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« Altering retail landscape - British Airways quits travel stores | Main | The digital holes in the digital cheese »

March 16, 2006

Comments

Dean Bubley

I don't buy this. I've also heard Nokia and other handset manufacturers brag that they ship more MP3 players than Apple. However, there's one crucial difference - all (90%+ I guess) iPods are actually used for music. Only a small % of MP3-equipped phones are used, and an even fewer number used regularly. You're not comparing apples with apples.

Just because Nokia & Motorola include a feature in their handsets it doesn't mean that they are "market share leaders". On the same basis, Nokia is probably the largest infra-red solution vendor, but that's not worth shouting about.

Some other points:
Record companies' "mobile music" sales includes ringtones, I would guess. It is also heavily biased towards Korea and Japan, which are not necessarily indicative of global trends in the mobile market. Often they are exceptions, not examples.

Also, I suspect most Koreans listen to music on phones, and MP3 players, and home PCs and HiFi as well. When I've visited Korea, it seems to me as though everyone has every gadget - top-end phone, MP3 player, proper digital camera and blazing-fast home fixed Internet for a PC. I haven't seen anywhere else in the world which has shops solely dedicated to 100's of sorts of standalone MP3 player.

Tomi T Ahonen

Hi Dean

Well, if you count sold MP3 players, then you HAVE to include the mobile phones. Its like saying CD players but not including those in boom boxes, or radios but ignoring those in cars, or hard drives but excluding all built into laptops and desktop computers. Of course you have to count all.

But Dean, you did not read the full blog. The USERS actually do USE their MP3 players on cellphones at a margin of almost 2 to 1. Game over ! This was based on last year's models before the "sexy" better musicplayers were even on sale.

Oh, and the digital music stat. It explicitly EXCLUDES ringing tones - which are a 5 BILLION dollar business. No, it may be a shock to you, that this is so, but you cannot argue against the facts. More devices, more music, more users - and remember the preference. 35% of all cellphone users want to consume music on their phones. As they replace phones every 21 months (global average) and the industry ships 800 million cellphones per year, won't take long before one third of the world's 2.2 BILLION cellphone users listen to music on their cellphones.

I hear you, that is your opinion. But show me stats from 2005 that prove your case, and I am willing to listen. Last year it was opinion vs opinion. But now we have facts. You cannot argue anymore against the facts.

And yes, of course for those most passionate about music, they will keep on listening to iPods. A DJ for example, will not try to run a rave concert using a Nokia phone ha-ha. But for the mass market, the hundreds of millions worlwide - yes it is musicphones, not iPods. And that reality is today, not in the future.

Thanks for writing.

Tomi Ahonen :-)

George Lechter

I agree 100% with the article. I have written the same message in Apple forums and boy did I get my *ss kicked. People I find tend to defend their stance no matter what. Specially those who purchased one. I have a Treo and in its 4 Gig card I can store 800 songs. Usually I can get through 2 or 3 songs in a day.

But the point is that all carriers will offer an MP3 phone very soon, and automatically, when another young person buys another phone, the friends will ask (maybe to themselves) "did that new phone play MP3 tunes?"

And after the answer is yes again and again carrying another box with charger will automatically be catalogued as unnecessary.

Personally I think Apple sold those iPods based on looks and ease of use. 5 years ago, 4 years ago, there were MP3 players smaller than iPods even today. But not pretty or easy to use.

Now the iPhone will be a great boon for Apple. It will be an automatic sales pitch for the Macs. And today still the Palm and Windows devices are complicated and unreliable.

In fact I consider the iPhone Apple's last great opportunity.

This is written by the person who helped make Gates and not Jobs the richest man in the world. (Not that I am proud of that, I wish it had been Jobs.) If you want that story from the year 1983 for free (that's when the Apple-IBM Connection was the number 1 software program in PC Connection), email me at mgauss@netrox.net and I will email you the free story

Tomi T Ahonen

Hi George

Thanks for visiting and writing. Yes, clearly the iPod owners are a very passionate group and they probably take this kind of posting as a personal attack on their favourite gadget.

I am very sure that at least for 2006 the overall sales of iPods will continue to GROW. Only that their global market share will shrink from that 19% to something like 15% by end of 2006 and near 10% by end of 2007. It is impossible for Apple to catch up to the lead that mobile phones have already established.

And none of the iPod owners have gotten their heads around the replacement cycle issue. This is the true final decision. Phones are replaced every 21 months (and sell 850 million units this year). So as the MP3 player becomes a standard feature in mainstream phones, those will become the de-facto latest MP3 players in anyone's pocket.

If someone is "forced" to replace an iPod in 21 months, it is probably because of a manufacturing defect (as some iPods have had). Beyond that, most iPod owners do think their purchase has been that expensive that they hope it will last many years. Not mobile phone owners. The heavy users expect a new phone almost every year. Very rapidly it becomes one with a built-in MP3 player - and one generation after that, it becomes the hand-me-down phone for the kids or parents or spouses, etc. Thus many who are not very intensely into music - and would never buy an iPod or its rivals - will get an MP3 player (and a set of pre-recorded songs that the previous owner had already collected) on the phone.

In the end, the replacement cycle determines that this game is over.

We'll be very interested in your study of the Apple-IBM issues in 1983. There is very much we can learn about the converging IT-telecoms-media world of today, from what happened at the birth of the internet industry in the early 1990s and the birth of the PC industry in the early 1980s.

Thank you for visiting our blogsite George

Tomi Ahonen :-)

manjara

I agree with Dean, this is spin on your part. You are using partially relevant statistics to try and prove your point. What was that phrase, 'lies, damned lies and statistics'.
I fully agree with you though, Tomi, that Apple will not be the dominant (>50%) music device vendor nor music vendor through iTunes. I don't think that is a 'nail in the coffin'. I said before that the more interesting statistic would be how and where the music sales are made, i.e. are they going to be through 3G networks? Like Dean, I don't believe Korea and Japan are indicative here, because their mobile operators are not 'cut from the same cloth' as the European ones. Look at i-mode and confident predictions back in the late 90's when Japanese and Korean statistics implied a content boom!
The jury is still out, in my opinion, as to which providers are going to sell most music online (mobile or fixed internet - they are not distinct markets), but iTunes is still in prime position and I don't see the mobile operators getting in on that act, especially with the slew of WiFi enabled phones that are coming to market this year.
I am, of course, relying on someone creating an easy to use client for iTunes or similar, that runs on mobile phones! But they'd have to be mad not to have it in the works already...

Andrew

Your argument seems logical, but it doesn't seem right. I live in a town full of alpha tech adopters, which also happens to be a big music town (Austin, Texas). I know exactly no people who have a music-playing cellphone. Almost everyone I know has a phone and an ipod. It simply doesn't bother most people, although if you get down to it, most people would say "sure, I wish I didn't have to carry two devices."

Plus, although the form factors are similar, the social and personal use of the devices are very different. It remains that navigating music libraries is easy and fun on the ipod, and painful on the phone. Dialing numbers is painful on the ipod, and simple on the phone. Phones should probably adopt an ipod-like click wheel UI, rather than imposing a 9-key UI on music playing, but that's not likely to happen. Using the UI of the ipod is joyful, even performative; it's an interaction that almost feels like *playing* music, or at least like DJing. Using phone UIs feels like a burden, and no mobile phone company really gets that yet.

Stephen

I agree with Andrew. There is much more to competing with the iPod than just including MP3 capability into a device that is as poorly designed for storing and navigating songs as a mobile phone. Plus, how do you get the music onto the phone? I don't think I've ever seen decent computer software from a phone company (Nokia's is particularly horrible).

Just because my mobile phone has a built-in camera hasn't stopped me from purchasing and using two digital still cameras and one video camera.

I think that for casual use, the built-in capabilities of mobile phones might suffice, but for the even half-way serious music lover/photographer, they just aren't going to cut it.

Let's look at an area that phones actually do well: PDA. Some of my friends have P900s or XDAs and therefore aren't in the market for a PDA, but I refuse to use a phone that is so large. I don't need my PDA with me every second of the day, so I take it with me to work, and leave it at home at night. And from observing people on the street and the tube, PDA phones are a tiny minority. Most people use small, light phones.

For a phone to be a decent music player, it would need a hard drive. I don't see anyone fitting a hard drive into my RAZR.

I just don't see the "phones will take over every conceivable portable device" working in the real world. People's needs are too complex for that to be the case.

Johnathan

1.) It's iTunes and iPod. Please spell accordingly.

2.)Informa reported that , from 2005 to 2010, it expects "music phones" to go from 90million units per years to 450million units per year. Thats 5x more units over the course of 5 years. Apple sold 4.5 million iPods in 2004 and 22.5 million in 2005. That adds up to 5x more sold IN ONE YEAR. Take that out a few years...

3.)"a total of 119.5 Million portable MP3 players." Hmm... a laptop is a portable device which plays MP3s, as are car stereos, etc. Were these included in that total of 119.5million?

4.) "6800 adult mobile phone owners in 15 advanced countries "... out of the total # of cell phone users ON THE PLANET- (2.2Billion)

5.) "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." You're mixing numbers here- please compare the total number of MP3/music player phones vs. iPods.

6)"...while only 10% listen to music on stand-alone MP3 players like the iPod" Of the people who responded to the survey + own a cell phone. Splitting the results?

7.) "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" Which means that 65% don't want to listen on their phones. Don't forget about the miniscule sampling.

8.)"Already 75% of all MP3 players are on mobile phones." Please show us statistics on how many people actually USE that feature.

9.)"Already 40% of all full-track digital music was sold to mobile phones last year" Japan and Korea skew these results considerably.

Overall, I agree with your _opinion_. Cell phones, in 5 or 6 years will have multi-megapixel cameras, multi-gig storage, PDA functionality, movie-viewing capability, etc. Will that mean that people will throw out their paper calendars and paper-planners? No. Trash 35mm film cameras? No. Trash their home BRD/HD-DVD players? No.

Why do we still have landline phones, when cellular is so cheap and pervasive?

When downloading music becomes as simple as iTunes, as quick as (or faster than) broadband cable + battery technology enables 20+ hours of continuous usage + UI interface is tweaked considerably + storage capacity increased 10x + the carriers find some simple way out of their DRM hell.................


.............then, you will see the death of the iPod.

Tomi T Ahonen

Hi Manjara, Andrew, Stephen and Jonathan.

First, thanks for visiting and much more so, thank you for taking the time to post your comments. We really appreciate it.

Obviously we have some points of agreement eg that the iPod (sorry about the bad spelling Jonathan) might not sustain a lead in the longer run etc. But serious disagreement as well, and am happy we have some debate on these matters. I'll address each of the four of you individually in the order you posted:

Manjara - yes, there is very much of that going around, the Lies, Damn Lies and Statistics. We agree that iPods won't dominate the market. You suggest that mobile operators outside of Japan and Korea are not able to replicate the success? I am assuming (please don't be offended) that you are looking at this from an North American viewpoint? Here in Europe since Telenor of Norway first launched a mobile music download service we have most operators already offering full track MP3 music downloads. And consider this in contrast to the iTunes proposition and pricing - Europe's best prices of full track sales to mobile phones are in Sweden where Tele2 sells back catalogue songs at a price of 8 Euro cents (about 9 US cents). A far cry from iTunes 99 cents and 79 cents, don't you think? If carriers here are able to do this kind of offerings, why NOT, why wouldn't consumers pick up these services. And they are going way beyond just music song downloads, Three/Hutchison in the UK in its first year sold 15 million music VIDEO downloads to a subscriber base of under 4 million users at a cost of 1.50 UKP (about 2.50 USD) each.

I will concede your point, that the rest of the world has to match the Korean and Japanese operator success in selling music. But I see it actually in all European and other Asian markets, so I am most confident this is already happening. The critical point becomes, if the price of the song is similar, and the device can handle the songs, then WHY would someone bother to download the songs to a PC (or Mac) and transfer to an iPod, when the songs could be downloaded directly to the cellphone.

Andrew - I hear you. I totally believe you, that in Austin Texas you have a very robust iPod community and can't find owners of musicphones. I am sure you'll grant me the assumption that in a country like South Korea the near opposite exists. A few very passionate iPod users but 35% of the population walking around with Samsungs and LGs with 5GB, 6GB and more of storage and of course built-in MP3 players. But you do admit that many who carry both iPods and cellphones would prefer one converged device, given obviously that the user experience is good enough on the converged device and the music sales/transfers are done in a suitable way.

But let me make a point about the iPod user interface specifically. The iPod is a superior music consumption experience. It is "technically superior" to any other MP3 player. There is no argument about this among the IT industry anywhere.

But here comes the relevant matter. The superior technology is no guarantee of market dominance. The classic example is the Betamax video recorder, which at every stage of its evolution was superior to the VHS videorecorders. VHS won. A similar case is the Macintosh personal computer, which has been superior technically at every generation to its Windows/IBM compatible counterparts. Yet PCs outnumber Macs 20 to 1. And trust me, I am a passionate Apple fan, I was a registered Mac user trainer as far back as in 1989, I've LOVED the Macs (and various Apple products) always.

So I grant you totally your point, that the iPod is an inherently superior technolgy today, and I also am very confident the iPod will retain its user interface superiority into the distant future, much like the Mac has sustained its usability lead all through its years since 1984.

But the problem is, that for a mass market, it is not the BEST technology that wins, it is the ADEQUATE technology. That is why we have more Nissans, Toyotas, Fords, Chevrolets, and Volkswagens than Porsches, Bentleys, BMWs, Jaguars and Lexuses. The iPod will be superior and those who really want a superior music experience will get them. Those heavily into music, DJs, serious music fans, etc. Very likely the four of you are that serious into music, that even after your current iPod you will fork out the money to buy another iPod. But how about your parents, cousins, uncles and aunts, etc. When they get an MP3 player "for free" when they upgrade their next phone, and they can select from a very compelling set of selections by Nokia, SonyEricsson, Motorola (beyond the Rokr obviously), Samsung etc., if that musicphone is good enough, they will not need to pay for a separate iPod (or other stand-alone MP3 player)

Stephen - First on the phone tech, see above... On "how to get the music onto the phone" on well designed systems like those on SK Telecom in Korea or KDDI in Japan or Telenor in Norway or Telefonica in Spain, it is browsing to the song, clicking "download", seeing the "are you sure" screen with the price, click to approve, and a little while later, the song is received on your phone. Hardly complex, certainly a lot easier than having to do the juggling between a download to a laptop and then transfer to an iPod..

On the camera point - I hear you. Clearly you are serious about your digital cameras if you've bought two. However again the global stats are totally against your behaviour (sorry for my British spelling by the way, trying to be consistent on this blogsite as Alan and I are living in the UK ha-ha). Last year the camera industry sold for the first time over 100 million stand-alone digital cameras. Nokia alone sold that number last year. Konica-Minolta the former camera giant announced this January they are quitting the camera business. Yes, there are many who are serious into photography and will buy a camera. But the best camera is the one you have WITH you when the opportunity for the picture comes by. Most people do not walk around with a digital camera everywhere 24 hours seven days a week. But - yes literally 24/7 already 60% of all mobile phone users take the phone physically to bed with them. Even when we sleep we have the cellphone within arm's reach ! No other gadget gets this level of addiction. So if that phone has a camera built-in, we have it with us every time. All those pictures we wanted, but just happened not to have our digital camera (or film based camera) with us, we DO have the cameraphone. Again, I grant you that cameraphone resolutions will lag technically behind those of stand-alone digital cameras. But hey, if Konica-Minolta throw in the towel, please don't argue there is a competitive advantage in fighting against the tsunami of the cameraphone (300 million sold in 2005) vs the stand-alone digital camera?

But Stephen, we do actually agree to a remarkable dgree. You do say that for casual use, a cameraphone or musicphone will be sufficient, but for serious users they won't be. I AGREE WITH YOU ! Its what I said all along. That iPods will become a niche market, only for those very serious into music. But the mass market, the casual users, whose numbers are tens of times larger than the serious users, the casual users will migrate to musicphones (and cameraphones).

Finally on the hard drive into your Razr. I hope you can see the continous miniaturization that is a constant in the IT industry, and hopefully don't doubt that within a short period of time (within a few years at max) there will be hard drives small enough to fit into the Razr? I mean my 2GB memory chip to my Nokia is literally smaller in area than the size of a thumb fingernail, and its thickness is less than that of a match. This is today. I know a memory card is not a hard drive, but I mean we are not far from that storage ability in very small devices already today. If you can do a iPod Nano, why not the next generation of the Razr?

On the "every conceivable portable device" ha-ha, we agree to disagree. I went on record with it back with my second book in 2002 and obviously was proven right with PDAs and digital cameras. I said musicplayers are next (happening now, obviously according to my argument, and I think most of you agree on the trend if not the timing) and I have already said that credit cards will be next with TV to come. Why not? But yes, only time will tell.

Jonathan - first, I love the itemized arguments. So let me reply in the same order:

1 - Spelling of iTunes and iPod. I stand corrected and I apologize.

2 - Ha-ha, funny you would say that. I actually did something very much like that to one specific question. If Apple manages to double its sales of iPods year on year every year (and nobody at Apple has dared to suggest they could continue to double sales year on year) and assuming musicphones would totally stop growing their sales, and only maintain their current level, then iPods will not catch up this year, not next year and not even in 2008. It wouldn't be until 2009 that iPods would be more than musicphones. Certainly nobody in their right mind could expect that Apple could hold off all rivals in such incredible market success - do remember that in almost all countries cellphones are subsidised, so users would seem to get their musicphones for free with their normal upgrades of the phone (while obviously they end up paying the full cost as higher monthly phone bills).

3 - Informa reports for the cellphone industry the sales of cellphones. The 119 million units number is only cellphones (musicphones in this case). It is not including laptops or PDAs or other devices with MP3 players except cellphones.

4 - The 6800 people in the survey. Here I do need to point out that this is a massive survey, of truly significant statistical relevance. Please check with marketing research friends and colleagues. They will say that 1000 people is sufficient to draw conclusions on the general public - this is why for example almost all election polls report on surveys very close to 1000. There are very rare surveys that go beyond 2000 users. This one (covering 15 countries) had 6800 people surveyed. Please don't take my word on it, but check on your independent sources. For you to claim that 6800 is an inadequate survey number, is honestly, from a marketing research point of view, not a valid argument.

5 - no please, the 2.2 billion vs 40 million comparison. I made the point that if a survey of 6800 people is based on "cellphone users" (not "musicphone users") then that survey target population covers essentially the whole economically viable adult population of the planet. But an iPod user population (40 million) is a very specialized population, obviously those heavily into music and who have a considerable amount of disposable income to buy the iPod (on retail price, as opposed to the "partial payments" type of payment of a "free" cellphone). For comparison, if we wanted to survey all motor vehicle owners, we'd get a good population for a road usage study. But if we limit the usage to only owners of motorcycles, that would not be representative of all users. The 2.2 billion cellphone users is like the motor vehicle onwners. But if we surveyed the preferences of only musicphones, we'd get heavily skewed opinions of those who are more into music. The results are much more relevant to the total population, when the survey is not only musicphone users. (I hope this was clear?)

6 - am sure that the 10% vs 19% users numbers, have significant overlap. Obviously almost every iPod user worldwide has a cellphone. Some have gotten musicphones. Some are disappointed in those, but others find the musicphone sufficient for occasional use. So many who have both, use both. Probably MORE of those who own both an iPod and an early musicphone are DISAPPOINTED in the musicphone and prefer to use the iPod. But again, as 4 times more people have musicphones than iPods, there are many more cases where a person's only MP3 player is on the phone. No matter how lousy the player might be, if its the only one you have, and you can move some of your songs from your CD collection or some shared MP3 files etc, then you use that. So yes, overlap. But also in absolute terms, significantly more people actually listen to music on musicphones than on (all kinds of stand-alone) MP3 players.

7 - Again, 6800 is a gigantic sample in marketing research, not a "miniscule" sample. This as someone who has written two books on marketing and lectures on marketing at Oxford University. But the 35% want to vs 65% don't want to listen to. I totally agree with you. It is very relevant to note that about twice as many people say they don't want music on their cellphones. As a side comment, I am sure that any survey in 1994 when the Internet was the cover of Time Magazine, most people would have said, I don't want it, cannot see myself buying a PC, why would I need e-mail or this web surfing. But thats the future, and I'll be happy to grant you the 65% don't want music on cellphones.

Consider how enormous is the 35% number. The world has today 2.2 Billion cellphone subscriptions in the world. 35% of that is 770 MILLION users. Remember that Apple has had four years to achieve 40 million iPod users. These 2.2 Billion cellphone users get new phones on average every 21 months (in Hong Kong, Japan, Korea the number is under 12 months). How soon will it be in the several hundreds of millions of actual users? Remember that the musicphones are now getting a lot better with all the "big boys" of cellphone makers getting into the act, aiming to fix all what was wrong with the Rokr and proving they can match or even out-do the iPod (and please remember, I am confident the iPod will sustain its lead. But rest assured that the R&D at Nokia, Samsung, Sony and Ericsson etc is heavily incentivised to try to match or exceed the iPod).

8 - "please show how many use the feature" - I did. 19% do. I don't need to repeat that 6800 is a massive survey, six times larger than what American Presidential election pollsters use in their weekly tracking polls etc..

9 - Japan and Korea skew the results - I agree but only as much as iPod/iTunes sales in the USA skew the same stats in the USA's favour. If we look at global numbers, a sale in Japan is as valid as a sale in the USA, and Japan is the second largest music market in the world after the USA. Still, I do admit the strong trend is proven only in Korea and Japan. The European and rest of Asia numbers are not yet proven. The early trends in those are promising to my point but yes, the music sales are clearly most in Japan and Korea.

I do admire you for all the nine points of dissention that you can admit that you see my point and agree it is a likely scenario in 5 or 6 years. So we really do only disagree in terms of timing, not the issue itself.

But you then ask the question about landlines. Ha-ha, sorry, I wouldn't have brought this up myself, but this is clearly another that the overall stats go totally against your point. In 2002 the world's cellphone penetration rate shot past landlines (USA is the second-to-last industrialized country where this only happened last year in 2005). Today there are almost twice as many cellphones as landlines (numbers very widely quoted by the ITU International Telecommunications Union and constantly echoed by the USA regulator and industry). That in itself does not prove my point. But in all countries after the cellphone penetrations match landlines, there starts the erosion of landlines. Young people start to abandon landlines. Finland leads in this stat, with over 40% of all households that used to have landlines, now have abandoned them as each user has their own cellphones. Portugal is the second in this stat at over 30%. In America the stat is nearing 10% already. So yes, your premise is good, if the cellular is so cheap and pervasive, shouldn't people start to abandon landlines. That is the trend observed in ALL industrialized countries and reported by their local regulators (and the ITU obviously).

Your point was valid, you probably just weren't aware that this in fact is already happening.

As to your conclusion "when downloading becomes as easy as iTunes.... etc... etc.." - I also find a lot of harmony with that sentiment. We do need to arrive at that state. But I am also convinced that we are at that point in many - not yet all - industrialized countries.

I should mention that the music industry is totally convinced that the future of digital downloads is on cellphones NOT on iPods. Universal Music, Sony Music, EMI and Warner Music have had their senior management quoted saying words to that effect in the Autumn of 2005. We have many of those quotes reported here last autumn at this blogsite.

Oh, by the way as an update, Nokia was in today's Financial Times (21 March 2006) bragging about having sold 40 million MP3 player musicphones during 2005. Nokia alone sold almost twice the number of MP3 player devices as Apple.

Manjara, Andrew, Stephen and Jonathan - thank you for writing. Please believe us that we love the iPod and iTunes. We said so in the book and have repeatedly said so at this blogsite (well, with the exception of Alan's bad experience with the fixing of his daughter's iPod ha-ha). We know it is technically better, and that it will be the favourite of those who really love their music.

But just like someone might love a Ferrari as a sportscar, doesn't eliminate the fact that the world's bestselling car brand is a Toyota. And that is what I wanted to report with my blog. That yes, today most MP3 players are on phones. And while not all of those are used, already MORE people listen to music on phones than on iPods. That the revenues are migrating to the cellphone based services. And the future preference is for the (casual user ie mass market) wanting musicphones rather than stand-alone MP3 players.

Please do not hesitate to comment further. We are very happy you visited our blogsite

Tomi Ahonen :-)

Stephen

I feel your argument has turned into a truism. You're basically saying that the free MP3 player and the free camera in phones will be enough for the "casual user", ie anyone who can't be arsed to get a real music player and a decent standalone camera. Well, obviously. But to define this outcome as the "death of the iPod" and presumably the death of the standalone camera, is ludicrous. People will still buy cameras. Would you go on holiday with just your cameraphone? People will still buy iPods. Your argument could have worked equally well in favour of other MP3 players: they're cheaper, they have more features, you can buy music from more sources. Yet other MP3 players haven't made a dent in iPod sales. People don't even ask for "an MP3 player": they ask for an iPod. And now you say they're all going to say, "Oh, never mind, I have an MP3 player in my phone already." Doesn't make sense.

My phone has an MP3 player. I only use it to play customised ringtones. All of my CDs are on iTunes, mostly not in MP3 format in the first place. Even if they were, the thought of transferring them via Bluetooth to my phone... so I can hunt for them with the crappy UI... why bother? It's easier just to take my iPod when I feel like listening to music. And if its battery goes flat I can still call someone.

As for buying music: the couple of times I tried to use my phone to find anything on the online services was a nightmare. I simply don't have time. I don't have 3G anyway, so downloading would take forever, and I'm not going to get 3G just to download music. I'm also not that interested in downloading music: most of my music is on CD. I tend to buy CDs on special etc where it's even cheaper than iTMS and I can rip at a higher rate (and no DRM). I don't trust my mobile operator
at all: they can send an SMS to my phone that disables it: what happens if they decide to kill (sorry: "upgrade") all my songs? What if I think I'm buying them but they're only mine as long as I'm a subscriber?

You say that a customer is a customer whether in the USA or Japan. But customers in Japan do not behave like customers in the USA: there are enormous cultural differences. A product which is a hit there may never work anywhere else, and vice versa. (And doesn't the fact that your "huge sample" was split over 15 countries invalidate your argument about its size? How do you choose similar profiles in different countries?)

You say that landlines are dying, but in the UK they are usually required for broadband. Sure, in the future we'll all have mega-giga wireless available everywhere, but we'll also have the entire audiovisual content of the Interweb available on our roll-out softscreen do-everything personal devices... which will be nanofactured in our home fabs for pennies. At that point, not only will the iPod be dead, so will every other currently existing device. So what? That doesn't change the current reality, and doesn't constitute a sound argument.

Tomi T Ahonen

Hi Stephen

Thanks for coming back. But look, I think I have responded to your first mailing. I think it is time you give me something other than your opinion.

I have reported the actual sales numbers and MP3 player phones outsell iPods 4 to 1 in 2005. I have reported the usage of the MP3 player functions on phones and standalones, and people use them on musicphones over all stand-alone MP3 players including iPod, at a rate of almost 2 to 1 in 2005. I have also reported the actual sales revenues from music sold to musicphones vs iPods, where MP3s to musicphones sold slightly more than to iPods. I reported the user preferences for having the MP3 player in the phones at 35% of the phone population and thus 700 Million people (obviously nearly 20 times more than the total of all iPod users).

Your responses are your personal opinions. I think now it is time for you to turn to some hard facts to support your side, apart from your own opinions. Can you site any stats or surveys published in any reputable source anywhere that could support your positions? If I give you stats and actual user surveys, then you do have to counter with something more than your own opinion. It is like stepping out into the downpour of rain and insisting it is a sunny day. Stephen, give me some real reported numbers to support your position.

Tomi Ahonen :-)

Tomi T Ahonen

UPDATE APRIL 21, 2006

Apple has released its latest quarterly data. No matter how much they try to put on a happy face and after severe price cuts, the tide has turned. For the first time Apple reports a DECLINE in sales from the previous quarter. iPod sales tumbled from 14.1 million in the fourth quarter 2005 to 8.5 million in first quarter 2006.

If any reader here thinks that its seasonal and shows no sign of a problem, my theme was and is, that mobile phones will dominate the MP3 player space. Look at the concurrent announcements from the biggest handset makers:

Nokia says it shipped 40 million MP3 players last year (as many as Apple had sold in 4 years) and that Nokia will DOUBLE its sales in 2006

Motorola says its MP3 player phones are showing very strong growth and sold 6 million units in the first quarter of 2006

SonyEricsson says its best-selling models are the new Walkman series, which show dramatic growth and sold 5.5 million units in the last quarter

Samsung also reports that its MP3 player phones show strong growth.

Apple reports iPod sales down 40%, all phone makers report their MP3 player phone sales up. Whose winning?

Tomi Ahonen :-)

an observer

I am neither disputing nor supporting your hypothesis, but I just want to point out that your stats on the Mobile music rev accounting for 40% of record company digital rev does includes Ringtones.

In fact, the IFPI report claims that majority of the revenue is from ringtones... "Mobile music now accounts for approximately 40% of record company digital revenues. Record companies are seeing sharply increased sales of master ringtones (excerpts of original artist recordings) which account for the bulk of their US$400 million-plus mobile music revenues."

Tomi T Ahonen

UPDATE - Apple released its iPod sales numbers for the second quarter ended June, on 19 July 2006. iPod sales crashing further from the first quarter, and down 45% from the peak at Christmas 2005.

At the same time each of the big 5 phone makers has reported huge increases in musicphone sales, ranging from 33% to 100% increases. The industry will ship 270 million musicphones this year (and perhaps 30 million iPods).

By the just released numbers, for this quarter, the iPod market share is down to 14% and falling fast.

See the full blog including all updated stats, industry analyst opinions, full quotes from music execs etc at this permalink:

http://communities-dominate.blogs.com/brands/2006/07/demise_of_a_dar.html

Thank you

iPod fan

Any further comments on this after Apple's latest numbers on nov 18 2006, showing year over year growth as well as a pick up compared to last quarters' sales?

/M

Tomi T Ahonen

Hi iPod fan

I don't want to kick the dead horse. iPod sales are up 7% from the last quarter, and have been dangerously stagnant now for three straight quarters between 8 Million and 9 Million units, nowhere near iPods peak of 14 M last Christmas. Meanwhile you probably did notice that Nokia, Motorola, SonyEricsson, Samsung and LG have all REVISED UPWARDS their enormous demand for musicphones. The industry now expects to sell 309 million musicphones this year vs 40-50 million iPods (I am being most generous as Apple has sold only 25 million so far this year).

SonyEricsson yesterday, LG two weeks ago said that their musicphones drive their sales. Nokia says it will double its musicphone sales. Warner just said the Nokia N-phones are typical of the new breed of musicphones while Samsung sees so strong musicphone sales that they rushed out the world's first 8 GB music phone.

So the picture is turning ever more bleak for the iPod. Apple is slashing prices, and released its 79 dollar shuffle, and all this only helped iPod to a 7% increase. When at the start of the year musicphones outsold iPods 4 to one, now they do it at a rate of 9 to 1.

The music sales to phones are now starting to follow the trends of musicphone releases (Korea first, obviously) and the related launches of music sales by the mobile operators/carriers. IFPI has just reported that in Japan 85% of all online music is sold to phones, in Spain its 78% and in Italy 76%. Even in laggard America, which only discovered this idea this time last year in 2005 - today 67 separate musicphones are already on offer, and 11% of all online music goes to directly to phones. All kinds of music press in America are now comparing the Walkmans, the LG Chocolates and the N-Series vs he iPod. What seemed like heresy only a year ago is obvious to all, this is the same market. Any sane person will consider these devices.

The global value of "real music" (ie exclusing basic ringing tones) sold to mobile phones is already greater than all online music. (and about those ringing tones, like I have said earlier, ringing tones themselves are more than 12 times larger than iTunes globally.)

America? Even America gets it now. The RIAA (Recording Industry Association of America) reported that real music sold to phones - excluding ringing tones - including MP3 downloads, music videos, mastertones and ringback tones - doubled in the first half of 2006. NPD Group reports that 19% of all cellphones sold in America in the third quarter have MP3 players. Instat reports that a third of American musicphone owners want their musicphone to be their primary music consumption device. IDC (the source quoted by Apple itself) says that even in the USA, already in 2006 half as many people will download MP3 files to phones as do to iPods. And a dozen industry analysts have now concluded that musicphones will steal the market from the iPod. Not ONE analyst group has said that the iPod can sustain the onslaught of the musicphone and hold onto the music sales market.

Of course these numbers pale in contrast to the leading countries. In Sweden 60% of all phones sold have built-in MP3 players. In South Korea already 45% of all music sold goes direct to mobile phones - note this is not 45% of digital downloads. And so forth.

Yes, iPod made a very small adjustment to its sales of the iPod. But as it only gained 7%, and are still down 40% from its peak sales - while in the same period the phone industry doubles its sales of musicphones, this battle is totally over. Nokia alone will sell twice as many MP3 players in its phones, as Apple will sell all variants of its iPods this year. 309 million music phones just this year. Think about it...

But thanks for writing.

Tomi Ahonen :-)

iPod fan

Well, thank you for replying. It's always interesting to see someone turn the numbers around. I don't agree with your conclusion that the iPod is "dead" or that sales are "stagnanat", but at least you make a case for your conclusions.

I will look back at your analysis after the christmas season, which will prove interesting.

BTW, if the iPod would indeed be dead, how would you describe the Zune? :-)

iPod fan and Nokia 3310 owner

Håkan

iPod fan, Tomi has never claimed that the iPod will die. What he claims is that the iPod will (or already have) lost its position as "the mp3-player to define the market". Manufacturing and selling iPods can still be a profitable business for Apple for years to come the same way Porsche (or Kia) is a profitable car manufacturer despite the fact that very few consider Porsche (or Kia) to be the car manufacturer defining the car market. This is instead done by larger players such as Ford, VW, Toyota etc.

But you have to put it into perspective. iPod have sold roughly 70 million iPods or 30-35 million/year. If we expect a turnover rate (average lifetime) of two years there will never be more than 60-70 million iPods with active use at the same time no matter for how long Apple continue to sell the Ipod. There is 6 billion people on this planet, in not to long most of these (even in rural and poor countries) will have a music-phone since every phone sold sooner or later will be a music-phone. So it's 1 billion music phones sold every year compared to 30-35 million iPods. Put it in this perspective and you will understand his title "demise of a darling".

The iPod will be reduced to a niche product and no longer gain the same kind of media attention as it has been exposed to for the last few years.

iPod fan

"iPod fan, Tomi has never claimed that the iPod will die."

Ummm ... "2006 the year the iPod died", "The Demise of the iPod" and "Nails into the Coffin of the iPod" ... it sure seems to me that Tomi is claiming that the iPod will die, or at the very least that it is very unwell.

Or maybe he isn't actually saying that, but his headlines sure are. And I think it's reasonable to think that he stands behind his headlines as well as his lengthier analysis.

"The iPod will be reduced to a niche product and no longer gain the same kind of media attention as it has been exposed to for the last few years."

Maybe. Maybe not. As I said, this is an interesting perspective, but I don't agree with his conclusions. Or maybe it's just that I don't agree with his headlines. :-)

But I believe you are right. There will come a time when the iPod will not be the pet digital toy of the media. It's all a natural part in any product life cycle. But surely, 2006 will not be the year when the iPod faded from the lime light. Just take a look at the press. Even if Tomi is right about the market share and people using their mobile phones for mp3 playback, Apple is still the media darling, and the success of the iPod is the reason for that.

So maybe it's in 2007 that the iPod will fade? Or in 2008 that the final nail will be hammered in? Keep the predictions rolling, someone is bound to get the year right some day sooner or later.

:-)

Ipod fan

Tomi T Ahonen

Hi iPod Fan and Håkan

Thank you iPod Fan for honest follow-up and fair minded discussion. And obviously, thank you Håkan for replying already to the main point.

So yes, iPod Fan, you are right - the iPod will not die this year, neither physically as a device (cease to function) nor discontinued as a product line by Apple nor find its market or customers vanish. Yes, the iPod will continue to sell, and in the context of the IT peripherals industry - 40 or 50 million units per year is a very big business opportunity indeed. As we all know, Apple earns half of its income from the iPod, and better yet - the iPod has strongly revitalized the sales of the Macintosh computer line - and contributed to Apple profits.

In every way a business success for Apple. I say so in each of my three main blogs on this topic, from September last year to July of this year.

I do make it very clear in the text, that I selected the headline "to be provocative" - and I intended to get the attention of those outside of strictly a telecoms audience, that during 2006 the shift will happen, and the iPod will lose its global lead, and it will be mercilessly pushed to being a niche product. This I argued 13 months ago, would happen during 2006. That the total devices sold, the users of those devices for music consumption, and the sales of music itself - would all shift during 2006 away from the iPod to the musicphones.

Then I've said all along - that there is nothing wrong with being a niche product. Porsche and Ferrari are niche cars. Not intended for the mass market. You can't fit three kids in the back seat (there is no back seat). You can't fit your week's groceries in the trunk (ie boot) - there is no trunk etc. You can only fit one fabulously beautiful (slenderly built) woman (or man) in the passenger seat, and the car goes fast, on good roads. And costs many times more than the mass market device, and is only aspirational for most car owners, far beyond their true reach.

The same had happened to the Apple PC. Before the IBM PC came along, Apple dominated the PC market. IBM took it over. The Macintosh was a revolutionary device - and the Windows variants of the IBM-compatible world were pale copies of Macs. Yet even though it was far superior - and more costly - the Mac never regained Apple's dominance, and has been a niche PC ever since.

The same happened now in 2006 to the iPod. In 2004 the iPod was the undisputed king of the portable music consumption electronics. In 2005 the phone makers released their serious music players and by 2006 we have their second generation music devices - like the iconic LG Chocolate, the Nokia N-series - which Warner Music CEO just singled out by name in his Quarterly review as the perfect example of why music is shifting from the iPod to musicphones, and the SonyEricsson Walkman branded musicphones - which Apple CFO Oppenheimer last July singled out by name as being in the same market as the iPod.

So what happened. Apple had its record quarter in the Christmas 2005 sales - 14 million units. Now in the first three quarters of 2006 their sales have stalled at the 8 million to 9 million range (8.5M, 8.1M, 8.7M). The latest small revival in sales, 7% rise from 8.1 M to 8.7 M in this last quarter just ended, was achieved - according to Apple CFO again - by severe price cuts across the whole iPod model range, and by releasing the lowest-cost iPod ever, the 79 dollar Shuffle.

Sure, you can get some sales by slashing prices. Sounds pretty desperate to me. But maybe that is symptomatic of the whole industry, right?

Last year the musicphone makers sold 170 million musicphones (vs 34 M iPods in 2005). By the second quarter 2006 the industry said demand for musicphones was so big, they said 270 million this year. Now the demand has grown so much, that musicphones are to reach 309 million. The market is EXPLODING. Yet Apple sales are stagnant.

Lets return to that price issue. Apple recovers 7% by slashing iPod prices. Fine. How about musicphones? All of the big five phone makers - Nokia, Motorola, Samsung, SonyEricsson and LG - report that their MUSICphones are driving their sales. Note that they all make many other optimized phones, the Blackberry-style e-mailing phones, the TV-tuner phones, the camera optimized phones like some Nokias with Carl Zeiss lenses, SonyEricssson's Cybershot phones and Samsungs with 10 megapixel resolutions, etc etc etc. Inspite of all of these, each manufacturer has said this Spring, summer and autumn, that it is expressly their MUSIC phones that drive sales.

How much is that? LG says the Chocolate is their bestselling phone ever. Motorola says their Razr V3 (musicphone) is their bestselling phone ever. Nokia says they will double musicphone sales this year to 80 million. SonyEricsson says Walkmans (the premium music phone) account for 25% of all SonyEricsson phone sales. But just yesterday Carl-Henrik Svanberg, Ericsson CEO was on CNN where he talked about the PRICES of their phones.

Svanberg said that the demand for SonyEricsson musicphones is so big, that not only do Walkman phones sell at a premium, now they are able to charge a premium for even their lower cost (non-Walkman) musicphones. So strong is the global demand for musicphones.

Apple reports massive price cuts, barely stablizing its sales. Music industry in a chorus reports ever more impressive sales and that they are charging premiums for expressly their musicphones. This is that very same phone that Apple CFO Oppenheimer mentioned as being a direct rival to the iPod. Am I dreaming this stuff?

Users? Music Revenues? Devices? They have all shifted during 2006 to musicphones. Like I've said, from 70% to 85% of all digital music sold in countries like Japan and Spain and Italy go directly to phones. In Sweden, the SMALLEST of the network providers (wireless carriers) - outsells all of iTunes Sweden.

And notice, this is still only the START of the avalanche. Even in laggard America, by third quarter 2006 you have 67 separate models of musicphones on offer. The cellphones are replaced on average every 18 months, and most are available on a subsidy basis at costs from 50 dollars to zero dollars. And already feature storage ability up to 8 GB internal and will take 2 GB (soon 4 GB) swappable memory modules.

If you already own an iPod. If you're already a Mac user. If you're very seriously into your music, you'l want an iPod. Even then, you'll probably try out the musicphones, and may shift part of your listening to a high-end musicphone like a Walkman, Chocloate or N-Series.

But if you're mass market, and its time for your upgrade, and you think you'd like music with you, but havn't seriously yet considered buying an MP3 player, you'll be delighted to notice one comes built-into the new phone.

The mass market shifted this year. By the third quarter, Apple iPods are outsold 9 to 1 worldwide. That will ONLY GET WORSE. While the phone makers release ever more potent "iPod killers" bridging the gap in performance, the mass market has already shifted irrevocably.

I said in my April posting that the speed of the shift took even me by surprise. It is no longer a surprise, I have moved on to track the battle in the next games, the much bigger games beyond the tiny market of music (all global music sales would only be 5% of total mobile telecoms revenues, and obviously iTunes is a tiny fraction of that). Now the phones target TV, internet, credit cards and advertising. Now we're looking at industries of similar scale to the mobile telecoms industry, and really big global players are now involved. That will be a hot market for 2007.

But iPod fan, you also asked about Zune. I think Microsoft came too late for this party. They'll give the iPod a lame rival, and together with the various Creative Labs and the Chinese, Korean and Taiwanese electronics gadget makers they'll fight for this market for years to come.

However, this is not "bad thinking" by Microsoft. Microsoft is into the mobile future in a very big way already - far ahead of Apple in this huge opportunity - thought the Windows Mobile operating system for smartphones. While many are critical of the merits of this operating system, Microsoft keeps rolling into that battle with a long term view, and keep gaining converts and more and more smartphone makers into their "stable". They have a very big stake in this battle, vs the Nokia-led Symbian operating system (and some others who are bit-players)

Also, yes, I will do an annual review after the fourth quarter data comes out.

If you want my gut feeling now, as a minor preview, I am confident Apple will have a good Christmas sales period. Certainly iPod sales will recover into the double digits. Will they exceed Christmas 2005 is still too early to tell, the signs are not very good, but they might. So I'd say now they might do anything from 11 million to 18 million in sales. That brings them in line for about 36 - 44 million iPods sold this year. That vs 309 million musicphones. At the top end, this means 8 times more musicphones (for the full year) than iPods. Even if Apple has a HUGE Christmas, more than doubles sales from now, and grows Christmas record sales from last year record levels by 30%

Yes the time of iPod dominance is irrevocably over.

Oh, one more thing - that 309 million musicphone shipment industry forecast was made BEFORE this round of industry player revisions to their portfolio performances. As EACH of the five big phone makers says music drives their sales - and as they can't keep up with demand and even charge PREMIUMS for musicplaying phones, this means that the actual fourth quarter musicphone sales will again exceed the estimates made based on input of market demand in the summer.

I am confident the musicphone sector will sell more than its current projection of 309 million units this year.

But rest assured iPod fan, I will give you all the numbers after the fourth quarter data is in. This has been that important a story for our blog readers this year...

Thanks for writing and visiting.

Tomi Ahonen :-)

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