Stampeded by Mac fanatics, replying to 32 comments on iPod 14%

The 14% iPod market share posting attracted thousands of Apple, Mac and iPod site readers to our site. You are all very welcome. Many left comments, most of those were understandably surprised, shocked, argumentative, some even resorted to the "you are an idiot" level of response.

UPDATE - I have posted two graphs on a short related blog that hopefully explains it very simply what has happened. Please look at those graphs at this link [Apple quarterly iPod sales and iPod vs musicphone sales]

We had over 3000 visitors mostly from only two addresses - Mac Surfer and Mac Addict. Our blog was featured at both with the link here. It is very nice to have all you stopping by, I do apologize if in my blog I hurt any of your feelings, as clearly those who are members of a website dedicated to Macs would easily feel passionate about Apple and iPods. To be very clear right from the start - we LOVE Apple. We LOVE the iPod. We think the iPod has been a brilliant strategy for Apple. And yes, any music experience on an iPod is far superior to any music experience on a musicphone.

That all being said, in my blog I pointed out that last year the tide has turned. Until 2004 Apple had the MP3 player market mostly to itself and boasted over 80% market share at Christmas 2004. Last year the big competitors like Nokia, Motorola and SonyEricsson jumped into the portable MP3 player game, and today Apple's market share does stand - on a global basis, not USA only - at 14%.

The facts are irrefutable. And not one of the 32 replies tries to deny the numbers I quoted straight from Apple's own quarterly reports and the various industry analysts etc. The arguments were more along the line that "music is better on an iPod than the toy-like musicphones" etc.

We received 32 replies as of late night on 20th July London time (likely more to come as the American West Coast got into their evening blogging activities - I will respond to those as well, so don't panic)

I usually reply to each respondent in the comments section, but now thought it best to put my comments out here as a new blog as there seems to be several clear lines of argument and these warrant their own responses.

There were 32 replies from the following people:  Dean Bubley Piers Fawkes, Sandeep, BobAB, Bert C, Kevin Barbs, swissfondue, Bela Sopron, william (twice), Curious, Jiim Harner, Rus, D9, Barney F, Johnny Appleseed, David Gnotta, MacKeyser, Rue, UranIdiot, Adam, Jim, Riot Nrrrd, peyote, Tonio Loewald, Musictasty, Mike, Cameron, JPO, vego, Paul Jardine and Chap Harrison

I will reply to every comment here now. But let be start with three observations:

One - if you did not read my original blog, then I think it is unfair to comment on it. I will still reply to you, but honestly, please do go read the blog where your reply now sits as a comment.

Two - nobody provided any actual numbers or facts against my blog entry. While dozens were appalled at comparing musicphones to iPods or arguing that music was not listened to on musicphones, nobody said my numbers were off. Clearly 8 million iPods out of 58 million portable MP3 players sold worldwide in the April-June quarter of 2006, is 14%. If Apple tries to push its USA-only market share figure of 77%, I think that is quite shaky statistics. The numbers you have at this blogsite are all for global numbers as Alan and I regularly advise global companies on their strategies.

Third - Apple itself totally agrees with the premise of my blog. One of the commenters, Bert C, quotes Apple Chief Financial Officer Peter Oppenheimer who in the official Apple conference call to investors on 19 July 2006 clearly states that he thinks over time phones will take over from iPods - as the phones improve - and also that Apple was preparing for that time with its own iPod phone. I ask that Mac fans take note of that guidance from the CFO of Apple - this is the inevitable future. We may disagree to when and what degree it will happen, but all experts agree it will happen - even Apple.

It is bewildering when one notices the world has suddenly changed. Musicphones as a mass market offering were only released three years ago in South Korea. Phone makers got serious about musicphones only last year 2005. This year 2006 is the first full year we will see full, real market competition in MP3 players between iPods, the other stand-alone MP3 players, and musicphones.

All of you reading this blogsite are actually among the "early" ones to discover that new world. Its so new that just a year ago few were even talking about it.

Yet there is no going back to a time when MP3 players were exclusively on stand-alone devices like the iPod. We are now witnessing a transformation. It is like the introduction of jet engines to airplanes. Propeller driven planes did not disappear even as the mass market jetliner market transformed to the jet age, even today there are many niche airplane makers who specialize in propeller driven aircraft.

Similarly the shift from the iPod to the musicphone is an ongoing process, will be prolonged, and will not "eliminate" the stand-alone iPod, of course not. We say so all along. Only that the iPod is becoming a niche offering, just like the Macintosh PC is a specialist niche PC. The transition from iPods to musicphones is like the transition from desktop PCs to laptops. Like the transition from old box-style (cathode ray tube) TV sets to new flat screen TV sets.

You don't need to take my word for it. I recognize Bill Gates is a red flag for many Mac owners, but just this May Gates said mp3 playing phones will kill iPods. I mention the Gates comment not to anger Mac website visitors, but rather to point out the date. Bill said it on May 12 in Frankfurt, this year.

The world is coming to the same view. I urge those passionate about Macs, Apple and iPods, to take a deep breath, clear your minds, remember that Apple itself says musicpohones are the future - and then read the original posting.

WE LOVE APPLE. The iPod was a brave move five years ago, and the iPod has totally re-energized and revitalized the Apple brand, not to mention making Apple totally credible into moving into the media space. The iPod is profitable (LG the fifth-largest phone maker just released numbers complaining about the lack of profits in the mobile phone business) and most of all, the appeal of the iPod has brought up the profitability of Macintosh computers.

We are not idiots here at Communities Dominate Brands. We did select the iPod and iTunes as our case study in our book on how to create a new market space.

But we are also realists here at this blogsite. As Apple itself admits the future of MP3s is going to mobile phones, and Oppenheimer himself specifically talked about the SonyEricsson Walkman phones - saying in his opinion the Walkman phone was not yet as good as an iPod - we here at this blogsite then provide you the reader with the big picture.

So you hear Bill Gates and Peter Oppenheimer tell that the future battle is between phones and iPods. In fact out of the 32 replies from what is best described as "Mac Fanatics", five fully accepted that musicphones are the future.

But if you want to understand that future, there are almost no sources yet giving you the real big picture numbers. I track this industry and I've seen only three analysts so far (out of over 4000) to give numbers on that inevitable future market that includes both MP3 players and phones - Yankee Group, Strategy Analytics and IMS Research - and all of these within the last two months only. It is a new world we discuss, and for most visitors its the first time they learn that the iPod is not in fact the world's predominant portable MP3 player. It is quite a shock.

We don't mean to give Bill Gates's view - he is clearly biased against the Mac - which is why I did not quote him in the original blog. But also we did not report Oppenheimer's view as he is clearly baised in favour of Apple and the iPod. We reported the first published top management views from EACH of the four global music publishers - these are the honest independents who have no axe to grind - Warner, EMI, Sony BMG and Universal. Those four experts all say (that in the long run) music will be consumed on phones, not on iPods. I have their verbatim quotes in the original blog. I bolded their company names out so you can easily find that section. I urge you to read what the music industry says, expressly on the point of standalone vs mobile phone MP3 players. Then please re-consider. I recognize my view is controversial, but it is no longer presented in a vacuum. Now the music industry itself has arrived at this view. Why are they NOT saying iPod will rule over mobile phones. Not one music industry top exec has come out saying that this year.

So onto the comments. I will deal with each:

You are an idiot

First there are the "you are idiots" comments. Thank you Rus, UranIdiot, Adam and Riot Nrrrd. Thank you. You are entitled to your opinion.

Is badly written

Rus complains the blog is badly written. I apologize. But its a blog, not meant to be high prose or poetry. I do have a day job, ha-ha, so this is, like most blogs, a hobby for me (and for Alan Moore) and a way to keep in touch with our readership.

Agree with us, celebrate Apple success

There were several comments who only pointed out Apple excellent quarterly data such as its total sales numbers, profits, press reviews and stock price performance. Piers Fawkes, BobAB, william, Mike and Chap Harrison all posted about this. We agree totally, Apple's corporate results this quarter were excellent. This is not a financial analysis blogsite and we don't make any stock recommendations, so it seems quite beside the point. But these are totally non-responsive to the point that iPod market share has declined dramatically. We fully admit iPods are profitable and Macintosh sales are up and Apple profits (and share price) are up. Thank you for the comments.

Agree with us on phones to dominate, disagree on timing

Several who commented did accept that over time musicphones would be a significant part of the MP3 player market, but argued the timing is not now. Dean Bubley, Kevin Barbs, william, MacKeyser and Cameron all agreed (to some degree or another) that musicphones would/could become a rival, but not yet. Two further commenters and MacKeyser mentioned Apple's initiatives towards the iPod phone, so these comments would relate also to understanding the convergence device is coming. I think MacKeyser's comment is typical of this set when he said "Is there crossover? Sure, and you make some valid points on where that convergence is headed"

To this point, I ask all to revisit this blog from time to time and see how the numbers play out. You all "get it" already, but you doubt my numbers so far. Let see how the various other industry experts start to report this story. Remember its totally new, last year nobody had numbers on it yet. You are on the cutting edge of understanding this transition.

Agree with us that iPod is better than musicphone

We made it perfectly clear that iPods are better at music playing than phones. We totally granted this argument in plain simple words in the original blog entry (and previous ones on this theme). Still three of the people with comments made this point to agree with us - Johnny Appleseed, Musictasty and Paul Jardine. Like we said in the blog, its irrelevant if music is better on an iPod. What is good enough is the point. The Mac has always been the best PC yet it has never dominated the PC market.

Mistaken reading of the blog

Two replies reflected mistaken reading of the blog itself. These are luckily easy to reply to and "correct". Sandeep commented (accurately) on phone vs digital camera, but then he suggested we'd talked about phones vs hand held gaming consoles. I never mentioned hand held gaming consoles, or videogaming consoles in general

And Jim compared my statement that in the "first quarter of 2006...[Apple had a] catastrophic earth-shattering crash of 40% drop in sales." Note that the brackets are Jim's. Of course I talked specifically about iPod, not Apple overall sales. Then Jim quotes Business Week's analysis of the the Apple quarterly results. Jim mistakenly looked at my clearly labeled FIRST quarter 40% drop - which is in no doubt whatsoever, Apple's own Chief Operating Officer Tim Cook on April 19, 2006 at the Apple quarterly conference call to investors explicitly talked about this 40% drop in iPod sales from the Christmas quarter. So Jim's quote from Business Week July 20 reflects this just-ended SECOND quarter, when iPod sales are down a further 5%. I'm sorry Jim you accidentially looked at the wrong quarterly data. Business Week was quoting on the latest quarter, my 40% comment was on the previous quarter.

Related argument - Apple will rebound next quarter.

One comment, by Peyote, took the view that Apple will rebound. From one quarter I could give it the benefit of the doubt, but after 17 straight quarters on sequential quarter-on-quarter growth when there was no strong competition, and now with five strong competitors, Apple reports two straight quarters of sequential decline, its looking awefully bad to believe in a "seasonal" return for the iPod. Peyote. I promise to report it here if Apple's iPod sales do rebound. Its just looking awefully bad.

Whole market is down

So then we get into the actual arguments. D9 tried to justify iPod's two straight drops of sales as it being part of the whole industry downturn. D9 wrote "if you measure the MP3 sales figures for the 4th Q of 2005 vs. 1st Q of 2006, you'd see that the entire market was down in comparison" That would be a valid concern. Except that in the same time each of the big phone makers reported record GROWTH in their MP3 playing musicphone sales. SonyEricsson doubled Walkman phone sales from last quarter 2005 to first quarter 2006. Nokia and Motorola both report huge increased demand for their musicphones for first quarter 2006. The actual real market did grow. In a growing market iPod sales shrunk. While keeping Apple fans happy with top-end devices, Apple is losing the big war for the mass market. Just like the Apple 2 for desktop computers in 1984 or the Macintosh for what we now ironically call windows computers (Macs had "windows" for five years before Microsoft) in 1993.

Outdated data - 4GB musicphones are reality today

Only one comment came around the storage arguing phones can't match iPods, from MacKeyser, "I have 4 GIGABYTES for audio". Obviously the iPod shuffle brings the iPod range's storage down to 1GB. But already early last year 4 GB musicphones appeared (first by Samsung, whose top model today stores 6 GB of music). The Nokia N91 has 4 GB of internal storage, and top-end musicphones accept removable storage which is now shipping at 2 GB of storage. There was a day when iPods had a huge advantage due to the storage ability. With Shuffles and Nanos that advantage does not exist and with top end iPods the lead is diminishing.

Phones are for calls/texts, not music

Several argued that phones are used (or should be used) for its primary use, calls (and text messages). That music is not a natural thing to do with a phone. Riot Nrrrd, Cameron, Paul Jardine made this point and Kevin Barbs also eluded to it. As Cameron put it "people are not buying phones BECAUSE they play music ... they buy phone because they are phones. Music is just an extra,"  First - this does not dispute the market share point of the overall argument. The REASON why people are buying a portable MP3 player does not eliminate the fact that they are buying them.

But this argument had me thinking. Follow me on this... So if today I want a music player. In the store I see an iPod for discounted to 189 dollars. Then I visit my cellphone carrier's store, and spot the brand new SonyEricsson Walkman phone. And I find out that in September when my cellphone contract comes up for renewal, I can "upgrade" to the new Walkman NW-A1000 with 6GB of music storage. And that phone will cost me 25 dollars with the annual contract to my cellphone provider. It becomes a "no contest".

I think you three are further proving my point. Thank you.

People don't listen to music on phones

This I think is a very relevant observation. Like swissfondue said he has a radio in his car but only listens to his CD collection. Riot Nrrrd also argued this point and Johnny Appleseed puts me to task saying, "Your article conveniently avoids the question of how many owners of music phones actually use them to listen to music"

Actually I did do that very thing in the original posting. I quoted the findings from the first global study that compared music listening habits on phones and on iPods and this global study of 6.800 users said clearly that twice as many people already listen to music on phones as on iPods. We reported on that study at this related story in March of this year:

http://communities-dominate.blogs.com/brands/2006/03/nails_into_the_.html

Music bought via iTunes

Two comments, by swissfondue and Johnny Appleseed, repeated Apple numbers on USA sales of online music and iTunes market share in the USA. Yes, we have no problem with that number being 80% - in America. But there is a much larger world outside America, and the RIAA reports its numbers to the IFPI which gives the global numbers. I quoted the IFPI numbers. Rest assured the Apple numbers are fully accounted in the IFPI numbers. Globally the tide turned this Spring, when the IFPI reported that half of all music sold online was to mobile phones (up from 40% at end of 2005). As we've often reported at this blogsite the two leading countries for music consumption on cellphones are South Korea and Japan. In South Korea today 45% of ALL music - not just online music - is sold directly to mobile phones.

USA market vs world market

Two comments were specific to the point of the USA market being perhaps different from the world, by william and Johnny Appleseed. william wrote "Perhaps things are different overseas, what a blow for Apple not to control the whole world"

I will happily grant this argument to this degree - iPod's market share in America is highest it is in any country; and iPod will retain its strongest position in contrast to cellphones, in the USA. That is fine. Out of the total world's population only 5% live in the USA and they produce only 20% of the total world GDP. I would be doing a horrible disservice to our global readership if I only focused on America. Equally, as Apple regularly reports on its international sales, even Apple needs its international markets, else the prices of your Macs and iPods in America would be higher. Its a global economy william and Johnny Appleseed.

I don't use the MP3 player on my phone

Many resorted to the argument that "because I don't do it, others won't do it too". Sandeep, william, Jiim Harner, vego, and JPO wrote on this, and JPO's comment is typical at "I recently bought a motorola phone that has the ability to play mp3 and take pictures (it's not the iPod phones). YAWN. Never have taken a picture with the phone, and I have no desire to play music on the thing". This is a very typical human response to change. Because you don't like something new (yet), you assume all are like you and nobody likes it.

I think Mac fans will feel a particular pain in the eternal struggle to try to convince the world that Macs are better. After all the huffing and puffing for 20 years, the mass market has not moved. We have different needs. That your PERSONAL need is not like what I report, does not invalidate what I report. Note that I supported my facts with the world's first global study of phone vs iPod use - and yes, that study included the USA in it - and found that there are twice as many people like the ones I report on, as there are people like you. And that study was done before the sexy new Nokia N91's and Walkman phones and Razr V3i's etc.

But I think we'll find common ground. I said from the first blog back in September of 2005, that the iPod is not going to disappear. There will be many like you, who love their iPods and will insist of course on a device that is that good. There is nothing wrong with that. Some people demand excellence. But the world's best cars are not the world's best-selling cars. Unfortunately the mass market does not demand such high level of quality and is clearly willing to accept lesser MP3 players that are integrated into their phones. So yes, there are people like you, only they are in the minority, not the majority. For every iPod sold this year, six people bought musicphones.

Battery life dictates phone unusable as MP3 player

An interesting argument came from Riot Nrrrd and Cameron, who said that phones are poor as music players because of draining battery life - hurting the phone's primary function, calls (and messaging), as Riot Nrrd writes "no one wants to chew up their battery life playing MP3's when they need it to make phone calls". This is a good argument. It of course falls into the "my technology is better than yours" argument, which I have long ago granted to the iPod, that it is better. But I think this argument deserves more. The argument suggests that to use an MP3 player on a phone, will actually damage the phone's primary functionality to us.

Partly this will help "stem the tide" in favour of the iPod. And it is something that many first-time musicphone buyers will not think of, until they have used the music player and discover how quickly it does drain the battery. You listen to songs on the plane and then upon landing when you'd want to call, the phone battery dies.

Will it save the market for the iPod. No, I don't think so. I think we all know batteries are constantly improved, but equally we all see from our laptops and cellphones, that no matter how much batteries improve, the manufacturers cram ever more power-hungry features to again drain those. Perhaps the big winner out of this is the battery suppliers to the Nokias and Motorolas (and when Apple releases its iPod phone). As the phone battery is recharged on a daily basis to cover for the music consumption, the batteries will not last the expected lifespan and thus the replacement battery market will grow?

We'll have to monitor developments on that.

But phone can't do this like iPod and Nike

BobAB replied asking if phones can do what Nike and the iPod now do in collaboration. He provided a link to the Time article about it.

Let me reply with "of course" except that phones can do way much more than what Apple can hope for. Simply because phones have so much more connectivity already built in. But on the specific sporting applications with Nike, I think BobAB will be surprised to learn about the Nokia 5500 Sportsphone. The rugged design is somewhat waterproof (splatterproof more likely) includes the measurements of all relevant sporting data like speed and distance, steps taken (in jogging) calories burned, etc. With a built in FM radio, MP3 player and flashlight, it also includes text-to-speech conversion so you can listen to incoming text messages and not interrupt your jogging or whatever sporting activity you are doing.

Years ago they released the first sporting phones to help for example competitive cyclists train etc. Phones are used by the biggest sporting event in Sweden Vasaloppet (imagine the Boston Marathon but on skis) - and all participants get real time performance data via their cellphones. Yes, Nike + iPod? for phones its "been there, done that". Years ago.

Digital Cameras did not die

Five felt I'd gone too far with the digital cameras analogy. Sandeep, william, Riot Nrrrd, Peyote and Cameron all argued the cameras argument. william did quite a complete response, direct current quotes from camera giants Nikon and Canon, both quoting their SLR (Single Lens Reflex) camera divisions with big growth in the latest quarter. william me to reconsider "If you aren't feeling too stupid yet, tell us how that has affected the market for standalone cameras"

This is a classic case of crying after spilled milk. This train has left the station two years ago. william quotes Canon and Nikon with 30% increases in their top-end camera sales for the quarter. I did point out in my original blog, that this same quarter the two biggest rivals to Canon and Nikon - Konica and Minolta - who have merged - announced this January that they are quitting the camera business altogether.

Game over. Two of the four are already dead. Why are Canon and Nikon only reporting 30% and 20% growth? If there was any strong market for cameras, they would pick up all of Minolta-Konica's customers (and be up at least 50%). When two of the world's largest manufacturers of the industry totally quit, thats a pretty strong sign that the time for that technology is over. Cameraphones today offer 5 Megapixel resolutions, 3x optical zooms, 20x digital zooms, built-in flashes etc. Its not ever going to replace the professional digital camera - the wedding photographer will not show up with a Motorola - but this is a point the camera industry admitted in 2004 - they lost the battle.

iPod phone supports our premise

Then Bert C, Bela Sopron and MacKeyser mentioned that there are strong rumours of an iPod phone. Bert C quoted Apples' CFO Peter Oppenheimer saying expressly on the future iPod phone at the 19 July conference call: "we are not sitting around doing nothing." Obviously if am iPod musicphone is a good idea, then there is no reason to dismiss the Apple rivals from pursuing that idea. And then, definitely, it becomes very relevant to measure the total market. If Apple already suggests it will move into this converging area, we need to understand it. So at least on the premise of the blog, that musicphones and iPods need to be examined as one market, here we find agreement (also with Apple management obviously)

Accept multipurpose on phone but reject music

Two comments had interesting viewpoints. JPO and Riot Nrrd both accepted that the phone had grown to have new features. JPO mentions, "The new phones that integrate email/computer with phone are pretty cool." while Riot Nrrd accepts phones are used for text messaging in additon to the oringial concept of voice calls. but then both refuse to accept music on the phone. I think these two are half way along to accepting the premise, but need a bit more time to come to it. Like I said before, 45% of all music in South Korea is sold directly to musicphones. Just like text messaging was something initially rejected but soon spread to everybody, I am convinced music will see the same.

I want two devices

One comment by Jiim Harner said he prefers his segregated devices. That is fine. There will always be some like that. We never said iPods will disapper, only that the mass market is the musicphone.

Interrupt incoming calls, transfer calls

Mike commented that incoming calls, messages would interrupt music. Yes, that is true. But if you listened on your iPod and your phone rang, you'd need to pause your iPod as well? It makes no difference is the iPod interrupted or the musicphone interrupted. Calls would interrupt in either case.

Mike also said phones would have hassles of transferring music to the next phone. Yes, this is true. And in South Korea for example on the Melon music service on SK Telecom, you pay a subscription to own all the music you have. The carrier ensures all of your music migrates with you into all subsequent phones as long as you stay as their customer.

Future belongs to removable storage

Tonio Loewald provided a very interesting view to the battle of the MP3 players. That the future belongs to the removable storage device. "The best data storage/transfer device is use-agnostic. Who wants to load their music collection onto a cellphone if it will be stuck there when, inevitably, the cellphone is obsolete in a year? Tiny, unpowered 2G+ storage devices which can plug into anything, store anything, and be used for anything, will devour all of these transient technologies". And Tonio obviously argues that because of this a "winner" in iPod vs musicphone is irrelevant. A very compelling argument. I would say its time is yet to come. Perhaps a concept for a couple of years into the future (as a mass market proposition, remember.)

Food for thought

Paul Jardine left us with another thought-provoking idea asking, "How many of the 8.1 million that bought iPods last quarter already have MP3 capable phones? I suspect it's not a single digit percentage..."

First, I don't think its a single-digit percentage, because some of the people who have MP3 player phones will want a BETTER MP3 player - of course and iPod. Others who bought iPods last quarter are existing iPod users - some of whom are now getting MP3 players for any range of reasons. So they are already loyal iPod users. Whether they put some of their music on the phone or not, these customers who bought iPods wanted another iPod experience. And some do use both. Prefer to use the iPod when they can, and put some tracks onto the musicphone for when the iPod happens not to be around.

Wants market share breakdowns for the fun of it

One person, Curious, asked for many more splits in markets for nine categories, just for the fun of it. I have spent a very long night responding to all the comments relating to our topic (iPod market share is only 14% of all portable MP3 players) so I feel this request is quite unreasonable.

But let me offer the first item you asked Curious. You wanted split of digital cameras vs cameraphones. Note that I've stopped tracking this stat since the cameraphones won years ago, but the last numbers I've collected come from global IT industry analysts Strategy Analytics, for the year 2004. They reported on 15 April 2005 that globally 68 million digital cameras were sold, and 257 million cameraphones. Exact market share for stand-alone digital cameras by 2004 had fallen to 20.9 percent. You can find the story in the International Herald Tribune. Satisfied? We report these kinds of statistics at this blogsite regularly, across all of the media, IT and telecoms industries that are now converging. We just discussed your wristwatch issue - with stats - earlier this week.

As to "creative market-share numerology" - Curious, I report all numbers with full sources. The numbers I used for Apple iPod sales were Apple's own. Not one of the 32 comments refuted the numbers that Apple's iPod shipments dropped from 14.1 million to 8.5 million to 8.1 million and Apple's execs openly admit the first drop was 40% sequential decline (Tim Cook Apple COO 19 April 2006), and the second was 6% sequential decline in iPod quarterly sales (Peter Oppenheimer Apple CFO 19 July 2006).

Is Anti Apple

Finally many hinted at it, but one actually voiced it, Rus, that we're anti-apple, "a complete (and obvious) bias and hatred for the Apple platform." 

I beg to differ. I clearly applauded Apple for this quarter's performance including the role of iPod's contribution to Apple. I wrote "We need to point out that iPod sales numbers of 8.1 million in a quarter are wonderfully good results within the IT industry accessories and gadgets market" and again "even with its market share crashing, for Apple the iPod is a huge success, even in 2006" and so on and so on.

Rus, it is totally possible to be happy for one aspect - Apple's overall success - and yet express concern for another - Apple's dramatically dropping market share in one of its products. What Apple execs themselves admit - is that musicplayers are emerging as their competitors. What Apple also admit is that they are planning their own iPod phone.

But the market does not yet have the big picture. That is what I am providing here, at this blog. Last year nobody reported on the market share splits of MP3 players and musicphones., This year they will be doing it. As of now, you can get early numbers from us, here at this blogsite. Apple will be reporting the same numbers as well, very soon. Already now their own investors are asking for this breakdown.

To summarize.

There are many who acknowledge that in the long run musicphones will be viable rivals to the iPod. That in fact Apple is designing a strategy to launch an iPod phone. The underlying premise finds a lot of support. The actual current state of musicphones is very alien to those who commented. As most of them tend to be from America, it is to be expected. By accident of timing, the iPod is best selling in North America, and cellphones (including musicphones) are least advanced in America. So what is quite common in Asia or Europe with more advanced cellphones, cellular networks, and wireless carriers, may still seem like impossible for many Americans.

So please bear in mind that the FACT of the drop in sales in iPods from 14.1 million to 8.5 million to 8.1 million comes from Apple numbers, and the 40% drop have been confirmed by Apple COO on April 19 and the further 6% drop confirmed by Apple CFO Peter Oppenheimer.

Apple itself admits musicphones already today are a rival (Peter Oppenheimer correctly points out that the iPod is BETTER than the Walkman phone, as an MP3 player). And Apple does already plan to launch its own musicphone.

Are we the "weirdos" to grasp this sudden change in the industry, and to offer the first analysis of this new market which Apple itself is stated to want to enter?

UPDATE - I have replied the second set of about 20 replies each individually by name, now into the actual comments section of the original posting. I will next reply to all comments at this entry, but also within the comments section. We do want to let everybody have their say here at this blogsite - including the "you are idiots" comments. And we also want to be responsive to all. It does go to the very heart of the topic of this blogsite and our book, that Communities Dominate. We want to engage with you.

Most of all we hope to stir up new thoughts. And for all the loyal Apple, Macintosh and iPod fans who visited our site, I hope we've provided some food for thought. And to Chap Harrison - I do apologize. Once I read your comment, I too wished my post had been a parody. Thank you for writing.

Comments

[Short Bus Rider]

Congratulations on driving people to your site. Clever. Doubt it will sell your book, but very clever ploy. Shame it is based on a nice interpretation of statistics that would make Enron executives proud. I believe every statistic on your page, it is the combinations and assumptions underlying them that are broken. But arguing on the internet is like running in the special olympics - even if you win, you're still retarded.

[Warmonster]

You have too much time on your hands. But I do agree with the thoughts of others. You are an idiot.

[Tim]

I'm curious why you didn't answer my questions:

1. Who are these alleged endorsers on the right side of your book page?

2. When you say "bestselling", how many books have you sold?

[charles hansrote]

i do not see where you are coming from, these devices are meant for different things. I own a nice cell phone with, camera (optical zoom), web, music function, im, blue tooth. and for along time i honestly considered using the music function on it to supplement my ipod (i primarily use the ipod while running driving, my laptop and desktop the other times). however the phone companies (in my case sprint) must stop crippling their phones first, if it had full blue tooth functionality i would have been able to get my songs on there and occasionally listen to them. so i considered downloading them.... that was a nightmare, and still cant not do it, not after spending 2 hours trying to get help from sprint and in-store help later. i did manage to get the live video working nice little gimmick, though ungodly expensive, and yes i do find the phone convenient for times when i am with out other media capturing devices. however, besides the blue tooth for my head set, really the others could go away without loss to me. (and if your going to spell the demise of mp3 players by lumping mp3 playing phones in, why not tvs to, we have the ability on phone and on computers, they must really be hurting). the camera thing, you said Konica Minolta gave up and closed, thats not quite right, they sold themselves to sony who opened a new SLR family with the mount and body system from Konica Minolta. Konica Minolta had no where near 50% of the market. Konica Minolta, closed shop because the partnership with sony and its brand name were better among less professional consumers, and the onslaught of gains by Nikon, Canon (whom i use), and olympus. and the market overall among traditional makers is growing, even with film makers kodak and fuji film. why would they enter the fray if it was doomed. the main problem with your argument has been assumption that large numbers of people use the tech (many do not know they have the ability), and also quality of the product. the mp3 player as an independent will be around until the quality of the built in mp3 player and the convince of it are equivalent or better than that of stand alone. this isn't going to happen soon. also the multifunctionality of most mp3 players on their own helps their survival, making them mobile hard drives (considering the average pc still sells with under 100gb storage a 60 gb mp3 player makes an excellent portable back up). also for the most part ease of use, the cell phone music to call is difficult on most phones, and endusers on average would give up rather than try to learn it. if your argument was truly sound i would not own a desktop nor any of the 4 cameras i own, or a cell phone, as my laptop can do all of that and make calls wirelessly thanks to sprint. really my laptop does all of those things better than the individual components except for my slr camera. so i would have to say for ease of use and the consistent existence of tech that is obsolete due to convergence i must say your argument is horribly flawed (it would be nice to tell your readers your a big cell phone proponent, and your livelihood lies there). just so you know i sell general electronics and work as a free lance designer until i finish college, and have spent much time in the orient, china korea, where mp3 players are still used more than cell phones for music, and illegal down loading is the number 1 music source. if you want i can get some first hand accounts of people living there, and given time ill get market data from the camera buss, and mp3 buss for you

[charles hansrote]

side note i do not agree with the use of ipod to denote mp3 players, or the difference between pc and mac as such since the mac is a pc. but thats just me being picky...

[Paul Morriss]

I don't think I've ever seen such a detailed reply to so many comments! Good work.

[Numbers]

"The company shifted 8.1 million iPods during the period, a 32 percent jump over the same quarter last year"

is not a drop in any respect. You might argue that it is not a growth as fast as mp3 capable phones are growing. But it is not a drop.

[Mike]

Well done on answering the comments and putting alot of effort/background into your argument but I still think, iPod sales will rebound over Christmas. I also beleive there are some inherent problems.

1. If I want to transfer my music stored on my Phone to a different phone provider. Its never going to happen. They wont even let you migrate with your own number.
2. I dont know of any UK phone providers who will transfer my currently stored songs to a new device.
3. If I am listening to my iPod, i can turn off my mobile. Can I turn off the voice function of my music phone while i listen to music on it.
4. iPhone, anyone.

Mike

[amade1974]

i think you made a huge mistake in the title of your post

you are comparing apples to oranges. You say: ipod share crashes to 14% from 80%. However, you are taking Apple's numbers as marketshare for mp3 players as your only guide. So, according to your post, absolutely no mp3 playing phones were sold in any quarter before this one? Not One? in the whole world? If you compared the real numbers, and if you had done your research, you would have seen that mp3 capable phone sales were being sold in several quarters before, and what their units were. take what percentage of sales the ipods were back then, and you may have a number that looks closer to 15-16% ipod marketshare, maybe a bit higher, and then 'crashing to 14%'.

It is like Mercedes saying we have 30% of the high luxury car market. And you compare that to the number of total vehicles that have wheels....and yes, that 30% marketshare would not hold true

[Ian Betteridge]

Shortbus rider: Show us where Tomi gets it wrong. Oh, you can't? Shame.

Warmonster: You have no argument, and yet you're calling people idiots. I think that speaks for itself.

Tim: Your questions are irrelevant to the matter at hand.

Charles Hansrote: Please, for the love of God, learn to use paragraphs.

Tomi, you're doing a good job. Carry on.

[Johnny Appleseed]

Lies, damned lies and statistics! So there are six music phones sold for every iPod, but only twice as many people listen to music on their phone as on iPods? So adjusting for actual usage, that gives the iPod 33% market share.

No wonder Apple doesn't feel the need to rush an iPhone to market. Maybe music phones will be the way of the future, but I have a feeling Apple is going to reinvent the market in its own image with another category killer.

(BTW thanks for your comprehensive reply to everyone's feedback)

[Martin Geddes]

Loved the article and response, sorry to the Mac-addicts, but connectivity is king. Storage tech improves faster than Moore's Law, won't be a barrier for long (if it still is at all).

I've seen several people listening to music on their phones recently -- and that's just because I recognise the Nokia N series headphone cable tie.

Have been using my Nokia N91. Find that battery life is an issue, but not a terminal one -- but this is partly a product of being a smartphone with wifi, not an MP3 player. Storage capacity is plenty at 4Gb for anything but a round-the-world trip. Some rough edges to the Nokia s/w on the phone -- little silly things that'll be sorted easily. I also have a 30Gb, 30 hour, Cowon X5L media player. Love it still, have continued to use it on longer trips and because I prefer the better audio quality. It's the SLR of media players though -- not the mainstream item.

Suspect that there's a device space that the Sony PSP addresses that will continue to be viable for a long time to come. iPod needs to evolve in this direction to survive. There's a space just ahead of the handset technology curve which demands faster GPU, bigger battery, better screen, contextual h/w UIs, etc.

Feel that the software that goes with the phone has some way to go to match iTunes; not quite ready for mass-mass market yet, requires some techno-awareness (e.g. difference between DRM-enabled media transfer mode and file transfer mode). Again, 12 months and it'll be fixed. Just like Nokia Lifeblog 1.0 was nice proof-of-concept, 2.0 changed my photo habits forever.

Phone companies aren't doing the best job on accessories, and desperately need to standardise on one headphone plug standard. $2 earbuds aren't good enough for a lot of people (poor noise isolation in urban environments), and rip-off proprietary accessory rates aren't going to go down well. Again, another 12 months to fix.

I agree with you, but 2007 is the year that matches the provocative headline. My N90/N91 have totally killed all my other camera usage from 2005 on. The next iteration of the N91 would kill all other media player use. But as you say, the debate is "when", not "if".

Apple made the same mistake with the iPod as with the Mac: failed to license the technology widely. Every phone could have been "iPod inside". Too late, too greedy, too bad.

There's a BIGGIE in favour of the phone-as-music-player: if you're zoned out listening to your iPod, you might miss a call. That alone determines who will win this convergence battle.

If Apple want to build an iPhone, they've got a massive problem in getting distribution and support sorted. Only thing I can think of is team up with a new network entrant like Clearwire, vertically integrate for the ultimate user experience ('cos standard telephony sucks in many ways), and bet the whole show. Doubt they can raise the capital to enter at the scale needed to compete. Anyhow, the RAZR stomped all over the differentiated industrial design opportunity space already.

iPod? Content device. Phone? Communication device. Odlyzko is right, content is not king, Phone eats iPod. Next, please.

[Chuck]

I didn't see a source for the "48 million MP3 playing musicphones". Could you please provide one?

Second, on the "A catastrophic earth-shattering crash of 40% drop in sales", see this:

http://www.applematters.com/index.php/section/comments/apples-q2-numbers-a-closer-look/

You'll note a Christmas 05 steep increase in sales, and other than that, iPod sales follow a typical logistic curve. It looks like the saturation level is between 8 and 10 million per quarter.

MP3 phones aren't going to "crush pretenders, from PDAs to digital cameras and yes, stand-alone MP3 players like the iPod". I would guess that many of the 48 million phones (still want a reference, please) have "cameras". Of course, they're utter crap compared with real cameras, and haven't had the slightest effect on sales of digital cameras. The same will be true with music players.

I guess my point here is that as phones acquire more functionality it is tempting to lump them together and talk about "marketshare" as they compete with other single purpose devices that provide the same functionality. On some level that makes sense, but in other ways it does not. Cars have radios (and TV's and DVD players) and I haven't noticed that there is a decline in standalone devices for that functonality.

Two final points. First, the ipod is as much about the ITMS as it is about the player. Phones don't have anything similar. So far, the main problem is that the wireless companies want to charge a LOT to download a song over the cell network. They need to drop this to the $0.99 or less that internet downloads cost. The current premium surcharge is far too high. Second, I'll repeat that this is a separate market, where I don't believe common marketshare numbers make much sense. That said, apple is about to enter the cell phone market, and I wish them every success. It will be interesting to see how they integrate the whole digital life style with a phone.

[Joel Burslem]

I feel compelled to speak up for Tomi, if for no other reason than to counter all the mindless "you're an idiot" comments.

I'm a Mac user and I have an iPod. I love both of them. But Tomi's points are right on the money. The mass market doesn't care about the iPod or Apple as a brand, like I might - they just want an easy way to listen to digital music. Apple was just the first company to do this properly for them.

It's not a question of IF the cellphone supplants the iPod (or other mobile MP3 players) but WHEN.

But the real guys to blame here are the US carriers. Crippling bluetooth, exhorbitant download rates, slow roll out of 3G networks, limited handset selection - these are the real issues here. That's what's stalled adoption rates of musicphones to date, IMO.

Travel outside the US (I spent 3 years in South Korea) and you realize how truly far behind the US is in mobile technology. In 2002, when I first moved to Korea to teach English, my students were already all listening to MP3s on their phones. When I left in 2005, they were all watching live TV on their phones.

Those phones are only now just starting to appear on US shores. The 3G networks to support those phones properly are live only in a handful of US cities. That's the real problem here.

I guess the good news is that the situation is changing, albeit slowly. New handset models are launching (slowly) in the US, new MVNOs are popping up (Helio) with mobile media in mind.

Tomi's right. The need for a single use device to consume digital music is ultimately numbered. I believe the cellphone will one day be that all-in-one device we've been waiting for.

[Jeff Boice]

Certainly the numbers don't lie. The sales figures are what they are. The spin here comes from your choosing to classify cell phones as portable MP3 players and then compare those sales figures to that of iPods. It's a choice that's not totally without merit, but it's also a choice that's not totally honest.

Following this same logic we could also classify all automobiles that have CD players as "portable CD players" and then compare their sales statistics (sales revenue perhaps?) to other "portable CD players" on the market. I'm sure such a market share as percentage of sales revenue discussion would be interesting, but would it really mean anything?

Surely people who buy automobiles care whether or not they can play CD's in them, but most people would likely agree that it's not the reason they are buying the automobile. They are buying the automobile to drive.

Now if there were a way to determine which people were buying their cell phones truly as MP3 players and then choosing not to buy an iPod or some other MP3 player because they bought their cell phone/MP3 player, now that would be a comparison really worth making.

But to ignore all the other features of a cell phone and simply classify it as an MP3 player muddies the waters too much for any meaningful comparison of apples to apples.

And that fact doesn't change regardless of how absolute or extreme the language you use to stake your claims. The extreme position does though have the advantage of stirring up strong reactions. Rhetoric is a powerful tool. Congrats!

[Ian Betteridge]

Jeff, you're missing the point: twice as many people worldwide are using phones to listen to music than dedicated portable music players. There's nothing rhetorical about the results of that survey. And that's USAGE, not just people buying the phone to make calls. Please, don't ignore the figures that aren't convenient to your perspective.

[Short Bus Rider]

Ian - you can't pull together the unrelated results of three surveys of differing populations and call it a corollary. What you need is a definite survey which asks "What do you use to listen to music on the go?" and poll that result. You'll find a hell of a lot of people use both. Some people who use their phone on the bus to listen to music might use an iPod while jogging. There are so many of these cases which make the conclusions above so much more coincidental. This is not coming from an iPod loving person, but a statistics respecter. And this is drawing really rank conclusions, which I guess is the perogative of all bloggers. Especially those trying to sell a crappy wanky marketing book.

[Tomi T Ahonen]

I WILL RESPOND TO ALL OF YOU TOO

Thank you all. I am very happy that the discussion is moving a bit beyond the simply "you are an idiot" level. I find many very good arguments - on both sides definitely - and again am struck by yet another new observation myself, triggered by these comments.

THANK YOU for writing. I will come back here and reply to you all. Give me a moment to get some food and catch up a bit on my e-mails ha-ha. I'll be back still tonight London time for you all here.

Tomi :-)

[Eytan]

You are right on for the Nano and the general music consumer - the person with ~100 CDs in their collection who listens to pop music. I think the iPod (higher capacity disk based ones) will settle into the niche for more serious music fans such as myself. I WANT BOTH - a phone for casual listening and carrying around one thing (Ideally and Apple Phone with best of breed synching) AND my high capacity iPod for carrying around as much of my music collection as I can for the car and for trips - that is something where a stand alone device will always trump the phone, just like a stand alone camera will always trump a cameraphone. I have been out of space on my 60 GB for a while, and an 80 will not do - I want a 160, or larger. You will never have a cell phone equaling the capacity of a larger iPod with that kind of durability until there is a massive shift in technology (TB Flash storage may change that).
Good analysis overall.

[Ian Betteridge]

SBR: "What you need is a definite survey which asks 'What do you use to listen to music on the go?" and poll that result'"

Tomi links to exactly this kind of survey: "http://breakingnewsblog.com/mp3players/archives/worldwide_use_of_music_on_cell_phones_gaining_wide_acceptance"

You claim to respect statistics, and yet you have no figures to back up the claim you're making. Provide some, and I'll believe you. But meanwhile, all you have is a desire - exihibited by your closing comments - to slate Tomi's points because you want to believe in something: that the iPod is the One True Solution for listening to audio on the move.

[Ian Betteridge]

Eytan hits the nail totally on the head: I don't expect to stop buying a large iPod every now and then (currently using a 60Gb model) because I also use my phone for music. The two things do different jobs. However, I do expect Apple's market at the low end - the nano's and shuffle's - to get hit hard. Those are the products that are vulnerable from mobile phones.

[IdiotBoy]

This is a silly little article that amply demonstrates the wisdom of that old saw-- Lies, Damned Lies and Statistics.

By defining the mp3 market to include all mobile phones capable of playing digital music, of course you'll come up with market share statistics that "prove" your contention that mobile phones will swallow up the stand-alone mp3 player market. I would expect that within a couple years virtually all but the cheapest phones will have some sort of mp3 playing capability. And that according to your definition of the mp3 player market, Apple's "market share" will continue to erode disasterously. I am just as certain, however, that Apple will sell more iPods this year than last, and more next year than this, and so on and on until the market for portable music players is fully mature.

The real thrust of your prediction / argument is that, at some point, iPod will become a niche product; that most people who listen to mp3s will do so primarily on their phones, and that the rate of growth of iPod sales will therefore begin to slow faster than would be expected (because rates of growth will always slow as markets become mature). You might be right, but redefining the denominator in your Apple market share fraction to include any mobile phone with mp3 capabilities simply doesn't service that argument. All it tells you is that we live in a digital world where mobile devices can quickly be adapted to do most anything.

I'll close with an observation-- the list of things that pundits tell us will be replaced by mobile phones keeps growing (credit cards, money, cameras, blackberries, pdas, mobile gaming devices, home phones, keys / combinations, etc.), but the only thing that today's state of the art mobile phones have thus far supplanted are older mobile phones.

[Tomi T Ahonen]

NOW THE REPLIES

Hi Short Bus Rider (twice), Warmonster, Tim, charles hansrote, Paul Morriss, Numbers, Mike, amade1974, Ian Betteridge (four times!), Johnny Appleseed, Martin Geddes, Chuck, Joel Burslem, Jeff Boice, and Eytan

First overall. I want to thank you all, and sincerely from the bottom of my heart, we do love discussion and dialogue here at this blogsite. I was a bit uncomfortable earlier, not so much with the ad hominem attacks on my person, but more the few who stated they didn't bother to read the blog, and were in only to enjoy the nasty comments. That did seem like a perversion of this medium. But nonetheless, with all the replies and comments, I have learned again more and have had to re-examine some issues and discovered again new angles to the matter. It is my pleasure to discuss with you.

So lets go to the replies. Who's first ha-ha...

Short Bus Rider. Thanks but when you take a look at our site you'll notice - no advertising! It kind of totally defeats the purpose of driving up traffic (and no, we are NOT plotting a cunning plan to launch advertising next week and thus inflate our stats) So we don't gain from the sudden surge in visitors for a few days. And clearly like you point out, if those visitors come here in anger, they definitely won't buy our book. And I doubt angry visitors would even bother ever to revisit this site so no long-term customer benefit.

On my stats being crooked to make Enron proud. Sure. And which stats are those? The actual global iPod sales figures from Apple? The actual global cellphone figures from IDC and Ovum? The only known study on the topic of customer preferences iPod vs musicphones, by TNS? The actual sales of online numbers from IFPI? Could you point me to ANY source you think is MORE trustworthy than those I have used? I do give my sources, you can go check on all my data. Nice joke on special olympics.

Warmonster. Yeah, I do have too much time on my hands. And I have already admitted to all that I'm an idiot. Thats why at 2 AM in London I'm here replying to Mr Clever and well argued Warmonster, rather than watching the late night movie on TV.

Tim. Now I have answered your questions (it is at the original posting where you first asked) I am sorry it took so long that you had time to make the request twice. And thank you once more for telling me about the broken links.

charles hansrote. A long comment with many issues. I hope I will cover each appropriately.

You say you don't see where I am coming from (in combining the music player market with the musicphone market). But charles you then admit that you have tried to achieve just that. Only that currently the devices and carriers are not good enough. If YOU can imagine this market as one - and are disappointed you can't get that functionality - surely many others can imagine it too? That is where I am coming from. Your lengthy reply suggests considerable insights in many areas of the industry. I would like to assume you believe in the long run of course phones (and carriers) will achieve comparable performance to lower end iPods (and iTunes)?

On phone companies crippling phones. I totally agree. That is criminal. Bluetooth, come on, that is one of the best features in a converged world, we all have all kinds of files to move around - and share, our images, music, messages, clips, etc.

Ha ha, you mention why not TVs. Well, guess what. You've lived in Korea. Then you know already about Tu Media etc. We blog about Korean developments regularly. Yes, of course VERY ADVANCED phones are starting already to take viewerships from traditional TV. In fact the best solutions are something called Network PVR plus IPTV plus 3G phones plus digital set top box in the cellphone. Reality today for example in Korea and Italy. Will come to a (small) screen near you ha-ha. But that is a different blog and discussion. If anyone is honestly interested, just put the word TV or television onto our search window and see how much we've recently blogged about the evolution of TV...

computers vs phones? ha ha. Didn't you notice Nokia is not calling its N-Series mobile PHONES. Nokia calls those phones mobile COMPUTERS. They are already preparing for that transition when the majority of internet access happens on mobile phones (also a topic I often blog about - in China, Korea and Japan already more than half of all web surfing happens from mobile phones)

Konika-Minolta etc. Good point. But correct me if I'm wrong. Isn't that Sony the same electronics giant already into videogaming, cellphones, musicplayers and all kinds of content ownership? To me it sounds not like aiming for the shrinking relevance of stand-alone digital cameras; it sounds like a brilliant ploy to get a big step up for the newer generation of cameraphones! (and camcorders etc) Clever them Sony guys. They will be around for a long while - not unlike Apple. Clever guys..

memory sticks, multiple uses, I agree. Ease of use is important, I agree.

But the "if your argument was right I'd now own a laptop" I don't agree. A laptop is NOT convenient as a camera for example. It is also not nearly as convenient - even with a skype phone - as a cellphone. So yes some things do converge but not all. But I do acknowledge that you've well spotted that I am a "convergionista" as opposed to a "separatista". I believe in both under different situations, but more in convergence, for the mass market..

I did think my mobile phone loyalties are perfectly clear with my three telecoms books on the front page of the blogsite. I wouldn't really want to push my bio "more" than the publicity-hog that I already am, ha-ha...

Korea - you don't need to thank you. I have very strong contacts for example advising the KIPA Korean IT Promotion Agency and visit Korea at least once every year.

Paul - thank you very much. I really felt like I'd worked hard....

Numbers. You are wrong. Growth (or decline) of sales is measured primarily from one period to the immediate next. From one week to the next. From one month to the next. From one quarter to the next. From one year to the next. That is EXACTLY what growth or decline in sales is as a MEASURE. What you talked about was a performance analysis. It can give further insights to compare this quarter's sales to that from last year. Accountants like to use it as a gimmick to hide disappointing actual growth or decline.

The third quarter 2005 sales for Apple iPod sales were 6.5 million units. For the next quarter (Christmas 2005) it was 14.1 million units. That is a growth of 7.4 million or a growth rate of 117%. The next quarter (Q1 2006) Apple sold
8.5 million iPods. That is a DECLINE in sales. A decline of 5.5 million units or 40%. Then this latest quarter a further decline in sales to 8.1 million iPods. That is a decline of 400,000 units, or 5%

This is basic accounting. ALWAYS you measure actual growth or decline in sales to the immediate previous period. And YES you can ALSO do other analysis such as seasonally adjusted sales. Sales performance versus the market performance (competitors), performance compared to the same period last year, etc.

You cannot say that from the Christmas period of 14.1 million iPods, somehow iPod sales GREW to 8.5 million? Listen to yourself. It is a decline. That is what I report (and Apple does of course admit this, the COO on the 40% on April 19 and the CFO on the 5% - actually he said 6% - on July 19.

It is in Apple's interests to try to shift focus away from the DECLINE in sales of the iPod for two straight quarters, and misdirect analysts to the fact that from last year, this quarter is still better. But no, from December and March, both quarters this year, iPod sales have NOT grown, they have declined.

Mike. Thanks. Now if you think iPods will rebound for Christmas, how much do you think they'll do? Last Christmas they sold 14.1 million. We are now at 8.1 million. If we double from the current level - a big jump - it only brings us to 16.2 M. What if we have two quarters of ENORMOUS growth - doubling in both. So last quarter iPods sell 32.4 M. That incredible performance - against the increasing competition from all phone guys - gives Apple 65.2 M for the year. Well guess what. Ovum last week said this year the phone makers will ship 245 million musicphones. EVEN at this dramatic turn in performance, Apple's market share would be 20% for the year. Too little too late, says this consultant....

On your problems. I agree these are the kinds of issues we have to fix. They CAN be fixed. And on the iPhone? I'd want one...

amade. You think I didn't include any sales previous to this quarter? No, I have actually tracked the matter to the beginning of the iPod in the fourth quarter of 2001. But in the two previous postings on this topic in September 2005 and April 2006. This time the point was not to analyze the turn of the trend (that was last time). Now it was to see if Apple could recover. It couldn't. That is why this time I refer to the previous catastrophic drop of 40% but focus on the smaller - but much more relevant 5%. More relevant because it is the second CONSECUTIVE drop in sales. Now no sane person anymore assumes this is seasonal. For one quarter it is still possible that there was a seasonal variation in the trend.

Since you posted your question I have posted the two graphs to illustrate the point. You'll see there that musicphones became relevant from the first quarter of 2005 - six quarters (and yes, before that there was small amounts of musicphone sales)

Ian. THANKS !!

Johnny Appleseed. I really liked your analysis of the market share by users. 33% vs 67%. I think it is quite valid that there are actually three "versions". From the "most phone positive" to the "most iPod positive" they are:

devices. At the end of 2005 phones 80% iPods 20%. Definitely there will be some who have musicphones but don't use the musicplayer.

Then users. 67% use phones, 33% use iPods. Understandable as almost all iPod users will want to use it for music - there is little else they COULD do with it ha-ha...

and finally songs. Here the IFPI numbers with the Apple iTunes figures give us sales of 440 million musicphones and 400 million iPods. Market share 52% to 48%. iTunes big reason for this, plus bigger storage of iPods plus lack of carriers into the proposition in all markets.

Nice thought. I'll use it. And on "another category killer" - I REALLY hope so. Apple has a wonderful history of incredible creativity in technology. I am looking eagerly forward to their next major offering.

Martin Geddes. Great to read your posting! Thanks for stopping by. The moment I started to read it I knew this is an expert from the telecoms side...

I totally agree. I had wanted to discuss "connectivity is king" in the original blog but it was so hideously long that I just had to cut it out. Thanks for mentioning it.

Great observation on the zoned out, listening. I'll borrow that if you don't mind :-)

And I so deeply agree with the sentiment, that this was Apple's market to lose. They held all the cards last year, and could have selected the big winners for this year by who they would have partnered with. Apple must have had a lot of research about music and its importance and then the convergence with the most addictive gadget of all time - mobile phone. But like you say, they blew it...

Chuck. Sorry. IDC and Ovum. I have them but probably not everywhere.

On the curve. The beauty is in the eye of the beholder. For all others reading this posting - if you go to the first of the two graphs that I've posted - Apple's last 12 quarters of iPod sales - you can follow our "graphic" argument.

You say typical logistic curve. I assume you see a "linear" stage for the first 9 quarters, the exception for period 10, and the original linear continues - with the smooting out towards the end? Cool. I can understand why you'd see that. And by your view, we can safely ignore the exceptionally strong Christmas sales, and the last two quarters are well within the deviances of the curve?

But this is how I see it. I see clear "stairs". Always leading up to the Christmas period every time there is a stonger growth and then only slight growth after Christmas. By that pattern the Christmas period 2005 is consistent with the pattern, but the first two quarters 2006 are NOT.

In the eye of the beholder... We see it differently.

The 48 million is not cameraphones. I don't know where you might have got that misunderstanding. The 48 M was musicphones. The latest estimate I have is only "over half" of all phones sold are cameraphones (am awaiting better data for 2006). By that, cameraphone sales were 89 million this quarter (but in reality they are more, probably around 95 million)

You say as phones get more functionality it makes sense to compare to single purpose devices on some level but in others not. I totally agree. My concern is that currently for iPods it has been only the "not". I am totally certain that when a non-technical person goes shopping for a gadget - imagine your mother - they are assuming that a "digital camera" on a phone is equivalent to a "digital camera" without the phone. We know there are big differences. But we're in the IT/telecoms industry. For the layman the assumption is that the functionality is equivalent. THUS the CUSTOMER thinks the market is the same. Who said it many replies ago that we should start from the customer?

On ITMS, actually many markets now have very similar offerings. Sweden is one of the most advanced on their 3G network provider 3/Hutchison (Tre in Swedish). A very advanced and user-friendly service, they have for example a 15 dollar (99 SEK) per month all-you-can-eat plan of unlimited downloads of music. 3's music service sells 35% of all of Sweden's downloads, more than iTunes in Sweden (and Swedish broadband ahead of USA, internet penetration about the same, cellphone penetration 115%, 3G penetration 8%)

Joel Burslem. THANKS !!! Very nice additional insightful and relevant facts. I didn't want to create more confusion with the TV argument, but yes, South Korea is the world's most advanced digital country, highest broadband penetration, highest 3G penetration, etc etc etc. in the first year, over a million Koreans already have the new TV phones, with built in "cable set top box" built in digital broadcast tuners and the most amazing displays you've ever seen.

Once you look at those phones you do undestand that it is quite comfortable to view a two hour movie on a pocketable device. Don't take my word on it. Wait until you see a "DMB" or a "DVB-H" handset. Don't ever ever think the mobile TV experience can be understood with a conventional 3G phone, no matter how expensive. Wait until you see your first DVB-H or DMB phone, THEN make up your mind on TV. But yes, totally agree with all you write. Thank you!

Jeff Boyce. I hear you. But consider this. There are some people who actually do - occasionally - go to their car JUST to listen to the radio (or CD player etc). Even though they own the car to drive, they may need to get away from the home for a while - go for a cigarette and step away from the rain, sneak into the privacy of the car eg escape parents to go kissing with girl friend, whatever. I don't mean this is typical. But we all know some people who've done it. Doesn't this now mean that actually we SHOULD count that car stereo as one of the radios (CD players) that we DO listen to. Even though MOSTLY the car is used for driving? And note, this might only happen twice per year, when we visit the mother-in-law, and just NEED to escape her house for a few minutes...

Yes, a manufactured argument, but I think we should not say its that absolute. Same with musicphones. Many may use phones VERY INFREQUENTLY for music, with ONLY a few tracks. Even then, IF they use the phone for music, it really is a rival to an iPod. Not often used, but still is a rival. Then factor in the 18 month replacement cycle, and the new Nokia or Walkman phone in 2007 is suddenly MUCH better than the iPod Nano from 2005...

However, on the specific point you made "if it was possible to know who buys a phone for its music" lets assume first that iPods are bought for music ok? to simplify things (some are not, by far the most are). Ok, today, Nokia, Motorola, Ericsson and LG all report that their musicphones are not keeping up with demand. Samsung has not explicitly mentioned this point, so I don't know if its true for them. But the other four definitely. So if you walk into an average store, and want a given phone, if that happens to be the SonyEricsson Walkman phone, odds are very high it is not in stock. But if you are willing to take a non-music phone by SonyEricsson you can get it right away.

Make sense? This means, that as long as the phone industry reports excess demand for musicphones, it means that most who want one, have to wait for them, order them, pay extra for them, not get discounts for them etc. If you are serious about photography or videogaming or texting, and music is not important to you (for example because you recently bought your iPod), you don't want to wait for the musicphone. You buy the cameraphone, gaming phone, blackberry, whatever you needed. Only those who REALLY do want the music feature, will be getting the early music phones, until the demand is met. Then there will be no lack of inventory for musicphones.

So today four out of five phone makers report that their musicphones have the biggest demand. I would argue this means that ALMOST all (but not all) musicphones are actually going to people who hope to use them as music players.

In reality some won't for whatever reasons. But most will. Does this help? So if for every iPod sold in the second quarter 2006, the phone industry sold six musicphones, I am rather certain that 5 out of those will be used for at least some music consumption. BUT we will reach saturation "soon" within a few quarters definitely. Then an increasing proportion of musicphones go either to replacements or to people not particularly wanting the MP3 player.

By this logic, of the 58 million pocketable MP3 players sold last quarter - 8 M are ipods (music). 2 M are non-iPod MP3 players (music). 40 M are musicphones used for music. And 8 M are musicphones that end up not being used for music. Sounds reasonable to me. And you are right, we need actual usage data to get the real numbers. Don't expect those surveys to report anytime soon, ha-ha, this is too new an area. Maybe next year if we're lucky.

Short Bus Rider (second time). Wait a moment. We have JUST seen the emergence of a radical new market. That only was discovered last year, and us at this blogsite are among the first 1000 people on the planet to discuss it, and now you say the few studies we have are NOT valid? Come on. We use what we have and do the best with them for now. You cannot dismiss them simply because in a perfect world some day in the future a better instrument can be designed.

At this point we have to accept the massive global survey as "closest to the truth" as it reveals twice as many people listen to music on phones than iPods. You cannot dismiss the ONLY guidance to the customers on this topic. We can analyse its limitations, but not eliminate the study !! (unless for some reason we find it an invalid/unreliable/biased study)

Eytan. Thank you

That should be all. Thank you for commenting at our site.

Tomi :-)

[Paul Morriss]

As I said in a private email to you, repeated here, so everyone can join in:
How much you can expect iPod sales to rise anyway, because once everyone's got one, then sales will drop away? (Apart from replacing broken ones, and teenagers starting to earn money and so afford one.)

Phones seem to be locked into a replacement cycle - the market is built on the fact that everyone changes theirs sometimes.

With iPods, particularly as they get new features, like video, there are going to be those who get replacements, but I wonder how long it will be before there is a replacement cycle like there is with phones, or if the phones will take over by then.

[Tomi T Ahonen]

Hi Paul

Thanks for writing (both privately and now posting this question here openly)

Its a very good question, and the kind of discussion I was hoping to raise with the issue about what happens when one supplier goes through that change, one day owning the market with 80% market share and in 18 months finding itself with only 14% of the market and suddenly five globally powerful competitors fighting for the same market. How do you transition from controlling a market to making profits in a niche of the market.

And yes, like we discussed in e-mail, I do think Apple is a very strong design company, who have a vastly superior ability to understand the IT customer (arguably also the mass market residential customer, with the Apple/Macintosh appeal as a home computer).

Nobody doubts that the iPod is by far the superior music playing device. Any musicphone will be a compromise, and for the serious music professional (say a DJ) or any serious music fan (the kinds who own hundreds of CDs) it is the player of choice. For those people who own iPods, I would suggest many will refuse musicplayers almost however good they may be, simply because they are not the best. And for many other iPod users there will also be a disappointment factor in using musicphones. By this I mean that over time many iPod users will get a good musicphone (imagine next year's evolution of the Walkman phone or Razr V3i or LG Chocolate or Nokia N-91 etc), but that will still be a compromise and the iPod user will use both.

Many iPod users today admit they've tried using an early musicphone and found it totally unacceptable as a replacement. I don't doubt that at all. But some Apple iPod users - in fact 18% of the TUAW readers (The Unofficial Apple Weblog) in an online survey of 5,800 - admitted to listening to music on phones rather than on iPods.

So even among iPod users there is a shift going on.

But to your point. Yes, mobile phones are replaced every 18 months. PCs are replaced every 3 and a half years. Stats from the Seminconductor Industry Association from this spring. Where will iPod fall? I am sure Apple is clever enough to keep an upgrade evolution path going for its iPod users. Apple wants to keep on making money on its user base, and to sell replacement iPods to them.

If and when Apple releases an official iPhone, I would suggest most iPod users are targets to that phone. There will be serious doubts about converting those customers now, as Apple would need the full support of the mobile operator community, not to mention the issues with iTunes etc. Most operators have their own music stores and would prefer all music sales to go through their stores, not via iTunes. And so forth.

But for any that may get an iPhone, Apple would then tap into the 18 month replacement cycle for phones.

Where is the rest of the iPod? I would guess - and I honestly have no numbers, it is purely a guess from my gut - that the average iPod replacement cycle falls between that of the phone (18 months) and the PC (42 months). Maybe two and a half years, which is the exact half-way point?

I think Apple will be able to "mine" this customer base for a long time. They have a well-established history of keeping the (Apple 2 and) Macintosh customers more satisfied with their PCs than contemporary rivals from other
manufacturers. Apple's strengths have always been the user interface, which is even more important for pocketable devices than PCs, because of the small form-factor.

So yes, I think somewhere in the 2-3 year replacement cycle. And my strong conviction is that Apple will hold on to a vast majority of these customers. BUT there will be erosion. Read the comments at the various Mac/Apple/iPod sites and they all already have "deserters" or people who have found a new musicphone "good enough" and have left the iPod home.

That will also happen. Apple can't hold onto all existing iPod users. And in the future they will gain ever less of the total musicplaying market because - a) the other musicphone devices are closing in on Apple (so says Apple CFO Oppenheimer 19 July) cutting into Apple's design lead; b) mobile phones are addictive while iPods are not; c) phones are vastly more capable in OTHER THINGS than ipods (eg videos, the 3G phone is a vastly superior video consumption device than an iPod which needs to acquire its video content from another digital device like a PC); d) phones are replaced faster; e) the clinching argument: phones are subsidised. The (stand-alone ie non-phone) iPods are not.

Thanks for writing. You'll notice I've had time to sleep on it a bit since you wrote about it in e-mail. What do you think Paul? Make sense?

Tomi :-)