Plucking the Fruits of Apple Accessories

Makers of cases and adapters must hustle when Steve Jobs unveils another new product. Still, the near-$1 billion market makes it worth the stress

Every time Apple gives word of a "very special event" coming up, the seats start filling up on airplanes bound for China. With 1,200 companies vying for a share of an Apple accessory market that's approaching $1 billion in annual sales, even rumors of a new product spur producers of iPod cases, boom boxes, and car adapters to scramble with their Chinese suppliers to churn out a customized line of add-ons.

It's no easy feat. Thanks to Apple (AAPL) boss Steve Jobs' penchant for surprise, companies can only speculate as to what their benefactor will announce, and then tweak their designs at the last minute. "It's a tricky business," says Chief Executive Officer Tony Held of InCase, which makes iPod and iPhone cases. "You troll the sites for rumors and speculation, and go into sixth gear to adjust the best guesses you made after a new product is officially announced."

Better Margins for Accessories

Despite these challenges, few complain. InCase has enjoyed such strong growth from sales of Apple accessories that it recently opened a new design center in San Francisco to supplement its manufacturing operations in China and the company's corporate home outside Los Angeles. And at Belkin, originally a two-man operation working from a California garage, sales of Apple accessories have helped drive the company past the billion-dollar revenue milestone.

Apple tries to cultivate this mini-economy, which helps spur ongoing buzz for its devices, by not developing many of its own competing accessories. The thriving market also pleases retailers such as Target (TGT) and Best Buy (BBY), which make little selling pricey iPods, but enjoy very healthy profit margins on lower-cost accessories. These include everything from customized cases for the assorted devices to an array of special docks with built-in speakers and adapters to connect an iPod or iPhone to a car's stereo system.

The recent arrivals of both the iPhone and the iPod Touch were a welcome development for accessory makers. Sales of iPod cases, which represent the largest part of the market in terms of volume, had weakened through the first half of 2007 because no new iPods had been introduced all year, according to product tracker NPD. Some $729 million in accessories for all kinds of digital music players were sold through June, and the market may struggle to top last year's revenue total of $850 million.

Upgrades Are Opportunities

The June introduction of the iPhone presented unique challenges. Not only was its shape significantly different from that of iPods, but a recessed headphone jack caused problems because most plugs were too large to fit correctly into the device. Audio product maker Shure quickly created an adapter for existing headphones, and many companies had to tweak their packaging to offer quick confirmation that a particular accessory was iPhone-compatible.

Another frustration is that product designs for cases and other accessories quickly become outdated with the ever-changing shapes and sizes of the iPod line. Still, there's a silver lining. "If you need a new iPod, you'll probably get a new case," says Stephen Baker, an NPD researcher. And with a multipurpose device like the iPhone, he adds,"these things will be used more, and you're likely to replace your cases more."

Check out the slide show for a roundup of the best iPhone and Touch accessories.

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