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

[Tomi T Ahonen]

Hi idiotBoy

Well reasoned posting, but out of date.

If consumers do not listen to music - or indeed BUY music to phones, then your position has some merit. But if consumers don't see a difference of consuming music on MP3 players or phones - and actively, in LARGE NUMBERS listen to and buy music to phones - then YOU are wrong. Sorry. We have to count them as part of the same market.

See elsewhere all the evidence on IFPI global stats of music sales, TNS survey results of adult music listening - twice as many people already listen to music on phones than on all stand-alone MP3 players including iPods. Your position is out of date.

But on replacing. On this too you are out of date. The first item that mobile phones replaced already was fixed (landline) phones. Finland was the first country where mobile penetration passed fixed landline penetration in 1998 - this has since happened in all industrialized countries (except Canada), with the USA joining this group last year. Today in Finland over half of households have abandoned the fixed landline altogether (Source Liikenneministerio). Even in America that is rapidly happening now, with already 9% of households having quit landlines (Source CTIA).

The second to join this group is messaging. E-mail was the world's favourite messaging system, used on the PC-based internet. SMS text messaging came out of nowhere and today 63% of the worlde's mobile phone users use SMS text messaging (Source IDC) so out of the 2.4 billion phone users that is 1.5 billion active SMS users. The latest surveys from Korea to Scandinavia to yes USA reveal that teenagers are REDUCING use of e-mail in favour of SMS and IM.

These were before the battle moved to other pocketable gadgets... PDA sales were supposed to be about 100 million. They stalled at about 10 million when smartphones were introduced. Smartphones - with PDA functionality - were introduced in 2001 and now sell 100 million. Are you seriously arguing smartphones did not steal this market?

And to your "science fiction" doubting of credit cards, wallets, keys. Sorry. You are not following what is happening around the world. We've reported here at this blogsite for example that half of Koreans already pay using mobile phones - not to buy ringing tones, but to pay for petrol, groceries, hotel bills, airline tickets etc. In Japan they use mobile phones (search under "Felica" as security key passes at work offices, and are already constructing homes with mobile phone ie Felica enabled locks.

Check out elsewhere in this discussion about all the evidence from Korea about music use, TV viewing - YES, broadcast "set top box" digital cable TV viewing on mobile.

No, YOU are a dinosaur. Yes, as mobile phones are replaced every 18 months globally and every year in advanced places like Korea, Japan, Hong Kong, etc, the features get upgraded also remarkably fast. Much faster than to your iPod or Mac.

But thank you for writing.

Tomi Ahonen :-)

[Alessandro]

Ciao Tom,

great points. I have a Nokia N91, the 4 Gbyte mobile phone. I listen music, watch movies, take videos, record audio, take pictures, develope application in Flash Lite, use other applications, podcasting, listen the radio from anywhere in the world from the internet via EDGE/Wi-Fi, surf the web and all the other things you can do with a mobile phone.

So the argument iPod versus Mobile Phones is not existant!! People will drop the iPod as soon as the reilize that they can buy their own phone and connect it to the best wireless carrier. It's about mobile education.

I have a lot of friends with an iPod and when I show them what my phone can do they cannot say anything !!

Also the audio format for a mobile phone is AAC or AAC+, better quality and lower size then MP3.

Alessandro

[Geo]

I have a Sprint Samsung .mp3 phone, but I do not use it for music even though I do not own an iPod. I got it solely because it also happened to be one of Sprint's very first Bluetooth phones! After experimenting with the phone during the first couple of days of ownership I very quickly concluded the following:

1. I will NEVER buy music from the Sprint Music store (too obscenely expensive) and difficult to use.
2. I would NEVER waste a minute of the phone's precious little battery life to listen to a song (the phone battery does not even last through the day for talking, let alone music).
3. The phone's interface for uploading and playing songs is so terribly frustrating that it is a waste of my valuable time to try and learn to use it.

Your theories and statistics on .mp3 phones may need some work, and should take into account the sorts of issues I experienced. How many people are actually using those phones for music? I cannot imagine that very many are. Also, where are the stats on the number of songs sold by Sprint, Verizon, etc.? My guess is not many. Meanwhile, I'm just waiting for the next generation of iPod to be unveiled and will then get a real music player.

[etype series]

Your game Tom, very game. I'll give you that. You need to condense your points further...this will allow you to keep in top shape.
Going back to the post several stories above...it didn't seem the figures you gave added up to %14 for the ipod...it very definitely looks to me like the ipod has %40 - 45% of the entire music download market.
Another thing, and this is a grave weakness in your analyse...and one reason people read this and call you a varlet and a bounder....is that you pit the ipod against the entire mobile phone market, the ipod against the monolith....not the ipod versus Nokia, etc. Those cell phones are going to sell anyway, music or not.
Who is making the profits here?
Also, although i think you interpretation is valid to a lesser degree, the relevance is
not there, concerning the spin you put on it, to a greater degree. The market is competitive, it's changing every week. Your spin of a monster drop in ipod sales, you yourself admit with the 6% figure is wrong, a 6% drop after the Xmas season is not a monster drop, but normal. Your point that the cellphone has gone and gobbled all the headroom in the music player space which spells doom for Apple. This is ridiculous, Apple cuts a comparitively huge margin on every ipod...far above any cellphone..and it's worth every penny. Apple's 6% drop in the 1st quarter is a 6% drop in a very serious profit. Profits to invest, profits to innovate.And obviously Apple is not one to stand still.
Also you assumption Apple has to excersise a monopoly on mp3 player to make a profit, is also woefully ignorant of how Apple has done business the past 5 - 25 years. You also must be aware the number of asshats barking spittle at Apple's 'impending' demise for years...and are now identified as jokes by all but the slowest of slow. Your putting yourself in that category by the giddiness of your spin Tom. And it is spin...Apple against the cell phones - which are going to sell huge numbers, because they are ....cell-phones. Not being upfront with the download numbers, but hiding it by breaking it up into regions, and spinning that. Tom you may not recognize it, you have a useful idea that your onto like a chihuahau on a meatball. But this is all spin. You have tremendous charisma Tom, an extremely lovable man and a real character. But come on Tom, your pulling a Dvorak boner troll, doing a spin flamenco. Much of what you say, and again you need to be more concise, has validity ( much doesn't however). But you present it like it's 'game over'. And it's obvious to anyone of sound mind it's not game over...where only in the second inning and everyone is still in the game...and no one more so than Apple.
Regards

[Tomi T Ahonen]

Hi Alessandro and Geo and welcome back etype series

Alessandro - thanks. Nice to hear.

Geo - good points but note that at the end of last year (2005), when 4 times as many people bought musicphones than iPods - already 2 times as many people bought music to their phones than to iPods. The numbers are there, clear, undisputed. Over the past 6 months the musicphones are extending their lead over iPods, now outselling iPods six to one. As the musicphones get MUCH better, and the music offerings - with all the problems you have observed - keep getting better - the ratio of how much music is consumed on phones vs iPods will also tip ever more in the phones' favour.

etype series - First on 14% iPod market share vs iTunes downloads at 40%. The topic of my original posting is clearly NOT iTunes sales. Yes, you are right, but that is irrelevant to my posting. What should greatly concern you is that also iTunes share is dramatically dropping - essentially following the iPod market share drop with perhaps a 9-12 month delay. Not good news. At the end of 2004 iTunes had well in excess of 95% of all online music sold in the world. And that too has crashed to 40% now and still falling

Then on the "after Christmas fall of 6%" - NO, etype series, no. The fall after Christmas was 40% - that in itself a catastrophic fall. The 40% drop is fully admitted by Apple COO on 19 April 2006 at Apple's conference call following the quarterly results. The 6% (what I counted as 5%) is the NEXT fall. Some have argued the 40% drop was "seasonal" after Christmas. If that was the case, this second quarter 2006 HAS to recover. It did not. The second quarter fell further, from 8.5 million iPods in first quarter to 8.1 million in second quarter. That means beyond any doubt that it was NOT a seasonal drop after Christmas. It is a permanent drop. So to be clear. Christmas (4th Quarter) sales 14.1 million iPods. First quarter sales 8.5 million - ie 40% drop. Second quarter sales 8.1 mlilion - further 5% drop. Total drop since Christmas is 45%.

But etype series, Apple is out of the mass market game. Apple is now very clearly in the niche market for top-end MP3 players ONLY. The mass market slipped away from iPod in the past 18 months. Apple saw it happen and did nothing.

Thanks for writing.

Tomi :-)

[ade]

This point has already been made but I wish to add more fuel to burn the covergence myth. Of course everyone WANTS a play all device, the trick is in actually building it. A poster above hit on the head it is all about mobile eduication. However, the point is that people are inherently lazy, granted there are mobiles out there that can do so much more than an IPOD. But so what??? Who has the patience to actually dig into this? Certainly not the mass market. People NEED simple devices that do specific tasks well. Tie this to the fact that the mobile is a disposaable device and it makes matters even worse. There is no value attached to a mobile, they are like a pair of jeans, once they get baggy (or battery life begins to fade) and a newer model comes out it is dumped. AND users, or the mass, will not think about switching over there memory cards. There are some many inherent issues with mobile devices, standardation, battery life, memory restrictions that they are quite simply no where near IPOD killers. ONE day convergence will beocme a reality, but huge leaps have to be made to make this a reality. I am so bored of all the marketing spin surronding mobile phone capabilites to drum up interest and investment. And this is me sitting here working for a very large, mobile entertnainment company. We all need to keep this as a mantra "Keep it simple, stupid!" If we did this and actually thought about the users then everyone would be happy, apart fromt he analyst spin doctors that is who make a fast buck out of presenting over inflated "visions" to keep the investors and VPs in a state of mind that makes them able to sleep at night.

[Tomi T Ahonen]

Good sentiment ade

I agree with you, our industries that are now converging - mobile, IT and media - all have to learn to make it simple and satisfactory for the customer. In most cases the first versions of music services for mobiles are bad. But the industry is learning. Great examples for example with Melon in South Korea, KDDI in Japan, Tre in Sweden, etc. It can be done. And it will be done, on iPods as well as on mobiles. Who will play music, forever and ever.... ha-ha.

On the "spin" cycle. I agree the mobile telecoms industry is eager to toot its own horn, often too much. But in this case, when once Apple did honestly govern 80% of the portable/pocketable MP3 player market - as recently as 18 months ago - for them now to push the 77% USA number and hope all still think they have 80% of the world - I think that is a much "worse" spin, than me pointing out that in reality iPod only has 14% of the market left to itself... But yes, I'm obviously biased ha-ha..

Thanks for writing

Tomi :-)

[IdiotBoy]

Tomi:

First, thanks for the personal insults. Always a fairly strong indicator that I've hit a nerve.

Second, I have no axe to grind here. I saw an interesting tagline about slipping iPod market share while browsing blogs and came here to read the story.

What I got was a load of bs-- category conflation and disingenuous use of statistics that sound on point but in fact prove little.

I'll reiterate: the author's central premise / prediction MAY turn out to be true, but nothing in this blog or your recent reply proves it.

As for my enduring doubts about the likelihood that the mobile phone will replace all the things acolytes like you have been predicting for years it would replace:

-- Landlines. In places where landlines generally suck ass, sure. Elsewhere, particularly in the US, they haven't, even though they've been around for more than 20 years.

-- Messenging. SMS has not and will never supplant e-mail. That 66% of people "have used" SMS doesn't prove otherwise, and for you to suggest otherwise is simply silly. If 66% of the people who drink Diet Coke also "have used" Diet Pepsi, what does that actually tell you about the use of Diet Coke? Nothing.

-- PDAs. This is your best argument, and is essentially the model for what the authors think will happen to iPods. But I would argue (like pretty much everybody else in the world has been doing for years) that the line separating pdas and phones is simply disappearing. I use a blackberry as e-mailer, phone and mobile web browser. Is it a pda or a phone? At the end of the day, I will never trade my blackberry in for a more traditional mobile phone, even one with robust e-mail and internet capabilities. The form factor just doesn't lend itself to efficient e-mailing (in english, rather than SMS-speak) and web browsing.

-- As for the rest of it, I'm well aware that the Japanese and the Koreans use their mobile phones as a payment device and to view television and whatever else. But they also like Mini Discs and buy PSPs from vending machines. Just because it's happened there doesn't mean it will happen here.

My post was about the obvious and duplicitous mis-use of statistics to make a point that would not otherwise be supported by said statistics. Period. Whether or not I'm a "Dinosaur," or own a Mac (I don't) or anything else is really beside the point.

If the article was meant to engender interest in the authors' book, it has backfired completely. Intelligent readers smell bs statistics miles away and resent being treated like simpletons.

[IdiotBoy]

My apologies. I just realized that you, Tomi, are the author of both the book and this blog. The personal insults now make a bit more sense...

[Goebbels/Tim]

"Goebbels (again) - on the 18% to 14% point. Good point, not that huge a drop. But that was in only 6 months. But note when I say crashed - I do take it from end of 2004, when iPod global market share was at its peak of 80%."

Not a good point, THE point. If we accept your product definition, you could have stated the same last year (when you predicted it would occur this summer) since the drop from 80% to 18% had already occurred. Ultimately, your winding diatribe is simply sensational fluff.

"I would challenge you Goebbels to find any other company any time in history, to have owned an a market with 80% market share at the end of one year, and then find itself with 14% of that market in a year and a half - and then see what was the review of that company?"

Why would I bother when I can't find a single analyst that agrees with you about Apple? You are sensationalizing again. Apple didn't have huge penetration for 2001-2002. So now we are left with a small insignificant blip on the radar: slight dominance for about 6 quarters according to you.

"Would be a case study for MBA courses in how to dismantle a success. How to snatch defeat from the jaws of history. And I also am starting to believe this may be a world record for destroying a market-leading position. Not good. Not good at all."

Again, using your own numbers, you can't possibly agree with yourself: a "crash" does not take a year and a half. The "crash" occurred in the first half of '05. Dominance for 6 quarters is not a market leading position especially when going from 0-14%.

As far as I see it, you have 3 "salient" aspects to your argument. 1. Based on your product definitions, Apple already had less than 20% marketshare half way through 2005 because you count all phones whether they are used, nevermind if they are used as primary device or not. 2. You claim that Apple saw a huge drop off (that is not attributal to seasonal change, despite everyone disagreeing with you) and a subsequent drop (small) following the next quarter. 3. Survey data indicating mobile usage patterns and downloads.

1. The first category I think is entirely spurious and you seemingly agree.

2. You will be proven wrong in the next quarter where Apple has a new product refresh (with significant availability during the quarte) and/or the holiday buying season.

(Will you change your tune if iPod sales increase again? I doubt it.)

3. This is the area where you could be most convincing, but because of the speciousness of most of your arguments, I doubt most of them. (For example, in Asia where most music is pirated by mp3 CDs and other means, how can I assume that half of all Koreans prefer a mobile to an mp3 player just because half of music is purchased by download? You point to a limited survey that says people listen to music on their phones, but I do not know if this is their primary listening device or if they also have an mp3 player, etc...)

As far as I can tell, the true purpose of your rants is to claim that convergence has been achieved and is accepted by the consumer. I see no real evidence of that: I simply see a mobile industry that quickly outmodes previous technology and releases new devices with new functions that may or may not be used... moreover, in key regions, these devices may not even "possess" the capabilities you claim because carriers act as gatekeepers and lock-out much of the functionality.

If you want to make any headway with your theory, you most provide better data for the adoption of this functionality. Not only that the functionality is adopted (I know most of my friends would say they've played music on their phone or use the camera to a poll, but they do not do so in any meaningful way) but that it achieves dominance over other modes of consumption.

Further, your attacks on Apple (they are attacks -- you conveniently skipped the "Management Denials" portion of my comment) are unfounded, prejudicial, and harmful to any fruitful discourse. Much of your argument (going beyond your completely specious product categorization) is predicated on weaker iPod sales... Any strength in iPod sales would invalidate your theory even if we accepted your absurd marketshare numbers.

Otherwise, many of your arguments are simply wrong (only geeks buy iPods), anecdotal at best, logical fallacies, or circular rhetoric with no logic.

[Drama]

The data you need to show us: How many people bought the phones with music playing capabilities for that reason or as one of the main reasons of the purchase? Where is that data? Without that, you have no argument. It is all speculation (sadly, the irresponsible ways of the internet these days.) What credible data do you have to show that you can merge these two markets (music devices and cellphones) into one? We know they are related, but how can you merge them and take the market share numbers of the iPod from the once stand-alone market of MP3 players and music devices and compare it to the lumped sum of the cellphone market and the music devices?

Phones, for the most part, do not have the same quality audio as an MP3 player.

Phones, comparatively speaking to today's cameras, do not have the image or lens quality of a digital camera.

The title of your blog is dramatic and meant to lead one believe that iPod's market share (within the Music Device market) is dwindling severely. Coincidence that you are doing it within hours of Apple reporting its quarter? There is an MP3 player market (which is growing) and there is a cellphone market (which is also growing). TWO different markets. In any case, to try and prove what until now seems a biased and unsupported blog, the title should have read something like this:

'iPod's (or Standalone music devices) future threatened by Mobile Phones', then you would follow it up with data that tells the reader (and yourself) that people are abandoning their iPods for Mobile Phones because they prefer to listen to their music on those phones. Then, you would further back it up with concrete data such as (these are examples I know aren't true, but for your argument would be necessary to defend):

1. Storage capacity is greater on phones now.
2. Sound quality is superior on phones.
3. Battery life isn't an issue anymore.
4. etc.

I read your article a few days ago and wrote it off because of the inaccuracies and your desire to fool your audience and creat a scene. I responded to it today, after further reading some of the responses, to encourage you to strive to be an excellent researcher and presenter of your research. I ask of you, as a reader who wants to be properly informed, to refrain from publishing unobjective and biased information. I find your article irresponsible, manipulative and in-line with today's sensationalism. Examples of your use of sensationalism is witnessed when using wording such as: "crashes;
catastrophic earth-shattering crash; totally crushed; pleads mercy; wilting away before our eyes; irrelevant. IRRELEVANT;" and so forth. You even disclose at one point, "I am in a hurry and their impact is pretty irrelevant to the iPods vs mobile phones argument made here." Leaves me baffled how you can post such information when you put this together in a hurry (we know why you were in a hurry) and write that off as a valid excuse. I am disappointed that you would even consider posting something like this and furthermore, defend it WITHOUT real and trustworthy supporting evidence. You wrote a whole lot of nothing. I am saddened that there are so many out there like you.

Your article leads me to believe that you have an ulterior motive, perhaps are getting paid to write something like this. You say, and I have no idea whether true or not, that you are a best-selling author, yet you are willing to tarnish your reputation writing something like this? That or your best-selling books are a whole lot of nothing too. Only leads me to believe that either you are not a good researcher or you are doing this for attention, be it for your benefit (how ironic) or for the benefit of a third party(ies). Hence, why you did it the day that Apple posted outstanding financials.

I hope you reconsider what you have done as it is plainly irresponsible. I assume you will defend yourself to my opinion and continue to defend your biased point of view further. I will not respond to your defense as it will have become a moot point.

I will end this by telling you that I am not fooled by you and I refuse to be fooled by those like you. Unfortunately, I will remember your name, Tomi Ahonen, as just one more 'author' with poor judgement and research skills. I will simply skip by anything else that I come across written by you. And as I can see it, I am not the only one. Hope you can learn a lesson from this, for your sake and for the sake of us readers.

Be serious, be objective, be demanding of your work, strive for excellence and above all, be honest.

[etype series]

Tom, perhaps on your spinning little planet, itunes is dropping to 40%, because Tom adds in a bunch of markets where there are no itunes music stores to make up his kaleidoscope of flashing figures.

Tom I hesitate to say this, because you are a very nice man and a gentleman - but you are, a marketer - given to lies, damn lies, more damning lies, lies, statistics, and then more damn lies.

Zune is coming out soon, and MS is looking, as they always have, for so-called 'independent' bodies to spin FUD, statistics and more lies. That is your bread and butter, and that is what you are doing here. You're just walking the dog.

Your dog has no nose Tom, but it still smells....explain that.

[Aijoovai]

As people have claimed the iPod certainly has its advantages compared to the current offering of mobile phones with a music player. At least for now.
- simple UI for playing music
- simple & seamless integration with the PC (where all your music ripped from your CDs is.
- battery issues
- vast offering of accessories (I haven't seen an external mic for any smartphone - the internal ones are not as good as Belkin's)

KISS is definitely a good guideline for all product development. Something that even the best phone manufactures have to work on.

Nevertheless, I also think that convergence is already here. And not just between the phone and the PDA. I've already been using my cameraphone's 1,3 Mpix camera as my main p&s photo device (even though I still have a Canon SD400 for special occasions).

But I'm just getting my new Nokia E70 in a few days and I'm totally thrilled. The pictures I've seen taken with it in real life situations are quite impressive, even though it doesn't have autofocus, not to mention optical zoom.
It's 3G, wifi & VoIP enabled and comes with a number of email systems including Blackberry.
The new Nokia web browser has gotten serious raves and the new Opera is also available for Symbian. First truly serious mobile web browsers, many say.
Last but not least it has a GOOD qwerty keyboard . With all the features, AND the keyboard, I can dump my Palm m500, too, and merge my phone, PDA and my point-n-shoot.
And there's a lot more to it. Like reading AND editing Office documents.

Also, I'm very interested to see how well the music player works for my purposes. To all you people who haven't seen or heard anybody use their phone's music player I can tell you that I know a number of people who use it. And their experiences have been quite good. (... All have been Nokia users, though. 9300, 6230i, N70)

The only real problem with the phones is the battery life as commented. My first reaction to that is that I'd rather carry an extra battery (that will ensure my power supply for those days of heavy phone usage, too) than carry phone, palm, p&s camera and an ipod separately. I also have no problema in carrying an extra 2GB memory card, or two, with me to have both documents and music I want. MiniSDs are 'slightly' smaller than Nano iPods...

I'll still probably have my p&s and iPod in the future. But I see no reason why 80-90% of the time I'd carry anything else than the smartphone with me.

On a sidenote. I was just left wondering with the super harsh tone of the comments about the global spread of the commenters. I wonder if most of the people who don't see any point in Tomi's assertions are from the US? This wouldn't surprise me since smartphones are much much less popular here than in Europe or Asia. And as far as I know only GSM phones have memory cards (at least earlier CDMAs didn't have any other data transfer method than through the carrier - might be wrong with this).

Anyways, just on a gut feeling it seems to me that Americans have been slower to realize that the phone can be more than just a phone. I mean, 4 years ago SMS (aka. the text message) wasn't main stream, here - The MMS still doesn't work.

I think it somehow relates to the same issue as not giving up landlines, or the use of fax, or checks (ie. going for account-to-account money transfers), etc. I'm just not sure what's the common denominator. Corporate interest? Any ideas?

[Tom Buffer]

There is one thing that was overlooked. Not everyone buys an iPod to merely listen with headphones. I, for instance, bought an mp3 player primarily for using in the car or with my home system. I do not like headphones and never even unwrapped them. Also large storage capacity is key for me. As a result a cell phone music player is of no value for me. I'm sure there are many others like me.

[Tomi T Ahonen]

Hi idiotbox

First, I also apologize for the "you are a dinosaur" comment. Uncalled for. It was a gut-reaction to your earlier comment calling this whole piece silly, and I've been getting a lot of the personal attacks in the over 120 comments on this site so far.

But you ARE out of date with your numbers and assumptions. On landlines - the first case where mobile phones overcame the pre-existing technology - you say in response "-- Landlines. In places where landlines generally suck ass, sure. Elsewhere, particularly in the US, they haven't, even though they've been around for more than 20 years."

This is TOTALLY not true. The first country where mobile phone density grew past fixed landline density was Finland in 1998. Finland was BY FAR the most advanced fixed landline telecoms market - the world's first country with a fully digital backbone, the world's first country with national competitive long-distance carriers - and by every telecoms index in the mid to late 1990s, Finland was years ahead of the rest, including obviousyl ahead of the USA. Go check the ITU statistics for this. Finland was NOT a backward country with poor fixed landline telecoms infrastructure. It was exactly the opposite.

Yet as Finland also led the world in mobile phone penetration, in 1998, Finland's mobile phone penetration shot past landlines. Today according to Liikenneministerio the official regulator of Finnish telecoms, more than half of all homes have abandoned the fixed landline. The same trends - at lower levels - are in ALL INDUSTRIALIZED countries, from Sweden to Portugal

You say it isn't happening in the USA. You are wrong. The CTIA - American Cellular Telecoms Industry Association - reports that in 2005 already 9% of American households had abandoned totally a fixed landline and lived only via mobile phones. Sorry idiotbox. Your data is simply out of date - as I originally posted.

The same is true of PDAs. The same is true of messaging. And yes, the SMS is preferred over e-mail - and thus e-mail use is DROPPING among the youth has been reported from Finland to UK to Singapore to Korea. This month, that same survey result was reported in the USA for the first time. Source: comSource Media Metrix July 13 2006. I don't invent this stuff. I report what I find. And you are simply OUT OF DATE with your facts. They WERE true once. They are NOT true today, anymore.

The same goes with the premise of my blog - that musicphones are today - GLOBALLY, not only in the USA - considered as direct rivals to the end-users, by the mass market. At the end of 2005, four times as many MP3 players shipped on phones than on iPods. In 2005 twice as many people listened to music on phones than to music on iPods. Twenty percent more music was SOLD to phones than to iPods. All this while the whole musicphone industry was in its baby stage, being launched in most markets and many phone manufacturers had not even released their first serious musicphones.

This first half of 2006 iPod sales are sinking, quarter after quarter after quarter. Now in 2006 for every iPod sold, six musicphones are sold. I don't have any update on the global user numbers - whichy by every logic should be shifting in favour of musicphones as ever better musicphones are released (and as Apple has no updates to its line) - but I DO have the update from global music sales by the IFPI - which reports that music sold to mobile phones is growing dramatically and is now already half of all online music sold. Meanwhile at Apple's conference call last week, Apple CFO Oppenheimer admits iTunes store revenues are down 6%. What am I missing? There is a TREND going from stand-alone MP3 players to musicphones. Predictable people like Gates from Microsoft and Vanjoki from Nokia have discussed this trend already (long before my blog) and Apple's Oppenheimer openly admits musicphones are in the same MP3 player market, but his position is that iPods are better (than Walkman phones) for now - and Oppenheimer fully acknowledges musicphones are closing on the gap becoming ever better. Business Week print edition this week says the MP3 player market is now one of iPods vs mobile phones.

I am not alone in this. So then I again turn to the only independents in this debate. We know the Microsoft gang will side against Apple. We know the phone makers will claim success against iPods. But what of the music industry. idiotbox - go read the actual comments by the four global music labels. Think why are THEY saying this? None are saying iPods will rule over phones. Many bands know this from Ricky Martin to the Fugees to Kiss and P-Diddy all either release full tracks to mobile phones, or actually launch their own branded phone services.

idiotbox. Your view is valid, but out of date. Please read carefully the evidence in my original reply to you, and this follow-up. Then if you can find that perhaps this Ahonen has a logic to his madness, and that if Gates, Vanjoki, Bronfman (CEO of Universal Music) etc say the market belongs to musicphones - even Apple's Oppenheimer says that Apple already monitors the Walkman phones as part of the same market as iPods, then perhaps I am not all that crazy after all?

But thank you for the long, well reasoned comments - and for returning. And I do aplogize for the personal attack. I certainly feel like a dinosaur often myself... :-)

Tomi :-)

[Tomi T Ahonen]

Goebbels / Tim

We have found common ground with you as well. I am very happpy about that. Your comments have been the most complete in terms of extent and also in returning often to the site.

I'll grant you point 1 - not all phones are used for music consumption. But more are already in 2005. That was with the lousiest MP3 players in phones of very small inbuilt memory. Now with Walkman phones, Samsungs, Nokia N-91s etc with 4G to 6G of storage - and many early users reports they love the music ability - there is an increasing shift to more music consumed on phones. Here is where the replacement cycle argument kicks in. As part of our regular upgrade to our phone service, every 18 months we get a new phone (global average, much faster in advanced markets and among the young adults). So the MP3 player penetration will spread.

But yes, I'll grant you not all musicphones are used for music consumption. But all evidence I've seen (the global TNS survey, the IFPI numbers and the national usage numbers from five countries that I've reported) - nobody has shown any study to the contrary - is that there is more music consumed on phones than on iPods. This when the phone industry is only stumbling upon this market that Apple has owned for the previous four years.

But the second point - Goebbels/Tim you put me to task, asking me to report if Apple reports growing iPod sales in the next quarter (and you suggest with considerable doubt that I would not do that). Goebbels/Tim - I hope at this site by my behaviour I have shown you I try my best to be a man of my word, even if means staying up into the wee hours just to ensure every comment here gets a proper reply?

I promise you. I PROMISE you. I will be back if the Apple numbers for the iPod show ANY increase of any level from the sales of 8.1 million iPods in the second quarter of 2006. I have told you in the original posting and my replies - that both Alan Moore and I love Apple the company, Macintosh the computer, iPod the MP3 player, iTunes the music store. I love them. If there is good news to report, I WILL. I promise you that.

So we find agreement. You do accept that my way of counting is possible - although you think it flawed. You do feel there is a seasonality element that will fix the quarter-on-quarter sales drop, and I am fully willing to give you that hope. If it turns out to be true, I will definitely celebrate it at this site. I promise you that. If the numbers drop further, I reserve the right to return to the story, although honestly, the next "story" cycle is not until the annual data for 2006 comes out.

I think Goebbels/Tim you have been with this story here (and at the Scobleizer site) for long enough to understand this. Lets assume I really want to report this story (that musicphones will replace iPods). I saw it happening in theory, at some time in the distant future. I wrote about it in my books as a future event.

Late last summer I spotted the early trends. I made my calculations and projections, and said it won't happen in 2005, but it will happen in 2006. I blogged that "definite" timing point in September 2005. (and was duly crucified by the Apple fanatics)

Then I waited to see if it would happen. The Apple numbers in the first quarter did show the first-ever quarterly drop in sales. I reported that (and was again crucified)

Many - including Apple management - argued the 40% drop was seasonal. I said that is fine, but if so, a seasonal drop has to be corrected in the next quarter. That is why this posting.

I have now (in my mind, to my satisfaction) proven my point. A drop would come. It came. It was not seasonal. If there are subsequent quarter-on-quarter-on-quarter drops in sales, that is pointless pestering of iPods and Apple. I would have no interest in reporting that.

BUT at the end of 2006 I do want to return to this story. Then we will have the big industry analysts reporting on global music consumption, sales, devices, tracks, revenues, etc. That is when I will want to return to the story regardless. I am in a "racket" of forecasts - regularly quoted by the global financial press on technology trends - and I think it my duty to return to my forecasts and explain what happened.

All forecasts are wrong. The point is to learn from each, to try to minimize the error in forecasting. Like with this forecast, I predicted the change would happen during the YEAR of 2006, not already in the first half of 2006. I was wrong, ha-ha...

But yes, Tim/Goebbels. I will definitely report ANY increase in the next quarterly Apple data, whether iPod sales or iTunes success..

I hope you can trust me on this. I hope I have built enough credibility with this (quite personally painful) series of attacks I've received reporting this story. Most Apple fanatics seem to react like I invented this idea and it is preposterous, totally ignoring that Microsoft, Nokia, IDC/Informa, Yankee Group, Universal Music, and indeed Apple have all already admitted they count the music player market to include iPods AND musicphones.

Thanks for writing. We'll return to any good news at the next quarterly results from Apple, and/or if not, then I'll probably do my next update on this story at the end of the year 2006.

But along the way - Alan and I regularly report on developments of the converging digital industries, and communities. So please, don't be offended if I blog about podcasting, some clever iPod rival variant, any end-user studies of music etc. That is normal for my blogsite.

Thanks for writing so many times. I greatly enjoy reading your analysis of the issue.

Tomi :-)

[Tomi T Ahonen]

Dear Drama

Thank you also for writing. You make good observations. What you probably don't know, is that this blog entry is one in a LONG SERIES of discussions on digital convergence. We at this blogsite have discussed covergence of TV and broadband internet. Advertising and gaming. Cameras and phones. And yes music and phones. This story "that musicphones outsell iPods" is not introduced at this time - I've blogged about it since September 2005 and have been quoted on it in the press and wrote about it back in my second glbally bestselling book released by the world's largest publisher of technology books, John Wiley & Sons, back in 2002. It may be a radical new thought for you. To us at this blogsite it is just one of the strands of digital convergence.

We've reported on the DEATH of some magazines because of digital convergence. The DEATH of some retail stores because of online. Etc. It is part of the ethos of this site and our books. We have no axe to grind with iPods or Apple. We write glowingly of many Apple initiatives inlcuding iPods and iTunes in the latest book Communities Dominate Brands.

You say that the data I need to show you is "How many people bought the phones with music playing capabilities for that reason or as one of the main reasons of the purchase?"

Drama, I don't have that info. NOBODY Has that info (yet). iPods are five years old. Musicphones started their world conquest (from Korea and Japan) only last year. THERE IS NO SUCH DATA.

The world's FIRST survey of portable music usage, that differentiated between musicphones and stand-alone players was only released THIS APRIL by TNS. A survey of 6,800 people worldwide including the USA. That is the ONLY user study so far. I am sure many are now being conducted, and I WILL REPORT THEM AS THEY COME.

But there is none to report, except the TNS study.

But now you, Drama. If you think, that there is no converged market (yet). And you then find out that against your better judgement and your visible evidence, a global survey comes out that twice as many people already listen to music on phones than on iPods, isn't this all the evidence we need to START TO CONSIDER the market as one?

Microsoft says it is one (Bill Gates). Nokia says it is one (Anssi Vanjoki). Universal Music, EMI, Sony BMG and Warner music ALL think its one (see comments at the original blog). AND MOST REVEALINGLY, Apple's own CFO says they consider the Walkman as a direct rival to the iPod, but that currently the iPod holds a technical lead over the Walkman phones.

You ask for data. I too. We now need to understand this market. Why is it that already at the end of 2005 four times as many musicphones sold than iPods, yet only twice as many people consumed music on phones. Is it that the early phones are bad, or the music service is bad (or the nasty carriers like many in the USA turn off bluetooth etc ability of the phones). Why does Sweden report bigger sales to phones on ONE carrier than all of iTunes when that carrier has only 8% of the market. Why does Japan report sales of songs to phones that are half of iTunes worldwide sales. Why does South Korea report 45% of ALL MUSIC SOLD, not only online music - going directly to phones. And why does Germany report 32% of its population consuming music on phones (when Apple's CFO on April 19 reports iPod market share in Germany at 11%)

I hear you, Drama, that we need more information. I am only one author and consultant. Running a business and only blogging here as a hobby. But I report the data as I find it. I have a big readership who expect it. I am invited to speak at the big digital convergence conferences from South Korea to South Africa to Southern Florida.

Now - if in 2004 this was pure theory. In 2005 it became a viable possibility, and suddenly in 2006 (long before my blog) people like Gates, Vanjoki, Bronfman - and the global industry analyst organizations which report the industry metrics, like IDC/Informa (which Apple itself uses) and Gartner, Ovum, Yankee Group etc all say the musicplayer market is one, isn't it about time someone tried to count the actual market.

Many say the phones do dominate or will dominate. But I do believe, we at this site were the first to report the actual resulting market share when we originally reported on this story in April - and even now we are among the first to give you the full big picture.

FALLACY OF TECHNOLOGY SUPREMACY

Drama - you then fall into the very trap we warn about in our original postings about this topic. You list your four numbered points, saying I have to prove that the musicphone is superior in 1 - storage ability or 2 - sound quality etc.

NO Drama. This is the "my technology is better than yours" fallacy we clearly explain in the blog. Better technology is irrelevant. The best technology is almost never the market leader. We give examples this time of Concorde, Sony Betamax, and Macintosh computers themselves.

But consider cars. Daimer-Benz is credited for inventing the modern automobile. Mercedes-Benz still makes their cars, and these tend to be the technically best cars (among the best, technically) in every generation. YET THEY ARE A NICHE MARKET. This is EXACTLY the iPod niche future market. By far technically superior, but too much so. They are destined to be a niche, not a mass market product.

Please re-read the technology fallacy argument again. It is irrelevant whether at any point phones can match or exceed iPod as a music experience. WE NEVER CLAIM THAT TO HAPPEN. iPods are better. But not the mass market anymore.

Finally, Drama, you make sweeping claims that I am untrutful, lying, and reporting unsubstantiated claims. In my original blog I report official data from Apple, the data from the TNS survey, the data from IFPI. I also report the actual quotes on topic from EACH of the four big music labels. Where are the lies? what sources are not reputable? What more evidence do you want?

Thanks for writing

Tomi Ahonen :-)

[Tomi T Ahonen]

Hi etype series, Aijoovai and Tom Buffer

etype series. Nothing new in your reply. Yes we clearly agree to disagree.

Aijoovai. Thank you. I sense we agree to a large degree

Tom Buffer. Good point on iPods in cars. But now imagine this - at one point your phone will have your music (I trust you'll accept this is an inevitable long-term vision for MOST music consumers as musicphones keep getting better and most people prefer not to carry two devices, as the survey data already reports twice as many people listening to music on phones than on iPods).

Then think of your car. You ALREADY have a need to use your phone on your car. To make calls, receive calls (hands-free). Also to receive text messages (with the text-to-voice conversion we need in the car as we can't look at the incoming message) And phones are now incorporating location data like mapping for driving. All of this needs to integrate inspite of any musicphone ability, and whether through a car-kit, or more logically via bluetooth.

THAT INTERFACE of course has to include integration to the car's music system. Yes, an iPod receptacle in some cars, especially in America. But in all cars a bluetooth connection for the phone. EVERY CAR OWNER has a mobile phone. Only a 7% of car owners has an iPod. 60 million iPods and 800 million automobiles worldwide.

yes, iPod integration is a good point for cars, and Apple is working hard to push that. But mobile phone integration is MUCH MORE important for car makers and for drivers. Car manufacturers all know the stats and obviously are working on this. All of the big car manufacturers have big partnerships with the phone makers since 2000-2001.

Thanks all for writing

Tomi :-)

[etype series]

But Tom! What about my joke.

"your dog has no nose, but it still smells -- answer that"

raise a smile?

[Tomi T Ahonen]

very funny etype series.

Do read my review about the whole discussion that I'll post shortly. There is a wonderful joke there for you, and yes, that joke is played against me, so you will have no trouble at all laughing at it. Give me a little while to collect all my data, links, stats etc and I'll post it later today

Tomi :-)