Apple has fought off assault from so-called iPod killers from the likes of Sony and Creative, but it is about to encounter its biggest threat yet. The iPod is about to take on a competitor whose footprint is as "large as the continent" - the mobile phone.
Mobile phone companies are teaming up with the music industry to make most mobile phones into music players, writes Barron newspaper's Bill Alpert in a report that some industry watchers believe caused Apple's share price to fall.
The article was published earlier this week for a subscription. It has now been published in full by SmartMoney.com.
Alpert explains that while optimists think Apple could sell 45 million iPods next year, mobile-phone makers will be selling more than 750 million handsets. "All those handsets could weigh on the iPod's growth prospects - and Apple's premium stock valuation," he writes.
The report includes comment from Sony-BMG's head of digital business Thomas Gewecke who says that the sheer number of handsets makes them a more important end market than portable players like the iPod.
Geweck believes that the 190 million mobile phones in the US today outnumber iPods by about 18-to-1. While not many of today's mobile phones handle music, the musically inclined handsets could outnumber the 45 million iPods in next year's optimistic sales forecasts, predicts Alpert.
While some critics note that adding camera capabilities to mobile phones hasn't stopped sales of digital cameras, Alpert believes that mobile phones will offer a real alternative to the iPod, and more.
Alpert notes that mobile phones could soon come with 20GB hard drives. Seagate marketing director Rob Pait said: "You won't have to leave anything home. If we can get 10 per cent of 800 million cell phones, that's 80 million hard drives."
"If handsets become good enough music players how may people will want to carry two devices?" asks Sprint VP marketing Jeffrey Hallock.
Consumers will no longer need to lug around a second gadget for their music, notes Alpert, and the wireless technology will allow interactivity and immediacy beyond what's possible with a tethered product like the iPod, he explains.
"Handsets will be able to 'side-load' songs from a personal computer, like the iPod. But in addition, they will be able to download music over-the-air, using the fast transmission speeds of the third-generation wireless networks that cellular carriers are now deploying around the country," he writes.
And it's not just the consumer that benefits. The music companies may be more satisfied with what the carriers can offer them. "Sony-BMG and EMI have found the wireless carriers easier to work with than Apple, and more profitable than Wal-Mart," according to Alpert. "With the rollout of full-track music services in the next 12 months, the wireless phone could become the music industry's biggest and most profitable distribution channel."
"Convenience and impulsiveness pay: Cellphone subscribers willingly spend two bucks for a six-second pop-song ringtone, while spending only 99 cents for the full-track song at Apple's iTunes Music Store. Ringtones are already a multi-billion dollar business for cellular firms and for recording companies," he notes.
"In selling digital content, the telcos have some considerable cost advantages over a company like Apple. With each sale from the iTunes Music Store, Apple must pay a billing cost of 10 to 20 cents to a credit-card company. The phone companies avoid that nick, because they're already sending their customers a monthly bill. So they could offer all manner of micro-priced musical-impulse purchases that iTunes can't match," he concludes.