How Apple Is Preparing for an iPod Slump

Continued revenue from the iTunes Store ("the company sold $881 million worth of music and accessories" in the past quarter.) I'm going to go out on a very well-established limb and note that 99 percent of the actual income Apple derives from "music and accessories" is really from "accessories." So I'd put the point at "The iPod ecosystem" not "the iTunes Store," which to all accounts is still treading water financially. Put another way, the iTunes Store is a support ecosystem for the iPod, not the reverse, and the store is there as a reason to buy a new iPod, and not as a reason to keep spending money on an old iPod. It's all about promise, really.

Product upgrades. As was the case with the Mac until the switchers took over, the best iPod customers are existing iPod customers. But with the market currently saturated, Apple will really have to show up with some exciting products to get people to upgrade. The iPod classic isn't it.

Emphasis on the iPod touch. Which makes sense: I own two, for example, because they're a lot cheaper than laptops and more portable than DVD players when you want to keep entertained on a plane. But that's just me. If anything, the problem here is that iPod touch content--i.e. movies sold and rented from the iTunes Store--is not exactly flying off the shelf. In fact, this content has been notably poor selling for Apple and everyone else.

The Mac. This one I agree with. People who have positive iPod experiences naturally look to the Mac the next time they need a PC upgrade, and many of them like what they see there as well. I do not agree that Microsoft has "fumbled" the launch of Windows Vista, however. That is all perception that was driven by the media. Windows Vista has sold at a rate higher than its predecessor, and it has done so without any mathematical gymnastics: After one year on the market, 10 percent of the installed base was running Vista. That's higher than was the case with XP. So much for perception. But then perception often drives reality. And as Hassell repeats this bit of "untruthiness," it too becomes part of the body of "evidence" (such as it is these days) that drives people's buying decisions. And if people perceive that Vista is a flop--even when it isn't, not really--then they will consider a Mac even more.