ipod economics

APPLE iPOD

INTRODUCTION
History of iPOD
More than any other single product from Apple, the iPod has changed the company and the world. Before its introduction, MP3 players were the realm of small companies with limited budgets that were unable to provide content. After the iPod, the entire industry has evolved and grown to the point where the largest computer companies in the world have major interests in the digital music industry.
iPOD Innovation
Tony Fadell, former employee of General Magic and Phillips, envisioned a brand new MP3 player. Unlike the bulky flash memory-based MP3 players from Rio and other companies, Fadell wanted to deliver a small hard drive-based player that was linked with a content delivery system where users could legally obtain and download music.
The first company he pitched it to was RealNetworks (in 2000), where the CEO, Rob Glaser, was already in control of a large content delivery system through Real's premium radio and television channels. Real could not rationalize going through the trouble of releasing an accessory to their already profitable system, so they would be caught off guard when the iTunes Music Store was opened.
Fadell also approached Phillips, which also rebuffed him.
Fadell comes to Apple
Out of desperation, Fadell turned to Apple, which years before had sworn off consumer electronics after their unsuccessful Pippin and Newton. The executives at Apple were very enthusiastic about implementing Fadell's plan at Apple - unbeknowst to Fadell, Apple had bought the rights to SoundJam MP months before. He was hired in early 2001 and was given a development team of around thirty people and a deadline of one year to release a successful product.

Fadell was not confident that Apple would fund (or even complete) the development of custom hardware and software for the player, so he shopped around for an existing player to use as the basis of the Apple player. After briefly looking at Rio and Creative, the team found PortalPlayer, a new company that had not yet released a full product.
PortalPlayer was assisting other companies to develop MP3 players based on common software. Before Apple approached them, their most promising customer was IBM, which was working on a black, flash memory-based player that had a Bluetooth headphone system. The executives at PortalPlayer did not like the chances of IBM releasing a consumer MP3 player, so they jumped at Apple's offer to design their player's software exclusively.
Several of the prototypes that PortalPlayer had been working on were delivered to Fadell's group at Apple, and it became clear that the companies had lots of work to do. For example, the players did not support playlists larger than ten songs, did not have equalizers, and had Byzantine interfaces.
Perhaps worst of all, the player's batteries lasted for less than three hours. According to the liaison between Apple and PortalPlayer, Ben Knauss, "Most of the time building the iPod was spent finishing [PortalPlayer's] product."
Steve Jobs took a very active role in the project, scheduling frequent meetings with the directors from Fadell's group and PortalPlayer. During these meetings he would tell them in detail what issues he had with the device, whether it was the interface, sound quality, or the size of the scroll wheel.
This was rare for an Apple project at the time, and it reassured the leaders in the group that the project would not be axed immediately.
In the span of eight months, Fadell's team and PortalPlayer dedicated all of their energies to finishing the iPod. In three months, Apple had created a preliminary version of the user interface and scroll wheel that would ship with the finished iPod.
Apple never allowed anyone outside of the development team in Fadell's group and select PortalPlayer employees to see a complete iPod. Whenever a device was being tested, it was encased in a shoebox-sized enclosure with the controls on different faces to keep outsiders from knowing the size and layout of the device.
The first iPOD

The iPod, Apple's most successful product was introduced on Oct. 23, 2001.The finished iPods used 5 GB Toshiba hard drives that were the size of a quarter, ARM processors (the same processors used in the Newton and Acorn), an operating system from Pixo, a large high resolution display, and the most recognizable aesthetic feature of the device - the scroll wheel.
Unlike most other players, the iPod did not use controls that were better suited to the Sony Walkman in 1979 than a MP3 player with a capacity of thousands of songs. Instead of using skip buttons, a user could spin a wheel on the front of the device to scroll through a list of songs to find the song the user wanted to play. The same wheel was also used to control the menus of the system. As a result, it was much easier to navigate through the iPod's playlist than the comparable Nomad or Compaq MP3 players.
In early October, Apple began hyping the iPod's release (which was still a secret from the press after eight months of development). The hype culminated in an announcement that Apple would make a major announcement on October 23, 2001, and that it was "not Mac".
Rumors immediately flared up about a revitalized Newton or PVR, but no major site predicted that Apple would release a MP3 player.
The iPod was announced to the world from a rented auditorium in Cupertino, near Apple's corporate campus. The audience - and the rest of the computer industry - was shocked by the product. No one grasped the importance of the device to Apple and the music industry in general (especially after the launch of the iTunes Music Store) until much later. Many reacted to the product with hostility, with criticisms that ranged from its $400 price to the scroll wheel and its lack of Windows compatibility.
A month later, the iPod was released in Europe to an enthusiastic reception. As more units sold, an entire ecosystem began to form around the device, as new accessories and software products were released.
Evolution of iPOD

Then Apple made the next version of the iPod (now with as much as 20 GB of storage space) compatible with the PC through MusicMatch. Apple also included PIM software on the iPod.
Another hardware revision came for the iPod, now in its third generation. In a packed hall, Steve Jobs announced the new revision, which now had no mechanical buttons. The function buttons were moved to just below the screen and were solid state, like the scroll wheel.
The iTunes Music Store (iTMS) was announced in the summer of 2003 and opened days later. Now, the iPod had a fully legal supply of content, and made it easier for Apple to rationalize cutting the price of the iPod now that it had another revenues source. Finally it also marked the end of apple’s relationship with MusicMatch.
Then came iPOD mini and with it came an agreement of HP with Apple to remarket the iPod under the HP brand and include iTunes on all consumer computers the company sold.
The iPod was a huge hit. Apple had sold millions of devices and was raking in money. BMW outfitted all of its vehicles with an iPod interface that allows BMW owners to play their music over the BMW's sound system and control their iPod through the steering wheel.
after that there was no stopping to iPOD . Massive improvements in foms of color , memory size , video compatability in ipod mini, ipod photo, ipod shuffle, ipod nano and finally ipod with video was introduced.

Deteminants of Demand And its Impact On iPOD
1. Price of the commodity:
Other factors remaining constant if normally price of the commodity falls then quantity demanded of the product should expand and vice versa. But iPOD clearly showed with its sales that though its price was high its quantity demanded continued to rise. However it is not that it does not follow the law of demand. As in summers 2004 when apple reduced the price of its ipod then there was large increase in its sales. Thus showing that price does effect its sales.
2. Taste and preference of the consumer:
By taste and preference we talk about the fashion and pressure of advertisement if price remaining constant. As we all know that as soon as iPOD was launched there was a fashion for it and so its quantity demanded was high and is still high. Moreover the catchy silhoutte commercials and various other forms of innovative commercials like that on trams and hoardings added to the pressure of buying iPOD more.

3. Income of the consumer :
If the price of the commodity remaining same the income of the consumer is increased then the purchasing power of the consumer increases and consumer will buy more of ipod and so demand curve will shift to right showing that consumer can buy now more ipods.
4. No. of buyers in the market :
Greater the number of buyers greater will be the demand for a particular commodity like ipod.
5. price of related goods:
This is the most important factor in case of iPOD which shows that even if the price of the related goods like that of microsoft, iriver , sony products are quite low then also the quantity demanded of iPOD had no effect and it continue to rise showing what popularity and fame iPOD have.This have been proved further below.

Apple iPOD well above others
There are various surveys and articles done by various analysts all over the world that clearly shows that iPod competitors can't compete with Apple . Below is an article by an Katei Marshal which clearly bring out the dominance of iPOD over its competitors.
Gene Munster, an analyst at PiperJaffray, surveyed a broad number of digital music players to see if any competitors can compete with Apple's iPod based on price.

The study looked at 20GB and 30GB players from device makers: Creative, iRiver, Samsung, and Sony. "Apple's 30GB iPod provides the lowest cost per gigabyte at $10, followed by Creative's Zen Vision:M at $11," Munster wrote in a research note. "It should be noted though that the Zen Vision:M has a few more features (i.e., personal organizer, recorder, more song storage, more hours of video, and an FM tuner) than the iPod."

The analyst also noted that the only other video capable devices were from Samsung and iRiver, and cost between $15-$25 per gigabyte, while those without video capabilities cost at least $11 per gigabyte.

Looking closer at device maker Creative, Munster was impressed by the features of its new Zen Vision:M, a knock-off of Apple's 30GB video iPod. However, the analyst believes the key question was: "Will Creative be able to pack these features into a 30GB device and price it below an iPod?"

According to Munster it wasn’t possible noting that the device is $329.99, $30 (10%) higher than the price of Apple's 30GB iPod. Although, the iPod's competitors often have similar, if not broader, feature sets than the iPod, none have proven they compete in the two key areas of user interface and "cool" factor.

Non-iPod devices must compete on price to gain adoption, but Apple has such massive relative shipment volume with the iPod that other MP3 player manufacturers are not able to replicate the economies of scale achieved by Apple.This reality allows Apple to sell iPods at the lowest prices in the market, thus retaining the iPod's pole position for years.
Timeline of iPod models
Apple has constantly improved iPOD thus making difficult for its competitors to compete as shown below.

Apple has evolved the iPod line from the original model and each new release generally has more features, whilst being smaller and lighter than its predecessor. Notable changes include the touch sensitive wheel (replacing the mechanical scroll wheel), color displays with anti-aliased text, video capability and flash memory in place of hard disks.
The first generation iPods were Mac compatible only. Apple later added limited Windows support to the 2nd and 3rd generation. At this time, Windows users required third-party software such as Musicmatch Jukebox, ephPod or XPlay to manage the music on their iPods. Musicmatch was included on the bundled CD.
From July 2004 and onwards, every iPod was made fully compatible with either Mac or Windows, and Apple released the Windows version of iTunes on 16 October 2003.

A SMALL COMPARISON
Then there are comparisons with some of the competitors of iPOD which clearly shows that it will be very hard for them to surpass iPOD’s popularity and dominance.
Competitor No.1 Competitor No.2
Competitor Name Rio Carbon (5GB) iriver H10

What are the product objectives?
Increase sales of this product by 10% by the next year. To be the leading supplier of MP3 players in all markets in which the company operates

What is the products current strategy?
Sell off the products at competitive and profitable prices and maintain customer satisfaction To top competitors product technology by innovating the current product

What are its strengths?
Rio Carbon offer their product at affordable prices which appeal to consumers while maintaining strong quality.
The iriver H10 out classes the competition in the features that they offer to consumers.

What are its weaknesses?
The Rio Carbon is a new competitor in the competition and therefore it may be difficult for them to gain market share because of the unknown brand loyalty .The iriver H10 comes at a very costly price which may lead customer’s to purchase competitor’s products at an affordable price

So, these weaknesses are sufficient for iPOD to overcome any of the above in terms of market share and popularity.
But we see that ipod competitors or what we today call them as KILLERs are also getting strong like Microsoft’s Zune whose first device will be launched this year in 2006 with more expected to come in 2007. It will heavily leverage community aspects and recommendation; emphasis is being placed on using Zune to discover new artists, media, etc .moreover it is drive based and has Wi fi. Then there is Sandisk Sansa e2000 which also include attractive features at low price . But iPOD is not far behind it is also gearing up to meet the competition .iPOD is now providing
• audio books ,
• iphones,

• full length Hollywood flicks
• podcasts,:- The iTunes Store offers tens of thousands of podcasts, from both big names and independent creators.

• Blue pod:-It has blue tooth in iPOD and will display Caller id on the Ipod& will turn down the music accordingly.

Hence the dilemma faced by Creative, Sony, and all other would-be usurpers of the iPod’s throne:
• They’ve tried adding more features and it hasn’t worked.
• They seem to be incapable of out-designing Apple — both in terms of industrial and user interface design, the iPod is almost universally hailed as superior. (Go back to the Zen Vision:M, for example: sure, it matches the iPod in height and width, but the iPod is about 40 percent thinner, 0.43 vs. 0.7 inches. Plus, the iPod weighs less and has much better controls.)
• Even if they could design hardware as good or better than an iPod, they’re still in a deep hole marketing-wise. You can’t beat a brand like iPod simply by throwing money at the problem.

In a nut shell we can show how Apple compares to its competition:

Industrial Design: Apple domintates. Hands down

Ease of Use: Apple dominated for the first 4 years of its life and now some of its stronger
Capacity: For the first 2 years, Apple dominated here. For flash-based players, Apple is still far competitors (e.g Creative) are starting to catch up.
ahead. For HDD players, the field is level

Features: For the first 2 years, Apple was at parity. Since then, they've fallen behind in some key areas such as FM tuning, recording capability. However, they were among the first to offer color screens, photo capability and still lead the pack with video.

Size/Weight: Apple has always dominated here and still does.

Price: Though iPod is percieved as a strictly high-end brand, the facts paint a different picture. Let's look at the flagship iPod models vs. their nearest competitoin:

30GB Video Ipod vs. 30 GB Creative Zen Vision M.

Apple wins. The iPod is actually cheaper ($299 vs. $329). True, you do get FM and recording on the Creative, the iPOD is smaller and thinner, andI can tell you from personal experience that the Creative's user experience is still not as slick and as easy as the Ipod.

2GB iPOd Nano vs. 1GB players from iRiver, Sony, Samsung etc (note: no compeititors offer a 2GB player because apple has cornered the market on 2GB memory)

Apple wins. For $199, the iPod offers 2GB, a color screen and fantastic user experience. The others cluster around $159 but provide HALF the storage space, monochrome display and inferior usability

Sales
Finally we come to sales part of iPOD which will clearly suggest that iPOD has done quite fairly in the past and will continue to do so in future also leaving its competitors high and dry.
Since October 2004, the iPod has dominated digital music player sales in the United States, with over 90% of the market for hard-drive-based players and over 70% of the market for all types of players. It frequently tops the best-seller lists. The iPod has sold at a tremendous rate and within one year from January 2004 to January 2005, its US market share tremendously increased by 34% from 31% to 65%. According to the latest financial statements, iPod's market share accounts for 74% in the US in July 2005. This success was especially based on the introduction of the iPod mini, part of Apple's attempt to take market share from the mainstream Flash player market in the US. Flash players at the beginning of 2005 accounted for less than half the U.S. market share than they did in 2004. (Their market share decreased from 62% in January 2004 to 29% in January 2005.)
A report by Sören 'chucker' Kuklau, posted on Saturday, December 25th, clearly shows the growing sales of iPOD

Fortune magazine reported on June 27, 2005 that Apple had sold over 15 million iPods, including 5.3 million in the first quarter of that year. At the Macworld Expo keynote speech on January 10, 2006, Apple CEO Steve Jobs reported sales of over 42 million iPods total, and 14 million in the first quarter of fiscal year 2006. This equates to 100 iPods sold every minute throughout the quarter.
In its first quarter results of 2006, Apple reported earnings of US$565 million — its highest revenue in the company's history. Apple shipped 6.16 million iPods during the quarter that ended on June 25, 2005, a 616% increase over the same quarter in 2004. Apple shipped 14.04 million iPods during the quarter that ended on December 31, 2005, a 207% increase over the same quarter one year prior.
Pod sales according to Apple's yearly financial results:

iPod yearly sales according to Apple.
Fiscal year iPods sold
2002 381,000[46]

2003 939,000[46]

2004 4,416,000[46]

2005 22,497,000[47]

Total 28,233,000
iPod sales according to Apple's quarterly financial results:

iPod quarterly sales according to Apple.
Fiscal quarter iPods sold
2002 Q4 140,000[48]

2003 Q1 219,000[49]

2003 Q2 80,000[50]

2003 Q3 304,000[51]

2003 Q4 336,000[52]

2004 Q1 733,000[53]

2004 Q2 807,000[54]

2004 Q3 860,000[55]

2004 Q4 2,016,000[56]

2005 Q1 4,580,000[57]

2005 Q2 5,311,000[58]

2005 Q3 6,155,000[59]

2005 Q4 6,451,000[60]

2006 Q1 14,043,000[44]

2006 Q2 8,526,000[61]

2006 Q3 8,111,000[62]

Total 58,912,000

Further to emphasize point of iPOD superiority and support my view below is a small portion of an article published in Economic Times on july 20, 2006.
Apple Computer Inc has posted a 48 percent jump in quarterly net income as sales of iPods and Intel Corp-powered Macintosh computers topped expectations, sending shares nearly 8 percent higher.

Apple said it shipped 1.33 million Macintosh computers in the quarter and 8.11 million iPods, increases of 12 and 32 percent respectively over the corresponding period last year.
Finally to summarise and support the data above given below is Apple performance from Jan ’06 to July ’06.

Revenue from iPod sales is indicated with brown dots. Number of iPod units sold is shown with the brown line. iPod unit sales are scaled by a factor of 200 to show up on the scale of the graph, and so the trend of unit sales can be compared with revenue. In this case, you can see that Apple is targeting an average sale price of about $200 for iPods. The exponential growth in iPod sales is obvious, and the jump in holiday sales is apparent for the last 4 years. This year, post-holiday sales dropped more than one would have expected based on the historical pattern, though release dates for new iPod models can help clarify this (iPod and iPod accessory launch dates appear as green squares along the bottom of the graph); in 2005, the iPod Shuffle was introduced in January and made possible a growth in unit sales even as revenue dropped due to the lower price of a Shuffle. If you line up the stock prices with the main graph, it’s clear that iPod revenue closely matches stock price trends.

CONCLUSION
iPOD was, is and will be market leader for quite some time . Despite a higher average price than competing hard drive portable music players, the iPod has experienced phenomenal sales as on feb 03 , 2006. The success of the product created a positive feedback loop that benefits Apple, but detracts from opportunities for competitors to make gains in the portable music market. After wowing consumers with innovative marketing campaigns and eye-catching aesthetics, a series of products supporting the iPod line of products abounded. From home listening docks to car-ready broadcasting systems, Apple successfully created an empire of peripherals. The dominance of the iPod and the availability of third-party products will convince consumers that the iPod is the best possible choice in the portable music player market, so much so that it now appears that consumer perception does not allow for substitutes. Like Windows, the majority of peripheral devices and third-party applications work with the Apple iPod and not with competing players. The availability of choice eventually erodes, as no other player looks quite like the iPod or works with as many secondary tools.

By:
Sharad jain
IT062140

BIBLIOGRAPHY

1. http://appleinsider.com
2. http://lowendmac.com/orchard
3. http://en.wikipedia.org
4. www.echeat.com
5. www.marketingprofs.com
6. http://phx.corporate-ir.net
7. http://ilounge.com
8. www.osviews.com
9. www.apple.com
10. http://economictimes.indiatimes.com
11. www.theregister.co.uk
12. http://darinfireball.net
13. http://chucker.mystfans.com
14. www.google.com