Taking Back the Market

Time to Update the iPod?

Tim Nash - 2002.03.05

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When PCs with USB 2.0 are launched in the fall, the iPod will lose its biggest perceived advantage -- the transfer speed of FireWire. By then the iPod needs to be the standard or, despite many other advantages, it risks becoming one of many. Apple can only make it the standard if iPods are available at different price points.

A few other MP3 players have an advantage in capacity, but since it takes hours to fill them via USB, many don't find this extra capacity useful.

Although Apple has never confirmed that Toshiba is the hard disk supplier for iPod, there was no other supplier of 1.8" hard drives at the time of launch. For some time Toshiba has had details of 10 GB and 20 GB versions of the 1.8" drive on its site. Since the 10 GB hard disk weighs slightly less, and the 20 GB version only 7 grammes more than the 5 GB drive, increasing capacity won't affect portability. A glance at the other specs shows the drives to be identical in the important areas.

Therefore Apple can launch an iPod range, providing it can buy the new drives and the 5 GB ones at a low enough price. As 125,000 iPods were sold last quarter (after the November launch) and sales were held back by the lack of manufacturing capacity, iPod sales should now be well over 200,000. These volumes will have driven down the prices Apple pays for all the iPod components.

If Apple can buy the new 20 GB drive for about the same price it paid for the initial shipment of 5 GB drives, this could be the drive for the new top of the range model at $399. This would minimise the market for the other high capacity MP3 players, as the Rio Riot costs $399 and the Archos Jukebox Studio 20 is $349.

Reducing the price of the 5 GB model to $299 would bring the iPod within the range of many more buyers. It would probably boost sales of the 20 GB model as well as many, are tempted by the drop in price of the old model, would decide to pay out the extra $100 for four times the capacity. For now two models could adequately cover the market. This would let Apple introduce a 10 GB model if and when component prices let it drop the price of the current model to $249.

The faster Apple can drive down iPod prices through reduced component costs, the larger a share it will have of the MP3 and backup hard drive markets. With current sales, it is the largest volume producer. It needs to maintain that position and make it unattractive for a rival to enter the market and undercut the iPod with a product that is seen as "good enough," as Palm undercut the Newton.

People are willing to pay a premium for ease of use and good design, but, as Apple has found with the Mac market, once that premium exceeds 10% many prefer to buy cheaper alternatives. When Apple no longer has a huge advantage in transfer speed, iPod pricing needs to be much closer to rival products with the same capacity.

Apple also needs to push the iPod into new markets.

Unfortunately the "write-behind data lost" IEEE 1394 (FireWire) problem on PCs has to be solved before Mediafour, with its Xplay and MacDrive programs, can help to make Windows a volume market. In the meantime, and to expand the Mac market, Apple should offer a voucher program so non-Mac iPod users can bring CDs and download them at a local Apple outlet (see Converting Windows users with the iPod ).

iPod needs to be a good backup to other FireWire devices like camcorders and digital cameras (see iPod: More than an MP3 player). A 20 GB iPod would hold four hours of digital video and provide an easy download and later upload into iMovie and Final Cut Pro would add to the reasons for using the products together.

Similarly, with the latest digital cameras offering 5-6 million pixels, professional users will have to buy a lot of memory or fast convenient storage. A simple link from iPod to iPhoto would also help the amateurs with high end cameras.

Extending iPod in these ways will mean it can be marketed through camera stores and take it to users that Apple wouldn't otherwise reach. This will also put iPod in the hands of a new set of reviewers and let it ride on a new wave of publicity.

The more ways people can use the iPod, the larger the market will be, and the more iPod can be the portable part of every Digital Hub. How soon will we see the ad series "What do you have on your iPod?" LEM

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