict the same fate could befall the iPod.
For now though, none of Apple's rivals has created portable players with the coolness quotient of the iPod. It's hard to imagine other electronics devices inspiring the fan sites that have cropped up in homage to the iPod. One site, iPodlounge.com, features one of the more curious tributes to the device -- a section called "iPods Around the World" consisting of tourist-like snapshots of the devices in front of everything from the ruins at Machu Picchu, Peru, to Kuwait. The site has close to 2,000 photos, submitted by iPod users.
Write to Nick Wingfield at email@example.com