Is the iPod Touch cannibalizing iPhone sales?
It looks like the iPod's still got a bit of life left. It may no longer be the main driver of innovation at Apple, but the company sold 22.7 million iPods during its fiscal first quarter. That's up 3 percent from the same period last year, although a much slower rate of growth than in previous years. Still, it's growth nonetheless. Not only did Apple beat expectations but the results reported Wednesday also marked an all-time quarterly sales record for its iconic MP3 player.
Meanwhile, iPhone sales actually fell from the previous quarter, from 6.9 million to 4.4 million, coming in slightly shy of Wall Street's consensus expectations of 5 million. That's a definite reversal of the "hockey stick" sales trend we saw beginning last quarter.
What's going on here? My theory is that the iPod Touch is cannibalizing some potential iPhone sales. Plenty of users are satisfied with their current cell phone provider, but have read reviews indicting AT&T's cellular network. I've found this to be true in my own case--AT&T's 3G network has spotty coverage around Seattle, and my iPhone drops calls more frequently than my last phone, a RAZR from Verizon, although it's not as bad as the phone I had with T-Mobile until 2006. (I literally threw that one into a garbage can at the hospital, when I couldn't use it to call my family about the birth of my daughter.)
But most of the best things about the iPhone--the touch screen, the App Store, the music interface--are available on the iPod Touch, plus you get full Web access and e-mail when you're within range of an open Wi-Fi network. Better yet, you get more capacity for your music--I'm constantly having to delete apps and albums from my 8GB iPhone, but a 32GB iPod Touch would be enough for my entire digital music collection. Except the darn thing would have cost $200 more than my iPhone.
Actually, scratch that--once you add in the cost of the required AT&T data plan, any iPhone is far more expensive than the $399 32GB iPod Touch.
I reckon a lot of potential iPhone buyers are doing the same calculations and buying an iPod Touch instead. If so, offering a $99 iPhone--as I'm willing to bet Apple will do before the end of 2009--probably won't help sales all that much. Rather, Apple might have to consider changing from AT&T to another partner carrier--Verizon seems to be the least-bad of the big U.S. cellular networks, based on anecdotes I hear from its customers.
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Matt Rosoff is an analyst with Directions on Microsoft, where he covers Microsoft's consumer products and corporate news. He's written about the technology industry since 1995, and reviewed the first Rio MP3 player for CNET.com in 1998. He is a member of the CNET Blog Network. Disclosure. You can follow Matt on Twitter @mattrosoff. 
I think the Touch is appealing on its own merits. I don't think many consumers are deciding to get it in spite of the iPhone, I think many of the iPod Touch owners would buy it regardless of if the iPhone was around. It's a great little Internet device and the app store is icing on the cake (but it lacks the really good apps due to lack of GPS/3G etc.)
$499 (July 2008) for the 32Gb Touch. One time purchase.
+$299 (July 2009) for the 16Gb iPhone
+$40 a month for a minimum of 24 months, $960 total
$1259 For the iPhone.
That's $700 over two years more than I would pay for the Touch. I already have a cell phone so... yeah.
Now that all said, if there was a cheaper data plan combo out there, I'd love to go with a iPhone or Palm Pre. I love the Apple hardware, but hate AT&T's pricing. I simply cannot afford at $80-100 montly cell phone bill as a result of having a voice and data plan after taxes. It's bad enough that my $39 voice only plan costs more than $60 after taxes now.
That way, you can compare "iPhone" vs. "your cell + iPod touch."
My wife has the iPhone. I wish AT&T would do something like a "family data plan" for the iPhone. I'd get one for myself and my daughter - but there's no way we're paying $90/month just for data! If they charged $30/month for the first iPhone and $10/additional data plan (like what they're doing with Voice!), I'd be hooked...well, maybe if they also allowed tethering without yet another charge.
But that's a pipe dream - AT&T's probably already overburdening their poor 3G network (thus the rumored lowering of Edge service quality to give 3G better performance). They can't handle new customers sucking up bandwidth.
Hey Matt. If 32GB would hold all of your music then you are not much of a music fan, I have over 80GB :)
We have 16GB iPhones and for sure we would like more capacity. However, we move playlists off and on as we want.
Your suggestion that Apple might have to consider another partner doesn't make sense. From what I understand, Apple agreed to a 5-year iPhone exclusivity agreement with AT&T. They'll have to wait 2-3 more years before they can sell the iPhone to other carriers.
I would point out that about 2/3 of iPhone sales are out of the US.
It might be more, people being hesitant to buy a smart phone in this troubled global economy.
But ahh, found an article with solid figures. Actually says half not 1/3, I didn't account for many of them still being in inventory.
http://www.appleinsider.com/articles/08/10/31/half_of_apples_iphone_3gs_sold_internationally.html
I understand and sometimes long for the chance to have an MID (Mobile Internet Device) and my phone all in one. But for now its not so bad. If I forget one I still have the other for contacts and such. I don't find it hard to carry both my LG Chocolate and my iPod touch. (Please never call it the iTouch as so many do. Its really annoying.)
I had a Touch and was anticipating getting an iPhone when it was introduced into New Zealand but the total cost of over NZ$6000 for phone plus (cheapest and really rather inadequate) data plan had me settle for the Touch. If I hadn't already owned the Touch and been in an either or purchase situation I would definitely have bought the Touch. Vodaphone NZ is seriously costing Apple iPhone sales with its outright greed in relation to the iPhone...
I went to 5 stores looking for an iPod touch and only found it at one store which I got the last one. ( I was looking for the 8gb by the way)
In Australia you can get the iPhone on many well known telcos so the coverage argument is not very valid here.
I think people don't want to spend more on a phone when they are happy with the one they have.
They however like the features of the iPhone so they get the iPod touch.
I'm guessing that in the end, the iPod Touch is probably more profitable per-device than the iPhone.
- The margin on the iPod Touch hardware itself is probably higher than on the iPhone (I couldn't find any references to the unsubsidized price of an iPhone, so I could be wrong here).
- There aren't a particularly large amount of apps in the App Store that require actual telephony, so I would guess App Store revenues are about the same.
- Surely the iPhone is costing significantly more in terms of marketing, support, and staffing overhead.
The un-quantifiable is the value of the PR associated with high iPhone sales vs high iPod sales.
For AT&T, most of that comes out of your monthly contract, they pay Apple for the iPhone in a lump sum. It doesn't cost $200 it costs a lot more than that, that's just AT&T charging what they think customers can bare, up front.
Other carriers charge differently, Optus here in Australia, $0 upfront and it comes all out of your monthly bill.
If iPod Touch sales were cannibalizing iPhone sales, then the Average Sale Price of iPods would go UP. Not down. That's because the iPod Touch costs MORE than any other iPod.
Q4/08 (Sept quarter) iPod ASP was $150.20. Q1/09 (Dec quarter) iPod ASP was $148.33. That means that as a percent of iPods sold during the December quarter, Apple sold fewer iPod Touches than they did during the September quarter. That's probably because the consumer didn't have the Christmas budget they had last year. Oh look, they didn't. December economic activity was lower this year than last. They couldn't afford an iPod Touch, or an iPhone, but they bought an Apple product nevertheless (record number of iPods sold in this a "depressed" Christmas season).
Shlock reporting like this, where simple math revealed the error of your preexisting bias, is why I, and others, think of you as a Microsoft *****. That or you're just stupid. Which is it?
Interestingly, the latest Truphone app almost makes the Touch a Iphone (VOIP - where it can pick up WiFi).
Also Iphone can hardly 'boast' it's shocking camera. Additionally, the lack of voice activated calling (handset to ear) makes the Iphone 'phone' functionality pretty poor too.
So for me the jury is out - It's horses for courses.
The iPod Touch really shouldn't be categorized as an iPod because it is so much more than that. It's the iPhone for people who can't afford the AT&T contract. Everyone in the family wants an iPhone but mom and dad don't want to pay AT&T for multiple contracts.
The iPod could cannibalize some iPhone sales but it can also stimulate more iphone sales in the long run. Someone who already hss a cell phone contract with another carrier and an iPod Touch will be tempted to upgrade to an iPhone when that other cell phone contract runs out. The iPod Touch is a wonderful device but it's big limitation is the lack of wide area connectivity enabling you to use it anywhere. You must find a WiFi hot spot and that can be a pain for someone who moves around a lot.
AT&T will feel pressure from customes, prospective customers, competitors, Apple to reduce prices for data plans. They now that there is a lot of price elasticity in this market. If they were to cut the monthly rates in half they might triple or quadruple their business.
I don't have Cable or satellite TV either. Is it because I can't afford cable or satellite? No, it's because I get 8 HD channels free over the air where I live, and I don't watch much TV anyway. I could use the money I would have spent on TV to juice up my internet a bit, or maybe add it to my social spending budget, or add it to my savings so I can retire more comfortably some day.
If people were more careful about their spending, even when they can afford it, the world wouldn't be in the mess it's in.
Eliminating unnecessary cellphone bills is part of my overall strategy to not leave any personal debt to my children.
Look at all the devices I don't need with it, iPod, GPS, netbook, calculator and camera.
It should do well in a recession considering that...
I think the main issue is really AT&T though, they're really expensive compared to iPhone plans here in Australia, can get iPhone here for $0 upfront and $40usd a month.
AT&T is really milking the device I think it's slowing sales especially in this economic climate.
Might be a consequence of lack of competition, iPhone is on 4 carriers in australia.
Basically, my decision to not get the iPhone has nothing to do with the touch, it has everything to do with Rogers service plans.
If I could get a decent flat-rate data plan combined with a pay-as-you-go talk plan, I'd be all over it. I just don't use talk services enough to pay more than $15 a month. But data... I'd absolutely use data.
This was just one of many dumb comments made in the article. I'm too lazy to list the others.
- by fondy January 23, 2009 4:29 AM PST
- I got an iPhone in July. When it comes to listening to music, I think I prefer the conventional iPods. I was surprised to find that the iPhone has a lot more going for it than just mobile Internet. Indeed, AT&T's data network is pretty disappointing for the price.
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Showing 1 of 2 pages (44 Comments)This Christmas, my wife wanted an iPod Touch(32). I tried to convince her to get an iPhone but three things made her go with the Touch: storage capacity, no 3G coverage and too many dead zones.