IPod Killers That Didn't

Burlingame, Calif. - Steve Jobs is not noted for his modesty. So five years ago it was easy to shrug off his boast that "listening to music will never be the same again" when he introduced the iPod--a tiny hard drive with headphones that held up to 2,500 songs and sold for as much as $500.

Thing is, Jobs was right on the money this time: 67 million units later, the iPod has indeed changed the way people listen to music. It has also changed much more: Apple Computers has transformed from a struggling PC-maker into the dominant force in consumer electronics. The music industry has been forced to overhaul its business model, while the television and movie industries are getting ready to do the same. And Jobs himself has upgraded his status from business leader to cultural icon.

So you can't blame competitors for trying to get in on the action. None has had much success so far, and several have died trying.

A couple even got into the business ahead of Jobs. Companies like Rio and Creative Technologies beat Apple to market and then squabbled over which one created the first digital audio player (answer: neither). But clunky designs and steep prices kept consumers from buying in. The Rio PMP 300, for example, sold for $200 and stored about 15 songs.

When the iPod entered the arena in late 2001, competitors continued to produce and sell their own versions, but nothing caught people’s attention like the boxy white player. For the next two and half years there wasn’t a single contender that threatened to steal victory from the iPod. By early 2004, Apple had 92% of the digital audio player market, according to NPD Group. That year, competitors finally launched a barrage of products that were supposed to kill off the iPod: They boasted as much memory as Apple's machines, sold for less and offered more bells and whistles.

But consumers didn’t bite. MP3 player pioneer Rio and mass market laptop master Dell, which both debuted new players in 2004, were eventually forced out, even though their products received decent reviews. IRiver, which tried to take on the iPod Mini in 2005, is now largely focusing on its home market of South Korea.

Sony and Creative, however, haven’t given up. A new entrant, SanDisk, is making gains by selling low-priced machines.

Do any of these products have a chance at bringing down the iPod? No. But they have eaten away at its market share. From its high of 92% in early 2004, Apple is now down to 77% of the market, a number that has held steady for most of the year. On Wednesday, Apple announced it had sold 8.73 million iPods in the last three months, as consumers latched on to colorful new versions of the iPod Nano.

But on Nov. 14, Apple’s winning game could begin to change, as Microsoft launches the highest profile MP3 player to hit the market since, well, the iPod. From a hardware perspective, Microsoft’s Zune is nothing special--just a repackaged Toshiba device with the ability to trade songs wirelessly. What’s different about the Zune is its potential to upset the digital audio player ecosystem with a new model that matches Apple’s: A closed network with its own store and new copyright management software. The last time Microsoft took a cue from Apple’s business, it ate up the PC industry.

Microsoft used to play in the MP3 player market by licensing its PlaysForSure software to hardware makers like Creative, and to online music stores like Yahoo!, Napster and RealNetworks. Now PlaysForSure is all but dead, and it seems likely that the stores and manufacturers that supported will have an even harder go of it than before. Will iPod and Zune be the only players left standing?

Steve Jobs isn’t worried. He told Newsweek he thinks consumers won’t have patience for the Zune’s wireless sharing feature. Like it has done in the past, the iPod will continue to succeed with its industrial design and iTunes software expertise, he says. “Other companies tried to do everything on the device itself and made it so complicated that it was useless.”

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