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« Demise of a Darling: iPod market share crashes to 14% amid management denials | Main | Book endorsements links have been restored »

July 21, 2006

Comments

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 :-)

mgood989

This is a really interesting article but their is one fundemental flaw I see in you argument. You are comparing a supply side driven market (music phones) with a demand side driven market.

Yes, millions of music phones are being sold because carriers are subsidizing these phones to get them in the market, however, people are not using these phones to listen to music. The number of music phones sold is irrelevant, the number of mobile users using their music phones to listen to music is the critical data point.

Declining iPod sales have more to do with market saturation than the impact of music phones. The addressable market for portable music players (analog and digital) in the US is about 70 million. About 50 million people in the US now own some kind of MP3 player (and iPod owns 80% of this market). Without a cool new iPod to drive sales there are just fewer people in the market to buy an iPod. As a result you should expect to see diminishing sales.

mgood989

Tomi T Ahonen

Hi Mgood989

I hear you, and your argument has been presented by dozens at this site and elsewhere, and the argument "makes sense" in a conventional wisdom type of way.

HOWEVER. I provide irrefuted end-user survey data from a worldwide study and the industry's own source for global purchase of music. Both prove that musicphones today ARE used for music consumption - and already today in 2006 more music is SOLD to musicphones than iPods.

Your argment is very reasonable, but it is proven to be wrong, by actual end-user survey data and industry reported purchase data. Please read the related commentary and the original posting.

Thank you for writing

Tomi Ahonen :-)

Daisy

well..
it basically very simple..
as a consumer, pricing is important..
thts it..
if u had the cash to buy all ipod products and musicphones, there wouldnt be such a thread..
everyone would juz be buying both.
and of course ipods are for music
and phones for calls..
no idiot has an ipod in his pocket an uses a phone for music..

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    Tomi Ahonen is a bestselling author whose twelve books on mobile have already been referenced in over 100 books by his peers. Rated the most influential expert in mobile by Forbes in December 2011, Tomi speaks regularly at conferences doing about 20 public speakerships annually. With over 250 public speaking engagements, Tomi been seen by a cumulative audience of over 100,000 people on all six inhabited continents. The former Nokia executive has run a consulting practise on digital convergence, interactive media, engagement marketing, high tech and next generation mobile. Tomi is currently based out of Hong Kong but supports Fortune 500 sized companies across the globe. His reference client list includes Axiata, Bank of America, BBC, BNP Paribas, China Mobile, Emap, Ericsson, Google, Hewlett-Packard, HSBC, IBM, Intel, LG, MTS, Nokia, NTT DoCoMo, Ogilvy, Orange, RIM, Sanomamedia, Telenor, TeliaSonera, Three, Tigo, Vodafone, etc. To see his full bio and his books, visit www.tomiahonen.com Tomi Ahonen lectures at Oxford University's short courses on next generation mobile and digital convergence. Follow him on Twitter as @tomiahonen. Tomi also has a Facebook and Linked In page under his own name. He is available for consulting, speaking engagements and as expert witness, please write to tomi (at) tomiahonen (dot) com

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