Has Apple iTunes Peaked?

Telecom News Editorials Reports Glossary

6:40 am on February 2, 2006 | Category: Web Services, Mobile Devices, Cell Phones, Multimedia

A new study from Strategy Analytics predicts that the Apple iPod’s dominance of the digital music industry may soon be seeing a decline, largely due increased competition from music-ready cell phones.

Up to this point, Apple iTunes has reaped a huge portion of the online music market, with a total of over 20 million users. What the iTunes service has failed to do, however, is make a seamless entrance into the pockets of mobile phone users.

The first iTunes cell phone, Motorola’s ROKR E1, failed to gain wide market acceptance and most analysts believe that the newly released SLVR L7 is just the same thing in a different package. And with new competition like the Verizon Wireless V Cast mobile music network, the iTunes service is beginning to look a lot less appealing.

“As a strategy to bring (iTunes) into mobile, Apple’s partnership with Motorola has failed,” says senior analyst, Martin Olausson. “Its lack of a subscription payment model as well as the fact that it is currently limited to iPod music players will increasingly put Apple at a disadvantage to services such as V Cast Music. The speed with which sales of music player enabled mobile phones will overtake dedicated music players will accelerate this trend.”

Unless Apple can make a big splash in the mobile phone world very quickly, it appears that they be on the defensive in the coming years, despite an overall trend of growth in the digital music industry.

5 Comments »

RSS feed for comments on this post.

“Its lack of a subscription payment model as well as the fact that it is currently limited to iPod music players will increasingly put Apple at a disadvantage to services such as V Cast Music.”
What I find absurd about this comment is that no subscription service e.g. Yahoo, Napster or Real. has been able to gain market share against a pay and keep model like iTunes. The other absurd comment is that “it is currently limited to to iPod Music Players” as if users of Cingular phone service will be able to use vcast.

Comment by Kikar — February 2, 2006 #
First thought: The cost ($1.99/2.50 per song plus airtime) and encoding quality (64 kbps) of Verizon and Sprint leave much to be desired. And the concept of having a second different encoded version for the computer is confusing. In their greed, they’ve not positioned their services to quickly grab and lock-in the market which leaves much space for others to jump in. It’s true they can improve (slash cost, up quality) when competitors come, but they will have squandered the opportunity to win some brand-love for the upcoming battle. Because of this, they will wind up competing as a negatively-viewed walled garden. How many people do you know that really likes their phone or cellular company?

So the market is still wide-open and will be for a while, for a brand-name to come in at $1.50 or less for at least 128kbps quality (which is the same version that will play on your computer and MP3 players). Or a brand-name like Yahoo with a $10 unlimited subscription (no additional airtime or data charge) for both cell and broadband access with at least 128 kbps quality.

Comment by mark — February 2, 2006 #
Second thought: The SA analysis is shallow and a failure. When they have some facts, they can’t put them together properly.

1. Increased sales of music player enabled phones will not overtake anything unless those phones make it easy for people to move their own CD/digital collections onto them. And that hasn’t happened. The iPod success is not because of the Music Store; rather, it’s the other way around because people already have content.
Also, camera enabled phones haven’t flattened sales of digital cameras, have they? Maybe when the quality is better and when it’s easy of getting the pictures off the phone, it’ll be a different story. Same concept goes for music enabled phones.
2. How many paying customers does VCast have for music? Is it thousands or millions? Possibly both the Apple-Motorola-Cingular scheme and the VCast-Sprint schemes don’t appeal because convergence still hasn’t been done right.
3. Apple was not the first to enter the MP3 player market. That didn’t put it on the “defensive” when it entered, so why should it be any different with phones. So why use that term?
4. Why does anybody have to “make a big splash in the mobile phone world very quickly” given the poor value of the current plans? (See my first post)
5. 40 million+ iPods have been sold for the express purpose of listening to music (and now also watching video). Billions of phones, many music enabled, have been sold to have conversations. How many of those music enabled ones were bought expressly for the purpose of listening to music, or did the customer just take it because it was included for free and maybe someday I’ll use it? Does SA have some facts here?

I hope nobody paid for this SA analysis. It would’ve been a true waste of money.

Comment by mark — February 2, 2006 #
I hope Apple continues to work with Motorola, but what I really want is an Apple Pod Phone. A flash based iPod with iTunes mixed with a full featured video/stillcam world phone. Either way there have been countless reports over the past 4 years of the end of Apple’s digital music dominance, and of the looming downfall of the iPod. How many “iPod killers” have come and gone?

Comment by Mike — February 2, 2006 #
The mobile music industry being successful by cell phone operators are a NON-STARTER:

a) ringtones are hard to create - mp3s are not.

b) no more than 1% of users are willing to pay $15 a month for the “priviledge” of buying really expensive tracks for a format that’s dying (WMA).

c) Verizon already sees the wrath of trying to convert mp3’s to WMA.

d) Name one person outside of a cell phone PR shill who’s ever uttered the phrase about their phone, “wow this interface is perfect!”

e) Cell phones companies are rife with people who signed on to work at a “utility” and would have a lifelong pension and insurance - bureaucracy wins everytime!

f) When cell phone companies can actually design a user interafce that amkes sense and is logiacl, then come back - so far, the companies are about ZERO for 2,500.

g) Look at the the cell phone websites. Look at apple.com - if you cannot even design a coherent website, how can you expect to take on a world class design company when it comes to user interface?

h) Cell phone companies think just posting a track is enough - it requires a whole new DB and customer service to service it.

i) Apple doesn’t need the cell phone companies - when wifi max gets implemented and VOIP is available, Apple will just bypass them all by selling a real ipod phone UNLOCKED that can hop on anywhere.

j) meanwhile, the cell phone companies are run by spreadsheet jockeys who want to charge for every little bit and byte - that’s why penetration of advanced services is so low and will remain so …

k) because at some point, people will just bypass the cell phone companies to get streaming video or their ipod phone via wifi or satellite - because when it’s entrepeneurs versus bureacrats - guess who wins EVERYTIME?

Comment by jbelkin — February 2, 2006 #