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iPod, You Pod, Will We All Pod?

By Charles Haddad The iPod is smaller than a deck of cards, but it represents a winning hand for Apple -- if it plays its cards right. That's because this digital handheld music player is the most successful product the company has ever marketed to general computer users. It's a milestone that marks the first stage in a necessary evolution. Apple will never retake lost market share unless it evolves from a niche computer maker to a consumer-electronics company.

Lets face it: The battle over the PC is over, and the "Wintel" duopoly won, hands down. That doesn't mean there isn't room for a big niche player, and Apple has filled that slot admirably. But Apple has grown as big as it can in this role. That's why its market share has plateaued in the 3% range for the past several years.

WIDE-OPEN SEGMENT. Luckily, new markets for electronic products emerge all the time. The hottest new category is digital handheld music players. Manufacturers expect to sell 12 million of them this year. Better yet, sales will grow 74% annually over the next three years, according to industry consultant IDC.

This fledgling market is wide open. No company or group of companies has cornered handheld music players as Microsoft and Intel have done with PCs. And it's a market with a young demographic that values style. These are consumers willing to pay a premium for something they consider exceedingly cool.

In short, portable music players are a niche tailor-made for Apple. Needham & Co. analyst Charles Wolf figures that Apple could capture at least 10% of this market. Such a share would translate into $650 million in revenue and $155 million in net income annually for the outfit, calculates Wolf.

That would be a much-needed shot in the arm. Two weeks ago, Apple issued an earnings warning, citing weak sales to consumers and graphics professionals. The long-sluggish PC market is finally dragging down Apple. And it appears that Apple's critically acclaimed, flat-panel iMac is not selling well enough to save Jobs & Co. from the collapse of the PC market.

A PC BRIDGE. The iPod has been selling well, but it could be doing a lot better. That's because the device had only been able to store and transfer music files to and from Macs. Thank goodness that's no longer true. Two weeks ago, a small software outfit in Des Moines named MediaFour released software that enables the iPod to work with most PCs. I haven't tested the software, called XPlay, but others who have say it works as advertised.

MediaFour will soon have big competition. Apple has informally told some analysts that it, too, plans to release a product that will enable the iPod to work with PCs. Don't be surprised if this PC port of iPod software is released at the MacWorld trade show in New York this July.

Apple is no stranger to publishing PC software. In fact, it's quite good at it. The PC port of its QuickTime media player is popular. And it also sells PC versions of software like FileMaker Pro and AppleWorks.

THIRD-TIME LUCKY? The iPod is not Apple's first attempt at expanding into the larger consumer-electronics market. First was the original handheld computer, the Newton, and then Pippin, a device that turned your television into a computer. Both failed miserably, but I think this third try will be the charm.

For one, the iPod is already a hit with young consumers. It isn't competing against powerful entrenched players, as the Pippin was with Sega and Nintendo. And the portable music-player market, while young, is not unproven, as was true of the handheld market when the Newton was released in the early 1990s.

Yes, Apple has finally found the right product at the right time to win the hearts of unsuspecting PC users. And these new fans should boost Apple's long anemic share of the market. It's all in the cards. Haddad, Atlanta-based correspondent for BusinessWeek, is a long-time Apple Computer buff.

Follow his weekly Byte of the Apple column, only on BusinessWeek Online

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