Development and Future of the Apple iPod
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The iPod is perhaps the most talked about technological product in recent times. It has set sales records that have lave literally destroyed the predictions of all analysts by superseding everyone’s expectations. The interesting issues concerning this topic is how the iPod impacted not only the digital music electronics industry, but was also responsible for the turnaround of a company on the brink of bankruptcy.
It is this very fact that makes the growth and life cycle of iPod an experience in itself and one that creates a sense of wonder at its success. But how did all this come about and just why did the iPod do so well? These are questions that we look to find answers towards whilst shedding light on the internal pressures faced by the parent company Apple.
The paper takes the reader through the history of the parent company Apple and its declining fortunes until the introduction of the iPod. This revolutionary innovation then dictated the pace at which the organisation was able to turn itself around to become one of the more successful computer companies in the world today. The report also looks at how Apple as a company defines itself with the onset of the iPod boom – can it still call itself a computer company in the literal sense of the word or does it now see itself entering a diversified phase of business operations and hence, would need to re-think it’s overall business strategy and core competencies.
The views of different writers expressed through the paper help in building an understanding of the pressures the company has undergone over the last decade and why it has taken the decisions that it has. The paper revolves around the growth of the iPod as the key driving force for all major business and technical decisions, it understand how it had to be re-modelled and adapted to the market needs and demands. The paper also paints the competitive landscape at different stages of the growth cycle and how this impacted or did not impact the iPod.
Finally, the paper looks at the varying consumer tastes, the positives drawn from the product itself and what lies in store for the future of the product and the company. The methods used to create a deeper understanding of the iPod environment were through a variety of primary and secondary sources. Some of this is discussed in greater detail in different section of the paper. However, for the purpose of this report, the researcher took great care in trying to put together different pieces of work by various writers so as to be able to provide more holistic and all-encompassing view of the real scenario that surrounded the iPod boom. On a more generic note, most writers and experts within the industry agreed that the success of this product was unrivalled by others of its kind in recent times.
Success stories always find their way to centre-stage. But what makes a journey even more interesting is when accompany that finds itself in some level of difficulty turns the tide and jump starts its engines to climb to the top of the success ladder. Apple’s is one such story. Whilst the problems that affect it lie in the background, the phenomenal success of its iPod has people fascinated. Marketing gurus swear by the growth of this innovative product that provided the perfect solution to a generation that was technologically familiar and defied competition to control every conceivable bit of the market that it entered – the digital music space, and made it its own. How and why is what we attempt to discover.
The history of the iPod dates back to the January of 2001. Apple had just introduced ‘iTunes’ – a programme that enabled Accusers to burn music off audio CD’s and convert them into music files on their computer systems as digital audio files. This provided users with the flexibility of creating libraries for their music files, clubbing favourite songs in order and in time to come, download them to portable devices.
This natural extension saw the introduction of the iPod in the month of October 2001. Unlike other portable devices in the same range, the iPod was the first of its kind to store music files on a hard disk similar to a computer. Other devices used flash cards and detachable storage devices that could not hold as many bytes of data as the iPod did. Infect, the first few iPods had a 5GB storage space, which equated to the storage of approximately a 1000 songs. The question to be asked at this stage was if the software for writing music to the computer was developed keeping the iPod in mind? However, sources within the company maintain that the iPod was only conceptualised 6 months before its release date. Whatever the truth might be, the two scenarios complemented each other beautifully giving consumers the best of both worlds and a logical extension to the process of listening to music.
In November 2001, the first iPods were shipped to waiting buyers and byte end of the year, 125,000 iPods had been sold for a price of $399.Within a year, other computer companies as well as large retailers were selling iPods as value-adds. Dell, Best Buy and Target were some of the more prominent names at this stage and had dedicated sites and sales teams pushing for iPod sales.
By June 2003, Apple had managed to sell 1 million iPods, which could download music from both Macs as well as PCs. Interestingly, by the end of 2003, one of its largest resellers Dell; had decided not to sell anymore iPods and instead launch its own version of the iPod called the DJ(Digital Jukebox). In order to download songs from the Internet, Dell partnered with a company called Music Match that offered that service.
By mid-2004, 6 months after it hit the 1 million mark, Apple crossed the 2 million mark in iPod sales but the peripheral market was just getting warmed up to the portable devices segment. In addition to thud by Dell, HP announced that it was repackaging the 4G iPod and selling it as a PC friendly device. Motorola launched its next generation phones that would be iTunes compatible. In one of the more recent statistics of the iPod wave collated in October 2004, there were some interesting findings. Apple held 82 per cent of the digital market across all music players and 92 per cent of all hard-disk based music players.
The nearest competitor to the iPod was the device launched by Creative. They had a 3.7 per cent market share. In addition, 2 million iPods are being sold every 3 months. The music industry too has gained immensely through these sales. The total number of downloads have been clocked at a 150 million which equates to 4 million per week. The latest iPod has a mechanism that enables the storage of digital photographs as well as music. Today, Apple figures have registered total of 6 million iPod sales. That’s a fascinating growth path, which would make any marketing professional envious of replicating that kind of success.
On careful consideration though, it took very long for iPod to really drive its sales figures to the kind that it was able to achieve in the years 2003 and 2004. Until then, the figures were good, but not something to write home about. The turning point for Apple came with the introduction of the third generation iPods. This is apparent since it took almost 2 years for iPod to register its first million in sales and soon after the launch of the 3G iPod in Tokyo less than 6months later; Apple was able to register its second million in iPod sales.
Interestingly, the sales figures recorded over the 3-year period were averse to any form of competition from companies such as Creative, Dell, river etc. They sold cheaper products but not for a moment, did they encroach upon the market share that was and is still monopolised by iPod. Apple has also utilised an aggressive marketing strategy towrope in different age groups by using the draw of celebrities and song choices. For instance, in late October 2004, Apple unveiled what was called the U2 iPod. Apple conducted a promotion exercise in sync with the release of U2’s song – Vertigo.
The new iPod was designed with black casing, a red wheel and a back cover that had the engravings ofU2 with the band signatures. It is little things such as these that have made the iPod such a role model for marketing strategists. The unique blend of having a great product and infusing the right level of awareness and visibility to sell it to the masses. In the chart below, the growth path of the iPod from its inception, to the end of 2004shows how sales surged in 2003 after the release of the 3G iPods as mentioned earlier.
Not to mention, as the iPod sales soared, so did the number of downloads for music. Initially, the software iTunes needed tube bought in order to write songs from audio CD’s to the computer, following which they could be downloaded to the iPod. In 2003, Apple introduced an online music store that enabled iPod users to download music directly from the Internet. This worked in 2 ways – it provided users with an increase in choice of music that they would like to have downloaded as well as simplified the procurement of iTunes. No more dada user have to buy a software, install it onto the computer and then use it to burn music off a CD and finally onto the hard disk of the iPod. Simplifying this process for millions of users had its positives as can be seen from the graph above.
The first big jump in sales was in October 2003 when the PC version of the music store went live. This enabled far more users to be able to download songs onto their computers and diluted the monopoly of Accusers. 2 months later, in December 2003, following a lot of media hype and attention being given to the iPod and a corresponding increase in Christmas sales, more and more people began downloading songs from iTunes. And in between July 2004 and October 2004, Apple registered growth of song sales from a 100 million to a 150 million.
It must be noted that in many instances within the paper, the use of iPod and Apple is synonymous. After much deliberation, the researcher decided that it was important to approach the paper from the perspective of the parent company Apple. Any impact that the environment would have on Apple would be reflective in the iPod strategy. At the same time, in circumstances that would affect the company both positively and negatively, would subsequent effect the iPod and vice-versa.
Aims and Objectives
The aim of this paper is to understand the growth of the iPod through the years. It all began in the year 2001 and it has been a short journey to success. But how long will this be able to continue, what is the future for the product, how will it fend off competition and how will it impact Apple in the longer run. We all know that it has been apathy-breaking journey for Apple as it picks itself up from the doldrums of declining computer sales with its innovative invention that saw it spring back into the limelight. It is also the endeavour of this paper to highlight how important an impact the iPod has had on Apple alone and why can’t other company’s model the same success story.
The Success of the iPod
According to Haddad, Charles (2002),the iPod is one of the most revolutionary products to hit the computer and electronics market place. He believes that the only way forward for Apple is to diversify its product range and move from being a niche computer manufacturer to providing technology that understands the gap between technology and entertainment. He quotes how the market share for Apple in 2002 had remained at 3 per cent for a number of years. In order to move it from there, it was imperative that they looked beyond the computer industry since it was reaching a saturation point in most developed markets and the level of competition from across the globe was making it extremely difficult for large computer manufacturers to survive.
Digital handheld music players were a growing market in 2002. There were few players in the market place and industry experts such as ID Chad stated that demand would grow by 74 per cent over the next 3 years. In retrospect, they weren’t right – but only because the demand has recorded triple digit growth since 2002. In addition, the anticipated sales for 2002 were pegged at 12 million units of all kinds of portable digital music devices. Haddad brings up an important point about how the level of competition within the digital handheld music products industry was still at a minimalistic stage in comparison to other industries where companies such as Microsoft and Intel who had taken over the PC market.
He believed that the next generation of buyers were more interested in a product that was different, satisfied their requirements and at the same time, was ‘cool’ and suave to have. Especially in the case of handheld devices where consumers would cart it around with them, this need for trendy and sophisticated gadgets was of the utmost importance.
At the time of writing his article, Haddad had researched the iPod when music files were downloadable only from a Mac. The iPod sales were still consistent and looking positive during that stage but Apple had not introduced downloading files onto PC’s at that stage. Once that happened, iPod sales grew dramatically. The iPod was never intended to lift the flailing computer business of the parent company but overtime, Haddad statements would hold good, as the iPod would grow to become one of the most successful products ever launched by a computer company.
(Haddad, Charles, iPod, You Pod, Will We All Pod? Business Week Online; 7/3/2002)
Teething problems with Strategy?
With the degree of success that the iPod has seen over the years, there have been few instances that writers have been able to find a chink in the armour of this hugely successful product. One such writer is Salk ever, Alex (2004). In the first of his articles – ‘Apple’s slow boat to China’, he discusses how the Chinese economy is one of the most lucrative investment decisions for businesses the world over and how Apple has failed to take advantage of this huge opportunity. He begins by using the views of consultants who have worked within the Chinese market place for decades now and seen it evolve over the years.
He quotes Merrill Weingrod who works with a marketing consultancy – China Strategies. When Salk ever asks Weingrod how lucrative the Chinese market is for product such as the iPod, he answers saying that the market potential for men’s electric shavers is $300 million annually. Weingrod believed that the Chinese have the buying power to spend $200 to $250 on luxury shavers today which are not a necessity by any standing. This was just an indication of their mind-sets and how much they were willing to spend and for what. He reiterates this by stating that the Chinese population measures 300 million in terms of the number of cell phone subscribers across the country. They pay an average of $200 for their handsets and connectivity.
In addition, the average Chinese employee earns far less than his / her American counterpart and yet, he / she is willing to pay larger proportion of their salary towards buying luxury goods. This equates to the buying potential and eagerness amongst the population and above all – a prospective consumer. One who is constantly on the lookout for the infusion of luxury goods into the market so that he /she can go ahead and purchase it, provided there is a need of course.
In addition, the Chinese economy is the fastest growing economy in the world with its GDP growth rate pegged at 9 per cent annually. It has one of the largest middle-class societies in the world with disposable income that is growing as fast as their growth rate. With every factor in the book of marketing pointing towards the Chinese market, Salk ever is dismayed at Apple’s strategy to stay out of this market and not undertake an aggressive marketing strategy that would tap it’s he potential.
The only real steps that Apple has taken towards entering this economy is to ensure that iTunes Music software is downloaded onto every Manufactured by China’s second largest computer manufacturer – Founder Technology. It is an ironical decision considering the consumer who would purchase the machine would have little access to the iPod on which he could have downloaded his / her music. Besides this decision with the Chinese industry, Apple hasn’t taken any more steps towards making any investment decisions in this region. There was one instance when they almost toyed with the idea of opening an iTunes Music Store but then retracted any steps made in that direction.
The figures that Salk ever quotes are astounding to the reader. According to him, at least .3 present of the population of China has disposable income that equates to that of an individual in the US who would earn approximately $25000 to $30000 annually. That figure translates to approximately 60 million people today and will grow to 3to 4 times that number over the next decade. With the increasing middleclass and the ability to buy products that others around the world can afford, very soon the Chinese middle class would equal the entire population of the United States.
So what do the Chinese see these new gadgets in the market place as? According to market analysts Bryan Mama company that tracks the buying of cell phones in Asia, but based in Singapore, the number of cell phones that are replaced are astounding. The Chinese people like to replace their cell phones 6 to 12 months earlier than consumers in North America and Western Europe. Gadgets are seen as a status symbol of sorts. Owning the latest models makes individuals feel like they are popular and wanted, according to the company.
Chinese consumers also tend to go for gadgets that are sleek, suave and trendy. According to Salk ever those are the kinds of words that would define the iPod but they don’t find any place in the market. He tries to look at the picture from Apple’s perspective. As a company, Apple’s strategy is to consolidate and preserve its position in the markets that it is strong in. In the bargain, it would not look to invest in new markets such as China. In fact, Apple has a miniscule presence across the entire length and breadth of Asia. If Japan is taken out of the equation, Apple draws less than 10 per cent of total sales from this region.
Naturally, it is not an area of too much interest for the moment. Whilst Apple takes a back seat to proceedings in this region, competition in the form of Sony, Motorola and Creative have made inroads into the Chinese market. As an example, Motorola entered the Chinese handset market early and in the first quarter of2004, it was proud to declare that it has achieved a market share of 40per cent. It had the first mover’s advantage introducing a technology that few others were brave enough to take into this country many years back and today it has paid off. The Chinese market is known for its penetration problems. The researcher agrees with the insights that Salk ever has provided into this untapped region and understand the problems that Apple faces in the future lest it not take steps in this direction. The level of investment required at a later date where the market is abuzz with competition would be significantly higher. It makes completes sense for companies to invest in China at this stage and there is no reason why Apple should not be one of them.
(Salk ever, Alex, Business Week Online; 7/22/2004)
In another article by Salk ever albeit on a different issue, he adopts similar stand on the problems that will plague Apple. In his article, ‘iPod: Leader, but Not Ruler’, he states that the sales figures by Apple are either over-exaggerated or are inaccurate since there isn’t enough evidence that the data being collated is validated. Apparently, data in countries in Latin America, India, South Korea, Eastern European Taiwan are difficult to validate and not easy to obtain. There are also other areas across Asia, including China where data retrieval and collation is not as accurate as it is made out to be. So when Apple boasts of global sales and achieving market shares across the world in excess of 50 per cent across the electronic market (MP3 players), they may very well be over the top.
To evidence his findings, Salk ever looks at the various methods that companies use to collate market data that can be passed onto consumers and other business prospects. On one hand, they can utilise the services of US market research companies such as the NPD group that solely dedicates its efforts to the US retail economy. On the other hand, companies such as Apple can resort to asking OEM (Original Equipment Manufacturers) and component manufacturers how many pieces they are taking to the market place. Whatever may the case be, according to Salk ever, Apple doesn’t quite have accurate information omits global market share.
He confirms that Apple is certainly a global leader but not dominant. This could have been a very interesting report but the only flaw with his research is that he fails to document enough evidence either through statistics or through credible sources that can allow him to judge with some level of certainty that Apple’s iPods are infect facing tough times ahead.
To be fair to Salk ever though, he does introduce the subject of the growing competition of iPods outside the borders of the US from Asian electronics companies. In the coming years, cheaper labour costs of the Asian companies will allow them to create inexpensive models of the iPod and compete on price aggressively. In addition, Salk ever states that the Asian consumers who are growing to the largest consumers of entertainment products, prefer smaller sized iPods. This is not in sync with Apple’s strategy since they plan to introduce larger and heavier models of the iPod in the coming few months. And even if iPod does take the cue and invests in smaller models in time, it would have lost outing comparison to other digital music manufacturers. But Salk ever does summarise his studies by admitting the dominance of iPod within the digital market place, yet cautions against rising competition and price sensitive market in the near future.
(Salk ever, Alex (2004) Business Week Online; 5/27/2004)
Curzon (2005) has an equally interesting point of view. He believes that the iPod boom would not be able to sustain the success that it has experienced for much longer. His rationale is based around stock prices and other statistics that he discovers about Apple which point towards changing tide in the coming years. Curzon promotes the concept that Apple as a company is on the decline once again and encourages people to sell their shares now since they would lose money in the coming few months lest they hang onto them. He begins by mentioning the usual success stories of the company – the last 2 years have seen iPod sales rise more than twenty times from 219,000 units towards the end of 2002 to over 4 million units at the end of last year. In fact, Lehman Brothers had initially projected iPod sales to be approximately 3million units at the end of 2004.
They had to revise their figures closer to the end of the year and pegged it again at 4 million units for the year 2004. Apple on the other hand clocked 4.5 million units for the year ending 2004, ahead of anybody’s expectations. Another indication of the progressive rate of success is how the number of downloads from the iTunes rose from 50 million to 200 million. Finally, the biggest turnaround statistic lies in how the company almost went bankrupt after the dotcom era a decade ago and last year, recorded sales figures in excess of $3 billion with no debt on their financial statements.
What makes very interesting reading is how Ken Curzon describes the decline in the demand of iPods and correspondingly, with the parent company as well. He states that after the Christmas rush for buying iPods, in all probability consumers will not be willing to spend as much money on it. As he puts it – “Holiday shoppers are more enthusiastic about higher prices, but once the holiday season ends, they usually don’t like to spend money on products that are priced at a premium”. In keeping with the same, Curzon predicts that in the first few months of 2005, the rate at which consumers buy iPods would drop gradually at first and then, more drastically later in the year. Lehman Brothers too have declared that they expect a 14 per cent drop in sales figures over the course of the year.
In another case, Curzon talks about how on one hand, the sales of iPods have certainly been increasing in conjunction with an increase in market share, but the parent company Apple has seen a decline in its market share from 2 per cent to 1.9 per cent. The ‘Apple Stores’ are an over-riding success because of the iPod and its driving consumers tithe stores. But although the number of footfalls across these stores has doubled, the number of consumers buying Apple PC’s has remained constant. Additionally, Apple’s revenue figures in comparison to other computer companies are very average. For a company that is on the biggest ride of its business life, it records a growth rate of 33 present in comparison to HP’s 29 per cent. And what makes this look more dismal according to Curzon is that the operating margins for the previous year were declared at 3.94 per cent. This was far lower in comparison to HP’s 5.2 per cent and Dell’s 8.56 per cent.
(Curzon, Ken, Esquire; Mar 2005, Vol. 143 Issue 3, p112)
Somehow, Curzon does shed light on certain statistics that project Apple’s performance in a questionable light but on closer observation, it appears that the facts have been manipulated to project a negative perspective to the progress of Apple. The researcher believes this tube the case since there are many individuals who constantly try and influence the market forces through published writing such as this to ultimately try and manipulate the performance of the stocks. For every negative statement that Curzon was able to highlight, there appears tube an equally positive explanation for the same.
For instance, decline in market share by .1 per cent is not necessarily a negative impact on the company. It depends on the marketing strategy of the company – is it trying to move out of certain markets and invest in others. Additionally, in saturated market places such as the US, any form of product diversification would have an impact on the market share as well. So there are considerations that need to be taken before any conclusions can be made. At the same time, the researcher believed it important to include Curzon’s work since it was one of the most recent articles on the iPod that sounded warning bells and tries to get the reader to see the success story from a different perspective.
So where exactly is Apple headed towards now? According to Murphy(2004), a significant contribution of Apple’s success can be attributed to the iPod and hence, any future success parameters would also be defined by the iPod. The competition amongst the computer industry is very intense with players such as Microsoft for software, Dell, HP undim for hardware and a host of other system integrators and competitive channel partners. Due to a diminishing market share as mentioned earlier of under 2 per cent, the total business worth of the company has fallen to half that of its sales revenue.
The only light in this dark tunnel is the fact that the stock price at Apple has almost doubled over the past 2 years. But can the parent company depend on single product offering and expect to piggyback ride it all the way tithe bank? It’s not possible says Murphy. There will come a time in the near future when sales of iPods begin to decline, competitive forces take over with lower priced products and existing markets begin to get saturated.
Some of these products would come from companies such as HP,Dell, Sony, Creative, Gateway and Rio, each offering a product that is significantly cheaper and has greater memory storage in comparison tithe iPod. For instance, Creative has launched a new product that also has a longer battery life and also has white earplugs similar to those of Apple, taking a leaf out of Apple’s trendy design. At the same time, it has been seen that consumers have complained about the lack of availability of iPods in the stores. And to make matters worse, Apple hasn’t been able to confirm a deadline by when they would be made available.
Times will change gradually. As Murphy mentions – the pricing of the iPods over time will fall significantly and Apple would need to sell more and more iPods just to maintain the revenue figures. For instance, there is an assumption based on pricing that Apple would need to sell at least 20 per cent more iPods in the coming year to be able to sustain the same level of growth over the year. This should not be a problem currently considering growth is predicted to rise to 70 per cent but in time, this could certainly become an issue. If looked at differently, Murphy argues that falling prices of products are fine as long as business efficiencies were rising. 4 years ago, when the sales figures of Apple were 4 per cent higher than they are today, the operating profits of the company were at 9 per cent of total sales. Today, that figure has come down to 3 per cent. In addition, the number of employees added over the past 4 years has gone up by 32 per cent and the sale per employee has significantly decreased from $930,000 to$674,000.
For apple to be able to sustain its growth and maintain a leading position in the market place, it cannot depend wholly on the iPod revolution. Its notebooks and desktop products account for 64 per cent of its current sales as a company. But except for the month of June that recorded a 14 per cent increase in revenues, the rest of the year remained much the same in terms of sales. This is worrying for Apple since it doesn’t have too many back up measures to fall on should they land in trouble. To tackle some of this problem, Apple had introduced a series of Apple stores across the US, UK and parts of Western Europe.
These stores hosted the latest introductions by the company including all models of the iPod and its peripherals. The rationale lay in ensuring that consumers would walk into these stores with the excuse of looking at the iPods and at the same time, browse around and take look at the range of other Apple products as well. Unfortunately though, this move didn’t bring in the kind of sales that Apple management had predicted. When Apple was asked about this stagnancy that was creeping into their product lines, they said that 50 per cent of all buyers at their new stores that they have introduced are new consumers and they propose to build relationships through their product quality and peripherals and increase their market share of repeat buyers.
Interestingly, Murphy is one of the only writers on this subject who believes that the main fault of Apple’s moderate performance lies with its CEO Steve Jobs. Over the course of its business history, Apple has always ensured that its software configures only with its hardware and no others. For instance, the Mac operating system can only be run on Mac computers. In comparison, the Windows Operating systems can be used on a variety of different hardware systems making it a more universally accepted operating system. The time for niche solutions in not the way forward. Apple must realise that the money lies in the numbers and they can in no way get to those numbers by limiting access to their software.
It really is a Catch-22 situation for them. In much the same way, the iPod can only play music that has been downloaded from iTunes. What happens when the iTunes faces intense competition from other music download software companies in the near future? Are we saying that the iPod would only have limited access to music and perhaps, not the entire range of music that other companies would be able to offer? These are areas that the parent company has to look into and take a serious note of. Interestingly, in July 2004, Real Networks introduced a new music download software that allowed iPod users to download from their site. This had totally confused the Apple technical team, as they never planned for such an eventuality. Today, they are looking at whether they can take legal action against them. Whichever way it pans out, these were the first signs of competition, which were beginning to creep in.
(Murphy, Victoria, Forbes; 9/6/2004, Vol. 174 Issue 4, p54)
iPod accessories – a new industry
Since 2002, the iPod has come a long way both as a product as well as brand. Apple has been able to provide consumers with a highly developed product that makes it user friendly and trendy. The first few iPods had basic functionality and storage capacity of up to 5GB. In time, both storage as well as functionality of the iPod has been greatly enhanced. For instance, towards the end of October 2004, just prior to the Christmas season, Apple launched two new models – the iPod Photo and the U2 iPod. The new U2 iPod was a smart and branded iPod that carried the U2 engraving on the back casing. It was black in colour with a redial.
For its launch, the CEO Steve Jobs ensured that in conjunction with the media release, U2 performed its song ‘Vertigo’ at the event in addition to other high profile performers and fanfare. On the other hand, the new iPod Photo was to incorporate a storage capacity of up to60GB. In addition to the storage for photos, it also has 20GB storage for music downloads and is available in a different version with a 40GBstorage capacity. In addition, this month also saw the introduction of the Music Store across the European Union in countries such as Greece, Austria, Italy, Luxembourg, Belgium, Finland, Netherlands, Portugal and Spain. At this stage, iTunes represented 72 per cent of all music downloads whilst the iPod industry was pegged at 65 per cent of the total portable music industry.
(Banerjee, Scott, The New Apple Crop, Billboard; 11/6/2004, Vol. 116 Issue 45, p8)
At the very beginning, the researcher was under the impression that the growth of iPod has a bearing on its parent company – Apple. Whilst thesis certainly true, it is important to understand that the growth of iPod has been revolutionary to the extent that it has in fact, impacted the business community that has been associated with it as well as companies that might have similar business interests. With reference to this subject, Levine, Robert (2004) discusses how the iPod had triggered off a business need for peripherals. It has become an industry of its own – the iPod peripheral industry. The accessory market is thriving on the sales growth of the iPod and companies of all shapes and sizes are spearheading innovation within this field, across the globe.
As Levine describes the consumer mentality through examples – the iPod has evolved into an entire musical experience. Consumers want to take this little gadget everywhere they go with them – into their cars, homes, at work and just about everywhere they can. The demand for such luxuries has companies finding solutions such as plug-in adapters into car cigarette lighters, wireless transmitters that enable FM radio access, purse designers that can store iPods and other such peripherals. Companies such as Monster cabling systems and Belk in were among the first few to tap into the iPod accessories market. To provide some understanding on the size of the iPod ‘ecosystem’, Eric Tong, the Vice President for Marketing of Belk in states that for when iPod sales hit 4 million, accessory sales registered sales of approximately 2.7million. That amounts to almost three fourths of all iPod users having some form of accessory. Along the same lines, with accessories priced between $20 and $200, the math equates to the size of the iPod ecosystems as a $75 million market.
Levine also dwells into why the accessory market is so popular with the sale of iPods. According to him, the single most popular reason is that the product fits naturally with any accessories that make it user-friendlier. For instance, initially iPods were only confined to listeners who required using the portable like a Walkman. Over time, demands for usage across the spectrum of their daily lives became necessity and new innovative methods were discovered. When consumers wanted to carry their ‘song lists’ into their cars or into their offices or wanted to download music on the move from the Internet or listening to the radio in conjunction with their recorded songs – each provided the motivation for companies to step in with new and innovative accessories.
Interestingly though, the first accessory forth iPod was introduced by Apple itself. During the initial phased of test marketing the iPod, the CEO of Apple, Steve Jobs and other employees of Apple were unhappy with the quality of sound from the iPod when plugged into a stereo system. This drove the employees to try and utilise an audio cable from the Monster cabling company and they found that the audio output was far superior. 3 days before the final launch of the product, the company took a decision to sell Monster audio cables as an accessory to the iPod so that users could connect it to their stereo systems. Today, Monster sells $14 million worth of iPod accessories from wireless transmitters for users to connect to the radio to other forms of audio cables for different purposes.
(Levine, Robert1, ‘Profiting From the iPod Economy’, Business 2.0; Oct2004, Vol. 5 Issue 9, p47)
The parent company
So how do all these additives to the iPod environment impact the success and future of the parent company Apple? In a paper by Slender(2005), he discusses how over the years, Apple has moved away from its image as a contemporary computer manufacturer to becoming amulet-diversified company in areas of computing, software, electronics and music.
It’s one of the many companies that were adversely affected by the burst in the dot com bubble and has over time, picked up the pieces and found new ways to reinvent itself to make it one of the more successful companies within its industry. To highlight precisely this, Steve Jobs, the CEO of Apple declared this January (2005) that the company had posted its highest turnover and profits ever in its 28-yearhistory with the sales of 4.6 million iPods within the last year alone.
In another article by Hawkins, Tom (2005), he reiterates the above success of the iPod and how it was instrumental in the success of turning around the fortune of the parent company Apple. As he puts it, by the end of 2004, the iPod sales had seen a 525 per cent increase in year-on-year sales with the trend continuing through 2005 with the introduction of new products such as the iPod shuffle and Ilife05.Overall sales for Apple were pegged at £3.49 billion for the last quarter of 2004 with profits of $249 million that totalled more than the rest of the year put together. The primary reason for this was the lead up to the Christmas season and the iPod being the most popular Christmas gift for 2004.
(Hawkins, Tom, Printing World; 1/20/2005, Vol. 291 Issue 3, p16)
Burrows (2004) writes about how not only has the iPod had a direct impact on the sales of the larger parent company, but the parent company has also used the iPod to further its computer sales. In an interesting move, towards the end of 2004, Apple introduced fascinating machine called the iMac G5. It was especially interesting since users of the machine found some remarkable similarities to the iPod. The only question that was to be asked at this stage was if the company could duplicate the success of the iPod with this range of computers.
That would certainly be next to impossible but it was certainly a start. It has been noticed that with the success of the iPod, there has been a fresh impetus given to the marketing of Apple’s range. It is an idea that seems to be achieving some degree of success. When the CEO was asked about this strategy, he replied – “Our primary objective is to ensure that we make the best PC’s in the world. Our secondary objective is to make a little profit so that we ensure that we keep making some wonderful machines.” Albeit a little modest, his analysis sums up the upbeat attitude of the organisation and its people.
(Burrows, Peter, Apple is looking juicier, Business Week; 10/11/2004 Issue 3903, p55)
Slender goes onto to reiterate that in interviews with the Apple chief – Steve Jobs, he discovered that Apple wasn’t doing too many things differently to fuel this wave of success. Steve Jobs claims that over time, technology and entertainment have converged throwing up different needs and demands by consumers. This convergence came to Apple’s doorsteps being a technology company and all they supposedly did was to take advantage of it through their creativity and innovation.
But all these changes have also had a dramatic impact on the main core business of Apple. For the first time in four years, the company sold over a million Macs in a single quarter. So, it has been smooth sailing on more than just one frontier for the parent company. It is also interesting how Apple has diversified its portfolio of solutions that it takes to the market place. As a company, much of its success can be attributed to its flexibility and willingness to change and adapt tithe different demands of the customers.
Today, it can no longer be called a computer company in the literal sense of the word. It is a diversified business that is adapting to market needs and is being driven by demand. Its product portfolio ranges from computers to software, music to online entertainment and music stores, networking for its product range and entertainment products etc. It can almost be called a retailer of sorts providing a variety or product and service deliverables. In order to encourage this retail growth, Apple has introduced to the market, 100 ‘Apple Stores’ that encompass the unique Apple experience showcasing the entire range of its products.
Where will all this diversification finally take Apple? To the layman, it appears that staying ahead of the competition through technological innovation and advances is the way forward. Steve Jobs however disagrees during his interview with Slender. He states that it is next to impossible for a company to stay ahead of its competition purely on ensuring that it has the most advanced technology that it can introduce to the marketplace. It is imperative that the driving force behind a company lies in a core competency that its simpler and more basic. In keeping with the same, Jobs says that Apple’s main strength lies in its development of software for multivariate products.
In the future, he sees Apple providing software as a solution to integrate various applications and ensures connectivity and homogeneity across products. He highlights by taking the example of iTunes. As we know, it provides the software for converting all audio files into downloadable files onto the PC or Mac and finally the iPod. What is interesting is that 62 per cent of all music downloads on the Internet today is through the iTunes Music Store. That is a significant proportion of total downloads where all benefits get accrued directly to Apple Inc. This is why the software is the key as Jobs is wont to say.
(Slender, Brent (2005) ‘How big can Apple get?’ Fortune; 2/21/2005, Vol. 151 Issue 4, p66)
The study was undertaken through the collation of information through both primary and secondary means. Due to the constraint of time, the distribution of questionnaires were not an option, although it would have helped in understanding the benefits and problems that iPod users face with different models of the iPods. Instead, primary research was carried out with the help of one to one interviews with a selected few iPod users on an informal basis to gain an insight into what they believed buying an iPod did for them. As a last resort, one to one discussions were also conducted with users of iPods through forums on the Internet. However, one could not establish for certain if the sample interviewed were indeed genuine owners of the iPod. The information used from these discussions was carefully evaluated before they could be sued within the context of the paper.
Secondary information was primarily gained through articles and journals written on the growth of the iPods. Being a relatively new success story, most of the work that was found existed in journals endpapers written by students from across the world. In addition, the Internet has a number of articles that talk about both the strengths as well as the weaknesses of the iPod. The Apple website and dedicated sites linked to the iPod were also of great help with statistical information on the history and growth of the iPod. For analysis needs however, they weren’t used since the research would have been diluted in its efforts since it could have been making assumptions on biased information.
Information on the iPod and its growth were mainly present in more recent reports and journals since it was introduced in the United States only 3 years back and launched in the UK as late as last year. Additionally, industry trade journals were used to collate data and statistics on the growth of the iPod and the parent company Apple as well. In the researchers experience, information that was analysed on the iPod was more current than most other subjects in world business today. This made it more interesting as the time elapsed between the analysis and the actual status of the iPod within the growth cycle was nearly concurrent and yet at the same time, made it more difficult than usual to thread together different strands of information that happened to contradict or agree with each other over different time intervals.
For instance, reports and articles written in the year 2002 and who believed that the iPod would not do as well as expected in the coming years would contradict with actual published information in 2004 showing an extremely successful product. This makes it difficult to piece together since the researcher needs to first introduce the work of the writer in 2002 and then explain the contradiction in 2004. In addition, it also makes the research repetitive at times which the researcher was careful to avoid.
For instance, when an article in 2003details the success that the iPod would undergo in the coming year and an article in 2004 actually highlights that same success since it appears as published data, the final piece of research can look repetitive. To guard against this, the researcher collated all strands of information that were available, outlined them according to their datelines and relevance, and finally introduced them to the text being aware of repetitions and contradictions that would arise later in the text.
As mentioned earlier, questionnaires weren’t used due to time constraints, but in the case of future research, there are some crucial questions that should address some of the following issues:
• The degree of price-sensitivity of the consumer towards the iPod –this would dictate how Apple would enter future markets, what their priorities would be, the level of competition they would experience from the inexpensively priced products manufactured in the Asian economies etc.
• The problems associated with the product – this would enable the company to eradicate any bugs that it may experience at this early stage before they entrench themselves in the global market place.
• Interview consumers in the developing markets – China, India and other Asian economies that are taking to technology very easily hold the key to the future prospects in the global market place.
• Understand the consumer perception of competitive products. With the increased level of competition in the market place, future successes of Apple would largely be attributed to the level of intelligence that they undertake on competition and other variables in the microeconomic environment. The greater the intelligence and the more accurate the information that they base their decisions on, the greater the probability of success.
• Technological advances – By taking customer feedback into consideration, by understanding the issues that they would like resolved and by aligning those issues to solutions through the use of technology would ensure that Apple is able to grow the product and it has a sustained and lengthy life-cycle.
• Ideally, questions posed to samples being studied should be both objective to achieve clarity in the collation process as well as involve a degree of subjectivity that would help reaffirm conclusions inferred from analysis that would be conducted on the findings.
Finally, it is imperative that questionnaires are conceptualised in such a way that they allow the smooth flow of data into intelligent information. For instance, many researchers fail to collect the demographics of the interviewees. When analysing information, if information can be placed under different headings such as age groups, gender, locations etc., more meaningful information can be obtained through the patterns that emerge as a result.
Results and Analysis
Through the course of the paper, we have seen experts in the industry provide both positive insights as well as criticism about the iPod and its surrounding environment. There are certainly worries that Apple might be leaning too heavily on the success of the iPod to carry it through to a point where the company as a whole is more stable. At the same time, one of the more subtle but important points to note is the lack of investment by Apple in the developing economies in China, India and other Asian economies with the exception of Japan. What happens in that region remains to be seen but the next wave of competition is in all likelihood, going to come from this direction.
On the other hand, there are some hugely positive aspects that can be taken from the success of the iPod and Apple as a company. As Burrows(2004) projects his findings – Apple is leveraging the brand equity and the ‘halo effect’ of the iPod to propel sales within its Mac segment. This is evident in the management decision to use the tag line to sell iMacs as “From the makers of the iPod”.
With over 4.5 million iPod users today and that number steadily rising, even if a fraction of that population is influenced into buying a Mac, that is a very good option to be exercised and the management seems to have gotten it right. In addition, Apple has launched almost a 100 news stores across various continents that showcase the entire range of products that Apple has to offer. With the increasing popularity of the iPod, the number of footfalls within these stores will only increase and so will the corresponding level of prospective consumers.
In addition, Apple needs to continue to provide technologically advanced products that are both reliable and high on quality –something for which they are known for, both in terms of their software as well as their hardware. In keeping with the same, they have launched the PowerBook notebook and the iBook, again a notebook specifically being aimed at college students and young professionals.
This focus of Notebooks by Apple has been initiated from market studies that show the industry demand for Notebooks to rise 3 times as fast as desktops in the coming few years. To top this, the Apple operating system is considered both by consumers as well as IT experts as being far superior to the Windows system by Microsoft. It is also less susceptible to attacks by hackers. The next upgrade of the Windows operating system is scheduled to come out only next year in 2006,giving Apple the opportunity to tap into the market for all of 2005with its superior OS.
Apple is also sticking to its guns when it comes to premium pricing. It believes that it has a product, which is far superior to others in the market place and hence prices it higher. This kind of strategy has come in for a lot of criticism by industry experts and they feel that being niche player, the volumes would never justify the margin on sales. The problem with the computer market today is that it has become commodity-based market. And one of the main culprits for this are system integrators and companies such as Dell who are under-cutting competition by staging price wars.
There have been very few companies who have been able to keep pace with this onslaught and most are finding it increasingly expensive to maintain their market share, leave alone expanding it. In this regards, Steve Jobs has made the right decision to offer quality products as this differentiates the product offering within the marketplace. It provides it an identity – one that is based on quality and reliability. The key to Apple’s success will be how quickly it will be able to keep pace with technological advances and supply its consumers with products that are ahead of its competition. This also stands good for the iPod too.
In the months to come, the iPod will witness a surge of inexpensive players with greater memory capacity and additional features as well. Apple must ensure that it expands its range of products strategically to locations beyond where it operates in at the moment. Take for instance; iPods that are being phased out in the US can easily be introduced in both South American and Asian economies at lower costs to compete with local competition. Similar strategies will ensure that the iPod continues along its success path.
Conclusions & Recommendations
The iPod story has been one that has caused ripples across the digital industry. We have seen during the course of the report how successful the product has been with very few disclaimers that the product hasn’t lived up to expectations. It has been after all, simple formula, an age-old marketing mantra – Create a product or service that provides a solution to the demands of the consumer and it will be a success. That is precisely what Apple was able to achieve. With every success story, there is a defining point where a business is given a window of an opportunity that can manifest itself into large gains.
That’s is precisely what Apple managed to do - It was perhaps one of the only companies that understood the turning point where technology converged with entertainment and provided a solution that the market was screaming out for. On one hand, there were computers, which were feeding off the Internet for music and pictures, and other form of downloads. On the other hand, there was an entire generation of music lovers who wanted a way to carry their music with them and not limit themselves to a few audio CD’s. The iPod was the bridge that brought both these attributes together and gave the consumer what is was asking for. Hence, it succeeded.
But what really captures the minds of the marketing professional is the calculated precision with which the iPod has been introduced to the market and then, sustained its presence as a market leader for so many years.
The future is bound to be different, as we all know. There is competition creeping in ever closer with every passing year and there is the possibility of more advanced technologies that would be user-friendlier being introduced. In addition, we have seen from the variety of sources that the iPod is particularly strong in selective markets – the US, Western Europe and Japan. But there will soon come a time when these markets would be plagued with competition and it would become increasingly expensive for Apple to retain its market share.
This becomes a case of putting all your eggs in one basket or in this case – three baskets (US, Western Europe & Japan). It is important that Apple look at taking the iPod to markets where there is both, an active demand as well as markets where they can build demand. The future across most global markets is a picture where they play host toe number of Asian companies that are out-manoeuvring competition through price-wars. Apple cannot afford to sit out this war and look at entering the markets later in the life cycle. It must enter the large economies of India, China, Taiwan, South Korea etc. with a vengeance and make an imprint with its brand equity.
But it isn’t fair to start talking about the decline of the iPod. One merely states the obvious as a word of caution since the time forth tide to change is still very distant. For the time being and in the near future, the iPod is burning its path across the industry setting new records through unprecedented sales eating up the market place as it moves from country to country.
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