HolidayBuyer's Guide

Boom of the iPod add-ons

How can you accessorize your iPod? Marketers count the ways--and the cash. Photos: The iPod economy

Less than three weeks ago, XtremeMac President Gary Bart was in San Francisco, sitting in the VIP section as Apple Computer CEO Steve Jobs introduced the iPod Shuffle.

Days later, Bart packed his bags and jetted to China, where he has been working feverishly to produce 14 new accessories for the music player. Such is the life in the lucrative but highly competitive market for iPod add-ons.

Stratospheric iPod sales have created a vast opportunity for other companies to sell companion gear, but the spoils have gone to those able to keep pace with Apple, which has introduced at least a half dozen kinds of iPods since the first model arrived in late 2001.

News.context

What's new:
Meteoric iPod sales have created a lucrative--and highly competitive--worldwide market for companion gear.

Bottom line:
The stakes are high for makers of iPod accessories. As more companies make basic add-ons such as speakers and cases, expect longtime players to get creative and take their iPod tchotchkes to the next level.

More stories on iPod sales

Of the 10 million iPods Apple has sold, more than 75 percent were sold in the past year and 40 percent in the last three months of 2004. Accessory sales have followed a similarly steep path.

"We did in December what we did the entire rest of the year," said Bart of XtremeMac, which began its life with the iPod, offering one of the first cases for the music player. "Normally the difference between that period and the rest of the year isn't that dramatic. We're just seeing a tremendous upward curve."

Putting a dollar figure on the "iPod economy" isn't simple, but it easily stretches into the hundreds of millions. Bart said the rule of thumb in the electronics industry is that with items like cameras or cell phones, people probably spend, on average, about 10 percent of the cost of a device on accessories. Apple has sold more than 10 million iPods, probably at an average price above $300, so the 10 percent rule would easily put the iPod add-on market in the hundreds of millions of dollars.

But many believe the market is even more robust, with casual users buying a case and a spare charger and many enthusiasts spending as much to outfit the iPod as they did on the player itself.

With the growth of the iPod, companies see more profits ahead in 2005. "We believe that the worldwide market for iPod accessories will probably be in the half-billion dollar range," said Brian Van Harlingen, a senior technology manager for Compton, Calif.-based Belkin, whose company shipped its 2 millionth iPod accessory earlier this month.

The market has also become quite competitive. A year ago, Apple estimated there were 200 add-ons for the iPod, not counting all the various carrying cases. Now that number has more than doubled, it said.

"There is an incredible 'iPod economy' out there," Jobs said in his Macworld keynote on Jan. 11. "There are now over 400 accessory products you can get for your iPod. This is unmatched in the industry by a mile."

Among the best-known companies offering iPod accessories are speaker makers such as Bose, JBL and Monster Cable, a company known for its stereo wiring. The rest of the accessory market is spread out among an array of companies, nearly all privately held and most quite small--companies such as Griffin Technologies and XtremeMac, which has 14 full-time staffers and maybe a dozen part-timers.

Though impressive, the array of products can make buying decisions daunting. To help sort things out, Apple has weighed in with a new program that will let accessory makers qualify their products for a "Made for iPod" logo.

Of course, the add-ons Apple would never sanction are as interesting as the products it would. There's a project afoot to create a USB charger out of a 9-volt battery that might juice up an iPod Shuffle, but it's probably not the kind of thing that would earn an Apple nod.

An entire site, iPod Hacks, is devoted to customizing the iPod in unsanctioned ways. A popular recent posting outlines a tactic for changing the graphics that the iPod displays at startup and when synching to a computer.

In general, Apple hasn't encouraged the development of software that runs on the iPod. It has not opened up the file system that runs on the iPod or created a platform for developers to write programs that run on the iPod. But from the product's early days, companies have found ways to work around that. Among the products available are electronic bibles and foreign-language translators that work from within the iPod's music-oriented interface.

Historically, much of the iPod accessory market has focused on a few key needs: chargers, cases, speakers and the FM transmitters that allow the iPod to play through a car stereo.

"When the number of iPod owners was smaller, you had to appeal to all of them to make (an accessory) make sense," Van Harlingen said.

That said, there was less competition in the early days--all a company had to do was offer a product, and buyers lined up. XtremeMac discovered that when it came out with an early iPod case at Macworld Expo in 2002. The company's booth was mobbed, quickly selling the 1,000 cases it had ordered ahead of the show.

"It was a crazy show," Bart recalled. "We had people lined up for four days, usually 30 or 40 people at a time."

That's no longer the situation, as more and more companies make basic products, turning them into something of a commodity.

"There's going to be a need for those, but not a lot of innovation there," said Andrew Green, vice president of marketing for accessory maker Digital Lifestyle Outfitters. Instead, many longtime market players are focused on taking the iPod to new places. One of DLO's popular recent introductions has been the $149 iBoom, which turns the iPod into a boom box, creating a far more portable option than is possible with most iPod speakers.

Though the first cases showed up just weeks after the iPod was introduced, the real boom in iPod accessories began in 2003, when Apple teamed up with Belkin to create several iPod accessories. Included in that first wave were a microphone for voice recordings, a digital-camera connector and a device that allowed iPod owners to transfer files stored on flash memory cards onto their portable music players.

Belkin sold the products, while Apple built the necessary support into an upgrade to the iPod's software. Such a close partnership with an outside company was fairly unheard of from the usually secretive Apple.

"That was really unusual for Apple," Van Harlingen said. "It was something that was needed at the time, that Apple felt the market needed, so they departed from their traditions."

The other big shift, which happened around the same time, was Apple's move to a standard dock connector that has been at the base of all iPods since. Apple designed the connector to work both with Apple's dock and serve as a gateway for all kinds of third-party accessories.

"There have been capabilities in that connector from day one that are just now being taken advantage of," Van Harlingen said.

It might have seemed like overkill when Apple first included the complex 30-pin connector on the iPod, but Van Harlingen said Apple simply had a broad vision for the product. The proprietary interface gives Apple some control over what's connected to its gear, while at the same time leaving plenty of room for innovation.

And while the iPod has certainly made millions for accessory makers, Van Harlingen said the large supply of add-ons has also helped Apple's player stay ahead of a widening array of competitors. "When you buy a BMW and you are able to just pop in an iPod, what other music player are you going to buy?" he asked.

Having accessories in stock has also helped retailers that sell the iPod. Although the player has clearly sold briskly at stores that carry it, profit margins for the retailers have been thin. Accessories, by contrast, sell for far less, but at a higher markup.

"That's one of the advantages of the accessory space," Van Harlingen said. "It really does fill the entire iPod channel with a little more profitability."

For accessory makers, one of the hardest challenges is keeping pace with Apple, which has introduced new models at a rapid clip. Although the iPod has retained the same dock connector with recent updates, other changes to the product's shape and buttons mean accessory makers must constantly change their products, and devices that work with one generation won't necessarily work with the next.

At the same time, Green said that there is still a market for accessories for older iPods. Last year, DLO actually saw its case for older players outsell the similar product for newer players.

"Just because Apple is reinventing the iPod every nine months doesn't mean that people can afford to throw their old iPod out," Green said.

At times, Apple has also had a more direct role in the add-on market. After a few generations of the iPod, Apple started including a basic case. Last fall, it

With its newest player, the iPod Shuffle, Apple has introduced a half-dozen add-ons, including a hard case, a battery pack and an armband for wearing the device while running or working out. Green acknowledges that the hard case is so well done that his company will probably want to venture into that territory with its line of Shuffle gear.

Belkin's Van Harlingen said he isn't concerned that Apple will try to take back the accessories market. "I don't think anybody got too worried when they did the socks," he said. "It kind of validates the space a little bit."

So what about the possibilities for the Shuffle?

Products are in the works, according to both Green and Van Harlingen. But neither would offer any details about what their companies had in store.

"This little space is so competitive, it's just unbelievable," Green said. "The consumers are just rabid...it makes a good idea just that much more valuable."

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