Can It Be the End of the iPod? Sixto Ortiz Jr., newsfactor.com (My comment: the IPod was very overpriced anyway but people were buying it anyhow)
http://news.yahoo.com/s/nf/20060726/tc_nf/44626 Apple Computer has always been a trendsetter when it comes to design and usability. But until 2001, the company had never released a market-leading product. It focused its creative chops on the loyal 4 percent of PC users who swore by the company's desktops and notebooks. Then came the iPod. The sleek, sexy media player quickly became a must-have gadget, selling more than 50 million units since its inception and swallowing 70 percent of the U.S. market for digital media players. Apple hit a design and marketing home run that still hasn't landed. So far, competing manufacturers have presented little threat to Apple's juggernaut. Other media players have lacked the design punch of the iPod and invariably have come off as uncool, "me too" also-rans. But plans by cellular phone manufacturers to make handsets that can download and store digital music could pose a significant problem for Steve Jobs and the rest of the Apple brain trust. Remember what smartphones did to PDAs? By incorporating calendars and other organizing features into phones, mobile handset makers effectively rendered the PDA redundant. Now, efforts are underway to bring the best features of portable media players into your cell phone. If manufacturers have their way, a new wave of music-capable phones will have you reaching for your wallet and tossing your iPod in the sock drawer. A Different Tune According to John du Pre Gauntt, a senior analyst with the research firm eMarketer, cellular phone carriers have invested piles of money in developing next-generation networks, and the only way to recoup their investments is to get consumers to pay for value-added services delivered over those networks. "The carriers are hoping to establish a deeper relationship with customers so they can retain them," Gauntt says. Since the carriers have only one channel (the mobile phone) through which they can reach consumers, those companies have a vested interest to go deeper into customer lifestyles and create services. And, as Apple has proven, digital music sells. If Cingular, Sprint, T-Mobile, and Verizon can get people to build sizable music collections using their services and devices, they have a much better chance of retaining those customers when contract renewal time comes around. Handset manufacturers like Nokia, Samsung, and Ericsson also have an incentive to develop and market music-savvy cellular phones. According to John Jackson, a senior analyst for wireless/mobile technologies at Yankee Group, "Vendors are trying to build profit margins on more multimedia-centric devices, since those profit margins tend to be higher on multifeatured devices." However, Jackson adds, vendors are hamstrung by the economics of cellular service. People are used to paying less than $100 for a new phone when they sign up for a contract. Apple charges $300 for the iPod, but people have been more than willing to pay that amount. "Handset vendors," says Jackson, "don't have a suitable channel into the market to enhance their declining profit margins." What they do have is plenty of incentive to try. According to statistics collected by eMarketer, digital music revenues are expected to grow from $1.1 billion in 2005 to $11.9 billion in 2010. Musical Economics Getting people to buy music-capable phones is only half the battle. Cell-phone carriers also have to figure out how to best provide their customers with the means to purchase and download music. "Some sort of service is needed," Nowak says, "but how that delivery model will work out is yet to be decided." If the carriers decide to use an established service -- such as Rhapsody or MusicMatch -- some kind of revenue sharing arrangement will have to be worked out, he says. Two of the major carriers are already there: Sprint recently launched its Sprint Music Store, featuring a 250,000-song catalog (still rather small compared to Rhapsody or Yahoo! Music, which have catalogs boasting over a million songs each). And Verizon is selling both audio and video content via its high-speed, VCast data network. Will people be willing to pay higher prices for content delivered via cellular networks? The jury's still out. A recent Forrester Research report, "Mobile Music Needs a Tune-Up," doesn't bode well: Only 4 percent of European customers said they were willing to pay 3 euros per month (about $3.80) to download digital music to their handsets. And that doesn't count the 1.99 euros per song (about $2.50) that carriers such as Vodafone are charging for downloads. "Both the carriers and the music labels don't really like the iPod economy," says eMarketer's Gauntt. The 99 cents per song that Apple charges has resulted in over a billion downloads at the iTunes music store, but music labels and wireless carriers would be loath to sell songs at a 99-cent price point, he says. "Carriers sell the network, the labels sell the tracks, and Apple sells devices," Gauntt says. "These are three different economic models and right now, the device side -- Apple, that is -- is setting the rules for digital music sales." That's definitely not what the carriers want if they harbor any hope of knocking Apple off the top of the digital music perch. The Consumer Speaks Matt Gaskins is a 30-something tech-savvy professional who enjoys digital music and swears by his iPod. In other words, he's exactly the type of person cell-phone makers would like to reach with their newest, music-capable handsets. Would he be willing to give up his iPod for a mobile phone that can play music? "That's impossible to tell without trying the phone out first and living with it for a while," he says. Gaskins admits there would be much value in a cell phone/music player hybrid. But unless the device has the same user friendliness of the iPod, he is not willing to pay for it. "The feel of the iPod and the compatibility with iTunes is a very important part of my iPod user experience." And that user-friendliness is at the core of the iPod's incredible mass-market appeal. "Apple has taken all the hassle out of music by creating a device that's fall-out-of-bed-stupid easy to use," Gauntt says. "The market moving forward will be determined by people who like to listen to music and won't be buying based on technical specs, but on convenience." Gauntt compares this market shift to the auto business: There are people who are extremely knowledgeable and read Road and Track, and there are people who simply need a car to drive. "The market is going mainstream, and because of this the rules of competition will change," Gauntt says. And so far, the shift to the mainstream favors Apple and its simple-to-use gear. All Eyes on Apple Befitting the role of the market leader, Apple has everyone else trying to figure out what its next move might be. The problem, as the Yankee Group's Jackson points out, is that the company is very good at keeping a lid on secret projects. "Anybody who says they know what Apple is doing is a liar," Jackson says. Apple representatives did not comment for this story. He says it's a virtual certainty the company intends to build phones. Rumors of an "iPhone" intensified this year after Apple hired engineer Peter Kennedy, who used to work for Sony Ericsson and is considered a specialist in designing user-friendly interfaces for phones. Cellular carriers have one advantage over Apple: Their devices are connected to an always-on, always-present network that allows users to download content whenever and wherever they feel like it. The iPod, for all its advantages, is a self-contained device that cannot connect to a music service unless it's tethered to a networked PC or laptop. "[Steve] Jobs has to definitely work to make the iPod a networked device," Gauntt says. Right now, he adds, Apple serves roughly 10 million iPod users, which is comparable to the customer volume of a major wireless company. (Even though Apple has sold over 50 million iPods in five years' time, the devices typically need to be replaced after a couple of years when the battery dies.) "Apple has got to get mobile phone volume if it is going to control digital music as it moves into the mass market," Gauntt says, adding that the only way to do this is to develop an iPhone that makes carriers and music labels happy. If, on the other hand, mobile devices ever equal or surpass the features of the iPod, Apple could be in trouble, he says. Reply with a "Thank you" if you liked this post. _____________________________ MEDIANEWS mailing list [email protected] To unsubscribe send an email to: [EMAIL PROTECTED]
