The Death of the iPod

Since its introduction, people have been prophesizing the death of the iPod. They saw the Ipod as just another Apple creation that would end up like the Mac. When the Macintosh was introduced, it was by far the most innovative and successful product on the market and sold very well. It had a graphical display and mouse that were far easier to use than the IBM machines available at the time. However, Apple never partnered with other companies, hoping to build the hardware and operating system itself. Eventually a consortium of companies succeeded in building a “best of breed” product that exceeded the abilities of the Mac at a cheaper price. IBM (then Compaq and then Dell) built the hardware, Intel built many of the chips, and Microsoft built the Operating System.

It’s easy to believe that that Apple will always behave like it did in the Macintosh days and will always end up with the same results. John J. Sviokla wrote an interesting piece in Fast Company called In Praise of Ecosystems that summarized this argument well. On a personal level I think of it this way. If I buy a lot of music from Apple today, will I be able to play it on my portable audio device in five years. If history is a guide, Apple will make it very hard for me to do that. Therefore, I would rather not buy Apple protected music today, but that’s just me. However we may be in the minority. While I think that it might not be the best idea to trust Apple to let me play my music in the future (even though in theory I could burn to CD or create an MP3), Apple has already sold 500 million songs.

I predict that one of the following scenarios will take place:

A better ecosystem will evolve. In this case, as stated above, Apple will lose its lead and get pushed out of the market by the other companies.

Portable media devices will eventually converge. I feel that this is almost a guarantee. At some point people are going to get sick of carrying around their iPods and their PalmPilots and their cells and demand one device. Also, the cost of each of these devices, or to be more accurate “capabilities” will drop far enough to make such a device very affordable.

While Apple has been a creating brand loyalty for the iPod, it is unclear how long this will last in the face of decreasing prices. Once your telephone can play gigabytes of music, would you still really want to have an iPod? You might think that Apple’s brand loyalty would keep people linked to their iPods; however, I predict that the future of the iPod will be very similar to the current situation of TiVo. When TiVo was created many people fell in love with it and fell in love with the TiVo brand. It allowed users to seamlessly “timeshift” their television viewing in a way that was far easier than traditional VCRs. Unfortunately for TiVo, this technology has become embedded in many digital video recorders (DVRs) that can be rented from a cable company for a mere $10 a month destroying much of TiVo’s business.

Apple has to be thinking about how convergence will affect it in the future. Is it thinking of making a cell phone or PDA? If it wants to stay in the portable electronics business it probably should.

Apple will continue to leverage its brand with continued innovation. This seems to be the path that Apple is on. The company appears to stay just ahead of the curve as music players continue to evolve. After the initial iPod, Apple introduced the mini which turned out to be an incredible hit. Later still it introduced the shuffle which quickly grabbed an impressive market share.

I am still not sure how the brand will affect Apple’s future. When I decided what personal audio player I wanted to buy I realized how strong Apple’s brand power is. A friend of mine asked me, “Aren’t their players that are better.” At this point, I don’t know if there are players that are any better but there are certainly players that are a better value. However, everyone who has these “value” players invariably looks like someone that is too cheap to buy a real iPod. Essentially, an iPod has become a status symbol. I was listening to the TWiT podcast and they mentioned that Apple’s branding campaign even goes as far as the earphones. No one knows what kind of player you have but everyone knows if you are listening to iPod headphones. However, this branding becomes more difficult once people see portable music players as a commodity device.

However, Apple may have already set a standard. At this point, the iPod has actually become a standard. Just search for iPod accessories on and you start to understand what I mean. There are many different ways to interface with an iPod. Essentially it’s become a platform to play music in your house, in your car, or even record your voice. The simple fact that there are so many accessories available for the iPod strengthens its monopoly power.

In the future, we will probably see Apple leverage its iPod monopoly to attack other markets. It is not likely that people will have iPods a decade from now. However, at this point, it looks like the iPod may dominate the market until audio players are usurped into some sort of other technology (like cell phones). Steve Jobs may already understand this and assume that the iPod will go away and the company will make most of its money from its iTunes Music Store. This might make some sense because the iTunes music store represents actual capital that people have invested. With 500 million songs downloaded, that means that people have invested $500 million in Apple protected music.

Therefore, Apple’s future strategy it might look like this. Apple realizes that the iPod is doing exceptionally well right now and has an enormous market share of the portable player market. At this point, Apple needs to figure out how to leverage that monopoly to attack other markets. Does it want to force every hardware manufacturer to use the iTunes Music Store? Is it using the iTunes Music Store as a first mover advantage into digital music?

Apple needs to figure out how it can make money off music in the future. I see three possibilities: through hardware sales, licensing technology or selling online music. I think hardware sales will be a hard business for Apple. At this point, not licensing its technology seems to have been good for apple. Many people have bought the iPod and those who want to buy music end up buying it from the iTunes Music Store. The only advantage to licensing it’s encoding technology is to make their encoding technology a standard (which due to the number of users has become a de facto standard). In the future though, online music is where Apple will probably make most of its money. That means that they want as many people as possible able to buy from the iTunes music store. If they want to make sure of that, why aren’t they licensing their technology as soon as possible.