A bridge to the future of the iPod
What does Apple CEO Steve Jobs have in mind for the next generation of iPods?
(Credit: Ina Fried/CNET News.com)More than six years into the iPod era, Apple still stands atop the music player landscape. But what comes next?
Apple is at a crossroads in the evolution of the product that arguably saved its bacon. Without the iPod fueling Apple's profits and investments, we probably wouldn't have spent the past year talking about Apple's surging Mac business or its game-changing iPhone.
After years of double-digit gains, iPod growth has finally trailed off. The market is arguably saturated: do you know anyone who wants to take their music on the go who hasn't bought an MP3 player? But at the same time, the iPod is undergoing a bit of a revolution: it's morphing from a simple music player to a full-fledged computer.
Apple has sent clear signals that it thinks the iPod Touch and the iPhone are the future of its iPod business. It considers the Wi-Fi-enabled iPod Touch "a new type of device," Greg Joswiak, Apple's vice president of worldwide iPod and iPhone marketing, said when Apple unveiled a higher capacity iPod Touch in February.
But that doesn't mean the whole world is ready to step up to a more sophisticated device like the iPod Touch: lots of people just want to play their tunes and watch their shows on the go, and don't want to break the bank to do so. While Apple is taking sure steps toward evolving the upper echelon of its iPod product line, what should it do to keep its iPod cash cow going into the next decade?
Look to the clouds. IaaS (iPod as a service) will thankfully never catch on as a buzzword, but Apple could bridge the gap between today and the future by bundling regular iPods with services, adding wireless as fast as possible, and bringing OS X down into a new generation of iPods as soon as Moore's Law lets it happen.
Coming back to earth
At some point last year, iPod growth began to slow. Year-over-year unit growth dropped from 50 percent during the 2006 holiday season to just 5 percent growth during the 2007 holiday season. But revenue growth remained steady, at 18 percent during the 2006 holiday season and 17 percent during the same period in 2007.
That suggests that people are making the jump from older iPods to newer models, a trend backed up by our recent iPod survey. The iPod Classic (defined as any generation of video-playing iPod) is the day-to-day music player for 31 percent of respondents. Fifty-two percent of all respondents have owned one or two iPods, and 34 percent bought their first model in 2003 or 2004.
But 60 percent of same respondents indicated that the iPod Touch would be their next iPod purchase. And 68 percent said given their choice of possible music player/cell phone combinations, they most want the iPhone. This kind of "trading up" to the starting price of $299 for an 8GB iPod Touch--or the $499 32GB model--helps Apple offset the slow growth of the basic iPod models with stronger revenue and profits from the iPod Touch while it adds a whole new source of cash with the iPhone.
Both the iPod Touch and the iPhone are much more than just music and video players: they can get online, send e-mail, and will soon be able to run a host of officially sanctioned games and applications.
As chips continue to get smaller, more powerful, and cheaper, it stands to reason that Apple could beef up the other versions of the iPod, the Shuffle and the Nano, with additional capabilities and features. Certainly, it will be able to keep increasing the amount of storage available on each device, the single largest request of MP3 player shoppers who responded to our poll. Wi-Fi capability was the second-most desired trait in a future iPod.
The iPod Touch may be the Next Big Thing for Apple's iPod business, but it won't be the only iPod of the future.
(Credit: CNET Networks)At some point, the MP3 player market looks like it will diverge into at least three businesses: a low-end commodity business cranking out tiny standalone audio and video players for very specific tastes, the high-end portable computing business, and some third category that packs as many computing features of the iPod Touch that can fit, at the time, within $50 of a $199 price band.
This three-headed monster appears some ways off. At the moment, there doesn't appear to be any competitor making meaningful gains at Apple's expense, even in the low-end market. That suggests people are still buying their MP3 players based on design, brand identity, and the need for more storage.
If that changes, however, Apple probably doesn't want to spend a lot of effort on a low-margin commodity business. The iPod brand is easily the strongest in the portable music player world, but as the low-end of the market spreads out into countless niches (think USB drives), Apple would have no real advantage over other consumer electronics companies that know how to crank out widgets in huge volumes.
Also, basic mobile phones are growing more and more capable of handling simple music playback, said Ross Rubin, an analyst with The NPD Group. And at some point, the ability of manufacturers to add more and more capacity will outpace the growth of the average individual's personal music library, he said.
The iPhone and the iPod Touch are the kind of innovative high-margin products that Apple likes to have. In a crowded marketplace, you need to find some way to differentiate yourself, and Apple has traditionally focused on making high-end products with great design that are easy to use.
At your service
Something is going to have to fit in between the commoditized MP3 players you might find one day in Walgreens or 7-Eleven and the iPod Touch. As Apple waits for the advances in chip technology needed to bring larger screens, more capacity, and wireless capabilities into power-constrained devices, it can start offering services to increase the attractiveness of lower-priced iPods, Rubin said.
Just a combined 13 percent of our survey respondents said they are considering an iPod Shuffle or an iPod Nano for their next iPod purchase. It's great for Apple that so many people want the iPod Touch, but that's leaving an awful lot of people on the sidelines who want a music player but can't justify spending $299. One thing the company could do is finally drop its long-standing opposition to a subscription model and start selling iPods in conjunction with such a service, Rubin said.
Apple has long maintained that people want to buy music, rather than rent it. However, that might not always be the case, as people are starting to get used to the idea of "cloud computing," where much of your data is stored by a third party.
And as more and more people buy iPods for video as well as music, such a subscription service makes more sense. Apple is now offering TV and movie rentals through iTunes, and could extend some sort of similar packaging to music if the demand was there. I think most of us have made enough hasty music purchases, only to grow sick of that song or album after a week, to consider a try-before-you-buy type of service from Apple.
Apple has a bit of a luxury in this area that it doesn't have in the Mac or iPhone market, in that it enjoys a dominant position from which to make its next move. The company seems to be in a similar position to when it introduced the iPod Nano, killing off its most popular product in the process. It had a killer design with the Nano, but had to make the tough decision to abandon its best-selling product.
Now, with the iPod Touch and the iPhone, Apple has a set of very compelling products that threaten its best-selling category. When recently asked if the iPod Touch would cannibalize iPhone sales, Apple COO Tim Cook said he'd rather Apple cannibalize Apple than someone else.
More capable mobile phones might take the less-profitable low-end, but Apple needs to make sure it keeps the meaty part to itself. Service-oriented iPods mixed with handheld computers might be the best way the keep the iPod gravy train going.
Tom Krazit writes about the ever-expanding world of Internet search, including Google, Yahoo, online advertising, and portals, as well as the evolution of mobile computing. He has written about traditional PC companies, chip manufacturers, and mobile computers, spending the last three years covering Apple. E-mail Tom. 
Nice analysis as usual. I'd argue a few points or contribute a few
of my own.
* Perhaps it was the iMac that save Apple's bacon. The iPod
came after the company had been restored to profitability and
moved off every analysts deathwatch. The iPod played a different
role, driving Apple's incredible growth and branding/design
initiatives.
* I think services are absolutely key. But it doesn't have to be a
service that originates with the device itself. You can rent movies
that you can play on your iPod from both iTunes and the Apple
TV. Services need only originate within and pollenate Apple's
closed iTunes ecosystem for them to add consumer value.
* Subscription music is a likely end game. Jobs was right that
people want to own music, but that is changing. And if the
model allows both with Apple's ease of use, then they'll really
have nailed it. They need wireless broadband to become more
ubiquitous, and you'll then stream anything, but require
purchase to listen off net.
* We've only scratched the surface of services. Even the
upcoming iTunes App Store is a service for which Apple will take
a percentage.
* You didn't hint at creating iPods designed specifically for more
narrow niches. How about a Nike+ model that integrates the
receiver instead of that being a plugin? Or another the
incorporates the FM transmitter directly into the device? I see
these niche-oriented versions of the iPod being easy to produce
and providing a means for Apple to really target sub-segments
of the market it already dominates, and potentially gain traction
among users who don't already use them.
Cheers.
Patrick
I will like to see something that the Zune (yes they exist and I saw one in Best Buy, Fl.) has done very well; the ability to sync using the WiFi. I will like to see the current and next generation of iPod Touch / iPhone sync a Podcast using the WiFi without the need of iTunes, pretty much like the Apple TV does today.
This is about 2 things - convergence of technology and applications at the device end and convergence of products at the portfolio end. It can no longer look to add momentum into the IPOD line. It already has done it through the 'touch'. Remember the Touch will get better and cheaper as technology gets better and cheaper. This is simple Moores Law.
Apple is now being forced by its own success with the IPOD, and technology pressures caused through convergence, to 'IPODize' something else in the consumer electronics space.
Assuming their strategy for IPODizing is: strong brand, 'must have' evangelisation, backed with a near-walled garden service behind it a la itunes, we can be sure Apple is looking to augment its portfolio with:
Innovation in the mobile phone space for sure.
Televisions connected to a V.O.D service.
Gaming consoles connected to a G.O.D service.
Anything else where a product needs a service. Perhaps even an IFridge.
I am a bit of a laggard with electronics but i am already using my Iphone as a music player whilst my Ipod sits at home inserted in a speaker system. I'll never buy another ipod regardless of 'services'.
I did a quick poll of every iPod owner in our shop, and exactly
ZERO of them thought they subscribe to ANY kind of service.
Not a one of us wanted a subscription based music store, and
the few had bought into "Plays For Sure" before buying their
'Pods pointed out just "why" they'd never go back to one again.
PS
Log into iTunes, then read the comments posted for any movie
that's available as a rental only, with no option to buy.
People are SCREAMING to buy, and the "rental only" model is
causing a lot of frustration.
Ipod Touch is a different category.
Next 2:
->Low-end iPhone Nano without Wifi.
->Subcription based or Cheaper AppleTV.
touch, or an iPhone. They can't, and won't be dismissed. I
prefer my shuffle because it is so small, and compact it makes it
possible to use it everywhere, hands free. This is in direct
contrast to an iPhone, iTouch, or even a nano. The only way
they could make a shuffle better, is to make the shuffle into a
headset.
The nano, is a bridge between the abilities of the shuffle, and
providing visual information like an iTouch. It's small,
affordable, and again, no hard-drive, providing a portability
advantage.
The iTouch is the precursor to a new computer. Pretty simple
really, but it's funny how people have to view things before they
accept them. The iPhone is a computer, the iTouch is a
computer, both minus certain abilities, and their focus is on
either its a "phone", or if it plays "music and video". Maybe
these limited views are based in current design limitations.
When 250gb+ flash drives are available, and fuel cell batteries,
those limitations will evaporate into nothingness.
In the end, an iPod will remain as it is (unless its abandoned by
Apple), but its name will continue to be used to introduce new
products.
the past couple of years?
Apple clearly opposes the idea of renting music. They have
clearly stated that video is different than music. What part of that
did you not hear/understand? My gosh some times I think
people must be paid by Microsoft to keep spreading the FUD!
And just as Microsoft abandons a whole group of Plays-4-Sure
people, this astroturfing chestnut is brought up again?
Here's a clue: Apple is doing better than fine. They are not about
to collapse if the iPod doesn't go subscription. They sell way too
many! Just because the numbers don't increase as dramatically
as in the past means nothing - except that they would literally
(and I'm using literally in it's literal sense for all you folks who
don't know how to use the word) run out of people to sell them
to in a few more years if the numbers didn't stop.
Apple said it didn't think that people wanted a handheld device with multiple functions. Now, it has an iPhone and an iPod Touch, and is betting the company on those devices.
Apple said it didn't want to release a sub-$800 Mac. Then it shipped the Mac mini.
Just because Apple has said it opposes the idea of renting music doesn't mean Apple will never offer a music rental service. Times, and tastes change. They were obviously correct to avoid a subscription service in the early days of digital music sales, but that doesn't necessarily mean that people will always want to buy their music, and never want to rent music.
razr and ipod 5G together even when i have no need for the ipod
(examples of which are during a party, when i go out with my wife,
etc). i use the iPod, on such occasions, as my PDA so i can sift
through my address book and calendar app whenever the need
arises. i used to have a palm phone/PDA, but i don't like the way
my mac and the palm sync data - it was a hit-or-miss affair.
i would have bought the iPhone since i am already on at&t but i
don't want to extend my contract anymore. and, say i did buy the
current generation iphone and extend my contract, what can i do if
i like the next generation iphone? will buying the new iphone
extend my contract some more? will i be locked for more than 4
years with at&t? i think that will be a very scary scenario.
i'm sure Apple would like people to buy as much iphones as they
can - i, for example, own a 5G ipod and a shuffle, and my wife has
a 2G ipod nano - but having a locked iphone is really a deal-
breaker for me. i'd rather that the iphone is unlocked and i'll just
add the data plan myself, if i choose to.
i'm holding of from buying the Touch because i really would want to
carry just one device. i might buy it, though, if apple still insists on
locking the iphone, but only when my current ipods conk out.
- One to kill them all
- by Rick Cavaretti May 6, 2008 3:24 PM PDT
- OK, so I borrowed and bent that phrase from one of the LOTR
- Like this Reply to this comment
-
(13 Comments)movies. Like it or not (I don't), devices like the iTouch and
iPhone will eventually evolve into 'all in one devices.' You've
seen the reports before, it's going to happen. Chips will get
faster, smaller and less energy hungry. Handheld devices will
become your computer, voice communication, video
communication, music library, video library, literature library,
GPS, stun gun (why not?), personal 'battery operated' device
(want to bet me on this one?) and a bunch of others you can't
even conceive of. Can't wait until it all becomes an implant. Cue
the Bionic Man tune.....