iPod at 5: The little gadget that could

The ubiquitous white earbuds revolutionized digital music and consumer electronics in October 2001, and Apple shows no signs of letting up. Photos: iPod through the years

Tom Krazit Former Staff writer, CNET News
Tom Krazit writes about the ever-expanding world of Google, as the most prominent company on the Internet defends its search juggernaut while expanding into nearly anything it thinks possible. He has previously written about Apple, the traditional PC industry, and chip companies. E-mail Tom.
Tom Krazit
6 min read
The Macintosh may be the soul of Apple Computer, but the iPod is its wallet.

Five years ago, the Silicon Valley icon reported quarterly revenues of $1.45 billion, down 22 percent. Profits were cut in half, and some wondered if Apple would forever suffer at the hands of low-cost PC competitors like Dell.

Apple fans needn't have fretted, because six days later on Oct. 23, 2001, Apple unveiled the iPod, and its fortunes along with those of the music industry dramatically changed.

Spin forward five years. The company said Wednesday that it shipped 8.7 million iPods during its fourth fiscal quarter, which ended Sept. 30. In fact, Apple's $1.6 billion from iPod sales in the quarter was more than it generated as an entire company back in October 2001. Those iPod sales were also 35 percent more than the same period last year and a lot more than cautious financial analysts were expecting.

It's hard to overstate the impact of the iPod on the computer, consumer electronics and music industries since it was introduced in 2001. The iPod, arguably, is the first "crossover" product from a computer company that genuinely caught on with music and video buffs. It's shown how a computer can be an integral part of a home entertainment system, and it's led pop stars from U2's Bono to Madonna to trade quips with Apple's own rock star, CEO Steve Jobs.

iPod through the years

Today, Jobs--a Walt Disney board member thanks to the media giant's acquisition of his other company, Pixar--is arguably one of the most influential personalities in entertainment. Imagine that, a computer executive is today lumped with entertainment titans like Steven Spielberg and David Geffen.

So how did a little gadget have such a big impact? The combination of the hardware and the iTunes software and music store gave people an easy way to obtain digital music. It assured the music industry that legal music downloading could work, and gave rise to a seemingly endless parade of iPod accessories and add-ons. Now Apple is expanding into video, with popular television shows and movies available through iTunes for watching on a computer or a video iPod.

"It's so intricately tied to an ease-of-use model for acquiring and accessing content, but also being able to play it and distribute it among other devices," said Tim Bajarin, an analyst with Creative Strategies. Apple declined to make executives available to look back on the company's progress or to shed light on its future ambitions.

Can any company loosen Apple's hold on digital music now?

Never say never, according to analysts, but any potential iPod killer has an uphill climb. Apple, which some estimate has a 70 percent share of the U.S. digital music player market, has been able to design strong products while also coming up with savvy marketing, quality control and ample distribution, said Shaw Wu, an analyst with American Technology Research.

News.com Poll

When did you buy your first iPod?

Way back in 2001, when it was the next new thing.
In 2004, when the photo version debuted.
In 2005, when Apple went flash with the Shuffle.
Video, baby. That's what I was waiting for.
I went a non-Apple route (Zen, Sansa, Walkman...)
I'm still waiting for Zune.

View results

To date, no other company has been able to come up with a competing model. The few players from other manufacturers like SanDisk, Creative, Sony and others competing for the rest of the music player pie have to depend on software from Microsoft or Real Networks to manage their music collections, and none of those combinations has proven as popular as the iTunes-iPod juggernaut. Sony and Microsoft are two companies that have the resources and connections to match Apple's efforts, but they haven't put out products that have resonated with consumers.

Apple could face a competitive threat if cell phones ever take off as a platform for digital music, said Samir Bhavnani, an analyst with Current Analysis. The company has taken tentative steps toward the cell phone market in partnership with Motorola on the Rokr phones, but those designs have not caught fire with consumers. Instead, Apple is widely believed to be designing its own phone that would allow users to listen to music in between calls or text messages.

But the technology, of course, is only one part of the iPod story. Simply put, Apple invigorated the portable music player market and made it safe for hipsters to once again walk around with headphones, Wu said.

Apple's unique print, television and outdoor advertisements featuring black silhouettes wearing the ubiquitous white earphones have been impossible to avoid for the last five years, Bhavnani said. And its minimalist design philosophy coupled with the elegance of the user interface and scroll wheel made it simple for tech novices to get into digital music, he said.

Demand for the iconic music player remains high going into the end of the year, when Apple will have fresh designs across its three major iPod categories for holiday gift-givers. Microsoft, however, is also planning to enter the market with its Zune player and music service later this year, and companies like SanDisk and Sony continue to push their own devices.

That said, there are still plenty of opportunities for Apple to increase its market share and overall shipment totals outside of the U.S., where its dominance is not as pronounced and where cultural norms around portable music players have yet to develop, Bajarin said.

Apple could also court additional users by unveiling a subscription service, Bhavnani said. Others have tried the rent-not-buy model with digital music to little success, but one of the reasons those efforts might have failed is because the services don't work with the iPod, he said. Should Apple try its own subscription model, it might court additional users willing to pay $10 or $15 a month for access to Apple's library of songs.

Digital music goes legit
That analysts today are arguing whether anyone can knock Apple off the digital music pedestal is, to some, remarkable. Five years ago, digital music listeners were operating on the fringe of legality. Napster, and later Kazaa, had allowed millions of college students and young professionals to pad their music collections with digital copies of their favorite songs and albums. Many also ripped their CDs into digital formats, but the proliferation of file-sharing services allowed tons of people to collect songs without visiting the record store.

At the same time, that created a problem. Digital music listeners were largely confined to their dorm rooms if they wanted to enjoy their collections. Portable music hadn't been cool in decades, since Sony popularized the concept with the Walkman. The Discman of the 1990s never quite felt the same as the Walkman, said Shaw Wu, an analyst with American Technology Research. "It was so '80s," he said of the bulky Discman.

Enter the portable digital music player. Companies like Rio and Creative Technology were out ahead of Apple with handheld devices that could play the new storage lockers of MP3 files. But the market wasn't sure to what to make of the new devices at first, and moving files from the PC to the music players, and back again, wasn't the easiest of tasks.

At some point in 2000, Apple started to make its move. In January 2001, it released the iTunes software for managing digital music collections. Later that year, the iPod made its debut. The first device had 5GBs of storage and cost $399, a price that analysts at the time considered a little high. But the price of that unit was later reduced to $299, and larger capacity versions were also introduced.

In 2003, Apple took what some might have considered a blasphemous plunge into the Windows world, allowing PC users to use iTunes to manage their music for the first time. After that, the momentum behind the device continued to grow, leading to the iPod Mini, the iPod Nano and the iPod Shuffle, as well as video iPods--a concept Apple's Jobs once mocked.

Whatever Apple chooses to do, and whatever challenges it faces, the company has created, rather remarkably, its second iconic product. "It's turned into a cultural phenomenon," Bajarin said. "Apple has to continue to keep it simple, integrated and keep it cool."