The iPod Phone Myth

According to proponents of this myth, Apple's success with the iPod is about to be crushed by an onslaught of music playing cell phones, so Apple needs to desperately come up with an iPod + cell phone combination of their own to remain relevant. They're wrong, here's why.

Why the Myth was Woven

This myth is based in part on "Microsoft is Invincible FUD," which carefully warns consumers that whatever strategy Microsoft choses will be both flawless and undeniable, and that rather than examine options, it's best just to wait around and see what Microsoft eventually delivers, and then make the best of it.

However, Microsoft has repeatedly failed in their ongoing attempts to leverage their Windows monopoly to dominate the digital music and media market. Instead, consumers have chosen to buy iPods, leaving Microsoft's WMA strategy soundly defeated by Apple's device and the QuickTime technologies that power it.

Now Microsoft is trying to spin a new threat to the iPod, and Microsoft's entourage of loyal industry analysts is ready to explain how: the iPod will be buried after an all out assault from mobile phone devices that can also play music. That should happen real soon now, as the sleeping army of devices, already in widespread distribution, activate to take over the music world.

The myth is also tied to "Apple is Inconsequential FUD", which warns users that Apple is just too small to ever matter.

When interviewed about Apple, Microsoft executives are quick to dismiss the company. For example, Steve Ballmer said he has no interest in Apple's new Intel Macs, because he preferred to only think about "real PCs," by which he apparently meant machines that can run Windows, but don't have anything more modern than an old legacy BIOS.

Many analysts assume that Apple's rapid sales growth for the iPod will be impossible to sustain. Tired of looking foolish for describing every product released by Creative, Sony, or Microsoft and their WMA partners as iPod killers, only to have those products go nowhere, they too have stumbled upon cell phones as a plausible new threat to the iPod.

Apple sold 35 million iPods in the last year. The entire cell phone market is estimated to have 850 million units ship in 2006. Of course, most of those phones can't play music, but the numbers suggest a way to prove that Apple's iPod product isn't actually destroying the competition by competing fairly as a better product, but is rather just a strange niche product that represents a temporary statistical anomaly. As soon as consumers figure out that their cell phone is just as good at playing music, analysts hope to see Apple's share of the market fall into the 5% or less range.

Once Apple goes back to being inconsequential, and Microsoft returns as the invincible decider of industry trends, lazy analysts can return to comfortably prattling off the same pro-Microsoft FUD that, in fulfilling its own prophesies, has served their own interests by making them look knowledgeable and smart over the last two decades. Of course, until that happens they continue look stupid, so they're motivated to talk about iPod Killers. Mobile phones are just the last best hope for challenging Apple's music player.

Unraveled with Extreme Prejudice

In an attempt to find new markets to own outside of the PC, Microsoft has been spraying cash at WinCE (aka Pocket PC, Windows Mobile, and Smartphone) initiatives for a decade now, but without much success.

By pairing the failure of Microsoft's WinCE handheld platform with the failure of Microsoft's WMA platform for music players and online stores, analysts have decided Microsoft is sure to have a real winner on their hands: WinCE based phones playing WMA content.

Actually, despite all their marketing noise, Microsoft isn't really a big player in the mobile phone market. Microsoft isn't even a big player in the smartphone market, the small minority of mobile phones that can do more than just make phone calls.

Of all mobile smartphones, more than three quarters run the Symbian operating system, which is jointly maintained by Nokia (who owns nearly a third of global phone sales), Ericsson, Siemens, Panasonic, and Sony Ericsson. Linux runs nearly 14%, and Palm and Microsoft each control less than 5%.

If you ignore everything but smartphones, Microsoft has as much stature as Apple's Mac OS X has on desktop computers. Microsoft not only faces multiple strong and entrenched competitors, but it also only sells software.

That means its market share is dependent upon hardware makers' choosing to use WinCE. From that vantage point, Microsoft's tiny grasp of the smartphone market is really less like Apple's Macintosh, and more like BeOS or NeXT, who similarly struggled to gain adoption as an alternative OS.

More Nails in the Coffin

WinCE is obviously not the brutal force that will take out the iPod by sheer volume. In fact, the entire smartphone market isn't even very big. While there were 750 million mobiles phones sold in 2005, only 8.5 million were smartphones.

That means that Apple is selling far more iPods than the entire industry is selling in smartphones, worldwide - four times as many in 2005! Smartphone sales are expected to double this year, but iPod sales are growing even faster. Of the 38 million iPods Apple sold over the last year, 22 million were sold in the last 6 months.

Certainly Nokia, Motorola, Samsung and others would be happy to own, or at least share in, Apple's profitable iPod market. But how much overlap is there between phones and music players? Reading some analyst's stories, you might get the impression that merging iPod features into a mobile phone is as obvious as giving the phones text messaging or a tiny camera.

To take this myth apart further, I'll next look at mobile phones and music players as a hybrid product, and then the idea of Apple turning their iPod into a mobile phone.

Why Mobile Phones Make Bad iPods

This Series

Tech: Mobile Phones and VoIP Telephony

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