I’ve enjoyed reading Wade Roush’s astute dissection of the argument put forward by The Wall Street Journal and, most recently, Business Week, that cell phones pose a grave threat to the future success of the iPod. Roush doesn’t think that’s going to happen.
For the last eight months, I’ve been arguing that it will. Taking Roush’s points one by one, here’s why the cell phone will emerge as a serious alternative to standalone MP3 players.
Roush: Smart phones are good at many things, but excel at none.
I agree, but I’ll even take it one step further: Cell phones don’t even get the one thing they’re designed to do – facilitate voice communications – very well. Calls drop out all time.
Even with that fundamental flaw, cell phones have become the ubiquitous device. The consumers’ perceived benefits of carrying a phone outweigh the obvious problems with the devices. Consumers are also more than happy to pay for low-quality additional features if the perceived need is high enough
“To take album-quality pictures, they don’t use camera-phones,” Wade argues. “They use dedicated digital cameras.”
This is true, but that doesn’t change the fact that camera phones are one of the fastest-selling devices ever introduced. In fact, the number one vendor of cameras – period – in 2004, was Nokia.
Research firm Strategy Analytics says that 257 million camera phones were shipped worldwide last year, while only 68 million standalone digital cameras sold. When it comes to cell phones, people are willing to trade quality for convenience, a truism that maps to music just as well as it does photos.
Roush: The iPod isn’t just a music player, it’s an identity statement.
Phones, though, are increasingly become identity statements as well, as proven by the runaway success of Motorola’s slim RAZR phone, a model that “greatly exceeded sales expectations” according to the company’s last earnings announcement.
That doesn’t even touch on ringtones, which give people a relatively cheap way to personalize a commodity device.
Roush: When you have an iPod, you’re dealing with one trusted middleman: Apple.
This point won’t resonate with consumers. Most of the multiple-vendor relationships that Roush argues consumers will have to navigate will all be done in the background. Multiple vendor relationships haven’t stopped people from downloading ringtones from different sites. If, say, a consumer buys the soon-to-be-released Motorola iTunes phone, she will simply plug the phone into her computer and upload songs from iTunes. Before any music-enabled phone launches, vendors will make sure the consumer doesn’t have to jump through hoops to get songs.
Roush: Apple itself has an eye on the mobile phone as a music channel.
Roush mentions the Motorola iTunes phone as evidence that Apple has eyes on the phone market. Hooey. Licensing your software to a hardware maker is a lot different than launching a hardware device into an industry with notoriously thin margins and entrenched competition such as the mobile phone industry. I don’t see this happening – at least not until well after established players have flooded the market with music compatible phones.
Roush: All previous forecasts about device convergence have been wrong.
Unfortunately, I’d have a hard time arguing this point.
Roush: There’s no good way to download music to a cell phone.
I disagree, but with a caveat. If the major carriers insist on forcing consumers to download their music over their networks – which makes sense for the carriers since data traffic is a revenue generator – then yes, carrier-introduced music phones will be at a severe disadvantage and the issue could make the devices a non-starter.
Until the existing cellular networks in the United States get faster, people won’t want to download music files on balky cellular networks – especially not if they’re billed by the minute.
That said, it’s clear that vendors such as Motorola are aiming to please the consumer, not the carrier. Motorola’s iTunes-enabled phone will allow consumers to load songs directly from their computers, bypassing the need to download the songs again.
Roush: Volume doesn’t mean much.
“The #1 reason advanced by journalists for the iPod’s imminent demise,” Roush writes, “is that cell phones far outnumber iPods So what?”
I’m afraid I don’t understand the point here. He writes that Apple has succeeded as a niche player in the computer market. But right now, the nascent digital music player market is all about volume and market share, and Apple dominates that.
The primary reason why Apple’s stock has been on fire of late is the profits the company is making from its iPods and the perceived growth that lies ahead for the segment. If iPod volume diminishes as a result of more people buying music-enhanced cell phones – which I believe it will – then Apple again will face investor scorn and will slowly shrink back to being little more than a small computer maker with cool-looking products.
This change is not going to happen overnight. Though the iPod’s success since 2003 has been pretty meteoric, the digital music player market existed for five years before the iPod launched. Given the above examples of consumer willingness to accept seemingly deal-breaking tradeoffs to add features to their cell phones, I think it’s unwise to bet against the eventual rise of music-enabled cell phones. And given peoples’ preference to carry as few devices as possible, I think that growth will be at the expense of the iPod.