Apple debuts new, low-priced iPod

Based on flash memory, rather than the more expensive computerlike hard drives that have been the centerpiece of all other iPods, the new player is aimed at the low end of the market, relatively untraveled territory for Apple. It comes in two sizes. The $99 version has 512MB of storage and holds about 120 songs, and a $149, 1GB version holds about 240 songs.

Unlike most similar devices, the Shuffle has no display screen to show songs or playlists; it consists only of a slender white rectangle with the trademark iPod navigation wheel on one side. The company is instead highlighting the random-play aspect of the device, although this is a common feature on virtually all MP3 players.

"iPod Shuffle is smaller and lighter than a pack of gum and costs less than $100," Apple CEO Steve Jobs said in a statement. "With most flash-memory music players, users must use tiny displays and complicated controls to find their music. With iPod Shuffle, you just relax and it serves up new combinations of your music every time you listen."

Although widely expected following a series of leaks, Apple's move into the flash market does mark a departure from the company's previous high-end strategy. Jobs has previously dismissed small-capacity, relatively inexpensive MP3 players as products given as gifts and rarely used.

The flash market overall has been larger in terms of units sold than the hard-drive market, and remains very strong overseas. The largest share of the U.S. retail market over the past year belongs to iRiver, followed by Rio and RCA. Other players include Nike/Phillips, Samsung and Creative Technologies.

Other companies have been making their own new approaches to the low end and middle of the music player market as well. At last week's Consumer Electronics Show, Rio introduced a new 2.5-gigabyte player called the ce2100, priced at $199.

The holiday season proved a successful one for some of these Apple rivals. Creative Technology said Tuesday that it had sold more than 2 million MP3 players in the quarter ending December, prompting the company to raise its yearly revenue guidance substantially.

However, Apple remains the dominant player in the hard-drive-based MP3 player market, accounting for more than 80 percent of sales between October 2003 and October 2004, according to the NPD Group. The company said Tuesday that it had sold more than 4.5 million iPods in the fiscal quarter ending Dec. 25.

Analysts said the new device will help Apple capture a new segment of the market without cutting into the older iPod's growth.

"The shuffle is where it needs to be--it is very unlikely to cannibalize the iPod while allowing Apple to be more aggressive with other flash players," said NPD Techworld analyst Steve Baker. "It also allows Apple to tap into overseas markets better where people are more sensitive to price points than here in the U.S."

The company's share prices have soared from $40 to nearly $70 in the last three months, largely on expectations of continued iPod sales growth and associated positive effects on the rest of the company's business. The Prudential Equity Group said Tuesday that it expects Apple to ship 15 million iPod units in fiscal 2005 and 22.5 million units in fiscal 2006.

The decision to eliminate the navigation screen, which will make it more difficult to find a specific song, drew mixed reviews from analysts. The device still retains a skip-and-rewind button to move forward and backward through a playlist, and a switch to toggle between shuffle and in-order play.

"It is likely that they omitted the screen in order to keep (the) retail price down," said IDC analyst Susan Kevorkian. "But looking to next-generation flash players, they're going to need to add the ease of navigation that comes with a display."

Competitors also noted this feature as a competitive advantage for their own products.

"We have seen this in the industry before, where we've gone down the path of blind (user interfaces), and customers don't respond well," said Dan Torres, vice president of product marketing for Rio. "There is that comfort where customers will look at the screen and say, 'What song am I on,' or 'What do I have queued up?' Navigation is important visually as well."

The introduction of the flash iPod may also give Apple's iTunes store a boost. Previously, none of the flash players on the market could directly play songs purchased from Apple's digital music store, although customers could burn the songs to a CD and then re-rip them to MP3 format.

By offering a lower-priced player, iTunes could attract a new segment of the market, one that previously only had access to rival download services such as Napster, Virgin Digital or MSN Music.