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More than six years into the iPod era, Apple still stands atop the music player landscape. But what comes next?
Apple is at a crossroads in the evolution of the product that arguably saved its bacon. Without the iPod fueling Apple's profits and investments, we probably wouldn't have spent the past year talking about Apple's surging Mac business or its game-changing iPhone.
After years of double-digit gains, iPod growth has finally trailed off. The market is arguably saturated: do you know anyone who wants to take their music on the go who hasn't bought an MP3 player? But at the same time, the iPod is undergoing a bit of a revolution: it's morphing from a simple music player to a full-fledged computer.
Apple has sent clear signals that it thinks the iPod Touch and the iPhone are the future of its iPod business. It considers the Wi-Fi-enabled iPod Touch "a new type of device," Greg Joswiak, Apple's vice president of worldwide iPod and iPhone marketing, said when Apple unveiled a higher capacity iPod Touch in February.
But that doesn't mean the whole world is ready to step up to a more sophisticated device like the iPod Touch: lots of people just want to play their tunes and watch their shows on the go, and don't want to break the bank to do so. While Apple is taking sure steps toward evolving the upper echelon of its iPod product line, what should it do to keep its iPod cash cow going into the next decade?
Look to the clouds. IaaS (iPod as a service) will thankfully never catch on as a buzzword, but Apple could bridge the gap between today and the future by bundling regular iPods with services, adding wireless as fast as possible, and bringing OS X down into a new generation of iPods as soon as Moore's Law lets it happen.
Coming back to earth
At some point last year, iPod growth began to slow. Year-over-year unit growth dropped from 50 percent during the 2006 holiday season to just 5 percent growth during the 2007 holiday season. But revenue growth remained steady, at 18 percent during the 2006 holiday season and 17 percent during the same period in 2007.
That suggests that people are making the jump from older iPods to newer models, a trend backed up by our recent iPod survey. The iPod Classic (defined as any generation of video-playing iPod) is the day-to-day music player for 31 percent of respondents. Fifty-two percent of all respondents have owned one or two iPods, and 34 percent bought their first model in 2003 or 2004.
But 60 percent of same respondents indicated that the iPod Touch would be their next iPod purchase. And 68 percent said given their choice of possible music player/cell phone combinations, they most want the iPhone. This kind of "trading up" to the starting price of $299 for an 8GB iPod Touch--or the $499 32GB model--helps Apple offset the slow growth of the basic iPod models with stronger revenue and profits from the iPod Touch while it adds a whole new source of cash with the iPhone.
Both the iPod Touch and the iPhone are much more than just music and video players: they can get online, send e-mail, and will soon be able to run a host of officially sanctioned games and applications.
As chips continue to get smaller, more powerful, and cheaper, it stands to reason that Apple could beef up the other versions of the iPod, the Shuffle and the Nano, with additional capabilities and features. Certainly, it will be able to keep increasing the amount of storage available on each device, the single largest request of MP3 player shoppers who responded to our poll. Wi-Fi capability was the second-most desired trait in a future iPod.
The iPod Touch may be the Next Big Thing for Apple's iPod business, but it won't be the only iPod of the future.
(Credit: CNET Networks)At some point, the MP3 player market looks like it will diverge into at least three businesses: a low-end commodity business cranking out tiny standalone audio and video players for very specific tastes, the high-end portable computing business, and some third category that packs as many computing features of the iPod Touch that can fit, at the time, within $50 of a $199 price band.
This three-headed monster appears some ways off. At the moment, there doesn't appear to be any competitor making meaningful gains at Apple's expense, even in the low-end market. That suggests people are still buying their MP3 players based on design, brand identity, and the need for more storage.
If that changes, however, Apple probably doesn't want to spend a lot of effort on a low-margin commodity business. The iPod brand is easily the strongest in the portable music player world, but as the low-end of the market spreads out into countless niches (think USB drives), Apple would have no real advantage over other consumer electronics companies that know how to crank out widgets in huge volumes.
Also, basic mobile phones are growing more and more capable of handling simple music playback, said Ross Rubin, an analyst with The NPD Group. And at some point, the ability of manufacturers to add more and more capacity will outpace the growth of the average individual's personal music library, he said.
The iPhone and the iPod Touch are the kind of innovative high-margin products that Apple likes to have. In a crowded marketplace, you need to find some way to differentiate yourself, and Apple has traditionally focused on making high-end products with great design that are easy to use.
At your service
Something is going to have to fit in between the commoditized MP3 players you might find one day in Walgreens or 7-Eleven and the iPod Touch. As Apple waits for the advances in chip technology needed to bring larger screens, more capacity, and wireless capabilities into power-constrained devices, it can start offering services to increase the attractiveness of lower-priced iPods, Rubin said.
Just a combined 13 percent of our survey respondents said they are considering an iPod Shuffle or an iPod Nano for their next iPod purchase. It's great for Apple that so many people want the iPod Touch, but that's leaving an awful lot of people on the sidelines who want a music player but can't justify spending $299. One thing the company could do is finally drop its long-standing opposition to a subscription model and start selling iPods in conjunction with such a service, Rubin said.
Apple has long maintained that people want to buy music, rather than rent it. However, that might not always be the case, as people are starting to get used to the idea of "cloud computing," where much of your data is stored by a third party.
And as more and more people buy iPods for video as well as music, such a subscription service makes more sense. Apple is now offering TV and movie rentals through iTunes, and could extend some sort of similar packaging to music if the demand was there. I think most of us have made enough hasty music purchases, only to grow sick of that song or album after a week, to consider a try-before-you-buy type of service from Apple.
Apple has a bit of a luxury in this area that it doesn't have in the Mac or iPhone market, in that it enjoys a dominant position from which to make its next move. The company seems to be in a similar position to when it introduced the iPod Nano, killing off its most popular product in the process. It had a killer design with the Nano, but had to make the tough decision to abandon its best-selling product.
Now, with the iPod Touch and the iPhone, Apple has a set of very compelling products that threaten its best-selling category. When recently asked if the iPod Touch would cannibalize iPhone sales, Apple COO Tim Cook said he'd rather Apple cannibalize Apple than someone else.
More capable mobile phones might take the less-profitable low-end, but Apple needs to make sure it keeps the meaty part to itself. Service-oriented iPods mixed with handheld computers might be the best way the keep the iPod gravy train going.
Webb veterans bill misses the mark
Recreating the great success of the G.I. Bill after World War II for veterans of the war on terrorism is the best idea to emerge from this Democrat-controlled Congress. But poor conception can condemn even the best-intentioned legislation. A cast in point: a bill introduced by Sen. Jim Webb, Virginia Democrat, the Post-9/11 Veterans Educational Assistance Act of 2008. This bill is likely to attract more recruits with its very favorable educational benefits, but it will also cause the overall military re-enlistment rate to drop from approximately 42 percent to 36 percent, according to the nonpartisan Congressional Budget Office.
As explained to Sen. Judd Gregg, New Hampshire Republican, in a Thursday letter, CBO estimates that the bill "would result in a 16 percent increase in recruits," which is one benefit of a very generous package. But the experience of Pentagon retention experts suggests that every additional $10,000 in educational benefits reduces overall retention by slightly more than one percent. The Webb bill would "more than double the present value of educational benefits for servicemembers at the first reenlistment point — from about $40,000 to over $90,000 — implying a 16 percent decline in the reenlistment rate," the CBO concludes.
In practice, this legislation could worsen the already serious manpower problems faced by the Pentagon. It would likely siphon off of the most experienced service members while expanding the overall pool of raw recruits. One can certainly see the unpleasantness of the politics of this issue. Who wants to argue against greater educational benefits for military veterans? But then again, no well-intentioned person wants to pass a bill that seriously exacerbates the already challenging problem of military re-enlistment. The wars in Afghanistan and Iraq have greatly accelerated service-member burnout in a number of areas. Insofar as lawmakers oppose this bill on the above grounds, they are certain to find themselves open to accusations of "opposing benefits for veterans" by pointing out the economic and manpower downsides.
Mr. Webb's preference for the citizen-soldier ideal of yore is admirable. But it remains to be seen whether the U.S. military can achieve that while simultaneously fighting the current global war against radical Islamists. It obviously makes no sense to pass legislation that creates perverse incentives by tempting the most valuable members of the current wartime military to leave the military. Congress and the president need to come up with a better bill — one that helps veterans without encouraging legions of fine people whose skills are still needed on the battlefield to retire from the armed services.
Clinton outwardly confident, even as hopes dim
ELEANOR, W.Va. (AP) — Hillary Rodham Clinton was just warming up the crowd in a cramped and muggy middle school gymnasium when she switched her pronouns.
"All the kitchen table issues that everybody talks to me about are ones that the next president can actually do something about," Clinton said Sunday night, "if he actually cares about it."
The word hung in the air only for a moment.
"More likely, if she cares about it," she added.
Was it a dramatic turn of phrase or a slip of the tongue? A way to spotlight gender on Mother's Day or a sign that the public doubts about her campaign have taken root?
West Virginia is expected to deliver Clinton a big win Tuesday, but her campaign is not as confident as it once was. In the week since Democratic rival Barack Obama trounced her in North Carolina, Clinton has been closely watched for signs that her campaign's dwindling hopes have gotten to her.
For instance, she has eased off her pointed jabs at Obama. She has pledged anew that she would support the Democratic nominee "no matter what happens."
On Sunday, daughter Chelsea introduced her in West Virginia. In the past, she has brought her mother to the stage as "the next president of the United States." Sunday she added the word "hopefully."
Clinton rejects any suggestion that she's dropping out of the race. She used campaign stops Sunday to remind voters of women who didn't give up in difficult situations, who fought for equal rights, broke into male-dominated professions and succeeded when others told them to quit.
She quoted Eleanor Roosevelt, telling supporters: "A woman is like a tea bag. You never know strong she is until she is in hot water."
Earlier in the day, she read letters from supporters urging her not to give up, despite campaign math that's nearly impossible to work out in her favor.
Looking only at West Virginia, this should be a confident time for the New York senator. She remains strong among working-class white voters, women and older Americans. Those demographics are expected to carry her to a triumph Tuesday and another in Kentucky next week.
But Obama has a commanding lead in pledged delegates and has erased her lead among superdelegates, the party leaders who can side with any candidate. Obama is focusing on the general election against Republican John McCain.
Clinton's last best hope is to use strong showings in West Virginia and Kentucky to make the case that Obama is weak among key Democratic constituents.
"Why can't Senator Obama beat Senator Clinton in West Virginia? Voters there have heard that he's the presumptive nominee," Clinton campaign strategist Howard Wolfson said on "Fox News Sunday." "They've seen the great press he's gotten in the past couple of days. Let's let them decide. They have an opportunity. They want to end this on Tuesday, they're perfectly capable of it."
David Gergen, former White House adviser to Presidents Nixon, Ford, Reagan and Clinton, said in an AP Broadcast interview in San Francisco, "She says 'full steam ahead,' (but) her problem is that she's running out of track."
"She was the inevitable nominee and I think they misjudged what they were up against," Gergen added. "Along comes this phenomenon named Barack Obama and upsets everybody's calculations. The real problem in the (Clinton) campaign was that they weren't adaptable, they were not able to change game plan right in the middle once it looked like they had a real fight on their hands."
Serbia in coalition scramble after ambivalent vote
Monitors put the alliance led by the Democratic Party at 39 percent of the vote, ahead of the Radicals on 29 percent.
A rolling count by the state election commission put the Democrats at 36.7 percent and the Radical Party at 28.5 percent.
The election was fought on whether Serbs should swallow their anger over European Union support for the independence of Kosovo, the Serb province which seceded in February, or turn their backs on the bid for European Union membership.
The Democrats' leader, President Boris Tadic, told supporters: "Serbs have undoubtedly confirmed a clear European path. This is a great victory, but it's not over yet.
"I want us to be aware that we must form a new government as soon as possible."
The Radicals' leader, Tomislav Nikolic, said the Democrat claim of victory jumped the gun. There were "very clear possibilities of a coalition which does not include the Democratic Party", he said.
Nikolic said he would talk to the two parties that share the Radicals' ideology, the Democratic Party of Serbia led by outgoing nationalist premier Vojislav Kostunica and the Socialists of the late Slobodan Milosevic.
Either these three parties would form a coalition, he predicted, or: "Serbia will not have a government at all and we'll have to go to new elections".
Official results are due by Thursday night. Parliament must convene by mid-June and a government be formed by mid-September or the country must hold a new election.
EU APPLAUSE
The European Union welcomed the result and urged the quick formation of a government with a "clear European agenda".
"This means that Serbia will move forward ever faster to membership of the EU," said Slovenian Foreign Minister Dimitrij Rupel, whose country holds the rotating EU presidency.
The EU had made its preference clear before the vote, offering Belgrade a pre-membership pact and a visa facilitation deal that are implicitly conditioned on a Democrat win.
The main pro-EU parties campaigned as one and consolidated their votes in one bloc, slightly increasing their share of the vote over the last election in January 2007.
But they still made no great inroads into overall nationalist support, which remained at about 50 percent of the 6.7 million electorate, spread among three parties.
One of the Democrats' choices for a coalition would be a government with the small Liberal Democratic Party -- if it crosses the 5 percent threshold needed to enter parliament -- and minority parties.
An alternative would be an alliance with Milosevic's Socialists, who took 9 percent of the vote. Political sources said that, unlikely as it sounds, it was a favoured option because it would form a stronger coalition.
A coalition with Kostunica, Tadic's ally in the eight-month government that collapsed in March, was seen as unlikely.
Kostunica insists Kosovo is more important than eventual EU membership and has cited "unbridgeable differences" with Tadic over the country's future direction. However, he has yet to respond openly to the Radicals' overtures.
"The Socialists have the biggest coalition potential because they are acceptable to both Democrats and Radicals," wrote respected daily Politika, noting the Democrats had hinted at concessions that could woo that party to their camp.