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  • The iPod Report: Cheaper by the Dozen

    September 17th, 2005

    For years, the conventional wisdom had it that Apple’s products were priced way too high, and, sure enough, when the first iPod hit the streets nearly four years ago, that was complaint number one. Who’d pay $399 for a tiny digital music player with a 5GB hard drive? Is this just another Apple Newton, a product that cost a lot to develop, but will never realize its potential?

    Of course, as iPod sales soared and the product became a cultural icon, you still heard complaints. Whenever the “iPod killer of the week” was examined, you just knew it was cheaper, more feature-laden. Apple’s fifteen minutes of fame were just about over, and it was high time for the next great thing to take its place. More to the point, the tight integration of the iTunes Music Store and the iPod was more evidence of the same obsessive/compulsive control over the platform that left the Mac a niche computer. Apple was just making the same old mistake all over again. Hadn’t Steve Jobs learned from his experiences?

    But what about the price? Well, strange as it seems, or at least strange for an Apple product, when it comes to Flash-based players, the iPod is downright cheap. Now paying $249 for a 4GB iPod nano may not seem like a bargain. After all, for another $50, you can get a standard-sized version with a hard drive with a capacity of 20GB. But Flash memory is still downright expensive, even though it’s a lot less expensive than it used to be. While some are even predicting its eventual replacement of hard drives, that appears to be years away, unless some incredible new discovery boosts capacity way beyond predicted levels.

    Now take a look at the competition for the nano. Now remember, we’re talking about not just the capacity, but the color screen and the ability to display photos. Now Mathew Honan at Playlist did a comparison of the nano and other so-called “micro” players, and the results are, to put it mildly, illuminating.

    The competitor with the largest capacity is, and this is a name that won’t easily flow from your tongue, the Sony Network Walkman Digital Music Player NW-e505. Say that five times rapidly. It has a storage capacity of just 2GB, a monochrome screen, and sells for $290. In terms of storage capacity, its the closest competitor. Sony ought to give out discounts for people who remember that tongue-twisting name.

    So how has Apple wrought this miracle? Well, the stories have it that they secured a large amount of Samsung’s Flash memory production at a bargain price, and they are taking advantage of the deal. I’ve read an estimate, in fact, that the $249 iPod nano contains spare parts costing, as I recall, $180 (feel free to correct me!). Now, if true, it would mean that Apple may even be taking a short term loss on the nano just to build market share, but I don’t believe it. Apple doesn’t sell anything without a reasonable profit margin.

    In any case, the nano still isn’t exactly cheap even if the competition offers less bang for the buck. So how is Apple’s “impossibly small” member of the iPod family doing in the market place? That is one large question. One survey showed decent, but not stellar demand. Another calls it “strong” and predicts Apple will sell a ton of them. I suppose the analysts must believe that if an Apple store doesn’t move its allotment in an hour, flat, the product must be a failure.

    If you examine the results at Amazon.com, you’ll find Apple continues to dominate the top five spots among Flash-based models, although the figures change hourly. And the Black nano seems to be the hottest seller in that model line. Over at Apple’s online store, the nano is listed as the top seller. The waiting time for the 4GB versions, both white and black, has slipped to five to seven days, meaning stocks are low. Now the cynics might just suggest Apple is cooking its numbers, because it wants to make middling sales seem spectacular.

    At the same time, it does appear that the mini’s luster hasn’t diminished much, even though it’s now yesterday’s news. Folks are apparently still rushing to get closeout deals.

    The real facts about Apple’s great risk in discontinuing its most popular iPod probably won’t be apparent until the sales figures are unleashed when Apple releases its quarterly financials in October. I’m not a betting man, as I’ve often said, but I’m willing to suggest that the iPod will remain unstoppable, and that you’ll soon see, or not see since its so small, lots of white earbuds attached to nanos in the days to come.

    In any case, I hope to have my review of the iPod nano ready real soon now.



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