The iPod Economy

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It's the white, white world of the iPod economy, an exploding universe in which marketers such as Hewlett-Packard, Kate Spade, Bose and BMW are tapping into Apple's portable music player to boost their own sales and brand equity.

Apple last week wowed investors by announcing a 44% year-on-year increase in profit to $106 million on revenue of $2.35 billion, up an impressive 37%. A 344% increase in sales of iPods, and a 600% increase in sales from Apple's iTunes music program, fueled the results.

But the iPod itself is just the beating heart of a growing body of marketing centered on the device.

Not only is there an array of over 1,000 peripheral devices-from carrying cases to cables-devised to add to the MP3 player's functionality, but big marketers with their own histories of ingenuity are lining up to ally themselves with the product, basking in the iPod's marketing glow.

Not that Apple, which has encouraged most of the associations, is complaining. "Apple has spawned something very powerful. The iPod is not just a consumer-electronics device, it's a cultural icon," said Michael Gartenberg, director of research at Jupiter Research. "And Apple understands that. By making strong associations with other very strong brands, it establishes the iPod as a platform, ultimately using that as a way to get the iPod experience into consumers' hands."

free skins

Apple partners include Bose, which recently plastered Grand Central Terminal in New York with ads for its iPod SoundDock. It followed the lead of HP, which launched a multimillion-dollar ad campaign for its Apple iPod from HP in August-ads that owed much in style to Apple's own feted iPod commercials. HP followed up last week with the release of HP downloadable tattoos for both the Apple and HP iPods promoted in a Rolling Stone giveaway of 1 million Universal Music Group artists skins.

HP also distributes the iTunes software as part of its deal, including an iTunes desktop icon on every new HP computer. HP accounted for 6% of all iPod sales in the third quarter.

That push followed BMW of North America's big summer play to get car buyers to "iPod your BMW." BMW VP-Marketing Jim McDowell said he came up with the idea when his iPod kept slipping off the seat in his new 7-series BMW.

Apple iPod owners index high with BMW owners, said Mr. McDowell. He also pointed out that both are a "third space" for consumers. The automaker's research shows that BMW drivers often consider the time spent in the car as the best in their day-likewise iPod owners report that the time spent listening to their music is a highlight. "We had the chance to combine the two and enhance the overall experience," said Mr. McDowell.

The BMW deal looked a lot like an earlier deal, in which Volkswagen of North America put iPods in the Beetle, and co-marketed-through TV, radio, print, e-commerce and public relations-the combined products under the tag, "Pods Unite."

While neither Apple nor its partners will discuss confidential terms of the alliances, those close to executives at some of the companies said that in most cases both parties contribute to research, product development and marketing-similar to the "Intel Inside" model of splitting costs.

Apple is trying to borrow the buzz of iPod to fuel sales of its other hardware. It is plugging the new iMac G5 with the tagline, "From the creators of iPod." While that slogan currently appears only on Apple's Web site and in a few print ads, it is believed that it will be used more widely.

The iMac G5 bears a striking resemblance to the iPod. "It's roughly the same design, the clear front bezel and opaque-white color. It's a little stubbier than the iPod, but the same design lines," said IDC analyst Roger Kay. "Classic branding: You take your world-class brand equity and roll it into the next round of product."

different marketing

Smaller players such as Alpine, Griffin Technology, Belkin and Altec Lansing market iPod accessories with Apple's blessing. "Apple doesn't sell an MP3 player, they sell a lifestyle. And these are accessories that complement and further that lifestyle," said Andrew Green, VP-marketing and design at Griffin. "Buyers of iPods are buying into a club. They know that, and want that."

The iPod is not the first great innovation from Apple, which introduced drag-and-drop computing and personal hand-held devices. It's the marketing, and co-marketing, that are different. Apple seems to have figured out that part of having an iconic status means other marketers can and will "borrow" brand equity, and it's pre-empting at least some attempts by cutting its own co-branded deals.

"It would be a mistake for people to think Apple is going to make the mistakes they've made in the past," said Mike McGuire, director of research at Gartner G2. "IPod is clearly now a crucial strategic part of the company. But they'll be very careful about how they extend the brand going forward, and how they share that brand equity with others."

The question remains whether the cachet of iPod can translate to other products' sales. It's already boosted the fortunes of Apple itself; while Mac sales were up 6.2% over the same period in 2003, overall computer sales were up just 2.6%, even after the introduction of the acclaimed G5. Analysts said it may still be too early to gauge long-term halo effects. After all, the white wire is still gaining traction in middle America, and younger consumers whose first exposure to Apple has been the iPod are just starting to look at the rest of the company portfolio.

Private companies such as Griffin, Belkin and Altec Lansing won't divulge numbers, but executives at all three said they are pleased with their iPod association.

The next few quarters should offer more insight, at least for the public companies involved, analysts said. Anecdotal evidence, especially for young people, looks positive. Mr. Gartenberg said there has been an increase in the number of students purchasing PowerBooks and iMacs, with many citing iPod as a factor.

"What will be important going forward is making sure the experience remains very good, and that's the challenge," said Mr. McGuire. "In the `iPod economy' of peripherals and such, Apple will work at controlling their brand. That's what Starbucks and others do. Why shouldn't they?"

Tag teams

Below are a selection of slogans and taglines from ads, Web sites, and more from iPod peripheral makers.

BMW: iPod your BMW.

Bose SoundDock: Insert iPod. Hear what happens.

Alpine Electronics: Take your iPod for a drive.

Griffin Technology:

* PodPod (car cup holder for the iPod): Get a pad for your Pod.

* PowerPod (car power adapter): Make any iPod road-trip ready.

HP: Apple iPod from HP. It's your music. Take it with you.

HP tattoos: Personalize your iPod

Artists on Tattoos:

* The Cure: Cure your iPod.

* The Who: My Generation iPod.

* The Hives: Give Your iPod the Hives.

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