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By Seb Janacek, 3 November 2006 09:55

COMMENT

Is the iPod on the decline and soon to become a 'has been'? Seb Janacek examines the fate of Apple's ubiquitous MP3 player in the first installment of a two-part series.

"What goes up must come down" is an axiom held dear by both gravitational physicists and product managers.

In recent months, it's been applied to the fortunes of Apple's iPod, with an increasing number of predictions from both the mainstream press and the blogosphere that the device is in a state of terminal decline. Sales have peaked and are now on a sliding scale towards oblivion – so it goes.

And all it took for observers to start sounding the death knell for the iconic MP3 player was two consecutive quarterly falls in sales. Admittedly, iPod sales did fall over two consecutive quarters but the figures bear further analysis.

iPod sales peaked in Q1 of 2006 for the three-month period encompassing Christmas 2005. During that quarter the company sold more than 14 million music players, a figure it hasn't come close to equalling.

The second quarter yielded sales of 8.5 million devices, followed by a short drop in sales in the third quarter of 2006, though still up 32 per cent on the same quarter 12 months earlier. Meanwhile, the most recent results (Q4 2006) were boosted by the second-highest sales of the devices that Apple has ever recorded - 8.7 million.

The Q1 2006 spike was clearly a freak figure, driven by strong social factors that made the iPod the "must-have" Christmas gift of 2005, like Tamagotchi, Buzz Lightyear and Pokemon before it. The take-up curve of iPod sales since its launch at the end of 2001 is broadly in line with the famous Rogers bell curve for innovation adoption regularly handed out as part of Product Management 101 classes the world over.

The iPod sales pattern follows the bell curve quite obediently if you take out the Christmas 2005 blip, with the so-called Innovators and Early Adopters fuelling early sales, followed by Early and Late Majority adopters, before tailing off. Hardly the sales of a product in terminal decline. In fact it's textbook stuff.

Meanwhile, analysts JupiterResearch recently stated that the dominant position the iPod presently has in the MP3 player market will not be threatened in the short term, with sales of the devices likely to be buoyant for at least the next 18 months.

The long-standing complaints about the iPod regularly trotted out by detractors have so far failed to hinder sales.

Some claim the 'cool' factor that made the iPod the MP3 player of choice has since lost some of its power since it has increasingly become the device of choice for the older market demographic. After all, even the US President, Tony Blair, the Pope and HRH the Queen own iPods, we are told. Despite this, the sales continue to boost Apple's coffers and the white headphones have become ubiquitous.

In a similar vein, the long-running and highly publicised row over the allegedly poor resilience and poor battery life of iPods doesn't appear to have significantly slowed revenues. In fact, the aforementioned research paper from Jupiter also contains the following comment: "Apple shows no signs of losing momentum, having conditioned customers to expect and adopt regular upgrades."

If Apple really has conditioned its customer base to accept the short life of iPods and still return for more, then it says something about the strength of its brand as well as the sustainable market demand for iPods, if not for the longevity of its products. Quite a magic trick.

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Likewise, the complaints over the iTunes-iPod proprietary vertical solution haven't been able to derail Apple's progress. The iTunes Store goes from strength-to-strength, with stores now available in more than 20 countries. Music downloads from iTunes topped a billion tracks in February this year. Meanwhile, the company was able to shrug off a challenge from the French government over its proprietary FairPlay DRM, which threatened to force the company to open up its software to competing platforms.

The really interesting challenges to Apple's music player lie ahead: one in the guise of an old adversary and the other in the form of a predicted evolution in the way consumers will listen to their music.

Undoubtedly, the biggest perceived competitor to the iPod is the Zune player from Microsoft - the so-called 'iPod killer'. Due out this month in the US, the device is banking on wireless connectivity as the killer app that will differentiate it from the Apple player.

But Apple CEO Steve Jobs isn't too concerned about the imminent arrival of the Zune. When asked by Newsweek whether he was worried about Zune's wireless capability, the key differentiator between the two products, he answered: "In a word, no. I've seen the demonstrations on the internet about how you can find another person using a Zune and give them a song they can play three times. It takes forever.

"By the time you've gone through all that, the girl's got up and left! You're much better off taking one of your earbuds out and putting in her ear."

He didn't comment on what he thought about the Zune also being available in brown.

In any case, by the time the Zune has established itself in the market it may be an iteration behind the iPod. A bit like its operating systems, Mac-using wags might say.

There are two widely predicted upgrades for the iPod thought to be in the pipeline. The first is the 'true' video iPod, featuring a completely redesigned enclosure with a bigger screen that will better cater for viewing video content on the go, in support of the company's latest venture into the media distribution arena.

The second is the iPhone - morphing the MP3 player into a mobile phone, which I'll address in more detail later.

The iPod does need to evolve. Looking forward, aside from larger hard drive options, it is difficult to see the value proposition of the existing iPod being sustained compared to the iPod Nano, particularly as Flash drive capacities for the latter continue to increase. The top-end iPod Nano now has 8GB of storage - more than enough for most - and the figure will only continue to rise. The iPod needs a key differentiator from its smaller, slinkier cousin. The video iPod could fit the bill.

However, the most interesting theory for the imminent end of iPod dominance surrounds the increasing capabilities of MP3-enabled mobile phones and is linked to the age-old conundrum of device convergence. Again, referring to the recent Jupiter research, it's been predicted that the number of people using MP3-capable mobile phones will exceed those using dedicated music players by 2009.

Music-enabled mobiles are the way forward, goes the argument. Why carry two devices when you could carry one? One answer would be because it doesn't necessarily do the job of two items very well.

While it's inevitable that the number of MP3-enabled mobiles will outnumber dedicated music players, it's questionable whether those same mobiles will actually be used as music players, and result in a huge drop-off in sales for iPods and similar devices.

The problem with convergence is as much an issue with user experience as it is with technology.

Modern mobile phones try to pack an enormous number of features into one device, frequently very badly. The 80/20 rule applies here. My mobile has a camera with a video option, an FM radio, games, as well as the usual messaging features, email and myriad applications. Sometimes, it also permits me to make phone calls, frequently very badly.

I don't need the vast majority of these things, nor the WAP-style content services given such high prominence by mobile operators.

To command the market dominated by the iPod, the mobile manufacturers must make the MP3 phone a compelling device with an interface that gives prominence to the music functions, and not bury it away with a host of other value-add features. In short they need to get the user interface right.

The rise of the MP3-playing mobile is undoubtedly a massive threat to iPod dominance. Equally it represents a massive opportunity for Apple to evolve the iPod and stake its own claim on a huge market.

Speculation about the possible release of an Apple 'iPhone' has reached fever pitch in the last month, with bloggers, journalists, and in particular analysts, getting overly excited about the prospects of an iPod-mobile hybrid.

For more about the iPhone and the future of the iPod, see the second part of this column.