An Apple A Day

Problem

How can the iPod keep its product dominance in the face of competition and technological advancement in the digital media player industry?

Facts and Assumptions

Ð'* In the past, Apple's success has come from disrupting its competition with innovative and high-quality products. Its marketing history is based on showing how their product is easier to use than their competitors. However, they would ultimately ride on the coat-tails of their competitors' inventions. Thus, Apple's company history has had little experience in being a product leader and having a first-to-market advantage. With the invention of the iPod, Apple has, for the first time, succeeded in leading the digital media industry.

 Because Apple has a reputation of creating high-quality products in the past, consumers can trust that the iPod will hold the same quality.

 Apple may have problems dominating the digital media player industry, as it is used to being the comparative competitor.

Ð'* It has taken less than six years to sell 100 million iPod units. It took Sony ten years to sell the same amount of cassette players.

 The iPod, similar to the Walkman and the Discman, is a fad and could very easily be taken over by a new product in years to come.

 Apple will not be able to dratically increase their dominance in the digital media player industry, as it is virtually impossible to increase an 80% market share. The competition will always hold a small portion of the market as they are producing comparable products.

Ð'* iPod applications work specifically with iPods creating brand loyalty

Ð'* The iPod currently has over 200 iPod accessories.

 It holds product supremacy in the digital media player industry.

 The iPod holds a significant amount of brand loyalty in the eye of the consumer.

Ð'* Most technological leaders in the past have lost market dominance as competitors improve upon their existing product.

 Because Apple is the market leader in the digital media player industry, it will not be able differentiate their product enough in the future to accommodate the development of new technology. Competitors then can gain an advantage over Apple by being able to perfect the flaws of the iPod in their own digital media players.

Research Summary

General

Ð'* The iPod holds an approximate 81.3% market share, with its closest competitor, SanDisk, at only 5.8%.

Ð'* Apple is working to abolish digital rights management (DRM), a position stated in "Thoughts on Music," CEO Steve Jobs' open letter to the music industry. By doing so, iPod users will be able to purchase and download music from any online store without fearing incompatibility, which in turn reinforces the idea of convenience on which the brand is built.

Ð'* IDC, "the premier global market intelligence firm," is predicting that the digital media player business will grow to over 25 million units to be sold in 2008, a far cry from the roughly 3 million units sold in 2003.

Ð'* According to a PiperJaffray poll about teen spending habits, 82% of those students with digital media players owned iPods, 89% used iTunes, and 84% had heard of the iPhone and would be willing to pay $500 for it.

Ð'* Apple has responded to consumer's environmental concerns by creating a "greener" iPod.

Ð'* Roughly 2 million iPods were sold in 2006

Ð'* iPod sales have increased by 500 % from 2005.

Ð'* In the second quarter of 2007 alone, Apple has made a $700 million profit.

Ð'* In addition, 10,549,000 iPods are sold every quarter.

Competition

Ð'* Although Sandisk holds the second largest market share in the digital media player industry, Apple's biggest competitor looks to be Microsoft's Zune, especially after the latest revamp which was unveiled on October 2, 2007.

 Unlike most versions of the iPod, except the iTouch, the Zune has WiFi capabilities that allow its users to sync their music with their computer wirelessly, and share songs, playlists and photos between Zune devices. The Zune also includes a FM tuner and supports .wmv files that the iPod does not.

Ð'* However, the SanDisk Sansa View cannot be counted out. With voice recording capabilities, expandable memory, and a user-replaceable battery, it also includes features not found with the iPod.

Ð'* Other digital media players competing for a portion of Apple's market share include the iRiver Clix, which has an LCD touch screen that can double as a navigation system, and the Toshiba Gigabeat, which supports more audio formats and competing music subscription services (Napster).

Patent Challenges

Ð'* Two recent patent rejections have proven that Apple will have to work hard to maintain its dominance in the digital media player industry.

1. In late August 2007, Apple's patent was rejected because Microsoft already had a similar patent. Apple argues that they invented this technology, however as a result of this Apple may have to pay Microsoft to use this technology.

2. Another patent request was also rejected in August. This involved the iPod's touch-sensitive navigation system. Creative Labs is arguing that they were using this technology before Apple. Although Apple is able to work around the Microsoft patent issue, this one will be much more difficult.

Target Market

Ð'* Many press and industry specialists argue that is it the aesthetics or "cool factor" that has made iPod so popular. The following chart shows that the average person purchases the iPod because of the interface. The youngest group (15-24) of iPod owners say they bought an iPod because of the look and interface, while the older group (35-50) say they bought the iPod because of its familiarity.

SWOT