Anticipating the iPod killer

Posted by Rob Enderle, Principal Analyst, Enderle Group

Analyst Opinion - In the second half of the year there will be a number of attempts to finally come up with an “iPod” killer. Interestingly enough, the product we should especially keep our eyes on will be the iPhone 2.0. What characteristics will make iPod owners switch, upgrade or not even buy an iPod in the first place?

We have been talking about a possible iPod killer pretty much ever since the product first emerged and even if there were some impressive products over the years, there has not been a single significant threat to the iPod’s dominance in almost seven years. That is a fascinating fact in itself and makes you wonder what it actually is that makes the iPod so special and that makes it so difficult for other companies to duplicate or offer a similar feature set in their products.  

If you look carefully, then it is obvious that Apple has surrounded its iPod with some impressive barriers that make switching from the iPod to another portable media player very difficult. These barriers include foremost content, which until recently made it impossible for iPod owners to switch to another MP3 player.  The emergence of DRM-free tracks has weakened this traditional strength which locked users into the iPod, but iTunes remains a convincing argument to stay with an iPod.

Then you have the accessory plug on the bottom of the device that links the device to accessories, which now include a significant number of shipping cars. Only Microsoft’s Sync solution for Ford’s cars is a credible alternative in this segment, but available only in a very limited market.   
The iPod brand is incredibly strong and surveys I’ve seen indicate that Apple’s customer satisfaction approaches 100%.  Happy customers are not switching customers and any iPod killer will have to make these happy customers unhappy ones.  
 
Design and quality of the product continues to lead the market and Apple has one of the most highly regarded design teams on the planet.   Coming up with a design that an iPod user will accept as better, particularly when the iPod currently defines the market, is particularly difficult.  

The iPod killers

In reality, it appears to be very unlikely that anyone can build an iPod killer that causes people to switch to another MP3 player, if Apple does not screw it up all by itself.   You’d have two paths one is to build something else that iPod customer’s want, which also does what the iPod does, and displace it with a product that all those people who do not own an iPod right now also would want or you’d have to find a way to expand the market and go around Apple much as Apple did when they created the iPod. Remember, those people who do not own an MP3 player is still a larger group than the group that owns such a device.  
 

The iPod Alternative

The best example of the iPod alternative path is the cell phone and Apple clearly anticipated this with the iPhone, the second is more difficult but could be an accessory that went with a cell phone (using the Cell phone’s data connection) to add internet features and iPod functionality.  Kind of like an iPod Touch but with Bluetooth data support.
 
The iPhone is probably easier to beat - simply because the carrier gets a significant vote on the solution, potentially breaking Apple’s control of the solution. Even the impressive second generation iPhone doesn’t really do email as well as a RIM Blackberry, which remains one of the most desirable features of a smartphone.  

Coming up with a new device type would be vastly more difficult and it is relatively unlikely as a result.  I personally thing a cell phone accessory, like the iPod Touch but with Bluetooth data and services that would instantly make the Bluetooth connection, might work.  This would allow for a smaller phone and a bigger device that might be better for things like email and video.  But as we saw with the Palm Foleo (which was on that vector but not initially the right design), it is also very risky.    But I do think we know enough to build the right device, I just don’t think anyone would be willing to step up to the required marketing and user experience to make it successful.
 

The Market Expansion Option

The second major option, to go around Apple, would need to be a device at penetration pricing (sub-$100) that provides iPod-like benefits, but is actually easier to use. Being smaller wouldn’t hurt either. It would need good margins so that it can be supported by marketing, but it would only have to do music and not necessarily need to do video. In other words, it would have to be an iPod shuffle-priced device that had significant ease-of-use advantages and a user experience that exceeded the iPod Nano.  And it would have to embrace a cloud model better than iTunes that is easier to use (at least this one isn’t quite as impossible).
 
Also there may be ways around the accessory problem.  For cars where converters already sell in the $200 and up range, you could buy iPod shuffles in bulk and convert the plug in them to an adopter for another product.  Microsoft has figured out the software side with Sync and Apple hasn’t sued them yet, suggesting that model is workable.
 

Can it be done?

Anyone can be beat. But this typically requires someone to hit the dominant vendor where this vendor isn’t paying attention to. Apple would also need to remain blind after they are hit for an extended period of time.  If someone could reposition a subscription-based product (hint: don’t call it “subscription”, call it “flat-rate”) at an aggressive price successfully, Apple’s inability to get a flat-rate working, could give a new competitor the necessary time to win the game. ‘Could’ is far from a certainty.
 
Or, a more aggressively priced and capable phone (Google Android, for instance) could undercut the iPhone. Tied to a free service like Slacker could also, if well marketed, steal the segment.   If you haven’t tried Slacker check it out as an alternative to iTunes (it won’t work with an iPod).
I think an iPod killer is possible and I believe the iPhone itself proves this claim. But the real question is can it be done by someone other than Apple?   We’ll see in a few months not only if a device emerges but whether it is a phone or a unique MP3 player.

Does anyone want to bet on both?  
 

Rob Enderle is one of the last Inquiry Analysts.  Inquiry Analysts are paid to stay up to date on current events and identify trends and either explain the trends or make suggestions, tactical and strategic, on how to best take advantage of them.  Currently he provides his services to most of the major technology and media companies.