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Can iPod remain top dog?

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By Dennis Lloyd

Publisher, iLounge
Published: Wednesday, May 5, 2004
News Categories: iPod

“Apple has sold more than 3 million of its sleek iPods, taking nearly 50 percent of the market for digital music players, and its iTunes online music store claims 70 percent of all songs bought online. [...]

‘Apple’s pretty far ahead,” said Stephen Baker, an analyst at market research firm NPD Group. “Up until iTunes, the music industry had struggled with what the business model for online music would be.’ [...]

‘How many people need $400 music players?’ Baker said, predicting that Apple will need to look at iPod’s cost relative to competitors before much longer. Since Apple can still sell just about every iPod it makes, it would be ‘ridiculous to cut prices now,’ he said.

‘But I would argue that in the next 12 months, with increased competition, that would change,’ Bajarin said.”

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Comments

1

They actually attempt to compare the iPod wiht a 32mb flash player as competition. WTF? It’s like pricing a Huffy bike next to a Porsche…

Posted by WTF? on May 5, 2004 at 6:13 AM (PDT)

2

Predicting the demise of the iPod is like those who predict the end of the world. We know it’ll happen eventually, nothing stays on top forever—but really, who cares? Who the hell is Stephen Baker and why should I care what he is telling me—just let me enjoy my iPod.

- narco

Posted by narco in Burbank on May 5, 2004 at 7:00 AM (PDT)

3

I’m with you both, narco and WTF?): the iPod created it’s own (high-end mp3 player) niche category.

My fear, however, is that Apple will follow the pricing strategy with the iPod that they have historically with their computer products. 

Apple maintains a pricing floor for each product line, rarely lowering the floor, but rather adding to the feature set to drive sales.

Apple, IMO, needs a $100-150 iPod to satisfy users who don’t need more than, say, 500 songs or file storage from their mp3 player.  This price-point would both satisfy a certain level of demand, but it would also introduce new customers to Apple-quality, which would in time convert into more expensive iPod sales.

As a shareholder, and a 20-year customer, of Apple’s, I don’t think there’s any pattern in the past that suggests that Apple will go this route.  Despite this, I would encourage Apple to find a way to manufacture a profitable $100-150 1gb iPod.  I think it would push Apple to the next mp3 plateau.

Posted by matthew on May 5, 2004 at 7:12 AM (PDT)

4

Apple doesn’t need to stoop to a lower market. What you’re suggesting it does is follow the marketing strategy of M$. While that was very effective, it doesn’t have any sustaining power. Think about what happened to VHS.

Apple products are a luxury and they will remain that way. Is this bad? No. I don’t see Porsche making any economy cars just to market to the poor college student. Does that make them any less successful?

Apple doesn’t need to enter the cheap consumer market in order to survive. Their best survival is more likely in the luxury business. It obviously hasn’t dented their market share yet and there are plenty of flash players on the market.

I challenge any company to make a player that will compete with the iPod. I think the world could use more Ferarris and Lamborghinis instead of just Porsches. But I don’t see that happening soon. The only closest rivals are Dell and Archos…and they SUCK!

Posted by Wolf on May 5, 2004 at 8:56 AM (PDT)

5

Wolf,

you bring up some good points.  To clarify, I’m not suggesting a $150 iPod is necessary in order for Apple to survive.

There might be a market (read demand) for a luxury mp3 player in the 250-500 song category with Apple’s legendary design and quality*.  Although I’m entirely sure Apple has considered it, the fact that they haven’t “done it” yet supports your view.

I would add, however, in the Q3 conference call, SJ did answer a question about the then rumored $99 iPod by saying that he’d love to sell one at that price, it was just a matter of being able to make a profit at that price point.

Posted by matthew on May 5, 2004 at 9:28 AM (PDT)

6

The reason that Apple hasn’t made a $150 player is because the market hasn’t dictated it yet. 

At $250 the iPod mini truly is the best deal out there.  But, when another company comes out with a comparable device at $100-150, Apple will have to deal with that by cutting their prices, introducing an economy iPod, or by losing market share.

If they cut the price now, they would just cannibalize their own sales and profits.

Posted by BigSid in Los Angeles on May 5, 2004 at 9:41 AM (PDT)

7

“At $250 the iPod mini truly is the best deal out there.”

I think the 20Gb Archos at $100 is the best deal out there.

Posted by Value on May 5, 2004 at 11:02 AM (PDT)

8

Value-

Sounds like a good deal.  Which Archos model are you speaking of?

For a balnce of physical size, capacity and price… the mini was the best for me.

If you’re not gonna be on the move with the player, I think the Dell is a good deal.  I think the Creative is a good deal.  The 15gb iPod is a great device, but not what I would call a deal in comparison.

Just my thoughts.

Posted by BigSid in Los Angeles on May 5, 2004 at 11:27 AM (PDT)

9

I still think what I payed for my 40 GB iPod was a really good deal, I payed full price at Best Buy.

Posted by iPod40GB on May 5, 2004 at 11:58 AM (PDT)

10

Cheap Ugly Archos

Posted by Cheap Ass MP3 Players on May 5, 2004 at 12:39 PM (PDT)

11

you “payed” too much iPod40GB. never pay full price for anything.

Posted by Jaguares in Bay Area, Ca on May 5, 2004 at 5:33 PM (PDT)

12

Indeed, Apple’s strategy in every market it has entered (or in this case, created) has been to attract customers through innovation, which carries a certain amount of risk. The iPod represents an extremely successful example of how this approach can be lucrative. Apple customers, like BMW customers, understand that quality and innovation carry a certain price tag that they are willing to pay.
On the other hand, more mainstream companies like Dell, Sony, and, to a certain extent, Microsoft, enter markets in which technologies have already been established and tested in the market. They are profitable because their products are cheaper to produce and, as a result, have lower price tags. Thus, they enjoy higher market share.
The question is whether Apple would be profitable if it were to adopt a similar producation/output model. Apple has already established itself as a luxury brand, which carries a certain amount of loyalty from its customers. My guess is if it were to offer a $100 MP3 player, Apple would have to make a lot of sacrifices in terms of quality, which might dilute brand loyalty. For instance, if BMW were to offer a $20,000 minivan, its brand image and customer base would suffer.

Matthew - is my assessment off? I have only taken a few economic courses, so my knowledge is limited.

Posted by Matt on May 7, 2004 at 1:37 AM (PDT)

13

“mainstream companies like Dell, Sony, and, to a certain extent, Microsoft, enter markets in which technologies have already been established and tested in the market.”

How was Sony’s introduction of the PS then the PS2 both “established and tested”? Or the MD? Or the Viao? As far as I can see, they took a big gamble.

Even MS has been known to innovate on occasion.

I do think you are correct about Dell though, they rarely innovate on product but they do innovate on process and logistics, and in the end their focus on this has let them grow to several hundred times the size of Apple.

Finally, Apple entered a market for large capacity mp3 players that had been tested by earlier products from Creative, Archos, and Compaq, for several years before the iPod’s introduction. And if you go further back, non hard disk-based mp3 players have been sold since 1996.

Posted by Apples and Oranges on May 7, 2004 at 6:09 AM (PDT)

14

1. Apple makes the best portable music player.

2. Apple has developed the best online music store.

3. Apple offers the best jukebox software available.

These 3 areas compliment each other to make owning an iPod the best portable music experience possible.  For somebody to try to take the iPod’s spot at the top, they would have to be able to compete in all THREE categories.

So say a company develops some brand new high end MP3 player for $100 less than Apple…it still won’t be as good as an iPod since it has to go through a 3rd party program for organizing and downloading.

Apple is years ahead of anybody when it comes to developing in these three areas.  They should be on top for awhile.

Posted by Ryan on May 7, 2004 at 10:36 AM (PDT)

15

#1 is debatable, #2 is true for now, but #3 is patently false. iTunes is far from the best jukebox software available.

Posted by Questionable on May 7, 2004 at 12:07 PM (PDT)

16

Apples and Oranges - I don’t think we can equate the market for small capacity, flash drive MP3 players with the newer hard disk, large capacity MP3 player market. I think you are saying that Apple didn’t invent the hard disk MP3 players, which I stated, but I would disagree: its succussful combining of the iPod with iTunes software and the iTunes Music Store really defined it as the leading player, in my opinion. Now we will start seeing imitators enter the market.

As far as Sony, they continue to innovate (and have a history of doing so, i.e. the successful Walkman and the unsuccessful MD), but in a little bit different sense than Apple. Sony’s business model isn’t dependent on innovation. It occasionally makes forays into undefined markets, but the majority of its success has occured in markets already established. We see this with, say, flat screen TVs, which Sony didn’t start selling until a few years after competitors already had done so. Sony customers demand and expect quality, not innovation. The PS PS2 is another example - the video console market had been around for 6 years prior to PS’s entrance, and the Playstation was successful not because of technological innovation, but because it had the largest selection of games.

The interesting thing about Apple is that both MS and various PC (and now, music device) producers rely on the company’s innovative focus to define certain markets.

Posted by Matthew on May 7, 2004 at 12:07 PM (PDT)

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