iPod Lifecycle at the Time

iPod Lifecycle

At the time the iPod was launched in 2001, Apple CEO Steve Jobs proclaimed that listening to music would never be the same again. That proclamation appeared to be bluster, as for in its first couple of years, the iPod sold relatively small volume. However, by the middle part of the decade, the iPod had become a phenomenon and truly had changed the way that people listen to music. This paper will examine the way that Apple has managed the iPod throughout its life cycle, and explain where the product is in the life cycle today.

At the time the iPod was introduced, the music industry was in a state of flux. The recording industry was engaged in intensive legal battles surrounding peer-to-peer downloading sites such as Napster. The mp3 format was poised to overtake the compact disc as the music storage mode of choice. The market for mp3 players was growing, but there was no dominant technology at the time. When Apple joined the fray, the strategy received mixed reactions. The price was high and the margins were low. However, the core of the iPod strategy was to bring new customers to Apple, which would spur Mac sales. The iPod introduction also coincided with the development of a new generation of software application iTunes, and the two supported one another.

Early success was somewhat muted, but by 2005, the iPod owned 75% of the market for digital music players. This was due in part to an aggressive marketing campaign that struck a chord with consumers looking to tap into Apple's techno-chic, but also due to the fact that there were no strong competitors in the market when Apple launched the iPod. Through the growth phase of the iPod, Apple relied on both improvements to the core product and on brand extension. New variants such as the Shuffle and the Nano were examples of both stretching and filling, as they filled in some of the gaps in the market with innovative variants of the core product.

The iPod is still in the growth phase. This runs counter to conventional wisdom, however. The product dominates its segment. Apple's iPhone has threatened to cannibalize iPod sales. Yet, Apple continues to introduce new versions, such as iPod Touch and "shake and shuffle" versions of the Nano. However, there is evidence that the iPod is approaching maturity. The trends that support this are not fully developed, but iPod sales in fiscal 2008 increased just 6%, compared with an increase in fiscal 2007 of 31%. In terms of dollar value, iPod sales growth is more stable, due to a decline in the average price per iPod sold in 2007 that helped to spur the strong sales growth that year.

Apple's strategy with regards to the iPod is now to engage in much more filling than stretching. iPod products are now available at many different price points depending in the amount of memory they contain. They are also increasingly differentiated by features, such as thinness and shakeability. While Apple engaged in both stretching and filling during the growth stage in order to build the market, they now appear more concerned with warding off competitors. The success of the iPod has not only driven revenues directly, but has also had the desired effect of improving computer sales. Mac laptop sales have increased 51% in 2007 and 38% in 2008; desktop sales increased 12% in 2007 and 37% in 2008.

At present, the iPod is unlikely to experience steep decline in the marketplace until it is eclipsed by new technology. The iPhone represents one such threat, but diffusion of that product will be at a slower pace than the iPod experienced, because of much more intense competition from cell phones and PDAs. However, iPods tend to last only a couple of years before consumers seek to upgrade to the latest iPod. Apple has continued to invest in R&D even for the core iPod, in order to keep the product relevant and drive these sales. The market may not grow, but Apple will continue to bring in repeat customers as long as they keep improving the product. Maturity in the market will likely reduce the average price of iPods and we will see other firms move into the market as Apple gradually loses its technological advantage. That Apple has tied the iPod in with its other products will help to combat this, however.