Apple Has Big Hopes for iPod

Steve Jobs had a simple reason why Apple Computer decided to make its newest move into the consumer marketplace with an MP3 music player called iPod.

Steve Jobs had a simple reason why Apple Computer decided to make its newest move into the consumer marketplace with an MP3 music player called iPod.

"Music has always been around. It will always be there," Apples co-founder and CEO said. "This is not a speculative market."

Hes right. Music is a $40 billion pie, with the U.S. recording industry accounting for one-third of that market, according to the Recording Industry Association of America.

But the question isnt whether consumers enjoy listening to - and buying or pirating - music. Its whether Macintosh users - the device doesnt work with Windows PCs yet - are going to spend $399 to buy an MP3 player, albeit an elegantly designed one that showcases all of Apples industrial, user interface and software design smarts.

Also worth asking: Can Apple make any money on the lower-margin device, which it hopes will help boost sales of its Macintosh computers?

The answers depend on whom you talk to.

Obviously, Jobs, clad in his trademark black turtleneck and blue jeans, thinks so. At the iPods rollout earlier this week, he touted the benefits of the device, set to ship next month, over other music players on the market, noting, among other things, its built-in 5-gigabyte hard drive. The iPod can store up to 1,000 songs - in MP3, MP3 variable bit rate, AIFF and WAV file formats - at a high-quality 160-kilobit rate, Jobs said. Because its a hard drive, it can also be used to store and transfer other types of data files, he said.

Then theres the look and feel. Like the Titanium PowerBook G4 and the all-white iBook laptops introduced earlier this year, the iPod is a cool-looking little gadget. The stainless steel and white MP3 player is the size of a deck of cards, measuring 2.4 inches by 4 inches by 0.8 inches and weighing in at just 6.5 ounces. "An iBook is really portable, but iPod is ultra-portable," Jobs said, noting that "ultra-thin" was one of the design challenges that kept Apple teams working on the project for the past 10 months.

Heres how it works: Users download their favorite CDs into their Macs via Apples iTunes software. Then, they hook up the companys FireWire connection to the iPod and upload whatever selections they want. Users can copy more than a CDs worth of digitized music files in less than 10 seconds using the soon-to-be-released free iTunes 2 music software. That translates into about 1,000 songs in less than 10 minutes, Apple said. "Thats 1,000 songs in your pocket," Jobs enthused. "This is a quantum leap in listening to music."

The iPod has a 160-by-128-pixel display, with an LED backlight to boost visibility, and boasts a rechargeable lithium polymer battery that runs for 10 hours. Users navigate through a series of simple, easy-to-understand menus - you can search for music by artists name, song title, album name or even by playlists - using an Apple innovation called a scroll-wheel that makes a "clicking" sound as users scroll around. The clicker can be turned off.

To tout the iPods ease of use, Apple called on recording artists Moby, Seal and Smash Mouth to give their endorsements. "It doesnt take a rocket scientist to figure this out," said Smash Mouths lead singer Steve Harwell. "And Im no rocket scientist . . . This kicks every other [MP3] players ass."

Not everyone is as convinced. Some analysts have been wincing over the price tag, dinging Apple for entering the low-margin MP3 player market at a time when other manufacturers are giving up on such devices because they are not seeing the return needed to warrant their investment in that line of business. Earlier this month, Intel announced that it was shutting down its consumer electronics group, which was responsible for its digital music player. "While we had success in some of these product categories, this business did not meet Intels requirements for long-term growth, and we are focusing our investments in areas that represent greater long-term return on investment," Intel said.

But others say Macintosh users, who are used to paying a premium for Apple products, will find the iPod compelling - especially after comparing its product specifications against those of other portable music offerings. Although the iPod is priced significantly higher than its nearest hard-drive based competitor - the $249.99, 6-gigabyle Nomad Jukebox from Creative Labs - IDC analyst Bryan Ma said that Apples player exceeds the capabilities of the Jukebox "by leaps and bounds."

"Creatives product is not instant on. This one is. The battery life is three times as long; the size is one-third and it weighs significantly less. The interface is multiple times better," Ma said. "Out of personal experience, I used to carry around a Nomad Jukebox, and now Im carrying the iPod around and I dont even own a Mac. And Im thinking of buying one just so I can add to my music library on this device."

But Ma acknowledged that Apple faces some serious challenges. "This is not going to be a huge-volume product and its a low-margin business, so theyre going to have to do a job of managing expectations," he said. "The other problem is that theyre working off the base of Mac users, and that limits the potential revenue to be obtained by the product."

Jobs said that there are 7 million Macs in the market that have FireWire installed and are capable of hooking up to the iPod.

But perhaps the biggest challenge facing Apple is educating the market, Ma said. "They have to do a good job of getting people to understand why the iPod is so much better than the other $150 MP3 products on the market, and not just have them compare it on price," he said.

Those are not trivial challenges, which leaves Apple watchers once again wondering how this particular company song will play out.