I wrote a post a couple of weeks ago called Death of a Cell Phone, Death of the iPod. I mentioned the research of Tomi Ahonen in that post. Tomi responded last night in the comments – and I thought I’d post his comment here.
Hi Bill and readers of Achievable Ends
Thanks for mentioning my posting and follow-up (via the Engagement Alliance blog). The picture is really turning very sour for Apple’s iPod market share. First, I want to point out that iPods are selling well, they are profitable, and most importantly for Apple, the iPod has revitalized the interest in Macintosh computers (and thus also raised the Mac profitability). So the iPod is very good news for Apple.
But in terms of global market share, its very bad news indeed. iPod sales are stagnant now for three straight quarters. Since the Christmas quarter of last year (14.1 million iPods sold) they have sold 8.5M, 8.1M and 8.7M iPods in the last three quarters. The sales of iPods have hit a plateau. The slight recovery and 7% increase in quarter-on-quarter iPod sales this last quarter just ended, was achieved with severe price cuts and the release of the 79 dollar iPod shuffle – according to Apple CFO Oppenheimer.
But consider this from the mobile phone side. Since I last discussed the issue in my widely quoted blog in July, the phone industry has dramatically revised upwards their shipment forecast for musicphones this year, from 270 million to 309 million units. If we are very generous and give Apple 50 million units this year (they’ve sold only 25 million so far in the first 9 months, so this is a VERY tall order) – that would leave Apple with an annual market share in 2006 of only 14%.
So Apple is now resorting to dropping prices to maintain interest in the iPod. What is the phone industry saying? LG has said the Chocolate drives their sales. Motorola says the music variants of its phones are in highest demand. Samsung has pushed the ante and was first to release an 8 GB storage musicphone (and note, almost all top-end musicphones also have removable storage, which today means 4GB of removable storage, to “shuffle” your music collection further). Nokia says the musicphones drive its sales and it expects to double its shipments of musicphones.
What of the iconic SonyEricsson Walkman? The phone that Apple CFO singled out in July of this year as being specifically in the same market as the iPod? SonyEricsson says Walkmman branded (ie the top-end of SonyEricsson) musicphones account for 25% of all of SonyEricsson’s phones! Better yet, Ericsson CEO Carl-Eric Svanberg just was on CNN talking about Ericsson’s quarterly results. Ericsson said musicphones drive their sales, yes, but Svanberg said this mean that they are able to charge a premium for Walkman branded phones, and the demand is so high, that SonyEricsson now can demand a price premium even on its lowest-end (ie non-Walkman branded) musicphones!
While iPod sales are stagnant, and Apple resorts to dramatic price cuts to revive some sales, the phone industry all echo the same theme, they cannot keep up with demand for the music playing variants of their new phones. And SonyEricsson very specifically said, this demand is so strong they are able to charge a premium for musicphones.
Yes, the game is truly over. The iPod will not die, it will not disappear. It will become the niche product, just like a Porsche or Ferrari is a niche car for driving enthusiasts, or indeed the Macintosh is a niche PC for those who appreciate its user interface, design, utility, performance – and don’t mind the premium cost.
Oh, and on some American numbers – The RIAA (Recording Industry Association of America) reports that direct sales of music to mobiles in America – which was only introduced a year ago – doubled in the first half of 2006. The IDC (the source quoted by Apple) says that by the end of 2006, the total of people downloading music to mobiles in America will reach half the size of people downloading iTunes. NPD reports that already 67 separate musicphones have been introduced to the American market and that by the third quarter 2006, 19% of all phones sold in America are musicphones (contrast with leading countries like 90% in South Korea, 60% in Sweden). And Instat reports that a third of American musicphones buyers want their musicphone to become their primary music consumption device.
It seemed totally alien just last year (for American readers), but the tide has turned, very fast. It is totally commonplace in South Korea, Japan, Europe etc. In Japan 85% of all online music is sold directly to mobile phones, in Spain its 78% and in Italy 76%. In Sweden, the SMALLEST of the wireless carriers already outsells iTunes. Even in America, already 11% of all digital music is sold to phones.
So yes, the tide has turned, and there is no going back. The numbers in the iPod vs musicphone picture are overwhelmingly in the favour of the phones. More at my blogsite – obviously, and in my book of the same name (Communities Dominate Brands).
Thanks for writing about this story
Tomi Ahonen 🙂 (Picture, formatting and some hyperlinks added – Bill)
I’ve written of my love of the iPod and accessories (primarily our Bose SoundDock) – but I am knocked out by my Sony Ericsson W810i Walkman phone. I use it to play tunes in the car (and love the fact that the music stops when a call comes in), to listen to tunes or podcasts netcasts before I fall asleep and when I go for a walk on the Beach. Add to the fact that it takes good pictures, works with Widsets, iSyncs to my contacts and calendar and is a great phone – and I again ask the question, “Why do I want a single use device like an iPod?”
UPDATE: Which leads me to wonder about the wisdom of Microsoft’s entry into this shrinking market with its MP3 playing brick, Zune. With the single use Media Player market dominated by iPod (with, again, only 14% of the media player market), Zune is arriving late to a party that is already shutting down.