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When her two-year old iPod Mini stopped working, Judy John wasn't upset. Although a self-described iPod addict she listens to her iPod through the week, while picking up lunch, running errands and working out the broken device represented the opportunity John was pining for.

"I was excited that I could buy another one," says John, managing partner and chief creative officer for advertising firm Leo Burnett Canada. But when she arrived at her local iPod retailer, her old iPod unfortunately was quickly repaired. "I wanted to buy a Nano. I was disappointed (that my Mini still worked.)"John's experience with her digital device exemplifies iPod's brand power: You want one. And if you have one, you still want one. Why? iPods are cool. Take the ads: they feature silhouettes of obviously hip people dancing with a chic urban background; the very cool iPods are featured prominently. The message: if you are cool, or want to be cool, the iPod is essential.

But iPods are more than a fashion accessory. Since its launch in 2001, the digital music player has been credited with spawning the digital music industry. iPods are estimated to have upwards of 83 per cent of the portable digital music-player market. Competitors like Sony, MPIO, iRiver and Creative Technology each own but a sliver.

During the holiday quarter, shoppers snapped up more than 14 million iPods and Apple trumped analysts' expectations and brought in sales of $5.7 billion (U.S.) That number probably could have been higher, since many consumers had to scour stores to find a product in short supply.

"Absolutely there were times when we would find ourselves out of stock," says Lori DeCou, spokesperson at Best Buy Canada Ltd. Indigo reported iPods sold out as fast as they came in.

iPod's record sales represents a three-fold increase over one year ago, Steve Jobs, Apple's celebrity chief executive, said last week. To date, Apple's on-line music store iTunes has sold more than 850 million songs and eight million videos.

The release of those figures sent Apple stocks to a record high on Wednesday. Even an article in the Wall Street Journal on Tuesday claiming MP3 players could contribute to hearing loss an ailment dubbed iPod ear didn't stop market observers from gushing.

"It will continue to dominate the MP3 space," said Jeff Leiper, research director at Yankee Group. Before the holidays, Leiper's firm estimated one-quarter of Canadian households owned at least one iPod. "iTunes is to music, what Google is to search, and what Windows is to operating systems."

How has Apple been able to create such a strong brand?

Don't ask Apple for an answer. Steve Atkins, a representative from Apple's public relations firm in Canada, said Apple won't talk about its branding, marketing or overall strategy. It will talk about product features, information readily available on its website.

Market observers argue Apple came up with the goods at an opportune time.

Apple capitalized on the market confusion created by Napster, then a free music download website, explains Shane Greenstein, professor of management and strategy at Northwestern University's Kellogg School of Management. While music labels complained their product was being illegally ripped off, Greenstein says there was no readily available alternative. Apple offered a solution when it got rights from music publishers to sell downloadable songs for a dollar. That option gained traction partly because Jobs also created the software needed, a distributing network, and of course the hardware the iPod a strategy Jobs was originally "ridiculed for, since he was trying to control all aspects of the market," says the professor.

Apple continues to dominate the market. A Wall Street Journal article pointed out iPod's low-priced Shuffle was more expensive and had fewer features than its competitors, but still managed to capture about half of the American flash-based music player device market. "You're up against a momentum play or social phenomenon," said the president of an iPod competitor.

Observers say iPod's perceived coolness is its biggest success-factor.

"Apple has always ridden the wave of anti-establishment," says Yankee's Leiper. It earned street cred when rumours spread that, without permission, it used Eminem's Lose Yourself in an iPod commercial (Atkins, of course, says Apple won't confirm whether it received permission or not.)

Apple's cool factor has been reinforced mightily by its advertising. Since 2001, the company has spent $200 million (U.S.) promoting iPod and iTunes, more than 20 times the combined total of Sony, iRiver and Creative, according to TNS Media Intelligence. The design of the product, the advertisements, the white earphones signalling to others that you have an iPod, made iPod to digital music players what the Sony Walkman once was to portable cassette players.

Others have not been oblivious to Apple's runaway success and want to hitch a ride on it. It's something the experts call the halo effect.

For example, singers Kanye West and Madonna participated in the launch of the Nano this fall. Levi Strauss & Co. last week announced it is launching jeans designed for the iPod, electronics-maker Bose Corp. offers audio attachments supported by iPods, and designers such as Louis Vuitton and Gucci offer luxury iPod cases.

"(Others) want success by association," explains Ashwin Joshi, marketing professor at the Schulich School of Business at York University.

But there could be static on the horizon. An article in Barron's this past summer noted that while iPods could sell 45 million units this year, consumers will buy 750 million mobile phones. If more of those had MP3 capability (they don't), would coolness be enough to sustain Apple's iPod?

Motorola introduced its iTunes-compatible ROKR cellphone this fall. It has yet to break any records; analysts say Apple's prospects are dimmer in the huge, hyper-competitive cellphone market.

And cool itself is a fragile commodity.

As the masses get iPods, will the trend-setters jump to an edgier upstart, abandoning iPod?

Some customers want constant innovation, while the mainstream seeks tried-and tested technology. "It's a fundamental tension," says Greenstein.

It begs the question, does Apple need to decide if it wants to be the manufacturer of cool or vendor of hundreds of millions of iPods?

Or if it tunes the market just right, could Apple be both?

Article submitted by: Webshark
Last Update: 01-17-2006
Category: Technology

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