The End of the iPod?

Previously, I explored the idea of what it would take to supplant Windows. This time, I look at the iPod.

As with any technology, there is little or no guarantee that it will remain dominant and “king of the heap”. Any technology can be supplanted over time by something else. However, “supplanted” does not necessarily mean replaced. In time, some technologies do get replaced completely. However, for general categories of technologies, what happens is that they lose their dominance in the market, but can continue to have a place in it. Mainframes have not gone away, but are no longer the most dominant form of computing. While buying prerecorded cassettes is difficult, people still have tape decks in their car, and listen to them regularly. Vinyl continues to soldier on for audiophiles, but in nowhere near the numbers of the CD, which is being slowly replaced by download services.

So what could knock the iPod off the top of the heap? Is the new Zune HD going to do it?

As I’ve outlined before, and which is discussed in better detail in Clayton Christensen’s awesome book The Innovator’s Dilemma, older technology is generally supplanted by new technology that is radically different, or that represents a fundamental shift in either how things are done or how an outcome is achieved. The MP3 player largely replaced the portable CD and cassette players because of what it offered: the ability to easily carry a large selection of songs and not have to carry external media. All of these devices played music, and the quality of the sound was technically better on a CD player. But, you had to carry the discs around, and only got 50-60 minutes of music at a time. Early MP3 players didn’t have the enormous capacity that we have today, but they could still at least carry more than a single CD’s worth of music. The iPod wasn’t the cheapest, didn’t have the most capacity and didn’t have the most features. The iPod brought ease of use, “nice to use”, attractive design and a “cool” factor reinforced by its print and video advertising. Most importantly, though, Apple also brought iTunes into the picture.

The element that keeps the iPod dominant is the iTunes store. The iPod isn’t a device all on its own, its part of an ecosystem, the core of which is iTunes. The ability to easily add new music, and now games and applications (for the Touch at any rate) expands and enhances the experience for an iPod owner. Granted, not all iPod owners use the iTunes store. Some do view the iPod as just another device, with the purpose of playing music. But a significant number of people use the store, to the point where it is one of the dominant retailers of new music, on par with the bricks-and-mortar king of new music, Walmart.

So, how do you unseat the iPod? Not easily, and not necessarily with a single product introduction. The iPod didn’t get to where it was overnight. The idea that single, new portable entertainment device can unseat the iPod seems to be optimistic in my view. Will the Zune HD be able to do it? I think this is unlikely. It only covers a narrow segment of the market, completely ignoring the low-end for small and cheap(er) players, as well as the mid-market addressed by the iPod Nano. It really only competes against the iPod Touch, but even then it is “less” of a device, given the smaller available library through the Zune Marketplace, and the distinct lack of applications. You don’t kill a competing product by bringing less to the table, while not being more compelling in other ways. Besides, to unseat the iPod requires getting iPod users to abandon more than a device: it also means you have to get them to give up some of their library of media and applications.

While not everyone has an MP3 player, pretty much everyone who wants one has one already. My guess is that the market is close to saturation at this point. So, to become the dominant player isn’t about capturing net new customers, its about converting customers who own other technology. Changing the hardware isn’t a big deal: iPod owners by newer iPods all the time. The challenge is the library these owners have built over time, and its close ties to iTunes. Someone new would either have to provide something so much “better” and compelling that people would be willing to abandon those parts of the library they can’t move (primarily video and applications, since most iTunes music is DRM free now). It has happened before. People replaced entire libraries of VHS movies with DVDs. They also replaced entire libraries of vinyl and cassettes with CDs. But they did because the alternative was far superior to what they had before. Introducing yet another MP3 player, that doesn’t play music any better than the existing iPod does now, and can’t play the video or run the applications they already own, quite frankly doesn’t stand a chance. If it was a “me too” device, and have access to all that iTunes offers, then it could at least make a dent in the market. But, since it can’t use some of the existing libraries, its more of a “me, if you really, really want to” type of product.

So, what would it take? I see two ways that this could play out. The first is that Apple is forced to allow other devices to connect with iTunes, and play back all the media at the very least. It still shuts people out of applications, but it would allow people to at least play their music, movies and TV shows on something that isn’t an Apple device. The only way for this to happen, though, would be for someone to try to prove an antitrust case, and have the US government force Apple to let others into iTunes. I’m not convinced that someone could make the case of this right now, and  Apple will defend themselves against this very vigorously

The other way would be for some new device (or family of devices), supported by a rich music, video and applications ecosystem, to come out that makes playing music, video, etc. dramatically better than the iPod, and so different that the products would be hard to compare directly. I’m not sure what form this would take, but that isn’t to say that a device like that isn’t out there. But it would have to be very, very compelling and be at a reasonable price point. Technological superiority isn’t enough, though. It has to be “better” in both tangible ways (which would include some superior technology, better sound or video quality, etc), but also in some intangible way.

So until either of these occur, the iPod is going to remain the king of portable entertainment. Even if either or both of these events occur, you are still up against Apple, and they aren’t going to sit still. They are motivated to stay competitive, have very capable leadership and a pool of talented people to get the job done. Trying to supplant the iPod is a formidable task.

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