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What's Next for the iPod?

Apple Needs to Reinvent Its Crown Jewel  

Michael Stroud
6.22.05

Apple dominates the market. Its device is the epitome of cool, the must-have item for college students and businessmen. It's easy to use, more powerful and just plain better than the competition. Bill Gates grits his teeth when he sees it.

No, not the iPod. The Apple II. Released in the late 1970s, the Apple II was the original sexy Personal Computer, the one that started the whole revolution. By the late 1980s, though, Apple had been relegated to a runner-up position by the onslaught of Microsoft's DOS and the IBM PC clones.

One big reason why: Apple never relinquished its primary intellectual property. It maintained tight control over its operating system, hardware and peripherals while Gates and IBM licensed their technology to all comers. Apple's market dominance was overwhelmed by cheaper, less inspired products.

Fast forward to 2005. The iPod dominates the digital music market. No other device is cool enough for teen-agers, despite its higher price tag. Competitors are swarming. Napster, Yahoo and Real have introduced portable music subscription standards, with phone maker Ericsson announcing a broad partnership last week. Sprint and other cellular carriers are streaming music and music videos. Nokia is loading Microsoft music software on some of its phones.

Meanwhile, Apple refuses to open up its product to competitive standards like Real and Windows Media.

Is Apple about to be overwhelmed again? Or has Steve Jobs learned from the past?

I'm betting that Jobs has learned his lesson.

You can see the signs in his partnerships and sourcing agreements.   Earlier this month, Apple announced that Hewlett-Packard would sell Apple's iPod minis ( http://www.pcworld.com/news/article/0,aid,121128,00.asp ), expanding a year-long relationship that has helped moved iPods to Windows-centric PC users and accessing HP's immense retail distribution channel. HP's helped by adding iTunes software to every new PC it sells (Take that, Dell Jukebox!)

Then there's Apple's much touted, oft-delayed plans to load iTunes software onto Motorola phones. Allegedly slowed by carrier fears that they'll be cut out of the action, the deal is still alive, according to executives I've talked to.

Consider Jobs' announcement at Apple's Worldwide Developer Conference earlier this month that Apple will switch its Macs from IBM's PowerPC standard to Intel chips starting next year. The alliance could give Apple a much stronger entrée into the digital living room – Apple set top boxes, hubs and media centers, anyone? Naturally, the iPod plays nicely in any digital home scenario.

There's one big caveat. For iPod and iTunes to survive and thrive, in my opinion, consumers will need very soon to buy Apple devices that do a lot more than play the AAC and MP3 standards. So far, Apple's refused to budge.

You can see why. It's minting money on people buying iPods, buying music from the iTunes store, loading their personal music collections – and locking Real, Microsoft and other competitors from its deck. What's not to like?

But Apple's lock on the market is close to ending, just as it ended for the Apple II.

To keep its dominance Apple will have to do some ballsy things like create a portable subscription service, integrate WiFi, cellular, video and, yes, ultimately open up the iPod to competitive standards like Windows Media and Real.

Most PC users, after all, already have multiple media players on their machines. Consumers will ultimately require digital music players to support a wide array of standards – just as DVD players play DVDs, DVD-Rs, DVD+RWs, and so on.

Apple hasn't provided any of these added features yet because it hasn't had to. I have no more access to Jobs' plans than you do. But I'm betting that, when the time is right, he'll add the extra features he'll need to add to keep the iPod from becoming a colorful relic of technology's past like the Apple II.

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