Who Told You First? Now Apple confirms musicphones cannibalize iPod

Yes, congratulations Apple, very strong results in Macs and especially iPhones (the two iPhone models outsold all Nokia N-Series for the first time last quarter. Obvioulsy Nokia also has E-Series and far more mid-range smartphones, but this is a major achievement. As we've said, now finally 3GS is the iPhone worthy of the look and the Apple brand, and clearly the customers love it far more than they did the good looking but too flawed first and second iPhones)

Now, what I have to get back to, is the iPod argument. We had here at this blog in 2005-2006 several incredibly heated battles of arguments about the iPod compared to music phones. We started the debate back in our book Communities Dominate Brands where we first suggested that the mobile phone would win the battle of the pocket, including MP3 players like the iPod. We faced hundreds of viciously angry hatemails and comments and were crucified on mostly Apple-related forums.

In the summer of 2005, I was the first person in the world to state into the public domain (in the Financial Times and obviously also at this blog), that musicphones would exceed iPods in total sales already in the year 2006 (some others of my peers who had noticed the trend, suggested it would happen before the end of the decade). I became the target of a concentrated hatemail campaign.

We then examined the evidence, quarter after quarter, until January 2007, when Apple announced its iPhone and the issue became somewhat moot. But still today many say that these are not rival products, and that there can be no cannibalization of iPod style standa-alone MP3 players, and the musicphones that have embedded MP3 players.

Well, now we have the final word to lay this matter to rest. The Earnings Call Transcript for Apple's latest quarterly results, had a direct quotation from Apple CFO Peter Oppenheimer about this very issue. Peter said:

"I would like to discuss how we are looking at this market. We have three categories of what we call pocket products. Traditional MP3 players, iPod Touch, and iPhone. For traditional MP3 players, which includes Shuffle, Nano, and Classic, we saw a year-over-year decline which we internally had forecasted to occur. This is one of the original reasons we developed the iPhone and the iPod Touch. We expect our traditional MP3 players to decline over time as we cannibalize ourselves with the iPod Touch and the iPhone."

So now we have categorical unequivical confirmation, officially from Apple. The musicphone can cannibalize stand-alone iPod (music player type) sales, and indeed, even Apple itself is now using the iPhone (a music-playing mobile phone) to cannibalize iPod sales.
 
But more than that, note that Oppenheimer confirms that the iPhone was developed explicitly for this purpose AND this thinking was already inside Apple HQ before the iPhone was announced - ie this was Apple straegy in 2006. They are smart people in Cupertino, they looked at exactly the same data as I did, and they came to exactly the same conclusion.

(I was right..)

So, think to yourself, when was it that you first heard an industry expert state that definitely in this decade, musicphones will cannibalize iPods. Not a hypothetical that it might happen, and not abstract future that sometimes in the next decade or beyond. Today, Apple Chief Financial Officer states beyond any doubt, that they knew musicphones would cannibalize the iPod, and wanted to have an iPhone so they could have their own product cannibalize their MP3 player. This was internal Apple strategy accofrding to the current statement, at least by the end of 2006, yet admitted only now, over two years after the iPhone was launched. So when was it that you heard for a fact that musicphones do cannibalize actual Apple branded iPod sales? Was it today (Oppenheimer) or was it some music executive or mobile telecoms analyst in 2006-2007-2008. Or did you read it here fist, a year before those?

Do we bring value to you at this blog? (and for free, with no banner advertising to annoy you) Do we give you early warning on truly major industry trends, before others see them. And even if we get attacked vicously for those statements, do we stand by them, explain them, and engage with all who leave comments here, including any of the hostile commments. If you really want to share in my pain, go tothe first 2005 link when I reported that the iPod was doomed, and read the comments thread..

Comments

[Henry Sinn]

Hi Tomi,

For a number of years now I haven’t been able to understand why anyone would spend ADDITIONAL money on a music player and for that matter a navigation device. A camera; maybe for quality reasons.

WHY -
Music: How much is enough storage on your phone for music? How much can you listen to in any given time period? Delete old. Add new. Obvious. Always carried. Always available. FM Transmitters means music anywhere, anytime, anyplace.

Navigation: Google maps for mobile. Enough said for anyone that uses it. Internet for business lookups, directions and telephone numbers.

Is the consumer totally unaware of these attributes or are they choosing to go down another path and have multiple devices?

[Jussi Niskanen]

I'm not sure whether I have ever heard or read any expert state that. However, it was summer 2005 when I bought Nokia 6630, realized that the phone could be used as an MP3 player and I could buy (back then) hefty 500MB memory card, I knew that the time of separate mp3 players and mobile phones were numbered.

The only reason would have been the larger storage players with hard drives could provide. As I had a 500MB player myself and hadn't even thought of upgrading to larger, I was sure this would be the future.

Personally I believe that people who thought otherwise just hadn't really had or given a chance for a music phone.

[mark]

Hey Toni,

Can't remember if I commented back then ;)

When the iPhone was announced in Jan 2007, Apple said they had been working on it for 2.5 years, or since they started working with Motorola on its ROKR. At that point, I thought your comments were more-or-less validated.

Cheers

[Colin Crawford]

Take the doggiy biscuit ! Late to the party - Apple made MP3 players one of the coolest gadgets - even if songs were available on a musicphone it did not matter - Apple sold hundreds of millions of devices and built an ecosystem via iTunes and transformed a moribund industry - the iPod was a great transition , the iPod touch also will be a transition as Apple moves towards a "tablet or maxi iPod touch" they understand CE marketing in a way that no other company seems to be able to get close to. Their strategy often seems to make no sense - them it makes all the sense in the world. Go figure ! Nokia eat your heart out. Apple is playing in a different league. Go long. They have mobility - next target for Apple, the living room.

[ounkeo]

Colin I don't entirely understand what your point is. Tommy was right and some of his blog readers (I would like to believe "many") also believed the same as he did; that the music phones would start to trump standalone mp3 players, and in this case, the dominant mp3 player: iPod.

iPod was a great product and helped build the legit mp3 market but the writings were on the wall even before then. I can't truly believe that anyone would actually believe that a maxi/tablet would somehow supplant or overtake the mobile handset or even be the next evolution. They are of a separate development path. If anything, those will be something that will be a niche within Apple's own product markets. Living room are also not the future. It has been about mobile consumption and will remain so for a very long time yet.

But the point is that Tommy was right all along. Mobile telephony handsets (or whatever you'd like to call them) will canabalise the standalone music players. It's always great reading the insight provided on this blog and I want to thank Tommy and friends for the great insight and discussions provided.

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