I generally agree with your point, but I have to ask: Do your figures and charts above include the iPod TOUCH as well as the iPod Classic, Nano and Shuffle?
I ask because I'm pretty sure that the iPod Touch makes up a huge portion of the iOS-based device revenue, and that Touch sales are through the roof.
Now, if you're talking about the NON-iOS based iPods, I agree 100%, but I'd be very surprised if iPod Touch sales/revenue are becoming "irrelevant", as this article would seem to imply. Just wondering...
Exactly, so in fact if the iPod touch is an iPod the discussion is only about an OS not a product family. iPod lives on and is doing very well!
iPod touch is still important, but classic and nano are definately dieing off. I don't see those much on the L anymore, as most people either have an iPhone or a Touch on them.
I just purchased an ipod classic for the wife and I still have a ipod video 40 gb that I use solely in my car. We also have a red nano, blue mini, black nano iphone 3g and 3gs.
I would still buy a classic for my next to be able to use for my media player in the car for my music collection and video output. I use the iphone for the gym etc but wouldn't want the constant connecting for the car. I think the classic and others still have a market whether it be some people working out, full collection, younger people's first etc.
The iPod has arrived at the point the article describes, for a number of reasons, including that as Apple steadily introduced newer and newer models with new capabilities, the "iPod digital music player" lost its focus.
It became a highly convergent product with many tertiary capabilities not directly related to straightforward digital music playback -- its original and core functionality.
Logic would say that all the neat new capabilities the iPod acquired with the release of each new model, only gave it more variety, capability and enhanced its usefulness, entertainment and value, increasing its demand and thus its sales.
But reality would say that even the coolest of new capabilities that were added to the iPod with each new release, would only make it a less-focused, highly convergent product that detracted from its distinct position in the mind as a straightforward digital music player -- its specialty.
I saw this day coming years ago, when the iPod, whose first incarnation simply stored and played back digital music, added features like PIMs and games.
Color was quickly added.
Any iPod capability that bore no relationship to its core functionality -- digital music playback -- caused the product to lose its tight focus, or in marketing parlance, its "position."
(Search Amazon: authors Trout and Ries.)
It didn't end there. Soon, iPods gained "digital photo album" capabilities, could store and play entire movies, play complex color videogames, and run simple color software apps. An accelerometer was even added!
The iPod's core functionality that made it a success in the first place was being encumbered by ever-more, non-core-functionality features.
Again, all these neat new capabilities gradually added to the iPod with each new release, would seem to enhance product value, increase demand, give the buyer more "bang for the buck," and make the product far more useful and entertaining than a simple iPod that only did digital audio playback. But it didn't. This is a classic example of "less is more."
Counterintuitively, these awesome new capabilities should make consumers think the product is great. The product's demand should increase and thus its sales. But the opposite happened. All this convergence reached a point when it was no longer easy to answer the question, What is an iPod?
In its earlier years, the answer was on the tip of everyone's tongue: it is a device that stores and plays back digital music.
But today, what is an iPod?
The iPod nano has gained so much non-core functionality that it now even serves as a video camera!
The once distinct iPod is now a highly-convergent product with a blurry definition or "position."
I have no idea how well it sells -- it could be a dog -- but probably the only remaining iPod that has retained its focus and only performs its core functionality is the iPod Classic.
Another undeniable reason for the iPod's shrinking success is cannibalization by the iPhone, though the iPhone is more expensive. But if you had never owned an iPod, but bought an iPhone, where the bottom four icons on the main screen include one named "Music," and another named "iTunes," would you be inclined to buy an iPod after your iPhone purchase? I suspect not.
And I don't consider the iPod touch to be a "cannibal" of the iPod line, as it IS an iPod, but maybe it cannibalizes specific iPod models like the nano.
So should Apple kill the iPod? NO!
It can, but some enterprising competitor will swoop in to fill the vacuum left and find the right formula for digital audio players to succeed, and gobble up revenue foregone by Apple. You can count on it. (They'll probably make them limited and focused in functionality, stylish and very inexpensive. They will be Palm Pilots to Apple's Newton.)
FWIW, my humble suggestion is that Apple take the existing iPod nano, which starts at $149, and strip it down to a simple color screen device that only stores and plays back digital audio.
If the nano, with all kinds of capabilities, including video or movie playback (obviously requiring expensive video processing components) was stripped down from its many capabilities, Apple would be able to forego many expensive components that necessitated a starting price of $149.
If the nano, or an iPod of a different name, by eliminating all non-core functionality, could reduce component costs and sell for $79 or less, my prediction is that such a tightly focused, specialized audio playback device would be in demand and would sell. (This may require a price drop in the $59 shuffle, or its elimination altogether.)
There is a gaping hole between the nano and the shuffle, and such a stripped-down product would fill the void and satisfy a certain unaddressed consumer segment.
Apple has alternatives to giving up on the iPod product. Products need constant "reinvention." The iMac started out as, what was perceived at least, a specialized, EASY, "turnkey" Internet computer.
But the iMac has reinvented itself more times than I can count. After its "position" as a specialized, easy Internet computer, the MP3 music explosion happened, and the iMac was repositioned as a way to acquire and burn onto CD, MP3 music files.
As an aside -- as a brilliant example of dexterous marketing/positioning -- with the iMac, Apple, let's call it what it is, "fooled" consumers! Beyond its innovative, unprecedented form factor and eye-catching industrial design, was the same plain old, aging Mac! Yet the iMac was not regarded by consumers as another model added to the Mac line, but as the first entrant in an innovative, entirely new category of computer. The iMac was perceived (inaccurately) as new and innovative by consumers so distracted by its look, they didn't realize it was just a Mac! (And, "The perception is the reality.")
Apple fooled them.
Underneath, the iMac was the same old Mac that consumers rejected the day before the iMac's unveiling!
Had Apple instead added a new model to the "beige" Mac line, a more powerful, faster model with compelling new features at a sharply reduced price, it would have been regarded as just another model in the Mac line -- a line which, at the time -- faced outright rejection and saw poor sales. No amount of enhanced performance, compelling features and low price would have made Yet Another beige Mac succeed. A Mac was a Mac was a Mac. But not the iMac: it was 100% new!
This rare example of brilliant marketing belongs in every marketing textbook for the next hundred years.
(To make it inexpensive, the iMac's specs were less advanced than some existing Mac models at similar price points. As a geek, I would not be susceptible to the Mac's radical ID and would have concentrated on the best specs, and if I bought a new Mac at the time, would probably have bought a faster and more powerful model -- even in beige.)
Continuing, then the iMac reinvented itself with the release of the iPod and iTunes.
Then it reinvented itself when iMovie was released.
Then it reinvented itself when the iLife suite was released, and when iTools-.Mac-MobileMe were created.
And the most recent time it reinvented itself was when powerful, large screen iMacs began to sell to prosumers and creative pros (by accident; Apple didn't market the iMac to this segment, as Apple has always positioned the iMac as a consumer product. The market came to it).
So my advice to Apple is not to interpret the decline in iPod sales too literally. Like the iMac, the iPod could benefit from "reinvention" and proper product positioning. Adaptation to the marketplace is needed, but you must understand the lay of the land, or where the market's at right now.
Rather than discontinuing the iPod in a reactionary fashion, I recommend Apple's people put on their thinking caps and figure out how to reintroduce and reposition the iPod -- even if repositioning means going backward and restoring its tight focus as a dedicated device for the storage and playback of digital audio -- and nothing more.
Hire an outside consulting firm if necessary.
I hate to use this company as an example because of their meteoric rise and devastating crash, but a company you may have heard of named Palm was formed -- staffed mostly by ex-Apple employees from the Newton product development team.
John Sculley (worst-CEO-ever) claimed (but is averse to doing so anymore) direct involvement in the design of the Newton, the first PDA, and yet another Apple first. (Precursors were not full PDAs.)
Sculley should have stuck to marketing. He couldn't control himself as far as packing as many features and as much functionality into the Newton PDA as possible. ("Feature creep.")
The thing wound up with two PCMCIA slots for heaven's sake! Plus infrared! Plus fax capabilities!
Newton was intended to be a complete reinvention of personal computing. (Talk about limited, focused goals.)
Ironically, its CPU was an ARM, the same (though now highly evolved) processor used in Apple's current iOS devices.
The size of the Newton grew from its original size specifications probably because John Sculley packed too many features and capabilities into the machine, requiring more and more components and an increase in the Newton's size. It certainly couldn't fit in your shirt pocket without hearing "Rrrrrrrrrrrrrrrip!" And it fit into your pants pocket much like a VHS cassette would.
This is partly forgivable. Component sizes at the time were not as tiny as the ones the razor thin iPhone now enjoys.
But certainly, the need for ever more components, thanks to John Sculley's ever-increasing feature and functionality demands, negatively impacted its size.
Well, we all know that the feature-laden Newton was a flop, as were PDAs from other companies who licensed Newton OS from Apple.
I have to add that I picked up a Newton for cheap mainly as a collector's item, and found that its handwriting recognition was a learning experience. Through trial and error, I began to know how to write characters in such a way that the Newton was more likely to recognize them. Every time the Newton failed to recognize a character I had written, it was a learning experience.
I actually became proficient at handwriting on the Newton, having learned of its persnickety demands on how you needed to draw characters.
But the Newton's error-plagued handwriting recognition, sometimes turned a word you had handwritten into something that actually made you LOL.
It was even made fun of in a short segment of The Simpsons, when the Bully Kearney wrote on his Newton's To Do list, "Beat up Martin." The Newton blinked and then reproduced Kearney's To Do list item as "Pick up margarine." (He threw it at Martin's head.)
In its latter days, the Newton could even recognize contiguous cursive handwriting.
Anyhoo, back to the Newton's flop and Palm.
Demoralized members of the Newton product development team at Apple, left to form Palm. And their genius was their recognition that "less is more."
So they drastically scaled back the features and vast capabilities of the Newton and produced a physically smaller PDA (originally called the Palm Pilot) that could fit in your shirt pocket (although stick out at the top), and which had a limited set of functions that were optimized.
The smaller Palm Pilot did a few things, but did them well. Though in time, it would prove misleading, Palm experienced a period of meteoric growth and unlike the Newton, Palm PDAs sold like mad.
Huge pressure from all quarters was put on Steve Jobs to introduce an Apple PDA, but his uncanny prescience made him firmly resist. (Once astonishing, his prescience has become so commonplace that it is now met with yawns.)
At one Annual Stockholder Meeting where Steve Jobs held court, he fielded question after question from shareholders either "ordering" Apple to come out with a PDA because of Palm's conspicuous success, or asking for an explanation for why Apple doesn't market its own PDA.
In a rare exception to his downright paranoid secrecy about the internal affairs at Apple, Steve Jobs calmly revealed that Apple had actually designed in-house a complete PDA, but decided not to market it.
He said that when he was in meetings between Pixar and Disney, he noticed almost everyone in attendance was taking notes on one of Palm's PDA models. He said that at subsequent meetings, he noticed fewer people with Palm PDAs in hand, and eventually at these meetings, none.
He predicted the failure of the PDA and predicted that PDAs and wireless phones would eventually converge into one product.
Of course he was precisely correct. PDAs are gone. Just as Steve Jobs predicted, we now have "smartphones" <yawn>.
Palm's misleading raging success was followed by a precipitous failure. Brokerage firms were advising clients to "short" Palm stock, and predicted that its share price would drop to a dollar or less.
When a company has an IPO, and puts up one million shares for sale, and all shares sell, that doesn't mean you can't still buy shares. There are always investors who "short" a stock or bet that it will go down in price. They are legally permitted to "lend" their "short" shares to an investor who wishes to "borrow" them to buy (long).
So a company that has only put up one million shares for sale, might find that total shares held by all investors of their stock are 1.5 million shares!
Well, amazingly, just before White Knight HP pulled Palm out of the fire, there were actually thousands of Palm shares available that weren't even owned! That's how bad it got for Palm.
Palm's failure is almost entirely its own fault. But as a fig leaf I will say the market shifted, and entrenched, experienced wireless phone makers had the resources and completed engineering that could be dropped into a brand new model of phone -- without the need to "reinvent the wheel," but the ability to apply completed engineering to a new phone. So the established players in the wireless phone market could create a new model with a very abbreviated development period. Quick fulfillment of consumer demand was the result.
Having acceded to the smartphone market -- the PDA's Grim Reaper -- Palm tried to compete in the well-established smartphone market with zero experience and zero existing wireless phone engineering.
So unlike the entrenched wireless phone players with prior engineering in hand that allowed for rapid development of new models, Palm had no wireless phone experience and had to start from scratch in developing a smartphone.
Palm had not been aggressive enough on fast-moving adaptations required as any marketplace experiences rapid change. There's the expression, "Adapt or Die." (I think there's even a book by that title.)
But isolating Palm's period of spectacular success, they approached the development of the Palm Pilot with a "less is more" philosophy.
Reduce the variety of things the device could do, but make it do them WELL.
It succeeded where the Newton failed.
I recommend this exact approach to making the iPod successful. Right now, the iPod is a Newton, and (during the time it was successful) a Palm PDA is a limited, specialized digital music storage and playback device.
Apple should not give up on the iPod, it's just long-overdue for a "second act," seeing it was introduced in 2001.
Rather than concluding, "The iPod is failing because it doesn't do enough. We need to develop new models that do even more!" (A 100% wrong approach, and, in fact, responsible for the iPod's decline), Apple should "un-reposition" the iPod and position it the way that made it successful in the first place. Reduce the clutter in its capabilities. "iPod" is starting to stand for a foggy product with no coherent, succinct definition.
As I said, "iPod" once meant "digital music storage and playback device." Now it's hard to say what "iPod" means anymore.
Now, you'd have to add digital photo album, PIM, game machine, TV, video and movie viewer, and now even video camera to the complex definition of "iPod."
So, IMHO, the iPod can rise again if Apple makes a model between the shuffle and the nano that ONLY stores and plays digital music. This will eliminate the need for some of the expensive components that make the nano start out at a price point of $149.
I would like to see $79 or even less. The shuffle would have to be reduced in price or discontinued.
Lastly, I read an article written in the iPod's heyday, reporting anecdotes that the iPod was so successful, that its competitors (say, SanDisk) would run ads for their digital music players and DID succeed in creating demand, but the determined buyers that the ad created, out to buy a digital music player after being motivated by the ad, would buy an iPod!
So the ad worked, except not for the company and the product that was the subject of the ad; it worked for Apple!
So some "virtual iPod ads" from iPod competitors were free ads for Apple and the iPod.
People didn't just want a good digital audio storage and playback device, they wanted an iPod.
defender
P.S. Re: a $79 price point. Yes, that doesn't leave much room for margin, but like razors with replaceable blades or inkjet printers that need new ink cartridges all the time, an iPod with a slim margin wouldn't be the end of the revenue to Apple. Owners, as iPod owners do now, would continuously buy songs off the iTunes Store for the life of the device, providing a steady revenue stream to AAPL -- I mean, Apple, Inc.
what the real point is that even though iPods have gone down in price over the years they account for more money in Q1 2010 than in Q1 2006. Even if the percentage is less the fact is Apple is making so much more money that even at a lower percentage and a lower average selling price the iPod still accounts for more money in 2010 than in 2006...
This guys is right when he talked about accounting and statistics...they are meaningless unless you know the whole picture. They can be manipulated to show whatever you want. Its the first thing you learn in statistics 101..."its all about the questions you ask, or dont ask for that matter."
If by "iPod era" one means Apple's unhealthy reliance on a single device for its well-being, then, yes, the iPod era is over.
When was the last time you heard Apple talk about the iPod outside of annual events? It really is all about the iPhone. Half the time it's all you see here and on MacRumors. It's everyone on Apple sites ever talk about too. Rarely do you see or here about the iPod or any MP3 players these days - not even on Tech sites.
It's all about phones now. While the iPod line continues to sell today, it's no longer Apple's major focus. The iPod + iTunes no longer play. If Apple talks about the iTunes, it's just apps, apps, apps... Aside from the Touch, it really is all about the iPhone.
I hope the iPod Nano doesn't get discontinued as a result of this. I don't really want an iPhone, and I'd rather have a dedicated music player. I like being able to listen to all the music I want on a trip without worrying about draining my phone's battery down and being unable to make calls.
iPod Touch is superfluous. iPad I might get, but for completely different reasons. For just listening to music, the iPod Nano (or classic) is where it's at. You can't beat the interface and form factor.
I think the point here is that the iPod era is over as a major revenue source for Apple, not that the iPod itself is over. It's not as if the iPod will go away and leave the dedicated music player market to the Zune or Creative. It will remain as the overwhelming top choice of consumers like yourself who want a dedicated music player. It's also correct that the progenitor iPod has spawned evolved descendants like the iPhone and iPad. The game changing innovation continues in these devices.
When was the last time you heard Apple talk about the iPod outside of annual events? It really is all about the iPhone. Half the time it's all you see here and on MacRumors. It's everyone on Apple sites ever talk about too. Rarely do you see or here about the iPod or any MP3 players these days - not even on Tech sites.
It's all about phones now. While the iPod line continues to sell today, it's no longer Apple's major focus. The iPod + iTunes no longer play. If Apple talks about the iTunes, it's just apps, apps, apps... Aside from the Touch, it really is all about the iPhone.
And you can add Macs to that ignored list. When was the last time AppleInsider posted an article about Macs? There was a teeny blurb about the new Mini and that's about it. As you say, it's all about iPhones. An old time Apple II and Mac user like me no longer matters either. I don't yet have an iPhone or an iPad yet. I do have a second generation iPod that still holds a charge and works as well as it ever did.
And you can add Macs to that ignored list. When was the last time AppleInsider posted an article about Macs? There was a teeny blurb about the new Mini and that's about it. As you say, it's all about iPhones. An old time Apple II and Mac user like me no longer matters either. I don't yet have an iPhone or an iPad yet. I do have a second generation iPod that still holds a charge and works as well as it ever did.
Well said, you and Zc456.
Another thing is that if you have not bought into the iPhone/iPad ecosystems, or are in any way critical of any aspect of them, you are labeled a troll or Apple hater, even if you have a house full of other Apple products and have had for the last two decades. The iPhone has become a religion on here. They jokingly referred to it as the Jesus phone when it first launched but in all seriousness, that tongue in cheek phrase was so close to the mark it is no longer amusing. The only question in my mind is, is the church of iOS a cult or a religion?
what the real point is that even though iPods have gone down in price over the years they account for more money in Q1 2010 than in Q1 2006. Even if the percentage is less the fact is Apple is making so much more money that even at a lower percentage and a lower average selling price the iPod still accounts for more money in 2010 than in 2006...
This guys is right when he talked about accounting and statistics...they are meaningless unless you know the whole picture. They can be manipulated to show whatever you want. Its the first thing you learn in statistics 101..."its all about the questions you ask, or dont ask for that matter."
Still a good article though
EXCELLENT point about iPod revenue viewed in the context of Apple's HUGE increase in revenues leading up to today. You're right: it's raw dollars vs. percentage of total revenues.
I'm embarrassed I overlooked your point, which now seems obvious.
If Microsoft is still actively selling and developing the piteous Zune, there is no reason for Apple to get out of the iPod market.
If they did, SOMEONE would fill the void left by Apple and it may be Microsoft or a "garage" startup that finds the formula for success and introduces very small, "cool-looking" digital music players (cool like graphics on skateboards), at a nice price point, they'll scoop up the revenues in the dumpster behind a building on One Infinite Loop.
And another poster's point about when was the last time you saw an iPod ad is pertinent as well. I haven't seen a crazy silhouette ad in years!
I read in a recent article that Apple spends far less on advertising than others in its industry. I can't find a justification for this as Apple is sitting on $48 billion in dead presidents.
Ok. I'm having somewhat of difficultly trying to understand how the simplest concepts in this article are so misunderstood. I'll try to outline here in a very basic summary:
Point 1: The iPod, as a percentage of Apple's Total Quarterly REVENUE, is declining. This is indicated by the first chart I post. It shows a consistent decline in terms of a percentage of Apple's total revenue. Notice, that a product can grow 500,000,000% percent and yet it can still be in a decline in terms of overall revenue contribution in terms of percentages. THUS, no one should take a decline in the overall contribution to revenue as being an overall decline in the product. This point has clearly be misconstrued by a lot of people reading this article. Please read very closely.
Point 2: Because the iPod contributes less to overall revenue in terms of percentages, it thus has less of an impact on Apple's overall sales. This is stating the obvious. If Product X accounted for 70% of Company Y's revenue 10 years ago, and today Product X only accounts for 10% of Company Y's revenue, OBVIOUSLY product x has less of an overall impact on revenue.
Point 3: iPods have sales have been more or less flat over the past 4 years. This is indicated by iPod unit sales and iPod revenue. if you would like to see iPod unit sales, I have it posted here. iPod revenue is posted in my article:
Point 4: I demonstrate how, even though iPod revenue has been relatively flat to slightly up over the years, Apple's revenue has exploded due in large part of Macintosh sales and iPhone sales.
Point 5: Point 4 leads to the conclusion that Apple has the ability to innovate in the face of slowing growth. If Apple didn't release the iPhone or iPod touch, trust me, we would see a whole different story with Apple right now.
Conclusion: The conclusion of this article is because the iPod's impact to Apple's top line in terms of a percentage of Apple's overall revenue has been on a constant decline since 2006 headed straight for contributing under 10% of Apple's revenue, that the iPod era of being Apple's main revenue driver is over. The end.
what the real point is that even though iPods have gone down in price over the years they account for more money in Q1 2010 than in Q1 2006. Even if the percentage is less the fact is Apple is making so much more money that even at a lower percentage and a lower average selling price the iPod still accounts for more money in 2010 than in 2006...
This guys is right when he talked about accounting and statistics...they are meaningless unless you know the whole picture. They can be manipulated to show whatever you want. Its the first thing you learn in statistics 101..."its all about the questions you ask, or dont ask for that matter."
Still a good article though
That point isn't lost upon me. In fact, I've posted a chart detailing the iPod's revenue over the past 4 years. I also note in my article:
"Though the iPod is contributing less in terms of percentages, it still makes very hefty contributions in terms of revenue. In fact, while iPod revenue as a percentage of Apple?s overall revenue has been on a constant decline since 2006, the iPod has posted very consistent revenue throughout that period of time."
To the General Message Board:
So I do notice that the iPod is very much a big player. I really hope that people don't take this article to suggest that I think that Apple would stop selling iPods lol. That would be the biggest misconstruction of my article. In fact, I think quite the contrary. The iPod, while not as important as a revenue driver, is still very crucial in converting droves of people to the macintosh environment.
In fact, the iPod touch is maybe one of Apple's most important products as that device is the gateway drug or introduction to Apple's iPhone OS. That OS is now a part of two of Apple's most important product lines - the iPhone and iPad. And evidence suggests that this iPhone OS will power an all encompassing media hub being used in a flat screen TV that Apple is potentially developing.
So while the iPod as a revenue driver by itself isn't so important, the device as a gateway to future revenue streams for Apple is very crucial.
I didn't really chose the title of this article. The title that I have originally posted on my blow reads:
"The End of the iPod Era: How the iPod has become Irrelevant to Apple's Growth"
That title is more appropriate but doesn't leave much to be desired. That's why I think Apple Insider choose the title they did.
Apple is selling more iPods today than all other products combined. Most of them are buried in the value proposition of the devices they are embedded in. I buy an iPhone because I want an iPod too. Without the iPod built in, how well would sales go? They still contribute to revenue. Embedded value is ADDED value. Intel's chips are all embedded in something. They're still counted in the sales value of the products they're embedded in. It's possible to break out a notional sales value for the embedded iPods as part of the selling price of the host device. It may be a notional value but the embedded iPod is real. It should be counted.
Let's say I sell pigs and I make a pile of cash. But gradually people don't want pigs they want bacon sandwiches. So I re-purpose my pigs and fry em up to make sandwiches. Suddenly my combined sales are through the roof. Then I start making pork pies and whaddyaknow, there are queues outside my shops running for 20 blocks. Wow, the missus says. Let's make pork sausages Honey.
I'm making a fortune every second Andy. The pigs aren't selling so well, but I have to keep them going to supply my other products.
I move more pigs than I ever used to. The pig side is growing exponentially.
Apple is selling more iPods today than all other products combined. Most of them are buried in the value proposition of the devices they are embedded in. I buy an iPhone because I want an iPod too. Without the iPod built in, how well would sales go? They still contribute to revenue. Embedded value is ADDED value. Intel's chips are all embedded in something. They're still counted in the sales value of the products they're embedded in. It's possible to break out a notional sales value for the embedded iPods as part of the selling price of the host device. It may be a notional value but the embedded iPod is real. It should be counted.
Let's say I sell pigs and I make a pile of cash. But gradually people don't want pigs they want bacon sandwiches. So I re-purpose my pigs and fry em up to make sandwiches. Suddenly my combined sales are through the roof. Then I start making pork pies and whaddyaknow, there are queues outside my shops running for 20 blocks. Wow, the missus says. Let's make pork sausages Honey.
I'm making a fortune every second Andy. The pigs aren't selling so well, but I have to keep them going to supply my other products.
I move more pigs than I ever used to. The pig side is growing exponentially.
Gotta go. Felling hungry.
Find you can view it that way all you like. But the financial world doesn't view it that way. Its understood that an iPod is built into almost every product they sell. This is just stating the obvious. No one is debating that.
But from a financial perspective, its a completely different device. Apple doesn't report a portion of each of its product lines as iPod revenue. They report iPod revenue as sales of just their iPods i.e. iPod Touch, iPod Classic, iPod Shuffle, iPod Nano. So even Apple views it differently than you do...
They do this because they understand the advantage of showing the financial community that Apple is more than just an iPod maker - something that you're sooooo intent on making it.
You do realize that this view, that all of Apple's products are just iPods, is a major disservice to a multi-demonsional Apple right? You do see this?
Its better to view the company as a company that makes iPods, iPhones, iPads and Macs. In fact, it would have been even better if Apple broke out iPod Touches into some PDA category. That way it shows they make 5 different products. PDAs, Tables, MP3 Players, iPhones and Computers. Yet, the way you would have it is that Apple makes just two products. iPods and Macs.
Again, this article presents evidence. It doesn't make any subjective arguments. It presents clear indisputable evidence that the iPod as a percentage of Apple's revenue is declining. Draw whatever conclusions you want from that.
But I'm willing to bet you that if you asked a 6th grader what they thought if one of a company's product lines posted more or less consistent revenue but made up an increasingly smaller portion of that company's revenue they would arrive at the only obvious conclusion that the company isn't so dependent on that device. And before you say what you're going to say, I know I get it. iPods are all built into all of Apple's devices.
But guess what, MP3 players are built into almost all other smart phones as well. Are they iPods? No they're phones! just because a car plays music, doesn't mean it should be characterized as a music player. It serves a further more important function - transportation. Just as a phone serves the function of communication.
This article makes a very crucial point that nearly everyone here seems to want to ignore. That is, that Apple can innovate and innovate well. That when faced with an impending slowdown in one of its product lines, it has been able to innovate and create new streams of revenue.
This point is very important because from a stock perspective, issues of whether Apple can continue to innovate and drive further growth at its current market capitalization is already cropping up all over the place. This article is intended to be an answer to those bear cases by saying, "hey look, Apple is able to innovate." They were able to make more than just iPods. Apparently Apple supporters don't want to make this argument and instead would rather say, "Hey look, all we can really make is fancier iPods."
I have yet to read any article that suggests the theorized iPod ?halo effect? is no longer in effect.
1.) Revenue traced to the iPod doesn?t end at the cash register. Post-purchase, the iPod serves as a veritable money minting machine for Apple, as the owner regularly buys content from the iTunes Store (for who knows how long a period?).
That's unless the buyer obtains all digital content illegally and spends not one dime on the iTunes Store. Then iPod revenues would end at the store check-out counter.
Apple could do something that would require them to endure heaps of scorn, riots in the streets, the overturning and burning of Steve Jobs? Mercedes, until the backlash peters out (hopefully quickly!).
Apple could embed in digital content bought and paid for on the iTunes Store not DRM per se, but some sort of metadata digital ?receipt,? that prevents illegally obtained content from working on an Apple iPod.
(Although iTunes sells a variety of digital content, I?ll limit it to music files to simplify matters.)
Besides the riots and looting, Apple would also have to accept that they're surrendering sales to any digital music player competitors (are there any left?) whose players would take all comers: MP3, WAV, AIFF, WMA, Ogg Vorbis, FLAC, and any format under the sun. They can use the Amazon, Napster, Rhapsody stores, etc., and iPod owners could not. Stolen digital content used on competitor devices would be the user?s secret.
But Apple has already gone DRM-free. If a person buys a song off iTunes, they can give it to all their friends and family for free.
So, does Apple?s switch to DRM-free songs mean that music files purchased and downloaded from the iTunes Store consist 100% of zeros and ones only used to create the song?
Nope.
In a song purchased on the iTunes Store, besides the data that makes up the song, your email address -- the one you used when you signed up on iTunes -- is embedded in the file.
So share iTunes DRM-free songs with your friends and family all you like, but if you, or any one of them, uploads any to an illegal file-sharing network, those files, with your email address embedded in them, can be traced right back to you, and you could end up in hot water.
Apple would need an actuary (or use two or three and compare their results) to calculate, theoretically, of course, whether Apple would lose money if the iPod/iTunes ecosystem restricted file types accepted by an iPod to those that, although DRM-free, contained a digitally-embedded ?receipt? in them, versus the present situation where the iPod can play (restricting things to songs-only in this discussion) AAC, MP3, AIFF and WAV.
Personally, I would use three or more actuaries to perform their calculated predictions, allowing none of them to communicate with each other, so that each one?s calculated risk/reward outcome would be independent and objective.
If the probability was found to be very high that Apple would make MORE money if iPods would only accept files with embedded digital "receipts" (proving that, even if shared, someone paid for it originally), and Apple understood that they would be surrendering or creating a whole market for digital players without such restrictions which could play most any file type without complaining, Apple should ?try? it. I say ?try? because if the actuaries are all wrong, and the new practice backfires, they should be kicked to the curb, and Apple can always reverse its policy ?like THAT!?
2. If Apple?s iPod margins are slim, and iPod buyers obtain their content in ?other? ways (e.g. illegally), so sales at the iTunes Store to iPod owners drop, the product is still important as a ?touchpoint.?
In recent years, Marketing has been babbling about a newly identified marketing factor termed ?touchpoints.? A touchpoint is any instance when a consumer comes in contact with or is exposed to your brand. Every touchpoint is a reflection on your brand, either negative or positive. It is utterly impossible for a company to identify all touchpoints, and they may be infinite.
But the better practitioners of Marketing go to great lengths to identify as many touchpoints as possible and control all that submit to control. I think it?s safe to say, the vast majority of touchpoints go unidentified or are identified but deemed beyond a company?s control.
Touchpoints can be major or they can seem so insignificant that they are prone to being overlooked.
Apple seems to have identified as many touchpoints as possible and insists on uncompromising quality in everything from ads, to industrial design, to Mac OS X and iOS?s clean and consistent look, to product packaging and the ?unboxing experience, to the look of apple.com and store.apple.com.
A physical Apple Store is a good example of a MAJOR touchpoint. It is also one Apple has strict control over. IMHO, Apple Store sales are less important than Apple Store traffic. Because even people who browse around and play with the products in an Apple Store and leave without buying something have experienced a touchpoint that reflects well on the brand, and is factored into the innumerable components that comprise the perception of a brand in people?s minds.
It would be impossible to track or measure, but I?ll bet visitors to Apple Stores (especially the breathtaking flagship stores like the New York Fifth Avenue Store or the Paris store in the Carrousel du Louvre -- where it was recently reported that on iPad launch day, the line was far longer in front of the Apple Store than the line waiting to view the Mona Lisa -- maybe a sad commentary unless you?re an Apple cultist like I) who leave the Apple Store without making a purchase, later end up buying an Apple product from Best Buy, Radio Shack, an AT&T store or even Apple?s online web storefront. The Apple Store's quality and the satisfaction of experiencing its pleasant atmospherics factored in.
A touchpoint can even be as small as a two-sided card Apple stacks in holders at their physical stores containing product literature and specs and such. As insignificant as this particular touchpoint would seem, Apple should, and does, produce these cards or two-fold brochures with the highest quality and cleanest, greatest-possible, nonpareil graphic design. Like any touchpoint, its quality is a reflection on the brand.
If an Apple Store visitor brings home one of these cards or brochures, they may refer to it from time to time, and -- completely beyond Apple?s control -- may show it to countless others. So, while it may seem trivial, the highest quality should go into creating something as simple as a card or brochure.
If a person who is not particularly bright, finds a card about an Apple product on the floor of a mall, and it has footprints on it and is dirty, wrinkled and mangled, they may pick it up while simultaneously not feel like touching it, and may see this touchpoint, in its present condition, as a poor reflection on the brand.
(A reasonably intelligent person would know that its decrepit condition is incidental and not a negative reflection on the brand. It once looked nice!)
As an example of a possible touchpoint beyond Apple?s control, if someone has a friend who is a slob as well as a geek, who has almost memorized every episode of the original Star Trek TV series, as well as almost every Monty Python skit, and, when not playing Dungeons & Dragons, or Magic: The Gathering, is chained to his Mac and the Internet, and that someone, who has never owned a Mac, joins his slovenly friend in looking something up on the Internet on his Mac, and his Mac is wearing a coat of dust, the screen is filthy and the once white keyboard is virtually black because the slob never rinses off his hands after reading a newspaper, this COULD be a touchpoint that reflects negatively on the brand, and one which Apple has no control over.
But a reasonably intelligent person would correctly conclude that despite the fact that his friend the slob?s Mac is in a disgraceful state, it is not a negative reflection on the brand, but a direct reflection on your friend?s squalid lifestyle -- HA! His touchpoint!)
Industrial Design is a touchpoint, and a particularly powerful one at that. Definitely a touchpoint, if someone browsing in an Apple Store picks up an iPhone 4 or an iPod nano, it is an experience! Your jaw drops as you see how compact, svelte, aesthetically compelling and thin it is. Then they see the screen and UI. Then they scroll! Then they pinch and unpinch!
I don?t own one, but even as a loooooooong-time Mac user, when I played around on a 27? iMac in an independent retail shop that carries Apple?s line, I was in awe! What a hell of a touchpoint! If a Mac and Mac OS X veteran like I was bowled over by the experience, imagine its impact on an average person!
To complete the loop in this voluminous dissertation, the iPod still has compelling industrial design if nothing else, and it stands as an archetype (touchpoint) of the quality of Apple products in general. (When I?m in an Apple Store, I can?t take my eyes off the iPod nanos with their vivid metallic colored sheen. I look away, but then my sweet tooth for eye candy has me staring at them again.)
If Apple derives less revenue and profit from the iPod, and iPod owners are all stealing their content, and iTunes Store sales of content to iPod owners declines, a person?s iPod is still a touchpoint. It?s compactness, thinness and compelling industrial design, and usability reflects well on Apple, and, by extension, all Apple's products.
And an iPod owner isn?t the only one who will every see this touchpoint. Countless other people will see it and can?t help but be taken by its compelling form factor and aesthetics.
So the iPod will serve as a touchpoint to the owner and countless other people who see it.
(I?ve noticed that when someone is wearing headphones and listening to music on a digital music player that is not an iPod, other people don?t ask to see it. But as soon as they hear its an iPod, they say, ?Oh snap! Lemee see that sh*t!?)
And that iPod owner, because of his highly positive experience with the iPod product may, someday, who knows when?, buy a Mac, an iPhone or an iPad.
If the iPod?s representation has shifted a bit as a component of Apple, Inc.?s total revenues and profits, it should be taken in context: a lot of products have been released by Apple since October, 2001.
I don't think the iPod should discontinued nor do I make any such argument. The halo effect is still very much alive and well. The iPod does benefit Apple in a variety of ways, but its not longer Apple #1 source of revenue which happens to be the topic of this article.
yeah, and he'd have to charge the thing every 4 hours if she used it heavily. I honestly tried to use my iPHone as the All-in-One device it's supposed to be. But the user-interface in the car sucks a big one. The battery life is abysmal at best (especially if you're traveling by plane or someplace you can't charge it easily). Just not a practical music device. Heck, i even download TV shows and transfer movies to my ipod classic if i'm on a plane just because the battery on that is so much better. There is an occasion i'll listen to NPR on their App or download a podcast when i've left my ipod in the car, but the iPhone/Touch just doesn't work for music.
4 hours... try turning down the brightness... the only time you would need it more then 30-40% is if it was VERY dark and u needed a light or if there was bad glare... this is what i do not get... people complain about how it gets no battery life, i check brightness settings and its maxed out...
Comments
I generally agree with your point, but I have to ask: Do your figures and charts above include the iPod TOUCH as well as the iPod Classic, Nano and Shuffle?
I ask because I'm pretty sure that the iPod Touch makes up a huge portion of the iOS-based device revenue, and that Touch sales are through the roof.
Now, if you're talking about the NON-iOS based iPods, I agree 100%, but I'd be very surprised if iPod Touch sales/revenue are becoming "irrelevant", as this article would seem to imply. Just wondering...
Exactly, so in fact if the iPod touch is an iPod the discussion is only about an OS not a product family. iPod lives on and is doing very well!
I would still buy a classic for my next to be able to use for my media player in the car for my music collection and video output. I use the iphone for the gym etc but wouldn't want the constant connecting for the car. I think the classic and others still have a market whether it be some people working out, full collection, younger people's first etc.
The iPod has arrived at the point the article describes, for a number of reasons, including that as Apple steadily introduced newer and newer models with new capabilities, the "iPod digital music player" lost its focus.
It became a highly convergent product with many tertiary capabilities not directly related to straightforward digital music playback -- its original and core functionality.
Logic would say that all the neat new capabilities the iPod acquired with the release of each new model, only gave it more variety, capability and enhanced its usefulness, entertainment and value, increasing its demand and thus its sales.
But reality would say that even the coolest of new capabilities that were added to the iPod with each new release, would only make it a less-focused, highly convergent product that detracted from its distinct position in the mind as a straightforward digital music player -- its specialty.
I saw this day coming years ago, when the iPod, whose first incarnation simply stored and played back digital music, added features like PIMs and games.
Color was quickly added.
Any iPod capability that bore no relationship to its core functionality -- digital music playback -- caused the product to lose its tight focus, or in marketing parlance, its "position."
(Search Amazon: authors Trout and Ries.)
It didn't end there. Soon, iPods gained "digital photo album" capabilities, could store and play entire movies, play complex color videogames, and run simple color software apps. An accelerometer was even added!
The iPod's core functionality that made it a success in the first place was being encumbered by ever-more, non-core-functionality features.
Again, all these neat new capabilities gradually added to the iPod with each new release, would seem to enhance product value, increase demand, give the buyer more "bang for the buck," and make the product far more useful and entertaining than a simple iPod that only did digital audio playback. But it didn't. This is a classic example of "less is more."
Counterintuitively, these awesome new capabilities should make consumers think the product is great. The product's demand should increase and thus its sales. But the opposite happened. All this convergence reached a point when it was no longer easy to answer the question, What is an iPod?
In its earlier years, the answer was on the tip of everyone's tongue: it is a device that stores and plays back digital music.
But today, what is an iPod?
The iPod nano has gained so much non-core functionality that it now even serves as a video camera!
The once distinct iPod is now a highly-convergent product with a blurry definition or "position."
I have no idea how well it sells -- it could be a dog -- but probably the only remaining iPod that has retained its focus and only performs its core functionality is the iPod Classic.
Another undeniable reason for the iPod's shrinking success is cannibalization by the iPhone, though the iPhone is more expensive. But if you had never owned an iPod, but bought an iPhone, where the bottom four icons on the main screen include one named "Music," and another named "iTunes," would you be inclined to buy an iPod after your iPhone purchase? I suspect not.
And I don't consider the iPod touch to be a "cannibal" of the iPod line, as it IS an iPod, but maybe it cannibalizes specific iPod models like the nano.
So should Apple kill the iPod? NO!
It can, but some enterprising competitor will swoop in to fill the vacuum left and find the right formula for digital audio players to succeed, and gobble up revenue foregone by Apple. You can count on it. (They'll probably make them limited and focused in functionality, stylish and very inexpensive. They will be Palm Pilots to Apple's Newton.)
FWIW, my humble suggestion is that Apple take the existing iPod nano, which starts at $149, and strip it down to a simple color screen device that only stores and plays back digital audio.
If the nano, with all kinds of capabilities, including video or movie playback (obviously requiring expensive video processing components) was stripped down from its many capabilities, Apple would be able to forego many expensive components that necessitated a starting price of $149.
If the nano, or an iPod of a different name, by eliminating all non-core functionality, could reduce component costs and sell for $79 or less, my prediction is that such a tightly focused, specialized audio playback device would be in demand and would sell. (This may require a price drop in the $59 shuffle, or its elimination altogether.)
There is a gaping hole between the nano and the shuffle, and such a stripped-down product would fill the void and satisfy a certain unaddressed consumer segment.
Apple has alternatives to giving up on the iPod product. Products need constant "reinvention." The iMac started out as, what was perceived at least, a specialized, EASY, "turnkey" Internet computer.
But the iMac has reinvented itself more times than I can count. After its "position" as a specialized, easy Internet computer, the MP3 music explosion happened, and the iMac was repositioned as a way to acquire and burn onto CD, MP3 music files.
As an aside -- as a brilliant example of dexterous marketing/positioning -- with the iMac, Apple, let's call it what it is, "fooled" consumers! Beyond its innovative, unprecedented form factor and eye-catching industrial design, was the same plain old, aging Mac! Yet the iMac was not regarded by consumers as another model added to the Mac line, but as the first entrant in an innovative, entirely new category of computer. The iMac was perceived (inaccurately) as new and innovative by consumers so distracted by its look, they didn't realize it was just a Mac! (And, "The perception is the reality.")
Apple fooled them.
Underneath, the iMac was the same old Mac that consumers rejected the day before the iMac's unveiling!
Had Apple instead added a new model to the "beige" Mac line, a more powerful, faster model with compelling new features at a sharply reduced price, it would have been regarded as just another model in the Mac line -- a line which, at the time -- faced outright rejection and saw poor sales. No amount of enhanced performance, compelling features and low price would have made Yet Another beige Mac succeed. A Mac was a Mac was a Mac. But not the iMac: it was 100% new!
This rare example of brilliant marketing belongs in every marketing textbook for the next hundred years.
(To make it inexpensive, the iMac's specs were less advanced than some existing Mac models at similar price points. As a geek, I would not be susceptible to the Mac's radical ID and would have concentrated on the best specs, and if I bought a new Mac at the time, would probably have bought a faster and more powerful model -- even in beige.)
Continuing, then the iMac reinvented itself with the release of the iPod and iTunes.
Then it reinvented itself when iMovie was released.
Then it reinvented itself when the iLife suite was released, and when iTools-.Mac-MobileMe were created.
And the most recent time it reinvented itself was when powerful, large screen iMacs began to sell to prosumers and creative pros (by accident; Apple didn't market the iMac to this segment, as Apple has always positioned the iMac as a consumer product. The market came to it).
So my advice to Apple is not to interpret the decline in iPod sales too literally. Like the iMac, the iPod could benefit from "reinvention" and proper product positioning. Adaptation to the marketplace is needed, but you must understand the lay of the land, or where the market's at right now.
Rather than discontinuing the iPod in a reactionary fashion, I recommend Apple's people put on their thinking caps and figure out how to reintroduce and reposition the iPod -- even if repositioning means going backward and restoring its tight focus as a dedicated device for the storage and playback of digital audio -- and nothing more.
Hire an outside consulting firm if necessary.
I hate to use this company as an example because of their meteoric rise and devastating crash, but a company you may have heard of named Palm was formed -- staffed mostly by ex-Apple employees from the Newton product development team.
John Sculley (worst-CEO-ever) claimed (but is averse to doing so anymore) direct involvement in the design of the Newton, the first PDA, and yet another Apple first. (Precursors were not full PDAs.)
Sculley should have stuck to marketing. He couldn't control himself as far as packing as many features and as much functionality into the Newton PDA as possible. ("Feature creep.")
The thing wound up with two PCMCIA slots for heaven's sake! Plus infrared! Plus fax capabilities!
Newton was intended to be a complete reinvention of personal computing. (Talk about limited, focused goals.)
Ironically, its CPU was an ARM, the same (though now highly evolved) processor used in Apple's current iOS devices.
The size of the Newton grew from its original size specifications probably because John Sculley packed too many features and capabilities into the machine, requiring more and more components and an increase in the Newton's size. It certainly couldn't fit in your shirt pocket without hearing "Rrrrrrrrrrrrrrrip!" And it fit into your pants pocket much like a VHS cassette would.
This is partly forgivable. Component sizes at the time were not as tiny as the ones the razor thin iPhone now enjoys.
But certainly, the need for ever more components, thanks to John Sculley's ever-increasing feature and functionality demands, negatively impacted its size.
Well, we all know that the feature-laden Newton was a flop, as were PDAs from other companies who licensed Newton OS from Apple.
I have to add that I picked up a Newton for cheap mainly as a collector's item, and found that its handwriting recognition was a learning experience. Through trial and error, I began to know how to write characters in such a way that the Newton was more likely to recognize them. Every time the Newton failed to recognize a character I had written, it was a learning experience.
I actually became proficient at handwriting on the Newton, having learned of its persnickety demands on how you needed to draw characters.
But the Newton's error-plagued handwriting recognition, sometimes turned a word you had handwritten into something that actually made you LOL.
It was even made fun of in a short segment of The Simpsons, when the Bully Kearney wrote on his Newton's To Do list, "Beat up Martin." The Newton blinked and then reproduced Kearney's To Do list item as "Pick up margarine." (He threw it at Martin's head.)
In its latter days, the Newton could even recognize contiguous cursive handwriting.
Anyhoo, back to the Newton's flop and Palm.
Demoralized members of the Newton product development team at Apple, left to form Palm. And their genius was their recognition that "less is more."
So they drastically scaled back the features and vast capabilities of the Newton and produced a physically smaller PDA (originally called the Palm Pilot) that could fit in your shirt pocket (although stick out at the top), and which had a limited set of functions that were optimized.
The smaller Palm Pilot did a few things, but did them well. Though in time, it would prove misleading, Palm experienced a period of meteoric growth and unlike the Newton, Palm PDAs sold like mad.
Huge pressure from all quarters was put on Steve Jobs to introduce an Apple PDA, but his uncanny prescience made him firmly resist. (Once astonishing, his prescience has become so commonplace that it is now met with yawns.)
At one Annual Stockholder Meeting where Steve Jobs held court, he fielded question after question from shareholders either "ordering" Apple to come out with a PDA because of Palm's conspicuous success, or asking for an explanation for why Apple doesn't market its own PDA.
In a rare exception to his downright paranoid secrecy about the internal affairs at Apple, Steve Jobs calmly revealed that Apple had actually designed in-house a complete PDA, but decided not to market it.
He said that when he was in meetings between Pixar and Disney, he noticed almost everyone in attendance was taking notes on one of Palm's PDA models. He said that at subsequent meetings, he noticed fewer people with Palm PDAs in hand, and eventually at these meetings, none.
He predicted the failure of the PDA and predicted that PDAs and wireless phones would eventually converge into one product.
Of course he was precisely correct. PDAs are gone. Just as Steve Jobs predicted, we now have "smartphones" <yawn>.
Palm's misleading raging success was followed by a precipitous failure. Brokerage firms were advising clients to "short" Palm stock, and predicted that its share price would drop to a dollar or less.
When a company has an IPO, and puts up one million shares for sale, and all shares sell, that doesn't mean you can't still buy shares. There are always investors who "short" a stock or bet that it will go down in price. They are legally permitted to "lend" their "short" shares to an investor who wishes to "borrow" them to buy (long).
So a company that has only put up one million shares for sale, might find that total shares held by all investors of their stock are 1.5 million shares!
Well, amazingly, just before White Knight HP pulled Palm out of the fire, there were actually thousands of Palm shares available that weren't even owned! That's how bad it got for Palm.
Palm's failure is almost entirely its own fault. But as a fig leaf I will say the market shifted, and entrenched, experienced wireless phone makers had the resources and completed engineering that could be dropped into a brand new model of phone -- without the need to "reinvent the wheel," but the ability to apply completed engineering to a new phone. So the established players in the wireless phone market could create a new model with a very abbreviated development period. Quick fulfillment of consumer demand was the result.
Having acceded to the smartphone market -- the PDA's Grim Reaper -- Palm tried to compete in the well-established smartphone market with zero experience and zero existing wireless phone engineering.
So unlike the entrenched wireless phone players with prior engineering in hand that allowed for rapid development of new models, Palm had no wireless phone experience and had to start from scratch in developing a smartphone.
Palm had not been aggressive enough on fast-moving adaptations required as any marketplace experiences rapid change. There's the expression, "Adapt or Die." (I think there's even a book by that title.)
But isolating Palm's period of spectacular success, they approached the development of the Palm Pilot with a "less is more" philosophy.
Reduce the variety of things the device could do, but make it do them WELL.
It succeeded where the Newton failed.
I recommend this exact approach to making the iPod successful. Right now, the iPod is a Newton, and (during the time it was successful) a Palm PDA is a limited, specialized digital music storage and playback device.
Apple should not give up on the iPod, it's just long-overdue for a "second act," seeing it was introduced in 2001.
Rather than concluding, "The iPod is failing because it doesn't do enough. We need to develop new models that do even more!" (A 100% wrong approach, and, in fact, responsible for the iPod's decline), Apple should "un-reposition" the iPod and position it the way that made it successful in the first place. Reduce the clutter in its capabilities. "iPod" is starting to stand for a foggy product with no coherent, succinct definition.
As I said, "iPod" once meant "digital music storage and playback device." Now it's hard to say what "iPod" means anymore.
Now, you'd have to add digital photo album, PIM, game machine, TV, video and movie viewer, and now even video camera to the complex definition of "iPod."
So, IMHO, the iPod can rise again if Apple makes a model between the shuffle and the nano that ONLY stores and plays digital music. This will eliminate the need for some of the expensive components that make the nano start out at a price point of $149.
I would like to see $79 or even less. The shuffle would have to be reduced in price or discontinued.
Lastly, I read an article written in the iPod's heyday, reporting anecdotes that the iPod was so successful, that its competitors (say, SanDisk) would run ads for their digital music players and DID succeed in creating demand, but the determined buyers that the ad created, out to buy a digital music player after being motivated by the ad, would buy an iPod!
So the ad worked, except not for the company and the product that was the subject of the ad; it worked for Apple!
So some "virtual iPod ads" from iPod competitors were free ads for Apple and the iPod.
People didn't just want a good digital audio storage and playback device, they wanted an iPod.
defender
P.S. Re: a $79 price point. Yes, that doesn't leave much room for margin, but like razors with replaceable blades or inkjet printers that need new ink cartridges all the time, an iPod with a slim margin wouldn't be the end of the revenue to Apple. Owners, as iPod owners do now, would continuously buy songs off the iTunes Store for the life of the device, providing a steady revenue stream to AAPL -- I mean, Apple, Inc.
A friend asked me if he should get a iPod nano. I told him spend a tiny bit more and get an iPhone 4.
If that is the sort of advice you give to 'friends', I'd hate to see what you suggest to enemies.
A 16 GB Nano costs £134, a 16 GB iPhone 4 costs £599. You call a £465 difference in price tiny?
Nice to know Steve himself posts in these forums.
This guys is right when he talked about accounting and statistics...they are meaningless unless you know the whole picture. They can be manipulated to show whatever you want. Its the first thing you learn in statistics 101..."its all about the questions you ask, or dont ask for that matter."
Still a good article though
If by "iPod era" one means Apple's unhealthy reliance on a single device for its well-being, then, yes, the iPod era is over.
When was the last time you heard Apple talk about the iPod outside of annual events? It really is all about the iPhone. Half the time it's all you see here and on MacRumors. It's everyone on Apple sites ever talk about too. Rarely do you see or here about the iPod or any MP3 players these days - not even on Tech sites.
It's all about phones now. While the iPod line continues to sell today, it's no longer Apple's major focus. The iPod + iTunes no longer play. If Apple talks about the iTunes, it's just apps, apps, apps... Aside from the Touch, it really is all about the iPhone.
I hope the iPod Nano doesn't get discontinued as a result of this. I don't really want an iPhone, and I'd rather have a dedicated music player. I like being able to listen to all the music I want on a trip without worrying about draining my phone's battery down and being unable to make calls.
iPod Touch is superfluous. iPad I might get, but for completely different reasons. For just listening to music, the iPod Nano (or classic) is where it's at. You can't beat the interface and form factor.
I think the point here is that the iPod era is over as a major revenue source for Apple, not that the iPod itself is over. It's not as if the iPod will go away and leave the dedicated music player market to the Zune or Creative. It will remain as the overwhelming top choice of consumers like yourself who want a dedicated music player. It's also correct that the progenitor iPod has spawned evolved descendants like the iPhone and iPad. The game changing innovation continues in these devices.
When was the last time you heard Apple talk about the iPod outside of annual events? It really is all about the iPhone. Half the time it's all you see here and on MacRumors. It's everyone on Apple sites ever talk about too. Rarely do you see or here about the iPod or any MP3 players these days - not even on Tech sites.
It's all about phones now. While the iPod line continues to sell today, it's no longer Apple's major focus. The iPod + iTunes no longer play. If Apple talks about the iTunes, it's just apps, apps, apps... Aside from the Touch, it really is all about the iPhone.
And you can add Macs to that ignored list. When was the last time AppleInsider posted an article about Macs? There was a teeny blurb about the new Mini and that's about it. As you say, it's all about iPhones. An old time Apple II and Mac user like me no longer matters either. I don't yet have an iPhone or an iPad yet. I do have a second generation iPod that still holds a charge and works as well as it ever did.
And you can add Macs to that ignored list. When was the last time AppleInsider posted an article about Macs? There was a teeny blurb about the new Mini and that's about it. As you say, it's all about iPhones. An old time Apple II and Mac user like me no longer matters either. I don't yet have an iPhone or an iPad yet. I do have a second generation iPod that still holds a charge and works as well as it ever did.
Well said, you and Zc456.
Another thing is that if you have not bought into the iPhone/iPad ecosystems, or are in any way critical of any aspect of them, you are labeled a troll or Apple hater, even if you have a house full of other Apple products and have had for the last two decades. The iPhone has become a religion on here. They jokingly referred to it as the Jesus phone when it first launched but in all seriousness, that tongue in cheek phrase was so close to the mark it is no longer amusing. The only question in my mind is, is the church of iOS a cult or a religion?
what the real point is that even though iPods have gone down in price over the years they account for more money in Q1 2010 than in Q1 2006. Even if the percentage is less the fact is Apple is making so much more money that even at a lower percentage and a lower average selling price the iPod still accounts for more money in 2010 than in 2006...
This guys is right when he talked about accounting and statistics...they are meaningless unless you know the whole picture. They can be manipulated to show whatever you want. Its the first thing you learn in statistics 101..."its all about the questions you ask, or dont ask for that matter."
Still a good article though
EXCELLENT point about iPod revenue viewed in the context of Apple's HUGE increase in revenues leading up to today. You're right: it's raw dollars vs. percentage of total revenues.
I'm embarrassed I overlooked your point, which now seems obvious.
If Microsoft is still actively selling and developing the piteous Zune, there is no reason for Apple to get out of the iPod market.
If they did, SOMEONE would fill the void left by Apple and it may be Microsoft or a "garage" startup that finds the formula for success and introduces very small, "cool-looking" digital music players (cool like graphics on skateboards), at a nice price point, they'll scoop up the revenues in the dumpster behind a building on One Infinite Loop.
And another poster's point about when was the last time you saw an iPod ad is pertinent as well. I haven't seen a crazy silhouette ad in years!
I read in a recent article that Apple spends far less on advertising than others in its industry. I can't find a justification for this as Apple is sitting on $48 billion in dead presidents.
defender
Point 1: The iPod, as a percentage of Apple's Total Quarterly REVENUE, is declining. This is indicated by the first chart I post. It shows a consistent decline in terms of a percentage of Apple's total revenue. Notice, that a product can grow 500,000,000% percent and yet it can still be in a decline in terms of overall revenue contribution in terms of percentages. THUS, no one should take a decline in the overall contribution to revenue as being an overall decline in the product. This point has clearly be misconstrued by a lot of people reading this article. Please read very closely.
Point 2: Because the iPod contributes less to overall revenue in terms of percentages, it thus has less of an impact on Apple's overall sales. This is stating the obvious. If Product X accounted for 70% of Company Y's revenue 10 years ago, and today Product X only accounts for 10% of Company Y's revenue, OBVIOUSLY product x has less of an overall impact on revenue.
Point 3: iPods have sales have been more or less flat over the past 4 years. This is indicated by iPod unit sales and iPod revenue. if you would like to see iPod unit sales, I have it posted here. iPod revenue is posted in my article:
http://farm2.static.flickr.com/1381/...47da2e14_b.jpg
Point 4: I demonstrate how, even though iPod revenue has been relatively flat to slightly up over the years, Apple's revenue has exploded due in large part of Macintosh sales and iPhone sales.
Point 5: Point 4 leads to the conclusion that Apple has the ability to innovate in the face of slowing growth. If Apple didn't release the iPhone or iPod touch, trust me, we would see a whole different story with Apple right now.
Conclusion: The conclusion of this article is because the iPod's impact to Apple's top line in terms of a percentage of Apple's overall revenue has been on a constant decline since 2006 headed straight for contributing under 10% of Apple's revenue, that the iPod era of being Apple's main revenue driver is over. The end.
I can't explain this in any simpler terms.
what the real point is that even though iPods have gone down in price over the years they account for more money in Q1 2010 than in Q1 2006. Even if the percentage is less the fact is Apple is making so much more money that even at a lower percentage and a lower average selling price the iPod still accounts for more money in 2010 than in 2006...
This guys is right when he talked about accounting and statistics...they are meaningless unless you know the whole picture. They can be manipulated to show whatever you want. Its the first thing you learn in statistics 101..."its all about the questions you ask, or dont ask for that matter."
Still a good article though
That point isn't lost upon me. In fact, I've posted a chart detailing the iPod's revenue over the past 4 years. I also note in my article:
"Though the iPod is contributing less in terms of percentages, it still makes very hefty contributions in terms of revenue. In fact, while iPod revenue as a percentage of Apple?s overall revenue has been on a constant decline since 2006, the iPod has posted very consistent revenue throughout that period of time."
To the General Message Board:
So I do notice that the iPod is very much a big player. I really hope that people don't take this article to suggest that I think that Apple would stop selling iPods lol. That would be the biggest misconstruction of my article. In fact, I think quite the contrary. The iPod, while not as important as a revenue driver, is still very crucial in converting droves of people to the macintosh environment.
In fact, the iPod touch is maybe one of Apple's most important products as that device is the gateway drug or introduction to Apple's iPhone OS. That OS is now a part of two of Apple's most important product lines - the iPhone and iPad. And evidence suggests that this iPhone OS will power an all encompassing media hub being used in a flat screen TV that Apple is potentially developing.
So while the iPod as a revenue driver by itself isn't so important, the device as a gateway to future revenue streams for Apple is very crucial.
I didn't really chose the title of this article. The title that I have originally posted on my blow reads:
"The End of the iPod Era: How the iPod has become Irrelevant to Apple's Growth"
That title is more appropriate but doesn't leave much to be desired. That's why I think Apple Insider choose the title they did.
Apple is selling more iPods today than all other products combined. Most of them are buried in the value proposition of the devices they are embedded in. I buy an iPhone because I want an iPod too. Without the iPod built in, how well would sales go? They still contribute to revenue. Embedded value is ADDED value. Intel's chips are all embedded in something. They're still counted in the sales value of the products they're embedded in. It's possible to break out a notional sales value for the embedded iPods as part of the selling price of the host device. It may be a notional value but the embedded iPod is real. It should be counted.
Let's say I sell pigs and I make a pile of cash. But gradually people don't want pigs they want bacon sandwiches. So I re-purpose my pigs and fry em up to make sandwiches. Suddenly my combined sales are through the roof. Then I start making pork pies and whaddyaknow, there are queues outside my shops running for 20 blocks. Wow, the missus says. Let's make pork sausages Honey.
I'm making a fortune every second Andy. The pigs aren't selling so well, but I have to keep them going to supply my other products.
I move more pigs than I ever used to. The pig side is growing exponentially.
Gotta go. Felling hungry.
Ok. I'm having somewhat of difficultly trying to understand how the simplest concepts in this article are so misunderstood.
Same here, as I've just read three pages laced with "the iPhone is an iPod" drivel.
You're simply missing the point Andy.
Apple is selling more iPods today than all other products combined. Most of them are buried in the value proposition of the devices they are embedded in. I buy an iPhone because I want an iPod too. Without the iPod built in, how well would sales go? They still contribute to revenue. Embedded value is ADDED value. Intel's chips are all embedded in something. They're still counted in the sales value of the products they're embedded in. It's possible to break out a notional sales value for the embedded iPods as part of the selling price of the host device. It may be a notional value but the embedded iPod is real. It should be counted.
Let's say I sell pigs and I make a pile of cash. But gradually people don't want pigs they want bacon sandwiches. So I re-purpose my pigs and fry em up to make sandwiches. Suddenly my combined sales are through the roof. Then I start making pork pies and whaddyaknow, there are queues outside my shops running for 20 blocks. Wow, the missus says. Let's make pork sausages Honey.
I'm making a fortune every second Andy. The pigs aren't selling so well, but I have to keep them going to supply my other products.
I move more pigs than I ever used to. The pig side is growing exponentially.
Gotta go. Felling hungry.
Find you can view it that way all you like. But the financial world doesn't view it that way. Its understood that an iPod is built into almost every product they sell. This is just stating the obvious. No one is debating that.
But from a financial perspective, its a completely different device. Apple doesn't report a portion of each of its product lines as iPod revenue. They report iPod revenue as sales of just their iPods i.e. iPod Touch, iPod Classic, iPod Shuffle, iPod Nano. So even Apple views it differently than you do...
They do this because they understand the advantage of showing the financial community that Apple is more than just an iPod maker - something that you're sooooo intent on making it.
You do realize that this view, that all of Apple's products are just iPods, is a major disservice to a multi-demonsional Apple right? You do see this?
Its better to view the company as a company that makes iPods, iPhones, iPads and Macs. In fact, it would have been even better if Apple broke out iPod Touches into some PDA category. That way it shows they make 5 different products. PDAs, Tables, MP3 Players, iPhones and Computers. Yet, the way you would have it is that Apple makes just two products. iPods and Macs.
Again, this article presents evidence. It doesn't make any subjective arguments. It presents clear indisputable evidence that the iPod as a percentage of Apple's revenue is declining. Draw whatever conclusions you want from that.
But I'm willing to bet you that if you asked a 6th grader what they thought if one of a company's product lines posted more or less consistent revenue but made up an increasingly smaller portion of that company's revenue they would arrive at the only obvious conclusion that the company isn't so dependent on that device. And before you say what you're going to say, I know I get it. iPods are all built into all of Apple's devices.
But guess what, MP3 players are built into almost all other smart phones as well. Are they iPods? No they're phones! just because a car plays music, doesn't mean it should be characterized as a music player. It serves a further more important function - transportation. Just as a phone serves the function of communication.
This article makes a very crucial point that nearly everyone here seems to want to ignore. That is, that Apple can innovate and innovate well. That when faced with an impending slowdown in one of its product lines, it has been able to innovate and create new streams of revenue.
This point is very important because from a stock perspective, issues of whether Apple can continue to innovate and drive further growth at its current market capitalization is already cropping up all over the place. This article is intended to be an answer to those bear cases by saying, "hey look, Apple is able to innovate." They were able to make more than just iPods. Apparently Apple supporters don't want to make this argument and instead would rather say, "Hey look, all we can really make is fancier iPods."
1.) Revenue traced to the iPod doesn?t end at the cash register. Post-purchase, the iPod serves as a veritable money minting machine for Apple, as the owner regularly buys content from the iTunes Store (for who knows how long a period?).
That's unless the buyer obtains all digital content illegally and spends not one dime on the iTunes Store. Then iPod revenues would end at the store check-out counter.
Apple could do something that would require them to endure heaps of scorn, riots in the streets, the overturning and burning of Steve Jobs? Mercedes, until the backlash peters out (hopefully quickly!).
Apple could embed in digital content bought and paid for on the iTunes Store not DRM per se, but some sort of metadata digital ?receipt,? that prevents illegally obtained content from working on an Apple iPod.
(Although iTunes sells a variety of digital content, I?ll limit it to music files to simplify matters.)
Besides the riots and looting, Apple would also have to accept that they're surrendering sales to any digital music player competitors (are there any left?) whose players would take all comers: MP3, WAV, AIFF, WMA, Ogg Vorbis, FLAC, and any format under the sun. They can use the Amazon, Napster, Rhapsody stores, etc., and iPod owners could not. Stolen digital content used on competitor devices would be the user?s secret.
But Apple has already gone DRM-free. If a person buys a song off iTunes, they can give it to all their friends and family for free.
So, does Apple?s switch to DRM-free songs mean that music files purchased and downloaded from the iTunes Store consist 100% of zeros and ones only used to create the song?
Nope.
In a song purchased on the iTunes Store, besides the data that makes up the song, your email address -- the one you used when you signed up on iTunes -- is embedded in the file.
So share iTunes DRM-free songs with your friends and family all you like, but if you, or any one of them, uploads any to an illegal file-sharing network, those files, with your email address embedded in them, can be traced right back to you, and you could end up in hot water.
Apple would need an actuary (or use two or three and compare their results) to calculate, theoretically, of course, whether Apple would lose money if the iPod/iTunes ecosystem restricted file types accepted by an iPod to those that, although DRM-free, contained a digitally-embedded ?receipt? in them, versus the present situation where the iPod can play (restricting things to songs-only in this discussion) AAC, MP3, AIFF and WAV.
Personally, I would use three or more actuaries to perform their calculated predictions, allowing none of them to communicate with each other, so that each one?s calculated risk/reward outcome would be independent and objective.
If the probability was found to be very high that Apple would make MORE money if iPods would only accept files with embedded digital "receipts" (proving that, even if shared, someone paid for it originally), and Apple understood that they would be surrendering or creating a whole market for digital players without such restrictions which could play most any file type without complaining, Apple should ?try? it. I say ?try? because if the actuaries are all wrong, and the new practice backfires, they should be kicked to the curb, and Apple can always reverse its policy ?like THAT!?
2. If Apple?s iPod margins are slim, and iPod buyers obtain their content in ?other? ways (e.g. illegally), so sales at the iTunes Store to iPod owners drop, the product is still important as a ?touchpoint.?
In recent years, Marketing has been babbling about a newly identified marketing factor termed ?touchpoints.? A touchpoint is any instance when a consumer comes in contact with or is exposed to your brand. Every touchpoint is a reflection on your brand, either negative or positive. It is utterly impossible for a company to identify all touchpoints, and they may be infinite.
But the better practitioners of Marketing go to great lengths to identify as many touchpoints as possible and control all that submit to control. I think it?s safe to say, the vast majority of touchpoints go unidentified or are identified but deemed beyond a company?s control.
Touchpoints can be major or they can seem so insignificant that they are prone to being overlooked.
Apple seems to have identified as many touchpoints as possible and insists on uncompromising quality in everything from ads, to industrial design, to Mac OS X and iOS?s clean and consistent look, to product packaging and the ?unboxing experience, to the look of apple.com and store.apple.com.
A physical Apple Store is a good example of a MAJOR touchpoint. It is also one Apple has strict control over. IMHO, Apple Store sales are less important than Apple Store traffic. Because even people who browse around and play with the products in an Apple Store and leave without buying something have experienced a touchpoint that reflects well on the brand, and is factored into the innumerable components that comprise the perception of a brand in people?s minds.
It would be impossible to track or measure, but I?ll bet visitors to Apple Stores (especially the breathtaking flagship stores like the New York Fifth Avenue Store or the Paris store in the Carrousel du Louvre -- where it was recently reported that on iPad launch day, the line was far longer in front of the Apple Store than the line waiting to view the Mona Lisa -- maybe a sad commentary unless you?re an Apple cultist like I) who leave the Apple Store without making a purchase, later end up buying an Apple product from Best Buy, Radio Shack, an AT&T store or even Apple?s online web storefront. The Apple Store's quality and the satisfaction of experiencing its pleasant atmospherics factored in.
A touchpoint can even be as small as a two-sided card Apple stacks in holders at their physical stores containing product literature and specs and such. As insignificant as this particular touchpoint would seem, Apple should, and does, produce these cards or two-fold brochures with the highest quality and cleanest, greatest-possible, nonpareil graphic design. Like any touchpoint, its quality is a reflection on the brand.
If an Apple Store visitor brings home one of these cards or brochures, they may refer to it from time to time, and -- completely beyond Apple?s control -- may show it to countless others. So, while it may seem trivial, the highest quality should go into creating something as simple as a card or brochure.
If a person who is not particularly bright, finds a card about an Apple product on the floor of a mall, and it has footprints on it and is dirty, wrinkled and mangled, they may pick it up while simultaneously not feel like touching it, and may see this touchpoint, in its present condition, as a poor reflection on the brand.
(A reasonably intelligent person would know that its decrepit condition is incidental and not a negative reflection on the brand. It once looked nice!)
As an example of a possible touchpoint beyond Apple?s control, if someone has a friend who is a slob as well as a geek, who has almost memorized every episode of the original Star Trek TV series, as well as almost every Monty Python skit, and, when not playing Dungeons & Dragons, or Magic: The Gathering, is chained to his Mac and the Internet, and that someone, who has never owned a Mac, joins his slovenly friend in looking something up on the Internet on his Mac, and his Mac is wearing a coat of dust, the screen is filthy and the once white keyboard is virtually black because the slob never rinses off his hands after reading a newspaper, this COULD be a touchpoint that reflects negatively on the brand, and one which Apple has no control over.
But a reasonably intelligent person would correctly conclude that despite the fact that his friend the slob?s Mac is in a disgraceful state, it is not a negative reflection on the brand, but a direct reflection on your friend?s squalid lifestyle -- HA! His touchpoint!)
Industrial Design is a touchpoint, and a particularly powerful one at that. Definitely a touchpoint, if someone browsing in an Apple Store picks up an iPhone 4 or an iPod nano, it is an experience! Your jaw drops as you see how compact, svelte, aesthetically compelling and thin it is. Then they see the screen and UI. Then they scroll! Then they pinch and unpinch!
I don?t own one, but even as a loooooooong-time Mac user, when I played around on a 27? iMac in an independent retail shop that carries Apple?s line, I was in awe! What a hell of a touchpoint! If a Mac and Mac OS X veteran like I was bowled over by the experience, imagine its impact on an average person!
To complete the loop in this voluminous dissertation, the iPod still has compelling industrial design if nothing else, and it stands as an archetype (touchpoint) of the quality of Apple products in general. (When I?m in an Apple Store, I can?t take my eyes off the iPod nanos with their vivid metallic colored sheen. I look away, but then my sweet tooth for eye candy has me staring at them again.)
If Apple derives less revenue and profit from the iPod, and iPod owners are all stealing their content, and iTunes Store sales of content to iPod owners declines, a person?s iPod is still a touchpoint. It?s compactness, thinness and compelling industrial design, and usability reflects well on Apple, and, by extension, all Apple's products.
And an iPod owner isn?t the only one who will every see this touchpoint. Countless other people will see it and can?t help but be taken by its compelling form factor and aesthetics.
So the iPod will serve as a touchpoint to the owner and countless other people who see it.
(I?ve noticed that when someone is wearing headphones and listening to music on a digital music player that is not an iPod, other people don?t ask to see it. But as soon as they hear its an iPod, they say, ?Oh snap! Lemee see that sh*t!?)
And that iPod owner, because of his highly positive experience with the iPod product may, someday, who knows when?, buy a Mac, an iPhone or an iPad.
If the iPod?s representation has shifted a bit as a component of Apple, Inc.?s total revenues and profits, it should be taken in context: a lot of products have been released by Apple since October, 2001.
Abstract: Don?t discontinue the iPod.
defender
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I don't think the iPod should discontinued nor do I make any such argument. The halo effect is still very much alive and well. The iPod does benefit Apple in a variety of ways, but its not longer Apple #1 source of revenue which happens to be the topic of this article.
yeah, and he'd have to charge the thing every 4 hours if she used it heavily. I honestly tried to use my iPHone as the All-in-One device it's supposed to be. But the user-interface in the car sucks a big one. The battery life is abysmal at best (especially if you're traveling by plane or someplace you can't charge it easily). Just not a practical music device. Heck, i even download TV shows and transfer movies to my ipod classic if i'm on a plane just because the battery on that is so much better. There is an occasion i'll listen to NPR on their App or download a podcast when i've left my ipod in the car, but the iPhone/Touch just doesn't work for music.
4 hours... try turning down the brightness... the only time you would need it more then 30-40% is if it was VERY dark and u needed a light or if there was bad glare... this is what i do not get... people complain about how it gets no battery life, i check brightness settings and its maxed out...