Apple iPod vs. the World of Music-Phone Hybrids as 100 Million Units Milestone Passes to iPhone Future

I noticed this piece from the UK the other day about the resurgence of vendors such as Sony Ericsson in the face of the iPod's recent 100 millionth shipment milestone - in fact, it really wasn't until Apple put iTunes on Windows that the iPod became a real phenom... in light of all that, is the upcoming iPhone more of a defensive competitive maneuver than offensive innovation for Apple? Here's the excerpt:

Apple was celebrating last week as it marked the sale of its 100 millionth iPod - a landmark, the company claimed, that makes it the fastest-selling music player in history.

I don't think any of us could ever have dreamt that we could come this far this fast, said Greg Joswiak, Apple's vice-president of hardware marketing.

It's hard to quibble. Five-and-a-half years after the introduction of the first model, the iPod has entered into the annals of business history, while simultaneously becoming a design and fashion icon.

In November 2001, Apple was a $5 billion (£2.5 billion) a year company with a great past but uncertain future at the periphery of the computer industry.

This year, the company is on course to rack up revenues of $23 billion, with more than half of that coming from iPods and the sale of songs from the iTunes music store.

Symbolically, it recently dropped the word Computer from its name, becoming simply Apple Inc.

Millions of happy iPod users have been tempted to seek out the same style and ease-of-use in Apple's Macintosh computers, which are now selling in greater numbers than ever before.

Even more striking than the statistics, though, is the palpable shift of economic power. The success of the iPod has put Apple and Steve Jobs, its charismatic founder and chief executive, at the centre of the debate about the future of the entertainment industry - a future that will increasingly revolve round the internet delivery of music, movies and other content to portable devices.

This was why Jobs was in London a fortnight ago to give his blessing to EMI, the British music company that announced it was dropping copyright protection on digital-music downloads.

And yet, for all the momentum in the iPod business, the interesting question is whether this success can continue for much longer. It is even open to debate as to how long the iPod can hang on to its title as the world's fastest-selling music player.

Improvements in storage capacity, software and design are rapidly increasing the extent of the challenge from the mobile phone industry.

For some years, millions of mobile handsets have been sold with integrated MP3 players. However, the limitations of these devices have meant that few customers use them for playing music. But this is changing.

Sony Ericsson will this Friday report results that are expected to show further strong sales of its Walkman range of music-playing phones. The company sold 17m Walkman phones last year, and has sold more than 20m since they were first introduced just over 18 months ago.

This is a much faster take-up than even Apple managed with the iPod. After three years, Apple had sold fewer than 4m iPods even though the device was already famous. The acceleration in sales only really began with the launch of the iPod mini in 2004 and its replacement, the iPod nano, in the autumn of 2005.

With the help of its Sony heritage and the Walkman brand, Sony Ericsson has made the biggest concerted push on marketing music phones. The styling of its ultra-slim w880i puts it on a par with the similar-sized iPod nano but the Sony Ericsson phone also has a 2 megapixel camera and is available cheaply on many contract tariffs.

Sony Ericsson has sold a further 43m music-playing phones without the Walkman brand. But even when these are included, it was still outsold by Nokia. The Finnish hand-set giant estimates it sold 70m music-cap-able phones last year, which makes it the world's biggest maker of MP3 players.

Nokia's research suggests that 60% of customers now use their phone's music-playing capabilities. Mark Squires, at Nokia UK, said the big change had been digital storage capacity. We've now got 2GB [gigabyte] memory cards for £15, he said. Most people can quite happily store most of their music in a couple of gigs [of storage]. Phones have grown to be able to hold your music library, and before they couldn't.

Tim Grimsditch at Frukt, a specialist music consultancy, said: I don't doubt that mobile phones will eventually destroy the stand-alone music-player market. He said the last key barrier for the mobile-phone firms was ease-of-use, an area in which Apple excels. They'll get there, said Grimsditch. And then the end will be pretty swift.

Nokia is trying to make it easier for customers to work with their existing library of digital music. In the next two or three months it will also challenge iTunes with the launch its own online music store, building on last year's $60m acquisition of Loudeye, a digital music specialist.

One of the mobile industry's big advantages is that phone sales in many countries are subsidised by network operators. This means expensive handsets are sold for a fraction of their worth, which can make them look better value than dedicated devices such as the iPod. It's a very compelling offer for the consumer, said Grimsditch.

The threat from mobile phones explains why so much is riding on the launch later this year of the iPhone, another beautifully designed product that incorporates what Jobs describes as Apple's best-ever iPod.

Its importance was heavily underlined on Thursday when Apple reluctantly delayed the release of the next version of its Mac operating system (OS) traditionally the company's crown jewels in the eyes of Jobs and the legions of Mac enthusiasts.

Apple blamed the four-month delay on its need to borrow software engineers and quality assurance staff from the Mac OS team in order to guarantee the timely delivery of the iPhone.

Jobs boasted in January that the technology in the iPhone was five years ahead of its rivals, but that claim could look pretty shaky by the time it finally reaches Europe in the run-up to Christmas. Its 2 megapixel camera and lack of 3G wireless connectivity already leave it outgunned on at least some features.

Price could also be an issue. The superficially similar Prada phone from LG is available now, and at a fraction of the price Apple is expected to seek for the iPhone. Operator subsidies could, of course, reduce this but working with network carriers will also prove a challenge for Apple, because it will weaken the obsessive control of product marketing on which Jobs has always insisted.

Apple's renowned design skills and the power of the iPod brand will ensure it remains a force to be reckoned with. But the path to the next 100m sales could be rockier.