The iPod, As We Know It, Is Dying

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Apple Sold Twice As Many iPhones As Macs Last Quarter. And It's Closing The Gap On iPod Sales Too

picture-96During its quarterly earnings call today, Apple CFO Peter Oppenheimer focused a lot of attention on what the company is now calling its “pocket products.” That is, the iPhone, the iPod touch and the iPod. You’ll notice that Apple has taken to separating out the iPod touch from the rest of the iPod line. And that makes sense, given it shares many more similarities with the iPhone. But it’s also for another reason: The iPod, as we know it, is dying.

Of the three pocket products, two saw huge year-over-year growth this quarter, one did not. While iPhone sales grew a massive 626% year-over-year, iPod touch sales actually grew just about 130% too. And while Apple may consider the iPod touch outside of the iPod line, for financial purposes, it’s still counted with them. So when you hear that overall the iPod family saw a 7% decline year over year, you know that the actual iPod numbers minus the iPod touch, must not be very good at all.

And while Apple wouldn’t specifically give those numbers, Oppenheimer did note that the iPhone and iPod touch are very much “cannibalizing” the stand-alone MP3 iPod market. Apple still has over 70% of the MP3 player market, but it’s probably safe to assume that the overall pie which Apple has 70% of, is going to start shrinking soon (if it hasn’t already), at least in the U.S. The way Oppenheimer spoke today about what he calls the “traditional mp3 players” was almost like a eulogy.

And for good reason. I’d be fairly surprised if Apple updates its hard-drive based iPod classic ever again. It will likely continue to sell it for a while, and may even do something with the price. But the thought of Apple devoting any time to reworking this dinosaur at this point, seems pointless.

The iPod nano, which Apple did a huge revamp of last year, still likely have some life in it — especially if it gets a camera. But the key thing for it going forward is price. If Apple can reduce it even further (to say, $99) and still make money off of it, people will still buy them. Likewise the the Shuffle. If Apple can get it down to about $50 (it’s currently $79), that should continue to sell short-term.

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But again, any tweaks and price reductions will simply be bandages on the iPod’s wounded body. Eventually, the “touch” will be the iPod. And yes, we’ll likely see a smaller version of it (and the iPhone) eventually as well.

It will also need to come down a bit in price, before the traditional iPods can fully go away. But at $229, the low-end iPod touch is already much cheaper than many of the original iPods were the first several years after its release.

MP3s players were great, just as CD players and tape players were great before them. But ultimately, technology and expectations evolve. Soon, carrying around a device that just plays music will seem pointless. Everyone’s phone will do that. And if someone doesn’t want to (or can’t) carry around a phone for whatever reason, iPod touch-like devices that not only play music, but play movies, take pictures, run applications, and, most importantly, access the web, will be everywhere.

And while the click wheel was great in its day, every time I pick up an older iPod now, I immediately try to touch the screen to control it. Apple is training us that touch and multi-touch will be the preferred method of device manipulation in the future. (Certainly until it makes its shoddy voice controls in the new iPhone 3GS work better.)

And so Apple’s three “pocket products” will eventually be whittled down to two. And it’s likely to happen sooner than you think. Apple doesn’t stick with products that aren’t selling for too long.

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