Apple's IPhone Steals Marketing Thunder From IPod

Iconic Music Player Falls to Second-Tier Status as Category Gets Saturated

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YORK, Pa. (AdAge.com) -- The mantra at Apple these days is iPhone, iPhone, iPhone. But to the iPod and its fans, that sounds a lot like "Marcia, Marcia, Marcia."

Last week iPhone grabbed center stage in CEO Steve Jobs' keynote address at Apple's Worldwide Developers Conference, garnering fancy features and upgrades, international distribution, an open invitation to developers for more applications, and an attention-getting price cut.

iPod line sales
Source: Apple
Meanwhile, all poor Jan Brady the iPod got was a sort of shout-out as one of the three parts of Apple: Mac, iPhone and ... music.

This has been going on longer than just one conference. IPhone has dominated Apple's public innovation and marketing attention for months. The lack of significant iPod hype has some wondering: Is Apple's aggressive sales and marketing push for iPhone coming at the expense of its stalwart sibling?

"Apple marketing, when focused, could likely sell refrigerators to Eskimos, but they have clearly shifted their innovation efforts in favor of the iPhone," said analyst Rob Enderle of Enderle Group in an e-mail interview.

IPod saturation
Other analysts argued that the reason Apple is ultra-focused on iPhone is simply that it has to be right now. The wireless-phone market is very competitive, and Apple is still an up-and-coming player trying to make its mark. "Clearly the company has made an enormous bet on the mobile-phone market," said Gartner analyst Mike McGuire. "You have to see that what they're doing is mapping to what they see as consumer demand."

And NPD analyst Steve Baker said, "They're clearly taking their external money and focusing it on iPhone and, truthfully, on Mac, too. I think they're in kind of a lull space with iPod, but now might have been a natural lull anyway. ... It's not a secret that it's a category that's beginning to saturate, and they've been pretty upfront about that."

Indeed, while iPod accounted for 24% of Apple's revenue in its most recent quarter (and 42% of revenue in the holiday quarter before that), sales growth is slowing down as the category matures. Apple reported just 1% unit growth and 8% revenue growth year over year for iPod for the quarter that ended in March.

NPD Group data show Apple sold 6 million iPods in the U.S. in the first five months of 2008 -- the same number of iPhones Apple said it has sold since the launch last July. However, the unit and dollar sales vary according to each iPod brand.

It seems the next-generation iPod Touch, which looks quite similar to the iPhone, is where the money is. With its unique-to-the-line touch screen and Wi-Fi connectivity, the Touch accounted for 20% of the units sold so far in 2008 but a much higher 33% of the dollar volume. The Classic accounted for 17% of the units and 24% of the dollar volume, the Nano took 41% of the unit sales and 37% of the dollars, and the Shuffle accounted for 22% of the unit sales and 7% of the dollars.

Next on the screen
But while Apple seems to be paying less attention to the iPod, all of the analysts interviewed for this story agreed that it's certainly not giving up on it. "They've been on a steady innovation and refresh pace with iPod for several years now," said Forrester Research analyst Charles Golvin, adding that Mr. Jobs tends to focus on one product in his semiannual developer and media presentations and has taken the past two to talk about iPhone and Mac. So "it's reasonable to conclude .... the next thing is some kind of refresh on iPod."

That's exactly what some are predicting for the back-to-school and/or pre-holiday season. The speculation also comes from the fact that the price drop of the new iPhone puts it at $199, or about $100 more than the cheapest iPod Touch.

"We all put an equal sign between MP3 players and Apple, so [the lack of iPod focus] isn't because there are no new iPods coming; it's purely because Apple is still an infant in the wireless industry ... and to compete with the big players, they have to focus a lot on marketing there," said iSuppli analyst Tina Teng.

Where Apple will go next with the iPod line, no one knows for sure. "Apple is very secretive. Don't take their silence as a lack of commitment to a product line," Mr. McGuire said.

He added: "We do know that they don't wait for the market or competition to eat into their share before they make a move or 'end of life' a product. ... For them it's not about market share; it's about profit share. ... They've shown themselves to be very capable of keeping a balance."
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