Originally posted by Deepak Chopra:
Originally posted by ggwâ?¢:
Apple's revenue stream is pretty much driven by the iPod these days.
That is not true. They were looking at slightly increasing their market share when I last read about such things, only a few days ago.
The ipod does serve as a halo for the brand. [/b]
Ten O'Clock Tech
The IPod In Perspective
Arik Hesseldahl, 10.15.04, 10:00 AM ET
NEW YORK - Two million iPods sure seems like a lot.
That's the number of music players that Apple Computer (nasdaq: AAPL - news - people ) said it sold in its most recent quarter. For a bit of perspective, on Jan. 6 of this year, Apple said it had sold 2 million iPods since introducing the product in October 2001 (see: "Apple Unwraps IPod").
In short, Apple sold as many iPods during the last quarter as it did during the product line's first 26 months of production. By my count, Apple has moved some 7.3 million iPods in the three years since its introduction.
It's clear how important the device has become to Apple's bottom line. In the fourth quarter of 2002, the first quarter during which Apple broke out iPod sales from the rest of its product lines, sales of the player accounted for only 3.67% of sales. Two years later, it accounts for nearly 23% of sales.
Apple now makes more from its top line from iPod sales than from any single line of its computers. By revenue, the PowerBook notebook line is Apple's second most important product, accounting for $419 million, or just less than 18%, of sales for the quarter.
Now don't get me wrong. I love the iPod. Two of those 7.3 million units are mine. But as much of a success as it has been for Apple, the iPod could also turn out to be an Achilles heel.
Take the iPod business away from Apple, and what's left? A company that sold 3.3 million computers in its fiscal 2004. That's less than 2% of the 176.5 million computers that market research firm IDC forecasts will be sold this calendar year. Apple's unit sales have improved a paltry 7% since 2002.
How could such a strong offering as the combination of the iPod and iTunes Music Store turn out to be a weakness? First, Apple is the big fish in a small but growing pond. IDC reckons 12.5 million MP3 players were sold in 2003.
Compare that to the Consumer Electronics Association's estimate that consumers bought more than 23 million devices it classifies as "portable headset audio" in 2003--that's portable tape players, personal CD players and radios combined. Sales for these older personal audio devices peaked in 2001 at 38 million, more than three times the unit sales of MP3 players last year, according to CEA data. That gives you a fair idea of how far the iPod and similar devices have to go before they become the consumer force that many already assume they are.
It may just make it by this time next year. One important boost will come from Hewlett-Packard (nyse: HPQ - news - people ), which just started selling iPods, and accounted for 120,000 units last quarter. And HP also built a bit of a bridge between Microsoft (nasdaq: MSFT - news - people ) Windows Media and the iTunes world with a feature called HPTunes that lets Windows users access their iTunes playlists and play songs with a remote control.
What might spoil Apple's party? A digital music standard format that isn't of Apple's choosing. The record labels are starting to make noise about wanting a single digital audio format and a unified digital rights management (DRM) scheme for all vendors.
Apple's continued insistence at sticking with proprietary formats--and locking others out from its technology--in time may start to look misguided. It likes the Advanced Audio Codec for audio and has its own DRM technology, called FairPlay, which it refuses to share with other companies. RealNetworks (nasdaq: RNWK - news - people ) asked to license FairPlay, only to be told to go jump in a lake, which resulted in a public spat between the two companies (see: "RealNetworks Doesn't Rock").
Microsoft, for its part, has a popular audio format in Windows Media, and it has proved willing to license its DRM technology, known as Janus. Janus technology is central to the "plays for sure" promise Microsoft unveiled earlier this week. Buy a song from any service that supports Janus, and it will play on any hardware made by a Janus licensee.
During Apple's earnings conference call Wednesday, Chief Financial Officer Peter Oppenheimer was asked if he had any concerns about the possibility that a unified standard may be on the way. "We're just really focused on developing more great innovations and features into the iTunes Music Store and the iPod....We're just really going to focus on making those two solutions greater and greater," he said. Indeed, the rumor mills are already abuzz with word of new innovations on the iPod, including a color display screen that will display digital photos and album cover art.
Industries often take a long time to settle on standards. But the music industry won't take forever. Record labels are eager to reverse the trend of declining CD sales--consumers bought 136 million fewer CDs in 2003 than they did in 2000, the peak year of sales, according to the Recording Industry Association of America--and must get their act together soon regarding digital formats.
Apple Computer defied expectations and proved a viable business could be built around digital music. And, so far, the company has done better in this arena than anyone else has. But now the copycats are on the march, and in time they'll have the numbers on their side. If competitive offerings gain market share or an industrywide standard is imposed, Apple would either have to adapt to market realities, making its two-part music offering less special, or leave it unchanged and watch iPod sales--and profits--erode.
I've heard this story before. I didn't like how it turned out the first time.
http://www.forbes.com/technology/personaltech/2004/10/15/cx_ah_1015tentech.html
