Apple share of MP3 player market to shrink... sort of
The Nano effect
Prepare yourself now for some triumphant headlines in the coming months from rivals of Apple's iPod - along the lines of 'Apple MP3 player market share drops'. And you know what? Apple half-expects them too. Why? Because its new iPod Nano is going to be so hugely successful, taking over as the world's most popular MP3 player from the iPod Mini, which it replaces.
You're saying, 'Huh? How can it go down and also be popular?' The trick is this: Apple's putative loss of market share is going to be in the market for MP3 players with hard drives. But after the triumphant launch of the Nano, which Steve Jobs pulled from his jeans' change pocket (a billionaire's change pocket, surely; I've not got any that deep) with the delight of a magician producing an elephant from a hat, the makers of players based on Flash memory have a mountain of miniaturisation to climb.
As David Card of Jupiter Research remarked: "Apple just re-set the MP3 player agenda. The $200 space now is Flash-based, with a color screen. And very small... 2GB and 4GB is plenty - as we said with the [iPod] Mini, most people still don't have more than 1000 songs in their collections. The Mini outsells the Shuffle and the White models, folks."
Apple is already pre-eminent in the Flash market. On 1 January, Apple had zero per cent share of the market for Flash-based players. By the end of June, according to the NPD Group, it had a 46.3 per cent share of the US Flash-player market. Only Sandisk came close, with 10.8 per cent - and even that was less than 1GB iPod Shuffle, which had 11.9 per cent of the market. You can see all the numbers here.
As the iPod Nano is entirely Flash-based, it's going to skew those numbers way, way up, and push the rest further into single digits - or past the decimal point. Creative has just 2.4 per cent of the US market, according to NPD's numbers.
Yet Danika Cleary, the Queen of iPod (OK, head of iPod marketing), admits: "The [iPod's] hard drive market share might appear to fall." Ye Gods! Hold the front page!
But wait, there's more. She adds: "You have to look at the overall numbers. The Shuffle pushed up our overall market share; we'll see how the Flash and hard drive markets balance."
Apple, and pretty much everyone else, expects that the Nano will do barnstorming business. It's tempting for those considering a Shuffle to spend that little bit extra to get the cool factor, plus the option to choose a song and see photos or album artwork, and add enormously useful functions like times from around the world - I got bored after adding 25; the Nano was ready for more - and a screen lock using a combination-lock appearance; for once brushed metal makes sense.
You don't have to be an analyst to know that the iPod Nano is going to sell by the truckload. You just have to see one, hold one. So overall, Apple's share of the MP3 player market will probably increase. Sorry, did you think the headline implied the opposite?
So what's changed in the picture since we looked at it nine months ago? Then, Steve Jobs said: "We're really serious about this [iPod Shuffle]. We'd like to go after the remaining mainstream Flash market."
And now he's knocking on their door. The mountainous irony though is that this next decimation of the MP3 makers has come about with the aid of one of their own. Samsung has sold Apple 40 per cent of its flash memory output for the iPod Shuffle and Nano. Samsung produces about 60 per cent of the world's NAND Flash memory. It also has a nice line in... er... MP3 players.
You can bet Apple got a good deal on cornering a quarter of all Flash chips being made. Quite where this puts the desire of Samsung's desire to be number one in MP3 players by 2007 isn't obvious. Perhaps it could be inside the number-one player instead?
But wait, people say. Surely, with HMV and Virgin launching download sites, and Napster able to claim thousands of people using its subscriber service, isn't everything moving towards a time when the iPod won't be dominant, when other companies can move in and get a slice of the downloading/subscribing action?
Well, I just checked with Google, and the phrase "ipod killer" comes up 265,000 times, while Apple + "death knell" gets 102,000 results. Apparently Apple has been declared 'dead' 46 times since April 1995; the most recent, amazingly, being May of this year, though it was by the Melbourne Age, and, you know, Melbourners...
But note some more: the DRM is more restrictive than Apple's iTunes (play on three PCs vs five computers, burn five copies of a track (on downloaded tracks; not at all for subscriptions) vs unlimited (but a limit of seven for a set of the same downloaded songs; and transfer songs to up to two players, vs any number. That's no way to win a war.
What we're seeing is a company achieving dominance of an emerging market. Apple announced this month that it has 80 per cent of the music download market in the UK. It's got the majority of the MP3 player market. When even your rivals realise they'll do better selling you parts than competing with your players, you can say you're in charge.
And here's another thing: with Samsung set to ship chips able to store 2GB each next year, you can bet on two things: Apple lining up to be a customer; and the higher-end iPods gradually going Flash too, and perhaps shrinking in line.
Which leads to a final thought. Interesting things happen when technology gets so small it effectively disappears, because it can become ubiquitous. Think of transistors, electric motors, LEDs. The iPod Nano isn't quite at that level yet, but all its rivals now have a big headache. They'll put out the press releases touting the apparent rise in their market share - I'm sure Creative is getting ready - but their problems are only getting bigger. ®