Demise of a Darling: iPod market share crashes to 14% amid management denials

Apple has just released its April to June quarterly sales figures for the iPod. At 8.1 million units, this is the second consecutive drop in sales.

UPDATE JANUARY 2007 - we have just written the final chapter to this iPod saga as Apple reported its final numbers. The final market share of iPod is 12.9% for the year 2006 with musicphones outselling iPods by 7 to 1. Yes, the data is also in that owners of musicphones do listen to, and download music to their phones. Read it all here - Requiem for a Heavyweight: iPod reign is over

UPDATE SEPTEMBER - Welcoming Arstechnica discussion board visitors. We have a welcoming message for you to put this July posting in context. I suggest you read your welcoming message first at this link:  [Welcoming Arstechnica Visitors]

RELATED UPDATE JUNE 2007 - if you would like to see my projection of how the iPhone needs to sell regionally, and quarterly, to achieve 10 Million by Dec 2008, read this blog: Crunching Numbers for iPhone

UPDATE - please observe the two graphs I have posted that explain the matter very quickly for you. Then please return here for the full analysis. I think it helps to see the two graphs first. They are at this link: [Apple quarterly iPod sales, iPod and musicphone sales]

We wrote about the battle of the pocket in our book, Communities Dominate Brands, and in the book predicted the mobile phone would crush pretenders, from PDAs to digital cameras and yes, stand-alone MP3 players like the iPod. At this blogsite last October, when Apple was celebrating 16 consecutive quarters of growth and facing its greatest quarter ever - its 17th up to the record-breaking Christmas sales for 2005, we made that bold prediction that from 2006 the Apple iPod would face a total collapse of its market ("2006 the year when the iPod dies") . As Apple had not indicated any softness in iPod sales in its guidance at the time, and everybody - including us - believed the Christmas quarter would be record-breaking, this was quite a brave - and lonely - prediction. Just read through some of the intense critical comments we received back then by the iPod fanatics.

The first quarter of 2006, January to March, did in fact present Apple's first-ever downturn of iPod sales. Not a slow-down in growth or a "dip" in sales. A catastrophic earth-shattering crash of 40% drop in sales! Most companies would be devastated but Apple put up a brave face cunningly claiming that this was suddenly a "seasonal downturn" after the phenomenally successful Christmas sales of 2005 and misdirecting focus that compared with the previous year, iPod sales were still up.

We pointed out in our blog of April ("Nails into the Coffin of the iPod"), was that in Apple's previous four years there had never been any seasonal downturn of shipments. Every January-March quarter had been better than the previous October-December quarter. And again the April-June quarter again stronger than the first quarter of eachg calendar year. Where did this sudden "seasonal downturn" come from? In the first four years of the dramatic growth for the iPod there never was a seasonal downturn in January.

The whole MP3 player market worldwide for the second quarter of 2006 is not 10 million units, from which Apple could claim four out of five units. In reality the MP3 player market is about 56 million units (48 million MP3 playing musicphones, 8 million iPods, and 2 million non-Apple brand stand-alone MP3 players). So Apple's quarterly market share is not 77% like it was back in 2004 before musicphones. In this quarter Apple's market share is 14%

As we forecast in our book and on this blogsite, at the end of last year the battle for MP3 players shifted and is now fought in the pocket. And the undefeated world champion in that market share war is the mobile phone.

Was unavoidable

We've seen it all before. It was to be just like the brief massacre of the PDA markets - totally crushed by "smartphones" in only two years from 2000 to 2002. The world's bestselling PDA today, by a wide margin, is the Nokia Communicator - a smartphone and also by far the most expensive of all PDAs. As a result of the smartphone cannibalization of the PDA market, one of the world's largest PDA makers, Sony, totally pulled out of the PDA market in 2004. Most PDA makers rushed to bring converged devices in a defensive mode, with cellular phone capability added to the PDAs.

Then we witnessed the equally brief and lopsided market battle of the digital cameras where cameraphones emerged victorious also in just two short years. From 2004 the world's bestselling digital camera brand has not been a traditional camera brand like Nikon, Canon, Minolta or Kodak; the world's bestselling camera brand is been Nokia. Last year fourth-place phone manufacturer SonyEricsson alone shipped more digital cameras than all stand-alone digital cameramakers combined. And again the previous masters of this field admit defeat as the world's second largest camera manufacturer, Minolta-Konica announced in January 2006 they were quitting the camera business.

The writing was on the wall. We foresaw the brief but decisive battle where the iPod and other stand-alone MP3 players were predestined to emerge as the losers. I predicted the battle to last the full year of 2006, even I was not prepared for the total carnage that the phone makers reaped upon the iPods and other stand-alone MP3 players in only the first half of 2006. From a high of near 80% in 2004, the iPod's market share is now down to 14% - and still falling!

How could this happen?

Apple had the MP3 market mostly to itself until last year. Yes Creative Labs and a few others did make rival stand-alone MP3 players, but the big phone makers had ignored the musicplayer market as being too small (yes a market of 10 million per year is too small for the phone makers to even bother with). It wasn't until in 2005 that they decided the MP3 market was growing to be big enough to be worth going after.

Around year-end of 2005-2006 suddenly all major handset makers released their major music phones. Nokia's N-Series. Motorola's iconic Razr series has been upgraded and most Razr V3 phones now include MP3 players, as do all Motorola Pebl, Slvr and Rokr models. SonyEricsson finally capitalized on its global Walkman brand. Samsung pushed the technology boundaries by releasing the first phone with 50% more capacity than the iPod Nano. And not to be left outdone, LG released its Chocolate, another music phone.

During 2005 Apple sold 22.5 million iPods and had accumulated 40 million devices shipped since its launch in 2001. During 2005 alone, Nokia shipped 40 million musicphones. And this was before Nokia got "serious" about the musicphone market. Nokia did that this year with the launch of its N-series. In February Nokia musicphones were shipping so strongly, that Nokia said it would ship over 80 million musicphones this year.

Apple pleads mercy that the MP3 player market is in seasonal decline, while its biggest rival who already sells more than Apple, reporting DOUBLE growth in the same period. Keeping in mind that Apple sales were down 40% in the first quarter, and down a further 5% in the second quarter - since its peak of only six months ago, Apple is now selling only half as many MP3 players.

But Apple has every reason to be satisfied

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. For some contrast and magnitude, another IT industry technology-darling, RIM ships less than a million Blackberries per YEAR. The total global annual market for stand-alone PDAs is about 11-12 million - meaning that Apple ships more than twice as many iPods as all stand-alone PDA makers ship their pocketable gadgets combined. And these all are devices of roughly similar price.

So yes, for Apple the computer manufacturer, this level of sales of iPods is well in excess of what their business projections had for five years into the future; and if viewed only in context of the IT/PC industry, even with its market share crashing, for Apple the iPod is a huge success, even in 2006.

Only don't think of the iPod as a successful MP3 player in 2006. Just by Nokia's numbers alone, Apple has already lost the war. Nokia alone ships more than twice as many MP3 players as Apple does this year. Game over.

But it Its not iPod vs Nokia

Yet to end on Nokia would be totally unfair on the rest of the phone industry. Nokia is a relative late-comer into the MP3 player market which was invented and developed in Korea and Japan, by brands like Samsung, LG, Panasonic, NEC etc.

In the same time that Apple pleaded a decreased seasonal demand for iPods, the world's second largest phone maker, Motorola was proudly reporting that its Razr phones - and yes most Razr V3 models are musicphones - were their phones with the highest demand. For whatever early miscues there had been with the Rokr phones (the so-called "iPod phones"), now the Razr is a surefire hit. Yesterday Motorola reported it has shipped its 50 millionth Razr. So in a little over a year, only one phone model from Motorola's range has all but matched Apple's total iPod effort across all iPod models for five years. This is not a contest, it is a bloodbath.

Not to be outdone, the fourth largest phone maker, SonyEricsson reported on the Walkman branded high-end smartphones it released last year. In its first five months up to Christmas 2005 SonyEricsson shipped 2.5 million Walkman phones. In the first quarter of 2006 SonyEricsson shipped 3 million more Walkman phones. A growth of 100%. Bear in mind, this is that same quarter which Apple claims was a seasonal "downturn". Now, for its second quarter SonyEricsson says its overall sales are up 33% and that growth is led... by the Walkman series of musicphones.

Samsung kept on releasing ever more sophisticated musicphones and its local rival LG did the same. A fascinating statement came from Europe's largest phone retailer, Carphone Warehouse - which said that the LG Chocolate - a music phone - is the best-selling phone in their stores - the best-selling phone of all time. This in the supposedly "saturated" European market of mostly replacement phones? Yes, with a fall from 80% to 14% market share in 18 months, the iPod is wilting away before our eyes.

But the iPod is a better music experience.

Some will say that the iPod is technically better than musicphones. They complain that the MP3 player they've tried out on some musicphone was not as good as the iPod (its best described as a toy) or that the iPod user interface, music storage ability, music library etc is better. The "my technology is better than yours" argument.

That is a totally irrelevant argument. I can immediately grant you the argument. You win! Yes! You win! Yes the iPod is inherently better than any musicphone, for listeing to music. I totally completely without a doubt give you that argument. YES the iPod is inherently better.

But that is irrelevant. IRRELEVANT. Just being technically best does not give you market leadership. A Ferrari or Rolls Royce is technically a better car than a Mitsubishi, Chevrolet or Renault. Yet Ferraris and Rolls Royces are niche markets. The Sony Betamax was technically superior at every generation to its VHS video recorder rivals, yet Betamax lost the VCR wars. The Concorde was technically superior to its compatriot, the Boeing 747 Jumbo Jet - and forecasts from 1960s suggested a larger market for Concordes than Jumbo Jets, yet only 14 Concordes were ever manufactured against over 1000 Boeing 747's.

And the ultimate proof lies with the Apple Macintosh computer. For every generation it has been superior to the IBM-compatible (Dos) and Windows PCs yet Macs are a niche proposition with well under 10% of the PC market. If technology decided, we'd all use Macs and Windows would be a forgotten relic. But its the other way around. Macs are the rarity among personal computers, no matter how much every generation of Macs has been technically (and by its user interface etc) better.

So who cares if the music experience is better on an iPod. If Apple's market share has plummetted from 80% two years ago to 14% today, the battle is totally over. Apple cannot recover.

Then there are those who say most musicphones are not used to consume music. First, I'd immediately point out that neither are all iPods. There are plenty of iPods used for example in education for recording lectures, for various podcasts, for video consumption etc. So comparing "apples to apples" - no pun intended - we'd need to compare the iPods and the mobile phone's abilities to consume all digital content, where mobile phone experience is vastly superior.

The phone is always connected. The phone has a built-in response channel (SMS text messaging), a built-in payment channel, and allows placing and receiving phone calls. A phone is far superior overall as a multi-purpose data device, than an iPod. Just on videos alone, the UK mobile phone network Three/Hutchison reports that they have sold 15 million music videos to their 3G phone users in a little over a year, in a market where they have 5 million phone users. Worldwide there are 2.4 billion mobile phone users - over 200 million of those are 3G phones - all which can not only play music, but can download music directly off the air (like iTunes only better) and can "stream" music ie like listening to radio and can identify music via Shazam -type services and can play ringing tones and can display music videos over the air. A vastly superior complete music experience than what iPod could ever hope for. And Apple's total shipped iPod population even now in July 2006 is a bit over 58 million.

As to music consumption? Where does most music come from to iPods? Not from iTunes, it comes from the personal libraries of the users, ripping music from CDs onto MP3 files. Ask those people would they prefer to carry two devices or one - as everybody carries a phone - and so far every person I've ever asked the question said they'd prefer to carry one device, combining the phone and the MP3 player.

But iTunes sells millions of songs?

Then what of iTunes? Yes, a wonderful innovation for the music industry. Yet as the vast majority of portable devices are already mobile phones, not iPods, so too is rapidly the shift in music sales. The IFPI (International Federation of Phonographic Industry) collects the global data on all music sales and coordinates the royalty payments worldwide as the umbrella organization for example for the RIAA (Recording Industry Association of America) for American numbers etc. They have been reporting on iTunes (and other online digital sales) of MP3 songs for many years now.

The first MP3 songs sold to phones were introduced in the summer of 2003 in South Korea. The IFPI said that for 2004 the total sales of music to mobile phones worldwide was so trivial that they did not bother to break it down (ie much less than 1% of all digital music sold). But with enormous growth, for 2005 the IFPI reported that MP3 full-track music sold to mobile phones was 40% of all digital music sold. iTunes was the biggest part, but there were also other legal online sales outlets such as the re-introduced legal version of Napster, etc.

Now for the first quarter 2006, the IFPI reports that already half of all music sold goes directly to mobile phones. (oh, and this is true MP3 music, not ringing tones. The Ringing Tone business is more than ten times larger than iTunes, over 5.1 Billion dollars worldwide in 2005. I'm not talking about ringing tones here). And as the IFPI reports music sales to phones growing rapidly, what did Apple tell us in its quarterly review? its other music revenues (iTunes) are DOWN by 6%. Again the same shift from iPods to musicphones.

The tide is turning. Inevitably. Irreversably. The majority of the devices are there, the majority of the users are there. The majority of the money is there. The majority of music sold is also there, on mobile phones, not on iPods.

And what of the users themselves? The first landmark independent study by TNS of 6,800 adult users came out earlier this year reporting that already twice as many people consume music on musicphones than on any brand stand-alone MP3 players including iPods, and more tellingly 35% of the total population wanted to consume music expressly on their mobile phones. Nobody wants to consume music on a separate portable MP3 player when they have to carry their mobile phone with them anyway. It is common sense, after all, but now we have the definitive study on it as well.

All numbers stacked against iPod

I want to remind readers of the big picture economics. In Apple's record year it shipped 22.5 million iPods last year and has shipped about 58 million iPods in the past 5 years in total. The mobile phone industry ships between 950 million and 1 billion mobile phones this year alone. Yes, last year about 40 times as many phones shipped as iPods.

Not all have MP3 players, obviously. But this year at least 20% of those - more than likely 25% - will be musicphones. So anywhere from 190 million to 250 million musicphones will ship this year. Even if Apple somehow managed to DOUBLE its annual sales from last year and reach 45 million units sold this year - and trust me they won't perform this kind of miracle - NONE of the market analysts suggest Apple would double its sales for iPods this year - its market share this year would still be between 18% and 23%. Apple cannot recover from this loss.

How often are iPods replaced? I don't know. Certainly some of the iPods go to existing users who want for example a smaller iPod like a Nano, or who have issues with reliabilty, broken screens, battery problems, etc. Therefore the total iPod user base is significantly LESS than the total shipped units of under 58 million so far. The total phone population is 2.4 billion worldwide.

Phones are replaced every 18 months. 20% of Europeans have two phones (or more precisely have two subscriptions, most of those people also have two phones, but not all). For those who have two phones, the effective replacement cycle is 9 months. How rapidly does everybody who ever wanted a portable music player, get it "automatically" as part of their next upgrade?

What happens to the older phone? It gets passed onto kids - who all want the new musicphones but often cannot afford them. While the replacement cycle is very rapid in mobile telecoms, most of the cool phones that have been replaced by newer models, are recycled within the families to children, younger nephews and nieces and cousins etc.

But who is the competition. Apple is doomed here. The big five phone makers, Nokia, Motorola, Samsung, SonyEricsson and LG are all companies with deep pockets in research, and about a decade of history of doing pocketable consumer devices. No matter how much Apple can create iconic designs, they are now up to the world's best rivals in this space.

And by now every phone maker has released their first or second generation of musicphones. But the phone market is not only 40 times larger than the MP3 player market, the phone market is fierce in its competition. Apple releases a couple of new iPods per year. Nokia alone releases a couple of new phone models every month. With global competition and dozens of smaller rivals from Taiwan and China, and creative input from the major mobile operators like NTT DoCoMo, Orange, Vodafone, etc, the phones rapidly keep getting better and better. There are literally several hundred new phone models every year. Cameras were introduced four years ago and in 2005 over half of all phones shipping had built-in cameras. It does not take long for most phones to incorporate MP3 players. Apple cannot hope to compete against this many rivals in so many diverse markets.

Already today, in the Spring of 2006, the independent technology press reviews of SonyEricsson Walkman Phones, the Nokia N-Series and the LG Cocolate phones are all on par with iPod Nanos. Bear in mind you don't NEED to have technical superiority to win in the market place. But if Apple's rivals catch up on the technical side of the MP3 player on the phone, Apple's second-to-last competitive advantage is lost.

What of the iconic state of the iPod?

It is easy to fall into the trap of the white earphones. Next time on a longer journey in public transport - whether in a train, bus, underground, etc - observe those with white earphones. Then observe what device emerges when they change tunes? Its no longer that white earphones equals iPod user. Now many phone makers - and other MP3 maker rivals - as well as independent earphone manufacturers - offer white earphones. More than likely those white earphones are connected to a device other than an iPod. The person wants to appear cool - with white earphones - without actually having an iPod. So much for iconic.

Phone is addictive - and iPod is not

As to the phone? No device has as severe addiction as the mobile phone. The recent study by Queensland University in Australia revealed that the addiction to mobile phones is as strong as that to cigarette smoking. We cannot live without our phones. We take them literally everywhere including to the bathroom. The BDDO study from last year revealed that 60% of the phone owners on the planet take the phone physically to bed at night. And the Nokia survey of 5000 users this spring showed that already 72% of us use the phone as our alarm clock (and extrapolating from these two studies, apparently 12% place the phone at our bedside table...)

The most severe punishment you can inflect upon your child is not to take away Playstation privileges or remove the iPod. It is if you take away their mobile phone for the weekend. The Mobile Youth study showed that teenagers in the UK today - the world's third biggest music market after USA and Japan - spend 8 times more of their disposable income on mobile phones than on music. Yes the iPod is iconic. But the mobile phone is the only must-have device. The iPod is an optional extra. Game over.

Last nail into the coffin: Subsidised handsets

Then the ultimate killer. Subsidies. Most Western markets have handset subsidies, which mean that a new mobile phone will be sold at a nominal price of anything from zero dollars to 20-50 dollars. A small fraction of the true off-the-shelf price in the 200-300-400 dollar range. But iPods are never subsidised. So compare 200 dollars for the iPod or 25 dollars for a musicphone? The economics totally tip the balance against the iPod. So people can get their MP3 player "for free" as simply part of the upgrade and contract renewal for next year.

And finally, if you don't like our view on this. Lets go ask the big boys themselves? What does the music industry say? Here are comments from the senior management in the music industry, all released within the last year:

The world's largest music label is EMI. Its Senior VP of Digital Distribution, Ted Cohen says "Mobile phone will become the digital music player of choice" 

Another of the big four global music labels, Sony BMG SVP of Digital Business JJ Rosen explains why this will happen as he says "Everyone likes music, and everyone has a cell phone"

Universal Music is the third of the four. Universal Music's General Manager Rio Caraeff explains why music on mobiles: "Music is inherently mobile and something you enjoy on the go"

And finally the fourth of the big labels, Warner Music CEO Edgar Bronfman states where the focus will be: "Wireless will become the most formidable music platform on the planet"

After we've reported the trend from stand-alone MP3 players to musicphones, and arguing from the analogy of the PDA wars and the digital camera wars, now the first major analysts are also committing to this future. Yankee Group and Strategy Analytics have both come out now in June of 2006 stating that the battle will definitely be won by the musicphone.

No expert is committing to an unpredecented dramatic sudden Apple recovery. No expert believes Apple could ever come back from this total thrashing it received in the first half of 2006. The game is truly over.

Epitaph for the iPod

The iPod. It was the technology darling. Alan and I both love Apple and totally adored the iPod for all it brought us and the industry.

When the portable music player market was deemed dead in 2001 - Walkman cassette players and portable CD players had supposedly "saturated" the market, and whatever little growth was seen, global giants like Sony were pushing the minidisk as the evolution to the Walkman experience. Nobody believed in MP3 players.

In 2001 Apple had the vision to launch the iPod. A company not known for a consumer music brand, but rather a geeky and proprietary PC brand, nonetheless Apple released its iPod. And most bravely of all, at a time when the whole music industry was in panic about the napsterization and illegal file-sharing of digital MP3 files, Apple collected the industry together for the revolutionary iTunes.

We applaud all that. Like we wrote in our book Communities Dominate Brands as one of the 13 case studies, Apple was brave, visionary, bold and successful in creating a new market space with the iPod and iTunes. They were brilliant.

As they now report Macintosh PC sales growth, the iPod has brought a lot of additional sales to Apple in another market that was said to be stagnant - the PC sales. Apple has been able to create a niche market almost all to itself for nearly 5 years, and in that process added sales to its main product - PCs - all along also increasing its profit margins very strongly.

Brilliant strategy Apple. We applaud you.

But we also have to face reality. Apple had the MP3 player market almost exclusively to itself - with essentially only Creative Labs and a few other small IT players on the stand-alone MP3 player market. That all changed in 2005 when the big phone makers decided to launch musicphones.

The final battle was as brutal as it was brief. Apple lost out in the first half of 2006. What was the ultimate darling of the IT industry, was coldly sweeped to the sideheap of history. The iPod market share this year is about 14% and dropping. Like the Financial Times quoted me August 30 of 2005 in the story about music phones fighting against the iPod, "Next year the game will be totally over," says Mr Ahonen.

The iPod is dead. Long live the iPod.

UPDATE 2 - I've blogged a rebuttal blog answering the first 32 people commenting on this story. Please see [Stampeded by Mac Fanatics]

UPDATE 3 - The story received very broad coverage by several dozen blogsites, websites, news aggregators and discussion groups. This blog has been called excellent as well as the worst writing of all time. I've collected the commentary to this posting [Electronic Echoes]

Comments

[Joe]

Funny. I don't know ONE person who listens to music on their phone. But all my friends have iPods. I guess we are going enjoy the slaughter -certainly doesn't feel like one.

[Mathue]

Market share down to 14%? What happened to the millions of iPods already sold? There are too many odd reasonings in this fully winded article to really go over bullet by bullet. Point is is that whatever metrics are being used seems to have little relationship to reality or buyers utilization. Maybe I'm too connected with real consumers but if the iPod has crashed then there are many other things that mysteriously haven't crashed around it. There was always bound to be slowdown, Apple has even said this, but to say it's crashed is really tipping into 'emo' level drama. I expect sales will taper off, Apple's competitors (i.e. Creative for example simply can't compete with both Apple and MS) will drop away when Microsoft gets into the game and it'll be a race as to whom can sell either the best player or the cheapest player

[Tim]

Tomi, you claim you will answer individual posts so I have two questions:

1. On the page advertising your book, it says "NOTE - we have received several endorsements, and themedia hastaken notice -see links here on the right "

There are no links on the right, can you tell me who these endorsers are?

2. You say "bestselling"; how many copies of your latest book have you sold?

Thanks.

[taylor moore]

your a dumb ass, no one uses their mp3 capable phones as their main music players i ahve a treo and dont have one song on it i use my 60gb video ipod, ipods arent dead they have a dominant hold on the mp3 market and u know it, just bc u dont lik apple for watevr reasons u sound stupid makin shit up. ipods arent dead nor will they be any time soon, they are the best small music/video players made. period.

[Tim Irons]

What about computers? They play MP3's dont they?
This is out of the MP3 player market, not phones that play MP3's as well. If it was, Apple would have included a lot more products in their research.

[etype series]

Great argument Tom. Unfortunately it's a logical fallacy. You should have compared ipods to cellphones from the first year ipods where introduced. Ipods would not even touched 14%.
And actually, following your logic....14% of the cellphone market for a product that is not a cellphone, doesn't take pictures, has no games, is really, when you think about it, not a bloodbath at all.... but an unprecedented, quixotic and smashing SUCCESS!. And it can't even make calls or take pictures!....BUT IT HAS 14% OF THE MARKET! PROOF OF A REALITY DISTORTION FIELD ENCOMPASSING THE ENTIRE WORLD!

That is freaky weird man. What are people thinking?

[Martin Pilkington]

A lot of people have this delusional theory that mobiles are somehow going to be come the be all and end all of technology and all that anyone ever wants. They're going to combine phones, PDAs, digital cameras, MP3 players and more into one device. Only problem is this. There is not one single solution so far that is both compelling and easy enough to use. What makes the better PDA? A PDA or a mobile? What makes the better digital camera? A digital camera or a mobile? What makes a better MP3 player? An MP3 player or a mobile?

I have an old Sony Ericsson T610. I use it for texting and calling on occasion, that's what it's best at. I use my iPod for listening to music, because it can:
a. hold my entire music collection
b. not run down my mobiles battery
When I need photos I take my digital camera with me. Apple understands the importance of multiple devices, each really good at their job. Most mobile phone companies just think they can shove as many features in as possible and call it a decent product

[A human]

I've never heard so much shit in all my life

[Tomi T Ahonen]

I WILL REPLY TO ALL OF YOU

Hi Zato, Fmausfoto, Dazza, RP, Jim from Davao, Joseph Matt, Jeo, Mathue, Tim, Taylor moore, Tim Irons, eType series, Martin Pilkington and A human

a couple of quick comments that seem relevant/urgent.

Dazza - yes, I am not only a telecoms consultant, but I have written the three globally pioneering books on the newest telecoms stuff, 3G - the services, how to make money with it, and how to market it. Each a bestseller, clearly on the front page of this blogsite - it should NOT be a secret that I am a telecoms consulant?>

I did work for Nokia (that must make me horribly evil, doesn't it?) as their Global Head of Business Consultancy and I still lecture at Oxford University on telecoms (and IT convergence)

Jim from Davao - I HAVE posted the results from the ONLY published survey so far of global usage of portable MP3 players - the TNS Study that came out this April (we blogged about it then, I referred to it in the original posting). 10% of the populatoin listen to music on iPods and similar devices; 19% listen to music on phones. I cannot make it any more clear. Not numbers "invented by me" - the first global study anywhere. If you can helpfully point me to any other study that expressly considered phones vs iPods, I will most happily ALSO report that study. But Jim its unfair for you to ask for real numbers, when I HAD them in the original posting. Did you READ the blog?

Tim - I'm sorry, I noticed for some reason three of the four endorsement links are broken. I will fix those immediately. The link to Coca Cola's Chief Marketing Officer's foreword to our book is there. You'll have the links as soon as I can get them back up. They were there last time I checked a couple of months ago (I don't habitually check on our archives, I assume Typepad keeps it all forever)

eType series. No, I did not count 14% of "all cellphones + iPods" - only of "all musicphones + iPods" Last year they sold 815 million cellphones. Apple's 22.5 million iPods would have been only 2.7%. In reality last year (2005) when 90 million musicphones were sold, and 22.5 million iPods and 7 million other stand-alone MP3 players (do keep in mind, these are GLOBAL numbers, not USA only) - then for the full year 2005 iPod's market share was 18.8%. Since then it has fallen to 14% now, and will be 10% by year-end 2006. You can find the full analysis of the 18.8% and all the sources (yes yes yes, including of COURSE Apple's own quarterly data) at the link at the top of the original blog to my blog entry entitled "Nails into the Coffin".

Finally - for all who seem to think this is somehow delusional, that I am on some other planet, its not like I'm alone. Global IT research giants, Yankee Group, Strategy Analytics and IMS Research have now in the past two months said exactly the same as we've done at this blogsite. Bill Gates said phones will rule over iPods.

Each of the four music major labels - EMI, Warner, Universal and Sony BMG have said music will be on phones, not iPods.

Business Week, the Economist and the Financial Times have all said musicphones are emerging as iPod rivals. Come on, now in July 2006 you can't accuse me of being "out there" alone with this..

I understand you are surprised. But don't shoot the messenger, and hey, I'm on YOUR side. I WANT Apple to win, Alan and I are passionate Apple fans ! I've written glowingly of Apple in each of my four books.

Everyone - I will respond to ALL of you, don't worry. But next I have to go find where our endorsements links have vanished.

Thank you for visiting our site and for posting your comments. We do greatly appreciate the time you took.

Tomi Ahonen :-)

[Mrfreeze]

Your article is tiring. Really. Isn't it obvious that everyone needs a cellphone and not an iPod ? Thanks for your really helpful forecast. Now, woudn't you expect that people would buy less iPods when those have not been refreshed for a year ? What makes you think that everyone who owns an MP3-ready phone uses it to listen to music ? Personally, It would not even cross my mind. Comparing an iPod to a phone is like comparing a camera to a phone. If you are serious about taking pictures, you'll never EVER use a phone to take pictures... The telephone killed the camera only for "stupid" consumers who do not take pictures but snapshots...

Granted, Apple will have to come out with a phone sooner or later. But stop the 14% crap... Really

Thanks for your time anyway !

[Ian Betteridge]

Mrfreeze, sorry, but it's 14%. You can't wriggle out of the facts. Where is Tomi wrong?

[Ronald]

Let's be real. Have you ever seen anybody listing to music on a phone (except on TV commercials)?
Phones will always outsell MP3 players because people are talking on them.

[william]

Tomi,

Bill Gates said phones will rule over iPods. He did not say they DO rule over iPods. You point to studies that say that 20% listen to music on phones and 10% listen on MP3 players but I can point to actual people who listen on iPods and I haven't seen anybody listening to music on a phone. Just about every time I am on an elevator there is someone listening to an iPod, that's 20% of a sample of 5 people and another 2 of those 5 probably have an iPod in their bags.

I'll grant you that it's just the US niche market, but I think that ruling that niche is pretty good and doesn't represent a "crash" of the iPod. You've ignored certain facts such as the very healthy year-over-year increase in iPod sales to focus on a seasonal decline. Doesn't make much sense.

Personally, I hope a great all-in-one device will become available that could displace the iPod as a standalone device. Something that handles music as well as an iPod that also fit in my phone would be great. They're getting closer but they aren't there yet. I still need my phone to be a great phone and not an add-on to a music player. The Sony s710 is a great form factor, in my opinion, and with better software, a better battery, better camera, and a lot more capacity would be a good platform for the all-on-one device. There may already be a phone like that, but contrary to your assertions, they are not subsidized in the United States. The really good Sony-Ericsson phones are not offered by the carriers so they are 100% paid by the user. Rather than pay $600 for a phone, I can get the best iPod available and a good subsidized phone.

[Jeffrey]

Wow! I guess I can put off buying that new Canon 30D Digital SLR, because my PHONE has a CAMERA in it, too!

I call this article, "trolling for hits". Idiots.

[ben]

The cell phone won't be a serious competitor for awhile yet. First, it needs significantly longer battery life and capacity. Though even with significantly longer battery life, that alone probably won't be enough, it'll need a separate long-life battery entirely.

People have cell-phone's because they don't want to miss calls. No one who has a cell phone will want to listen to music when it brings the very real possibility of draining all their phone's juice, thus turning the phone into a small brick (instead of a useful communication device) until they can reach a charger. That, combined with the crappy cell phone interfaces and storage capacity will keep iPod on top for quite awhile.

I'm also impressed by that study saying 19% of people listen to music on cell phones. I have never, ever, seen someone listening to music on a cell phone. When I recently went on a trip to Europe, through 5 countries, I saw iPod's all over, not a single person listening to music on a cell phone.

My only guess about the study is that its horribly flawed and most likely asked a vague question like, "Have you ever listening to music on a cell phone?".

The cell phone has a chance someday to compete with the iPod, but they'll have to convince people that their phone's battery life won't be affected by listening to music. That's very very tough when you consider that most iPod's can play music for 12 hours or so without a recharge, while a phone can't even handle more than 2 or 3 hours of talking before dying on you.

[Chuck Stacey]

You have to be kidding me. Are you seriously going to contend that mobile phones should be lumped into the category of dedicated MP3 players?

That is the biggest joke I have ever heard! Wait, my car plays MP3's, so lets lump that into the mix. Lets see, my home theater, my wifes radio in our bedroom, my DELL DESKTOP! what a friggin joke. This has to be the most illogical article I have ever read in my entire life.

The iPod is an MP3 player, actually it is a AAC player for those that buy from iTunes and an MP3 player for those that stole from Napster, Limewire, Morpheus, etc. Point is, you cannot lump phones into the same category to determine market share. That is like including the fake kid laptops that you can get at Toys-R-Us for 10$ into the marketshare determination of the laptop industry.

I hope that you can see the light, come to your senses, and stop being fan boys to the cellular phone industry. One day, MP3 players on cell phones may pass the usablility of the iPod, but not now.

[Tomi T Ahonen]

SECOND SET OF REPLIES

Hi Zato, fmaousfoto, Dazza, RP, Jim from Davao, Joseph Matt, Joe, Mathue, Tim, taylor moore, Tim Irons, etype series, Martin Pilkington, A human, Mrfreeze, Ian Betteridge, Ronald, and william:

(and late entries to Jeffrey, ben and Chuck Stacey)

Thank you all for writing.

First, I ask you to take one look at the two pictures I just posted. They show clearly - what I am talking about (official Apple data, where is that dramatic drop, why the alarm). And the second image explains "my theory" if you want, on what happened.

As of now, I am not asking all of you to leap off the cliff with me. Some of you are so deeply passionate about Apple, Macs and the iPod, that it is too much of a shock.

BUT LISTEN TO APPLE ITSELF. That "image" you had of iPod's global dominance, when Apple talks of 77% etc - that you have heard in the press and with investors, analysts, etc, has ALWAYS been only USA. EVEN Apple itself admits OPENLY that in their four next best markets are way below USA - Australia 58% Japan 54% Canada 45% UK 40% (Peter Oppenheimer Apple CFO at Apple quarterly conference call April 19, 2006). Oppenheimer then admits that in most markets iPod share is very bad, their next good markets by market share are - Germany 21% and France 11%.

His international numbers were from the end of 2005. Even six months ago, Apple's actual market share in these 8 countries, adjusted for population - was 54%. Note that these 8 countries - their best markets by market share according to Oppenheimer - aer only 10% of the world. All the giant countries like China and India are missing as are many major industrialized countries like Italy, South Korea etc. In reality even at December 2005 according to the Apple CFO, their true market share was well below 54%, probably under 30-40% by Apple calculations back then.

If in your mind you had the thought that "it is true that iPods have 77% market share" - that has been a total illusion all through last year. Apple has ADMITTED its real global market share is nowhere near that.

Is it now so difficult to accept, that as iPod sales DROP, 46% in total over the past 6 months, iPod is suddenly at 14%?

Please look at the two pictures, remember the Apple numbers are official Apple and "my" numbers are from the telecoms industry formal reports and reconsider. Bear in mind that Apple's CFO has already been warning three months ago that the global share was definitely under 54% (much below 54%)

(you guys are worse than my customers. Nobody forces me to work so hard at my numbers, ha-ha)

Ok - who's first.

Zato. You say don't bother. I did already. But thank you.

fmaousfoto. yada yada yada to you too. You don't like Apple's own numbers and Apple's COO and CFO?

Dazza. I replied to you above, but yes, I am not only a mobile telecoms consultant, but yes, I am a former Nokia employee. I lecture at Oxford University on telecoms and convergence. Three of my four books are specific to mobile telecoms. All of the biggest telecoms players are my PERSONAL customers.

But I am not in their pocket. I do really take a stand and argue my points. Vodafone (the world's largest mobile phone operator group) is one of my reference customers. I recently argued very strongly against their new strategy. And so forth. But yes, I also advise several other Fortune 500 companies outside of telecoms. But I never hide my telecoms background. My books are clearly visible right on the front of this blogsite.

RP. "nearly every other analyst sees as good". RP I am not that naive to fall for that argument. By definition every new idea is, at birth, an absolute minority of one. Everybody else is against it, until the idea inventor convinces ever more people to agree. I have been through this road many times before, and it does not worry me that some other analysts don't see my way - YET.

I am not omniscient. I don't know everything. I make mistakes. I acknowledge them. I am called to task, like Business Week in its big story about the telecoms forecasting fiasco with 3G. I am not afraid of my past. I LEARN from my mistakes. But also, I am not the least bit concerned if somehow the "majority" has not seen the light, YET. Why don't you hop on over for example to the Mac Rumors site and see how intelligently they are discussing the future of phones and iPods? I am no longer alone, even many Mac/Apple/iPod people see the logic in what I say.

Jim from Davao. How many musicphone owners use phones to listen to music "exclusively"? Nobody, obviously, if you mean they don't use the phone feature? I don't see the point of your question. But hey, now that i think of it, maybe just a trivially tiny percentage, say young kids of parents who are not allowed their own phone but the parents have an old cellphone with MP3 player which the parents don't need. They could give it to the toddler as their playphone (no connection, no phone charges) and it COULD be used as a phone. But no. You are "right". Nobody uses a musicphone exclusively to listen to music? Why would they? Ha-ha, now I know. YES there are some. People like ME who have no friends. Nobody calls me and I'm wasting my time here with you lot, so I can't even disturb those people who I think are my friends...

Oh, if you meant who actually DO listen to music on the phone (but also use other features of the phone like calls and messaging) - then I've already given you the TNS study - so far the only global survey I've seen - that reports that 19% of adults listen to music on phones worldwide. 10% listen to iPods or equivalent MP3 players. Numbers roughly fit with last year's penetration numbers. Today the ratio would be more in favour of the musicphones.

Joseph Matt. Good one. thanks. I needed that.

Joe. Fine. Good for you. I know you'll soon meet someone and you'll be amazed. I can tell you I listen to music on both of my smartphones and watch music videos but you don't really know me, ha-ha, and many of your peers call me a looney, some even a liar, so perhaps you should not trust my word anyway?

Mathue. Look at the graphs I gave. The market share is per quarter or per year. For last year iPod's market share was 18.8% as I've reported earlier at our blogsite (see the link to "Nails into the coffin") Now for the latest quarter it is 14%. Notice the trend is falling. By end of this year it will be 10%

You admit the growth ended - "there was always bound to be slowdown, Apple has even said this". Fine. So you totally agree with the numbers themselves? But look. When Apple said its market share was 80% in December 2004, that was accurate, globally. Today when their market share is only 14% - globally and including musicphones - then any rational busienss executive will conclude, this is a market that has been lost. A drop from 80% to 70% someone can understand. But in 18 months to destroy market share this hideously, that is a sign management has goofed. Sorry. Talk to any business professor around your neighborhood and ask is a drop of marketshare from 80% to 14% a good sign or bad sign?

Tim - first, thanks for pointing out the dead links to three of the four endorsements pages. I have now restored them.

You ask about being a bestseller. That is a rating that the publisher announces. The publisher of my first three books is John Wiley & Sons, the largest publisher of technical books in the world. You might recognize them from one of their more popular brands, the yellow-covered "for dummies" paperback books. Yes, Wiley owns that franchise as well. And no, I have not written a Telecoms for Dummies book, ha-ha. My books are with their top line, under Wiley, all hardcover books. Available at all booksellers worldwide. Wiley has certified each of the three books as a bestseller. That is not something they do lightly. I am not an expert, but it seems to me that about 5% of their books are bestsellers. Certainly when one of the books goes into second printing - like my third book - or is translated - like my first book into Chinese - then these are almost always bestsellers. Wiley did come to the biggest telecoms event in the world, 3GSM World Congress, in Cannes last year, to announce at my book signing, that with the second printing of my book 3G Marketing, it has officially become the fastest-selling telecoms book of all time. But you should call them and ask them. I'm only happy they say this about me. My fourth book is with the future-oriented specialist publisher Futuretext. I now write for both publishers. This fourth book is the topic of our blogsite. It went into its second printing in six months and was certified a bestseller by Futuretext. It is being translated into four languages. You need to ask them about more at what level books become bestsellers.

You also asked about the endorsers. So let me list a few of the companies and the level of the executives who have endorsed my books so you see that my endorsements also reflect the global leadership. Vodafone Director of Group R&D. Cap Gemini Ernst & Young Global Head of Strategic Consulting. Intel Director of Technology. NTT DoCoMo Executive Director Global Business. Bell Canada Director of Channel Development. Ericsson Senior Vice President USA. OgilvyOne Vice Chairman. Publicis Media Groupe Chief Innovation Officer. Red Bull (UK) Managing Director. Cybird CEO. TV 2 Norway Vice President.

The full list of endorsers - and their full quotes of course - for the latest book are directly at this blogsite. The endorsements to the previous books - please visit my website www.tomiahonen.com
and look under my books there.

taylor moore. "no one uses mp3 capable phones as their main msuic players" - why? because you don't like your Treo? Listen very carefully, taylor moore. If a study of 6800 people says that 10% listen on an iPod. And 19% listen on a mobile phone. Even if we assume that ALL iPod users also listen sometimes on a phone, even then 9% out of 6800 people interviewed already today DO LISTEN TO MUSIC on a PHONE. Here, I'll do the math for you. That is 612 people. The more you try to argue iPod people do NOT listen ALSO on their cellphones, the LARGER that number becomes. Now go and think about it.

For all the adults in this thread - yes, obviously it is a sample. I mean of course 19% of the total adult population, not only 612 people in the world. But since taylor moore felt it was a clear absolute thing, I wanted to give him an abslute proof. So there.

Tim. Good point. I have often talked about "pocketable" devices. But did not clearly indicate that in these postings. I need to be more clear. I don't want to start to even count how many MP3 players there are in the PC population etc. A valid point, sure, but hardly a viable rival to iPods or cellphones which is the focus of my interest with this posting. I AM interested in digital convergence also with PCs, digital TVs etc. But about that the next time we meet ha-ha.

e-type series. Ok. You say I should have compared iPod sales from the first year iPods were introduced. And yes, of course, I HAVE DONE that. Repeatedly, at this blogsite. Why don't you go and read the prequels to this blog. That is not the point of this blog. Take a look at the two graphs that I posted, and you'll see why the first quarter of 2006 is a significant "turning point" and now the second quarter totally solidifies that sudden change. That is why today's drop of 6% is more important than the first quarter's bigger drop of 40%.

Martin Pilkington. Delusional theory about mobile phone dominance. Fine. I hear that a lot. Some believe in convergence (as I do in many cases) but others believe in separate devices (the "separatistas" as we call them) - which I believe in other areas. I have a whole big theory about this of course. Some will always insist on the converged device (eg most heavily travelling "road warriers" - who even hate carrying separate battery rechargers for portable devices etc) and some will always prefer the stand-alone separate devices. The stereotypical Hi Fi nut, who has not only separate tuners and amplifiers, but actually PRE amplifiers and POWER amplifiers. We all know the type. So yes, you can be a separatista if you want. The mass market is not like you, in terms of music clearly.

A human. I am sorry you had to hear so much of it now.

Mrfreeze. So you will grant me the argument if I say "I only talk about stupid customers, like the 800 million who own cameraphones (vs 100 million with "real" digital cameras including of course also those cheap digital cameras like the VGA resolution Kodaks etc that you get at PC warehouses around the world) - if I talk about stupid customers, you will accept this can happen? Fair? Those stupid enough to own a 1 megapixel cameraphone with only a digital zoom that is all but useless anyway? Yes, I am talking about THOSE custoemrs. The "stupid" masses. I am not converting YOU away from YOUR iPod. It would be idiotic. Of course those who value good products will buy iPods always. But the stupid masses - that is EXACTLY the population I am talking about. That is where musicphones are already sold today.

But hey, you admit Apple's iPod phone. So my premise of this blog is fair. If Apple can do it, then of course Sony, Motorola, Nokia, Samsung can "try" to do it? Yes, you accept the premise that we can compare iPods and musicphones in the same market.

And thank YOU for your time

Ian Betteridge. Thank YOU. I need not say more.

Ronald. Same argument as for taylor moore. If you take the absolutist position / nobody does it (except on TV) then all I need to do is prove to you that one person does it, and you are proven wrong. Read the math to taylor moore. There. 612 people are proven to do it. I win you lose. Next time don't take an absolutist position.

william. Ok on Gates. Sorry for my typo (I forget now where that was). Good catch and fair point. On ruling the USA niche? Wait. In 2004 Apple DID in fact control 80% of the GLOBAL market. They let it slip away. Yes, Apple is strong in America and will probably hold 50% of that market by end of this year and still perhaps 40% in 2007, but this is very bad management by Apple. They OWNED this space only 18 months ago. It will go down as one of the all-time world records for destroying a market that you own. IBM did not relinquish its lead in PCs this fast in the 1980, even though they made that famously disasterous deal with Bill Gates.

I did know that American phones are subsidized at ridiculous levels but was not aware that this did not include the top-end models? Am surprised. It would seem logical to do the other way round. A heavy phone user - monthly phone bill of 300 dollars or more - certainly would easily earn back the high-end phone from the profits in a year. Perhaps they need a revenue/profits consultant ha-ha... Here in the UK all the new phones are subsidised, first on premium prices for the first 1 or 2 months, then go standard prices and soon are totally free. The Nokia 9300i - Nokia's latest uberphone smartphone PDA with WiFi etc, with a street price of about 800 dollars I believe - is free with a monthly contract. When I got mine late last year the month it was released in the UK, I paid 50 pounds for it (80 dollars). But I'm a seriously heavy phone user with astronomical phone bills on three subscriptions on two carriers ha-ha...

(Since I started, two more comments. So welcome Jeffrey, ben and Chuck Stacey. I'll add your comments here:)

Jeffrey. I have many times stated that serious photographers - pros and serious amateurs - will always want good stand-alone cameras. Go read the actual blog and you'll see.

ben. You say you saw Europeans with iPods all over? Perhaps you saw Europeans with white earphones? I would suggest you saw white earphones and thought "iPod" not knowing that most musicphone makers offer white earphones too. Apple's CFO, Peter Oppenheimer, on April 19 said French iPod penetration - these are official Apple stats - is 11% and Germany is 19% and Spain and Italy are below those. Where were you in Europe that all used iPods?

But as to TNS's study. I had nothing to do with it. It was very widely reported by the IT and telecoms industry press. I believe it is a very comprehensive survey - normally market studies cover only about 1000 interviews. This was 6,800. I cannot do more than report to you what I find. That is the only study so far to address the question on all of our minds. So how many people USE these musicphones. Honestly, go take a look at their study yourself. I cannot do more for you on this. And if you find ANY other study anywhere on this topic, bring it to us, ok?

Chuck Stacey. I am not kidding you. I do seriously suggest counting MP3 players with musicphones. I am not alone. The MUSIC industry already does so - read my blog and the leading executives from EACH of the four music giants. But wait - APPLE does so. Oppenheimer already thinks the Walkman phone is nearly as good as an iPod. Hello? You yourself say when Apple does it, it will be viable. Certainly some point before Apple does it, it can become viable already.

But you and I agree on the principle of my blog but not the timing. You do see phones some day achieving a performance level that they can be competitors. I argue that time is now. We can differ on the timing, you buy my argument in principle. Thank you.

Ok. That is all for replies here. Thank you ALL for writing. I will be dead before I've managed all replies. The other posting had I think a dozen comments already. You guys comment faster than I can reply (no, Tomi, you write too much verbage)

But seriously, take a look at those graphs I posted. I had two calls already from a few friends who said the pictures made it all make sense...

[etype series]

First of all Tom, i applaud your patience and good nature in putting forward your ground-breaking theories, and generously answering all queries and challenges.

Second, if your thesis is that Apple needs to release a ipod phone or become a niche product...you are correct. I think it's obvious Apple is probably doing something along those lines.

Third, and this is the 'clenched fist of rebuttal', Apple did not come into this market as a music playing cellphone. It came into the market as a portable music player...and it now owns that market.
You suggest the music playing cellphones own that market. You need to provide some data regarding downloaded legal music files to prove that -- music that has been paid for.
I have no doubt you have, or can get this data. I'm convinced you are a trustworthy and wonderful man...and not the sneaky, delusional wingnut you are so often characterized as.
That data is the proof you need. Remember Tom - paid for - legal - downloaded music files. Not freebies etc...not graphs or extrapolations.
Godspeed Tom.

[Tomi T Ahonen]

Hi eType series. Good to have you back!

You are generous in finding common ground, and certainly you make a fair request. If it is so that musicplayers have entered "iPod's" market space, then surely stats must exist for legal downloads of music sold? Yes. I do have that.

And I did actually provide the actual stats in the original blog. But since you asked so nicely, I'll give you the more complete version of the reply. (Yeah, obviously I've had time to eat and rest, and am again in super-long-writing mood ha-ha)

The global industry association for music - IFPI (International Federation of Phonographic Industry) - for which for example the American RIAA is a member so yes, all USA music numbers are definitely included in IFPI figures - reported in its annual report for 2005, that online music was worth 1.1 billion USD. Out of that, 40% came from music sold to mobile phones - 440 Million dollars. You might remember last year's iTunes annual sales was 400 million dollars (the rest are the various other online music sales services, such as the newly commercial Napster).

So in 2005 we have seen the cross-over point of more music sold to music phones than iPods. I think the "ratio" of market shares make sense. In devices the difference is greatest - 4 to 1 in favour of musicphones vs iPods.

In amount of actual users (almost all iPod users do consume music on their iPods - not all of course, some use them in work, for books, podcasts, university studies etc - but even those often consume some music on iPods) the iPod is closer to musicphones (more musicphones are NOT used for music. Some are so appallingly bad at it - the first generation especially by some of the smaller manufacturers - and also some will of course go to people who didn't need or want MP3 ability. So with usage, the TNS survey revealed that the ratio is about 2 to 1 in favour of musicphones over iPods.

Now the numbers you asked for - for actual music sold - again, iPods have much larger storage ability. The iTunes service (in countries where it has been launched) etc are reasons why its easier or more user-friendly to consume music. So here the ratio was only 1.1 to 1, marginally in favour of musicphones.

Now - that all being said, the balance is tipping dramatically in favour of musicphones. Every market where carriers/operators are hideously bad at delivering music, they learn from the leading countries (and from iTunes) and get better. The phone makers are releasing their first "serious" musicphones, and there is the big picture economics. MANY more devices and also a dramatically increasing advantage in more users.

So it should show up in numbers? It does. The IFPI released a statement after the first quarter of 2006 that now mobile phones already account for half of all online music sold legally, worldwide. I think Apple reported a decline of 6% of iTunes in terms of revenues now in the latest quarter, but it was a kind of fuzzy number, I may now remember an analyst comment perhaps (its late in London)

The tide is turning fast. Finally - just to illustrate some national numbers. In Japan (world's second largest music market. World's second highest 3G phone penetration at 34%) in 2005 the total value of music sold to mobile phones was 211 million dollars (IFPI). Note Japan mobile alone is worth half of iTunes worldwide.

In South Korea (world's highest 3G phone penetration at 39%) this spring Telecom Korea (an industry newsletter) reported that the Korean music industry has announced that 45% of all music - not only online music - is now sold to mobile phones. I need to add, that Korea has a much smaller music market than Japan and Korea has a lot of piracy, so 45% of total music industry revenues in Korea is not necessarily a huge dollar number. But in three years - that is quite a percentage of a country with a population of 50 million and higher mobile phone penetration than USA...

So in Europe? In Germany (Europe's second largest music market) 32% of phone owners (Germany lags European average where cellphone subscription penetration is only about 95% per capita) download music to phones (Chip Xonio). In the UK (world's third largest music market/Europe's largest) 27% of 3G phone users download music to their phones (Telephia). UK is one of Europe's leading phone markets (115% penetration) and 3G penetration of 6% (tied fifth highest in world).

I hope you have enough stats and numbers there.

Tomi Ahonen :-)

[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.