Apple doesn't believe its iTunes Music Store will make money, but expects it to pay for itself in increased iPod sales, confirmed Apple senior VP worldwide product marketing Phil Schiller.
"The iPod makes money. The iTunes Music Store doesn't", he said. He told Cnet that the service is close to making money, but stressed Apple's aim to use the service to stimulate iPod sales.
The plan could work, agreed Al Frank Asset Management's John Buckingham speaking to the LA Times: "It's like the old Schick-Gillette strategy: Give customers the razor, but sell them the blades. This is the opposite: Give customers the blades, and sell them the razor."
iPod sales made Apple $121 million in its just gone quarter on 336,000 unit sales, a 140 per cent rise, year-on-year. Apple's figures show it's selling 2-2.5 iPods every minute - 150 every hour. The company is also selling Mac users 600,000 songs online each week, said Apple CEO Jobs. Mac users are now responsible for 70 per cent of the music-download market, he revealed.
Pope of software Jobs spoke to the stars last night, using Apple's iChat AV software to speak with U2's Bono, Dr Dre and (Sir) Mick Jagger. "It's like the pope of software meeting up with the Dalai Lama of integration," Bono said, remarking on Apple's move to produce iTunes for Windows. The move means Apple has increased its potential market by a factor of 20.
The release of iTunes for Windows won praise. Lehman Brothers analyst Dan Niles told the Canadian Press: "They've got a good target audience already, and now they could attack the other 97 per cent. How it ends up is unclear, but theoretically, they could have a 20-times bigger market."
"They have to disconnect from Macintosh, and become more broad-based," observed Gartner's Martin Reynolds.
Competitive market However, the Windows digital-music download market is already becoming competitive. A raft of services, including Napster 2.0 and MusicMatch are available now, or ready to launch in the coming weeks.
Looking at the market, Forrester Research analyst Josh Bernoff told Reuters: "There's going to be a lot of jockeying for position in the next 12 months. But I think iTunes is a real winner because it has the portable player, the jukebox and the store all together."
Apple has two advantages in the market. No other a la carte download service is Mac-friendly, giving Apple a base market. Also, while other services, such as Napster 2.0, have arranged deals with CE manufacturers to produce MP3 players as part of their service, any profit must be shared between the two companies. Not so Apple, which owns and delivers the whole package, and expects its profitable iPod sales to increase.
Apple also expects its song sales to rise as Windows users shop at the Music Store, but it's not clear by how much. "We'll know a lot more in a couple of weeks," said Schiller.