UPDATE JANUARY 2007 - We've written the final update to this story, as Apple released its numbers in January 2007. The iPod market share has tumbled down to 12.9% and musicphones sold iPods in 2006 at a rate of 7 to 1. And yes, the market survey data is now out as well proving that the vast majority of the owners of musicphones do listen to music on their phones. See it here: Requiem for a Heavyweight: the Reign of the iPod is over.
(There is an update to this story based on Apple's quarterly numbers released 19 July 2006 at this link: "Demise of a Darling")
Half a year ago I posted a very controversial blog entitled "2006 the Year the iPod died". We had a lot of comments, trackbacks and found the topic generated a lot of discussion at other blogsites as well. I promised to return to that forecast.
First - let me re-iterate. We, Alan Moore and I, are both big fans of Apple, and we loved the iPod and i-Tunes concepts so much that we made it one of the case studies in our book. A positive case study in every way. We do love this innovation. But unfortunately for the many Apple and iPod fans who shared thoughts with us, this Apple innovation is totally bound to become a niche proposition, exactly like other fantastic Apple innovations such as the Macintosh computers etc.
What was the point of my blog "2006 the year the iPod died". I didn't mean that the iPod devices themselves would cease to function, or that Apple would discontinue the product. But I quite clearly said that by 2006 the iPod would shift from the centre of digital music both on portable devices, and as a digital music sales platform. The winner to take its place? Mobile phones playing music. I argued from example with PDAs vs Smartphones, and stand-alone digital cameras vs cameraphones - in both cases the stand-alone devices were superior technically than the multi-function version of advanced mobile phones - but the mobile phone won within two years. And I argued that during 2006 we will see a dramatically larger population of MP3-player equipped musicphones, with the majority of the users preferring the musicphones to carrying two separate devices, and thus also the sales of digital music to shift to musicphones.
I also pointed out that mobile phones are replaced rapidly (currently every 21 months) and in most markets are subsidised by mobile phone operators. But I made the point that those most into music will carry their white earphones for years to come. Not that all iPods would disappear, but just like the Macintosh in the PC world, the i-Pod would become a very tiny niche. And that would happen during 2006.
Time for a reality check. How is the world reporting the issue. Lets start with the population of devices. Most in the IT related press report the iPod market share only among portable MP3 players, conveniently excluding mobile phones with MP3 players. If looking at "stand-alone" MP3 players, the Apple iPod has about 75% of the total stand-alone MP3 player market (the New York Times March 9, 2006 said it is "Snow White and the 20 dwarfs" in its article about the MP3 player market). How many units was that in 2005? Computerworld, quoting Apple, said in December that a total of 22.5 Million iPods were sold in 2005, up from 4.5 Million in 2004. Obviously the rest of the world's stand-alone MP3 makers like Creative, Samsung etc sold something in the order of 6 to 7 million stand-alone MP3 players.
The total installed base of iPods was well over 30 Million by end of 2005. Separately during 2005 a total of 420 million full-track songs were sold on the internet (most on i-Tunes) according to the global music industry association, IFPI (and just before anyone complains, yes the American RIAA is part of IFPI) in their report for 2005. Surely that must be fantastic performance and the iPod has to be healthy? It has to, doesn't it?
No it doesn't. We don't argue against a fantastic growth record by Apple's favourite gadget and its positive spin the Apple PR machine has managed in the press. But now for the significant numbers.
First devices. So Apple sold 22.5 Million iPods. In 2005 the mobile phone industry sold more musicplayer phones. How many? The telecoms industry analyst Informa reported that the total number of MP3 player equipped phones sold in 2005 were... 90 Million. Adding to the existing musicphones, the world's musicphone sales in 2005 were 22.5 M iPods, 7 M other stand-alone MP3 players, and 90 M musicphones or a total of 119.5 Million portable MP3 players. Apple's market share of devices sold in 2005 is not 78%, it is 18.8%.
Of the total installed base with about 30 Million iPods and perhaps 10 M other MP3 players there is the total of 118 M musicphones according to Informa giving a total of 158 M devices. Apple's market share is 19% of that, meaning that in 2005 its market share stopped growing, and started to shrink.
One nail into the coffin of the iPod.
So part of my prediction has already come true in 2005. How about music sales? Lets turn to the IFPI report. They make it quite plain, in saying, "Mobile music now accounts for approximately 40% of record company digital revenues." The report even points out that only in Japan the sales of music to mobile phones amounts to 211 M USD, about half of what i-Tunes can do worldwide. We've mentioned elsewhere on this blogsite about the big success for example on the Korean music sales in everything from the CyWorld blogsite as background music, to the Melon music service.
If music sold to mobile phones was already 40% of all digital music in 2005, and in that year four times more musicplayer phones were sold than iPods, this number will turn dramatically against i-Tunes during 2006. Sorry Apple and iPod fans, this is inevitable.
Another nail into the coffin of iPod.
Well, the iPod is the supreme music device, and its so cool. Surely its users love the device so much that this won't matter. The users will select. Many have new musicphones who don't care about the feature. We all have features on our phones that we don't use. But anyone who buys an iPod loves music and the device, and will use it passionately. That is fine. Here is where there is also now new data.
TNS a reserach organization interviewed 6800 adult mobile phone owners in 15 advanced countries including the USA, and found that indeed 10% of them listened to music on a stand-alone MP3 player like an iPod. But already in 2005 almost double that number - 19% of these people listened to music on a musicphone ranging from the smallest number in the USA of 4% and the highest in Korea 26%. yes, one in four in Korea listen to music on mobile phones. This surely also reflects the fact that Korean mobile phones are years ahead of those in the USA. (The report findings were reviewed at the Breaking News Blog)
Before anyone starts to complain that "this was a survey of mobile phone users, not iPod users" - I do need to pre-empt you on three levels. One, almost every iPod user has a mobile phone. Secondly the number of mobile phone users is 2,200 Million (2.2Billion) vs about 40 Million iPod users today in March 2006. So iPods are quite rare actually when compared with mobile phone users. But third, every economically viable person on the planet has a mobile phone. Don't even start with arguments that the YOUTH would somehow prefer the iPod over a mobile phone - the numbers are overwhelmingly for the youth in favour of the mobile phone as their ultimate gadget - the Mobile Youth study of 2005 revealed that of their disposable income the youth today spend 8 times more on their phone bill than on music in all forms including songs and players. We blogged about that a month ago in "Music or Mobiles"
So, in the advanced countries, already in 2005 it is 19% of adults who listen to music on mobile phones, while only 10% listen to music on stand-alone MP3 players like the iPod. And this when most musicphones were not particularly good at it. This really is "game-over"
Third nail into the coffin of the iPod
Any hope for the future? The same TNS survey of 6800 adults in 15 countries revealed that among us, a total of 35% want to listen to music on our mobile phones. Toss in the replacement cycles of 21 months and the total annual sales of 800 Million mobile phones worldwide, it won't take long before it is 700 Million out of the 2.2 Billion mobile phone users out there who consume music on mobile phones. When these are high quality multi-GB musicphones, most will leave their iPods at home.
Fourth nail into the coffin of the iPod.
Let me remind readers - first, I am a fan of Apple and am a fan of the iPod music player and of the i-Tunes music store. They are great. But more than any technology I love statistics. Now the relevant numbers are totally against iPod. Already 75% of all MP3 players are on mobile phones. Already 40% of all full-track digital music was sold to mobile phones last year, when most phone makers had not released their major musicplayers like Motorola's Rokr, Samsung's 6GB musicphone, Nokia's N series and SonyEricsson's Walkman phones. Already today twice as many people listen to songs on their musicphones than those who listen on stand-alone devices like the iPod. And almost twice than number again WANT to listen to music on mobile phones.
Yes, 2006 is clearly the year the iPod died. You heard it here first. Lets see how long until the mainstream IT press catch on and start to report the real market share and relevance of the iPod.
RELATED UPDATE JUNE 2007 - I've done a projection for the iPhone, how it needs to perform to achieve 10 million sales by December 2008, with splits geographically and quarterly sales at Crunching numbers for iPhone