October 20, 2006 4:00 AM PDT

iPod at 5: The little gadget that could

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The Macintosh may be the soul of Apple Computer, but the iPod is its wallet.

Five years ago, the Silicon Valley icon reported quarterly revenues of $1.45 billion, down 22 percent. Profits were cut in half, and some wondered if Apple would forever suffer at the hands of low-cost PC competitors like Dell.

Apple fans needn't have fretted, because six days later on Oct. 23, 2001, Apple unveiled the iPod, and its fortunes along with those of the music industry dramatically changed.

Spin forward five years. The company said Wednesday that it shipped 8.7 million iPods during its fourth fiscal quarter, which ended Sept. 30. In fact, Apple's $1.6 billion from iPod sales in the quarter was more than it generated as an entire company back in October 2001. Those iPod sales were also 35 percent more than the same period last year and a lot more than cautious financial analysts were expecting.

It's hard to overstate the impact of the iPod on the computer, consumer electronics and music industries since it was introduced in 2001. The iPod, arguably, is the first "crossover" product from a computer company that genuinely caught on with music and video buffs. It's shown how a computer can be an integral part of a home entertainment system, and it's led pop stars from U2's Bono to Madonna to trade quips with Apple's own rock star, CEO Steve Jobs.

iPod through the years

Today, Jobs--a Walt Disney board member thanks to the media giant's acquisition of his other company, Pixar--is arguably one of the most influential personalities in entertainment. Imagine that, a computer executive is today lumped with entertainment titans like Steven Spielberg and David Geffen.

So how did a little gadget have such a big impact? The combination of the hardware and the iTunes software and music store gave people an easy way to obtain digital music. It assured the music industry that legal music downloading could work, and gave rise to a seemingly endless parade of iPod accessories and add-ons. Now Apple is expanding into video, with popular television shows and movies available through iTunes for watching on a computer or a video iPod.

related coverage
The iPod roundup
A five-candle overview of one of the most famous--and successful--gadgets in consumer-electronics history.

"It's so intricately tied to an ease-of-use model for acquiring and accessing content, but also being able to play it and distribute it among other devices," said Tim Bajarin, an analyst with Creative Strategies. Apple declined to make executives available to look back on the company's progress or to shed light on its future ambitions.

Can any company loosen Apple's hold on digital music now?

Never say never, according to analysts, but any potential iPod killer has an uphill climb. Apple, which some estimate has a 70 percent share of the U.S. digital music player market, has been able to design strong products while also coming up with savvy marketing, quality control and ample distribution, said Shaw Wu, an analyst with American Technology Research.

News.com Poll

When did you buy your first iPod?

Way back in 2001, when it was the next new thing.
In 2004, when the photo version debuted.
In 2005, when Apple went flash with the Shuffle.
Video, baby. That's what I was waiting for.
I went a non-Apple route (Zen, Sansa, Walkman...)
I'm still waiting for Zune.



View results

To date, no other company has been able to come up with a competing model. The few players from other manufacturers like SanDisk, Creative, Sony and others competing for the rest of the music player pie have to depend on software from Microsoft or Real Networks to manage their music collections, and none of those combinations has proven as popular as the iTunes-iPod juggernaut. Sony and Microsoft are two companies that have the resources and connections to match Apple's efforts, but they haven't put out products that have resonated with consumers.

Apple could face a competitive threat if cell phones ever take off as a platform for digital music, said Samir Bhavnani, an analyst with Current Analysis. The company has taken tentative steps toward the cell phone market in partnership with Motorola on the Rokr phones, but those designs have not caught fire with consumers. Instead, Apple is widely believed to be designing its own phone that would allow users to listen to music in between calls or text messages.

But the technology, of course, is only one part of the iPod story. Simply put, Apple invigorated the portable music player market and made it safe for hipsters to once again walk around with headphones, Wu said.

CONTINUED: Creating an icon…
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22 comments

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no Q4 coverage from CNET?
No surprise to me since CNet seems to cover only negative APPL
news :P
Posted by BobBobBobBobBobBobBob (49 comments )
Reply Link Flag
Apple earnings coverage
We did this story on Wednesday, when Apple released its earnings.

<a class="jive-link-external" href="http://news.cbsi.com/Apple+results+beat+the+Street/2100-1047_3-6127255.html" target="_newWindow">http://news.cbsi.com/Apple+results+beat+the+Street/2100-1047_3-6127255.html</a>

There's a link to that story in the third paragraph, by the way.
Posted by Tom Krazit (436 comments )
Link Flag
8.4 million sold in 3 months!
Can anyways say Apple ?

almost 10 million units sold in only 3 months, how can Microsoft beat that ?

I don't see how.
Posted by rmiecznik (224 comments )
Reply Link Flag
Easy. M$ will make all Windows installs require a Zune purchase
They'll just tweak the code once again to force
<a class="jive-link-external" href="http://www.teckmagazine.com/reviews/software-reviews/roxio-easy-media-creator-9-review.html" target="_newWindow">http://www.teckmagazine.com/reviews/software-reviews/roxio-easy-media-creator-9-review.html</a>
every Vista user to purchase a Zune before they are allowed to see their OS desktop.
Strongarm tactics the M$ way!
Posted by cnutsucks (25 comments )
Link Flag
10 million units sold
<a class="jive-link-external" href="http://www.analogstereo.com/apple_ipod_commercial.htm" target="_newWindow">http://www.analogstereo.com/apple_ipod_commercial.htm</a>
Posted by Ipod Apple (152 comments )
Link Flag
70% Share - Will Fall In The Future
With increasing competition from a variety of sources, iPod's market share will slowly decline.
Posted by john55440 (1020 comments )
Reply Link Flag
John has spoken
Thanks for the detailed analysis.
Posted by DemiHampster (29 comments )
Link Flag
And you're going to die...
No really, someday we all will. Oh yea, sorry, that is SO OBVIOUS!
LOL
Posted by robot999 (109 comments )
Link Flag
That's what they said about Microsoft Word...
...and as much as I would wish it otherwise, Word is still the 800lb gorilla of apps. The difference with the iPod, of course, is that the majority of DLP users chose the iPod freely. When a given product reaches critical mass, it takes tremendous effort for a competing product to chip away at its market share. Much as I love the iPod/iTunes combo, I wouldn't mind seeing Zune get a little market traction, if for no other reason than to keep Apple from growing complacent. Wouldn't touch Zune with a bargepole myself, though. ;-)
Posted by amateriat (4 comments )
Link Flag
Not any time soon -- 70% is here for some time.
With their installed base, superior system (itunes + iPod) and
new offerings in 2007, this 70% is not going ANYWHERE anytime
soon.
Posted by dansterpower (2511 comments )
Link Flag
99 cents per song - is genius business
I buy from myself!!!
Posted by www.SMicFromHome.com (7 comments )
Reply Link Flag
Are You Blind?
You see what you want to see, and not much else. Open thine eyes!
Posted by Mister Winky (301 comments )
Reply Link Flag
Response to BobBobBob, etc.
:)
Posted by Mister Winky (301 comments )
Link Flag
2006's Zune == 1990's Windows 3.0 ?
History:

From 1985-1990, Macintosh dominated the GUI computing
market.

In 1990, the release of Windows 3.0 started eating into it.

In 1995, five years later, the release of Windows 95 finished off
the Macintosh's former dominance, and in subsequent years all
but wiped it from the map.


Present:

From 2001-2006, iPod dominated the large capacity portable
music player market

In 2006, Microsoft released the Zune.

Future:

In 2011, will history have repeated itself?


The differences, if they matter, are that this time Apple has Steve
Jobs in command, whereas Microsoft has all but lost its genius in
the form of Bill Gates, who has instead directed his attention to
donating money to improve the health of 3rd world countries.
Microsoft employees like to think they are a match for Apple's,
however.


Please note:

not being a troll here, I'm a happy iPod owner since a 1G (2001)
model and currently have a 60GB 5G (2005) iPod plus a 4GB
(2005) nano.

I was thinking (for a short while) about buying a Zune, but spent
my Christmas money on a Sony Reader instead.
Posted by dotmike (154 comments )
Reply Link Flag
Sorry Different Market / times
Microsoft got its monopoly status largely to them dominating the business market. It's easy to see people (many first time computer users) wanting the same computer they use at the business for home. Easy to see consumers wanting the same PC at home for compatibility reasons. Also lets not forget the illegal (mob) tactics of pressuring the OEM's to use only Microsoft software!

Today, Microsoft is an old dinosaur in the PC market. A market that is not the same as the consumer electronics market. The CE market is a fast moving, fast changing market. It's not just Apple and Microsoft at play here like the PC side. And they can not run the same illegal tactics they did on the PC side.
Posted by daveworld (123 comments )
Link Flag
Not This Time.
Microsoft will get a small share of the media player market
within 5 years. But this time, Apple will maintain the lead. The
base, the system and new stuff coming out in 2007 will Ice this
for sure.
Posted by dansterpower (2511 comments )
Link Flag
Congratulations! :)
Congratulations Apple iPod!

It's still the best MP3 player on the market IMHO and I think it will continue to be so after Microsoft's Zune is released.

Long live the Apple iPod! :)
Posted by Ryo Hazuki (378 comments )
Reply Link Flag
A GOOD five years!
Can't say that I'm blissful about much that has happened in the world during the last five years. Who would have thought 'terrorism' would be a word one read or heard every day? But, I purchased my first iPod a week after the original release and have owned each generation of full-size iPod prior to the recent 80 GB release. Overall, I've been a satisfied user. It is amazing to have gone from stares and people asking 'What is that?' to the current iPod Nation.

The funniest thing I saw regarding this article was the poll result saying there are actually iPodless people "waiting for the Zune."
Posted by J.G. (837 comments )
Reply Link Flag
Ah, Great Days to Be a Producer using Apple Gear.
Bravo Apple!

These are great days to be a 30 year User of Apple Hardware,
Software and Utilities to Produce the Creative Work that makes
me and my family our living. Excellent Operating System.
Hardware that works. Fantastic Production and Programming
Software.

I've still got my PC's with Windows here and there in our studio,
but if you ask me what I use -- and I can use anything I want as
a top producer and owner -- I choose the Mac with OSX. Rock
Solid Production and Programming System.

Hat's Off! Bravo Apple.

DJO
Posted by dansterpower (2511 comments )
Reply Link Flag
It doesn't always pay to be first...
Diamond Multimedia (Rio), Nike, Philips were out in front with MP3 players in 1998/1999, but they fumbled the football. Kudos to Apple for recognizing an opportunity and build a great product for a market that was hungry for a better solution.
Posted by hlwilson3 (1 comment )
Reply Link Flag
 

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