How Apple Spells Future: i-P-O-D

The slender digital-music player will drive tomorrow's growth. Just watch when the Windows version comes out

By Charles Haddad

I don't care how fast the new Power Mac G5 is -- or isn't (if you believe the critics). Apple's future doesn't ride on the speed of its Macs. In fact, Apple's future doesn't ride with Macs at all anymore. No, I haven't been off in the desert downing peyote (although I did retreat from the weekly fray of writing this column for the past six months). What I saw from my sideline perch is that the Mac's day has come and gone.

Oh calm down. I'm not saying the Mac isn't a great computer and won't keep improving, if only incrementally. But it'll no longer set the computing world on fire. Nor will the Mac ever represent more than 3% to 5% of all PC sales. And it certainly won't drive growth for Apple.

What I am saying is that Apple is at one of the most important turning points in its history. It stands at the threshold of crossing over from cult favorite to household name, especially if that household has a teenager.


  Apple is making this crossing on the slender back of its little iPod. This portable digital-music player is at the cusp of doing for music what the original Apple did for computing in the late 1970s: setting the standard as the mass market for these players starts taking off.

The iPod has certainly saved Apple's bacon this year. While Mac sales have remained flat, the music player's have soared. Jobs & Co. sold 110,000 of its sleekly remodeled iPod in the first week after its January introduction. And it remains hot, with Apple's store in Manhattan's SOHO district, for instance, selling a reported 100 iPods a day. Last year the iPod already represented 51% of the digital-player market, according to International Data Corp.

You ain't seen nothing yet. So far, Apple has largely sold iPods to Mac users, who represent a tiny portion of the market. Now, it's preparing to release, probably by yearend, a Windows version of both the iPod and its iTunes software for managing digital music.


  Skeptics might scoff. After all, Apple has tried repeatedly to reach a wider audience, first with the Newton handheld and then with the Pippin game console, both of which bombed in the early 1990s. And, of course, there was Apple's half-hearted attempt to make the iPod Windows-compatible, licensing MusicMatch software to download songs. But users condemned MusicMatch as poorly designed and hard to use.

This time is different, I'm convinced. In producing a Windows version of iTunes, Apple is ensuring that iPods will work as well with PCs as with Macs. That means Windows iPods will be able to tap into Apple's wildly successful online music site (see BW Online, 5/21/03, "Will This Be the Summer of Mac?").

This winning combination will make the iPod Apple's first successful product not tethered to the Mac, and it comes at just the right moment, not light years ahead of demand as was the Newton. Nor like the Pippin, arriving long after Nintendo and Sega had locked up the market for game consoles.


  The idea of downloading music and playing it on portable devices is now well established, especially with young people. In introducing the easiest-to-use and most stylish player, Apple is asserting itself as a best of breed. The iPod is platform-indifferent, usable by anyone, making the Mac vs. PC debate dated and irrelevant.

The payoff will be big -- but not where you might think. While Apple's potential market for its online music store will grow seven-fold with the addition of Windows users, margins are too low with content and software to add much to the bottom line, says Charles R. Wolf, a computer analyst at Needham & Co.

As it always has, Apple will make its killing in the hardware. Wolf estimates that, even without the addition of Window users, iPod sales will swell to 975,000 units this year, giving Apple 54% of the market. And, when the Windows version is available, sales will jump even higher to 1.25 million, or equivalent to the sales of some Macs. With that kind of growth Macs will become a nice little side business -- perhaps even a giveaway someday to lure eager iPod buyers.

Let's face it. The Wintel duopoly has won the battle for PCs, but they can have it, since PCs have by and large become standardized, safe and boring. Not so with portable digital-music players. With the iPod, Apple has truly designed a thrilling new computer with wide appeal. Mac fans, behold the future.

Haddad, Atlanta-based correspondent for BusinessWeek, is a long-time Apple Computer buff. He's returning to the Byte of the Apple column after a six-month hiatus

Edited by Douglas Harbrecht

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