Apple Separates iPod And Mac Divisions

[Kent Pribbernow]

<div class='os_post_top_link'><a href='http://news.com.com/Apple+creates+division+for+iPod/2100-1041_3-5216647.html?tag=nefd.top' target='_blank'>http://news.com.com/Apple+creates+division+for+iPod/2100-1041_3-5216647.html?tag=nefd.top</a><br /><br /></div>According to News.com Apple is reorganizing its management team and creating a separate iPod division headed by John Rubinstein, former VP of hardware. <br /><br />"An Apple representative confirmed the move, which was first reported Wednesday in the New York Times. John Rubinstein, the senior vice president who currently heads all hardware development, will lead the new iPod division. Tim Cook, currently executive vice president of worldwide sales and operations, will be in charge of the new Mac division. Also, Tim Bucher, who currently heads Macintosh system development, was tapped to head Mac hardware engineering."<br /><br />This is an interesting move. Apple is clearly shifting more focus on the iPod, and I predict more consumer electronics devices will follow. Jobs clearly sees the iPod as much more than just single product, which means we're going to see a lot more variation over time, the Mini being one good example. Keep watching this space.

[Mojo Jojo]

I have often been curious if Apple needs to branch out from computers to be more successful and I think that the iPod was the first step for them.

While they have been producing computers for the past 20 years, the honest message is that computers as a whole, not just Apple or MS/Intel/AMD, have reached a stagnant time where they have become a commodity where low cost is the majority of the market. This is an area where Apple cannot really compete and grow being so far behind in terms of sheer numbers and enterprise acceptance.

Of the users that are out there only a select group of those people use their computer for more then the basics such as e-mail, web surfing, and the occasional document write up. This doesn't leave much for continued buying, a computer bought now will be good for a number of years before the need arises to repurchase for the vast majority of users.

So where does Apple as a computer hardware company go? My bet is that Apple has seen this and changed their focus, or as this article suggests, split into groups that can pursue different goals without completely sacrificing the other. All seemingly as first steps towards venturing into the home entertainment field.

In the last year or so Apple has been aggressively shifting towards a Digital Entertainment hub such as iTunes, iPhoto, digital film, music composition, etc. where I think they plan to capitalize and expand from to other product lines.

With their recent success in the iPod I wonder if a home entertainment hub is next, say a 'headless' iMac that connects to your tv perhaps. The unit is already compact, low noise, and poses the basic requirements needed for a media center unit. Perhaps even another product line for digital handheld recording.

With its strength in design, and it's large mindshare in style, Apple would have a strong foothold against MS in the field of expanded home entertainment. These strengths play a much larger role in a person’s living room where entertainment appliances are more akin to furniture and decoration then beige boxes for work, an area in peoples lives where form sometimes outweighs basic functions.

As the Internet, digital entertainment, and broadcast media start to combine more traditional components from JVC, Sony, et all will be unable to provide this new type of home entertainment options creating a market that has not yet even begun to be explioted. If Apple were to takes it strengths and seize this virtually empty market, I think they could do very well.

[James Fee]

My bet is that Apple has seen this and changed their focus, or as this article suggests, split into groups that can pursue different goals without completely sacrificing the other. All seemingly as first steps towards venturing into the home entertainment field.
Totally agree, much as the Macintosh Business Unit at Microsoft has been able to produce much better quality software not having to worry about the windows side of things, I think the iPod division will do better without having to worry about the Macintosh side of things. Maybe WMA support (thought I doubt we'll ever see WMA DRM suppport) should be at the top of their list.

[Felix Torres]

Just for the hell of it, here's a contrarian thought:
Apple as a consumer electronics company? Meaningless.

Consumer electronics are about volume.
Tens of millions of units per year.
Hundreds of millions.
TVs.
CD players.
DVD players.
Cameras.
If you're not big you're not relevant.
You don't matter.
Big means market power.
It means getting your IP accepted as a standard and *used*.
It means SONY creates Playstation and take the market away from SEGA and Nintendo.
It means SONY creates BLU-RAY and it is an instant contender even when it is incompatible with red-laser DVD players.
It means you're Philips and everybody that uses a CD or DVD is paying you royalties.

And Apple as a consumer electronics shop doesn't strike me as a particularly *big* operation.

They're not going to create any new markets.
They're not going to take any markets away from anybody.
They're followers.
They're quick followers, with a good sense of which way the wind is blowing, but trailblazers? Hardly. And their business model ("I want it all!") doesn't lend itself to the massive markets of consumer electronics.

For all their media exposure, Apple these days is a just a bit player.
Hype aside, they're not *that* important. Apple doesn't do low-end hardware; electronics for the rest of us, as it were. So, Apple would be more likely to be a Bang&Olufsen-type boutique vendor than a true CE company.

Lets face it, a couple hundred thousand iPODs and a couple million CD's worth of downloadable music hardly qualifies them to compete with the ikes of MATSU****A, THOMSON, PHILPIS, SONY, or SAMSUNG. To say nothing of CHINA, INC...
Ask the bosses at Thomsom how much sleep they lose over Apple's impending new products.
They might be poilte. Or they might yawn.

The PLAYERS in the CE business fall into two categories: technology developers who create new core tech through massive R&D (SONY, PHILIPS, TOSHIBA, SAMSUNG) and charge a premium for it, and the low-margin box-movers like THOMSOM, APEX, and the no-name China shops.

Apple is neither.
The drive that made the iPOD posible came from Toshiba.
The drive that makes the mini possible is from Hitachi.
The POD OS is licensed from outside.
The manufacturing is contracted out.
Even the actual product design is contracted out. (Frogdesign?)

At this point, APPLE the CE company is little more than Jobs' sense of aesthetics and a lot of hype.
More press releases than product line.
Heck, they even missed their sales target for iTunes by 30%!!

Come on; it might be fun to speculate on what Apple might come up with but what is there out there for them to sell?
Flat panel TVs?
Stereos?
Media servers?
Cameras?
Networked Media players?
Electronic picture frames?
ebook readers?
What massive market are they going to create out of nothing like Time Warner did for DVDs?

Those all already exist so anything they come up with is just a me-too product dressed up in hype at a hefty mark-up, much like the POD.
As long as the market remains immature (like jukeboxes) they can get away with their high-margin markups, but once the technology matures and *real* volume sales begin, the center of gravity of the market will move away from Apple.
(In digital music its already started.)

There may be a lot of media attention in the Apple approach but not much money; the *real* money in those businesses lies in the hands of the component vendors anyway. All they're doing is blazing the trail for the big boys and, like in the past, they'll get trampled and left behind by the stampede of buyers looking for value.

Clever packaging and media coverage only goes so far; eventually products need to move out of the boutique.
And by then the real players are ready to step in.

If Apple thought MS is a tough nut to crack, lets see them go up against China, inc.

[Mojo Jojo]

You make some good points Felix, but it seems to me that your saying this market is already booked up and closed and I don't know if that is true.

Outside of this site and a small handful of others, a living room media center is some sort of urban myth to people. In my opinion the market truely doesn't exsist to the average customer. I think we are at the cusp of this market before it gets really big. Sony does not own it, neither does HP, there isn't any other option besides MS Media center that I am aware of and other than one person in my group of friends and family no one else even know what it is. (Not an accurate gauge but I have't done a random sampling study of 15 thousand other people either)

Yes, volume matters. True. But the volume you speak of is not here yet.
In regualr cd, and DVD components yes... but nothing that combines tv, cable, internet, online purchasing of music and video, dvd.

Apple *COULD* I stress could as they can also *FAIL* to make a small niche for themselves in something I don't see as tapped out.

I also agree that if Apple *DID* make a niche they would need to be open to other companies least they get trampled *AGAIN* when the volume marketers arrive.

My point was they don't seem to be going anywhere with the computers (2.5% total sales) and turning that around, so a still open market has *BETTER* possiblites then just sitting around on their thumbs.

I do not state they could take over the world, or at least didn't mean to imply they could. :D

[Zack Mahdavi]

I'm quite nervous about Apple's decision to sub-branch both the iPod and Mac divisions. I'm afraid it might cause an Apple II vs. Macintosh struggle all over again. This kind of tension within a company definitely wouldn't be a good thing... I'm hoping that Apple will be able to learn from the past and this time execute the correct model to have two product lines develop peacefully.

[dean_shan]

The POD OS is licensed from outside.
Even the actual product design is contracted out. (Frogdesign?)


Woah I didn't know that. Who mad the OS on the iPod? I also thought Apple designed it. Where did you learn that they didn't?

[Felix Torres]

The POD OS is licensed from outside.
Even the actual product design is contracted out. (Frogdesign?)


Woah I didn't know that. Who mad the OS on the iPod? I also thought Apple designed it. Where did you learn that they didn't?

I thought it was common knowledge that Apple got everything inthe pod from outside.
The OS comes from Pixo.
Try this:
http://www.thinksecret.com/features/applepixo.html

[Zack Mahdavi]

Whatever happened to Pixo? Their website disappeared and no results on Google can be found...

[Felix Torres]

Whatever happened to Pixo? Their website disappeared and no results on Google can be found...

Dunno.
The CEO probably woke up to find a horse head on his bed. :twisted:

[Felix Torres]

You make some good points Felix, but it seems to me that your saying this market is already booked up and closed and I don't know if that is true.


Not at all.
I *did* cite APEX, no?
They came out of nowhere to be a player in a couple years, no?
The markets *are* open, to an extent.

But what I was trying to point out that Apple's skill-set, core competence, *and* business model do not suit them to be a major player in the Consumer Electronic arena (I would sooner bet on iRiver), no matter what the Silicon Valley media might want to make us believe.

You've heard of the big fish in the small pond?
Apple is a brightly-colored puffer-fish in an aquarium talking of going into the open ocean.
Problem is, in *this* ocean the players are either whales or sharks.
Matsu****a and SAMSUNG are whales; APEX and Creative are sharks.
Bang&Olufsen is neither; they're a goldfish.
Apple *might* be another B&O.
But given their limits (they can't even meet demand for the baby POD) they'll never be more than a pretty afterthought.

The turning point came last month, when Apple absolutely refused to license FAIRPLAY.
This guarantees the commoditization of the digital music market, sooner instead of later.
If only the pod plays AAC and the POD only plays AAC, then AAC will become irrelevant to buyers of the other 50 major players in the market and either WMA or the Philips-inspired euro-DRM will rule.
Either way, Apple will be trampled and soon.

Simple test:
rank the following businesses in order of success, both measured in number of individual customers and total dollar value per year:

- iTunes
- XM satellite radio
- Sirius satellite radio
- Rhapsody
- Napster
- XBOX live
- WebTV

Hint: WebTV has 1 million subscribers, Xbox live 900,000, and XM 1.6 million

More later, maybe...

[James Fee]

Whatever happened to Pixo? Their website disappeared and no results on Google can be found...

Dunno.
The CEO probably woke up to find a horse head on his bed. :twisted:
Worse, they were bought by Sun! 8O

http://www.sys-con.com/java/articlea.cfm?id=2127

[Zack Mahdavi]

Whatever happened to Pixo? Their website disappeared and no results on Google can be found...

Dunno.
The CEO probably woke up to find a horse head on his bed. :twisted:
Worse, they were bought by Sun! 8O

http://www.sys-con.com/java/articlea.cfm?id=2127

Ooooh... I wonder if the next iPod OS will be running the JVM? Think slow..... ;)

[Felix Torres]

Whatever happened to Pixo? Their website disappeared and no results on Google can be found...

Dunno.
The CEO probably woke up to find a horse head on his bed. :twisted:
Worse, they were bought by Sun! 8O

http://www.sys-con.com/java/articlea.cfm?id=2127

Ooooh... I wonder if the next iPod OS will be running the JVM? Think slow..... ;)

Hopefully not.
My HP EN5000 runs on Java and the thing is so slow calculating shuffle playlists it is useless for anything bigger than a single cd and effectively locks up if you tell it to shuffle the whole music collection.
That, aside from the inconsistent behavior and general flakiness in handling track order to start with.
(Not that I can complain; I only paid $40 for it and it *will* tide me over until the Media Center Extender kit comes out for XBOX, which is what I really wanted anyway.) :?

As for the POD the Pixo OS has (had?) a native API and SDK and I don't *think* it was JAVA-based...

[Felix Torres]

Okay, following through on the threat, we have:

- iTunes
- XM satellite radio
- Sirius satellite radio
- Rhapsody
- Napster
- XBOX live
- WebTV

First, iTunes, since Apple has been keeping mum on the details...

Apple admits to 70 million downloads, for a total of around $70 million. This includes freebies and the few million dlownloads people bothered to redeem from the Pepsi promo. This case be sliced and diced many ways to figure out how many unique customers iTunes has.

At one extreme, you could say each download is a separate customer, but somebody who buys one song and never returns is a browser, not a customer.
At the other extreme, you could say each customer bought a cd's-worth per month, which gives you about 400,000 unique customers.
Another approach is to say each customer bought two songs a week, which gives you about 700000 customers.
I'd be comfortable with either number, though I suspect the lower one is closer to the truth.

For comparison:

WebTV is a nascent consumer electronics market that never matured and is generally understood to be a failure. Marginally profitable for MS and its CE hardware partners, but a failure in terms of the CE market.
Total active customers? About a million with essentially zero growth; as old ones leave new ones arrive but the number stays constant.
Total sales $250 Million per year.
And that's an acknowledged failure.

Sirius satellite radio?
400000 customers pay $13 a month to listen to ad-free music.
Another 9 million get it free through their DISH subscription.
$About 62 million a year in subscription sales.

XM Radio?
1.6 million customers at $10 a month.
That's $192 million a year and growing.

Rhapsody?
450000 subscribers paying $10 a month.
That is $54 million in subscriptions and it doesn't include the value of the downloaded music the subscribers buy.

Napster is a newcomer.
Their latest numbers have them at 2 million downloads per month or about $25 million a year. They claim about 250000 customers.

XBOX live has about 900000 customers to date, each paying $50 a year in subscriptions and buying an unspecified number of online-enabled games. Being conservative and saying two games a year, that's something like $135 million for a system that is still ramping up and evolving. MS is already selling Karaoke tracks to these customers and apparently intends to sell digital music downloads so they can be considered a future competitor to iTunes.

My point after all this number crunching?
Apple has achieved a lot with the pod and iTunes.
But in the context of consumer electronics, where a steady $250 million a year business is a failure, they have achieved nothing.Their much hyped 70 million downloads amount to at best 6 million CDs worth of sales; a single one-hit wonder music act can sell that in six months.
Even compared to other nascent CE businesses they are middle of the pack at best.

The other point is that if you add up Rhapsody, Sirius, and XM, that is a *lot* of people who seem perfectly willing to "rent" music and indeed far more than are actually buying downloads.

Which is further evidence that the Apple business model is not a good match for this market in the long run.

I stand by my assessment that Apple and CE are not a match likely to result in any significant long term market impact.
Boutique vendors never do.
2 cents worth.

[Mojo Jojo]

Nice write up and thoughtful responses.

However I still contend that your blending markets. If iTunes is the current leader in digital purchased music (undisputed by the media at this point) but it is a failure in your mind, then all music downloads for purchase business are a failure because they sell even less them Apple?

Yes the numbers for iTunes is less the other markets you have mentioned but the numbers you mention are off base. Apple and just about everyone else understand that Apple is not trying to make money with the sales of music from iTunes, but rather the sales of their players.

While I don't believe your comparisons of markets is fair a more correct number would be $201,750,000 (a number reached by last years sale of iPods alone, 807,000 unit multiplied by the lowest cost of $250 while other models cost more we are going for low number). This number is of course gross but your numbers didn't include operating costs of the other companies you mentioned either. Source: Business Journal of Silicon Valley, http://www.bizjournals.com/sanjose/stories/2004/04/12/daily36.html

In addition the market I am proposing that Apple could pursue is a full media player. In short a OS and Hardware machine that allows Internet connectivity for e-mail and web surfing, Video recording and play back from broadcast and cable shows, picture display, downloaded music and movies purchasing and playback, personal computer applications like document creation and editing, and video games. None of the companies you mentioned make a single device that can do all this so the comparison again is useful if Apple were to go into the satellite radio business per say but not useful for debate in this new market.

This market is relatively new with Microsoft offering the software with XP Media Center Edition and a small handful of hardware makers. As this market is new and no full adoption (or even acceptance) from the consumer market has been set yet, there is lots of room for Apple to try their approach.

This market is no where near a commodity like DVD players is so the large companies you speak of have not ventured into it with low cost competition to flood the market. Their prices average about $1.5k to $2k which is a price point close to Apples mid to top of the line range. Apple could even design a machine with a lower price point based off their iMac line making them the low cost and not the Bang & Ofl. like you suggest.

In addition to that most of the Media Center hardware appear like desktop computers and not living room appliances (accept for a few who have a component type shape and design). Apple which is known for style could create something that people could be more aesthetically pleasing to those who do not wish to have that style of hardware.

So in summary, they could create something stylish, lower priced in an open market at this time.

I do agree however that if this market becomes widely accepted Apple will need to be open and flexible, least they get crushed by the bigger chains.

So to use your analogy and keep that Apple is a brightly colored puffer fish in an Aquarium... the Whales and Sharks don't quite fit in the tank. =)

For a quick gathering of media center types of machines I turn you to Microsofts own page for a summary; http://www.microsoft.com/windowsxp/mediacenter/evaluation/products.asp

[Felix Torres]

While I don't believe your comparisons of markets is fair a more correct number would be $201,750,000 (a number reached by last years sale of iPods alone, 807,000 unit multiplied by the lowest cost of $250 while other models cost more we are going for low number). This number is of course gross but your numbers didn't include operating costs of the other companies you mentioned either. Source: Business Journal of Silicon Valley, http://www.bizjournals.com/sanjose/stories/2004/04/12/daily36.html


Ah, notice I didn't include the dollar value of the XM satellite radios, Sirius receivers, or the WebTV boxes sold by Thomson/RCA et al.

Mostly cause I'm not looking at installed base, arrived at over years, but at the current rate of revenue-generation of the business-model.
After all, apple's business mode is not about shiping boxes but about milking the buyers for every last penny they can via downloads, accessories, replacement batteries, and service and support charges.

Even at $200 million, Apple still falls short of WebTV; a clear CE failure.
Now, understand, I'm not saying Apple *is* a failure.
Merely that they haven't achieved enough to be deemed a success.
And that what they *have* achieved is no great shakes by the standards of the Consumer Electronics game.

Its a context kind of thing.
What is impressive in one context is piddling in another.
And if Apple is going to survive on more than its 1.5% of the world computer market, it needs more than a 70 million or even 200 million a year business.

And I don't think consumer electronics will be that business.
Not the way Apple operates. Their own business model will limit their growth.

[Mojo Jojo]

Ah, notice I didn't include the dollar value of the XM satellite radios, Sirius receivers, or the WebTV boxes sold by Thomson/RCA et al.

Aren't those products sold at a loss however? It costs more for the company to make them then they recieve at purchase. The subscription is what makes the company money. If Apple stopped today they wouldn't have a single debt, they are a debt free company with a business model that currently is all profit. I can't see that making money and having no debt is somehow a bad business plan.

Apple makes a profit in both iPod and iTunes, one makes the most money while the other covers costs of operation and turns a small profit. Your not locked into an contract and can chose to not buy anything more from them. The XM satellite radio is only useful when you have a subscription, same as WebTV, without the subscription it is a hunk of plastic, metal and chemicals.

I can choose not to purchase any songs from iTunes, I can also choose not to buy any accessories or buy accessories from other companies like belkin. You can choose to also replace the batteries yourself and not even continue with Apple (they are 50 bucks). On top of that I can still use my iPod and rip any CD I wish. Apple isn't 'milking' anyone.

So far we agree on the point that Apple is not as big as Sony, Thomson/RCA, Microsoft.

[Felix Torres]

In addition the market I am proposing that Apple could pursue is a full media player. In short a OS and Hardware machine that allows Internet connectivity for e-mail and web surfing, Video recording and play back from broadcast and cable shows, picture display, downloaded music and movies purchasing and playback, personal computer applications like document creation and editing, and video games. None of the companies you mentioned make a single device that can do all this so the comparison again is useful if Apple were to go into the satellite radio business per say but not useful for debate in this new market.

So you propose Apple follow Microsoft into the Media Center PC market.
Doable.
The market is still nascent.
For another six months, at least.

Of course, the field is far from empty.
Aside from the various MS-based competitors: DELL, HP, SAMSUNG, VIEWSONIC, and GATEWAY, there is SONY with the PS-X.
And there are a couple dozen Taiwanese vendors angling to get into the biz, with the DigiMatrix and its kin.
Or TiVo and Replay or APEX or Moxie or Motorola or the other cable set-top box vendors that are angling for that space from a different direction.

Apple *could* create a nice little boutique product here off a MAC, I guess.
Tie it to iTunes and the POD.
Hype it to death and run cool ads.
And make maybe a couple hundred million bucks more.
At $2000 a pop it wouldn't take much in the way of sales to get there.
If that's your idea of success, then have at it.

But it will not be revolutionary or particularly significant in the larger scheme of things.
It won't catapult Apple into the ranks of the CE players .
And its not going to make much of a ripple in the Consumer Electronics business.
This particular market has already been scouted out by both the sharks and the whales. And they're already positioning themselves to make their runs at it.
A me too product wrapped in Apple promotion isn't going to get you very far.
Sorry.
Don't see it happening.

Like I said, the issue is the scale of the *market*, not necessarily the size of the companies playing in it.
APEX is a tiny virtual company in California.
But their business model lets them operate on a scale of tens of millions of units.

Apple doesn't work that way.
Their business model doesn't match up with selling ten million units via Wal-mart or CIRCUIT CITY or BEST BUY. It means dealing with people Apple isn't used to dealing with, appealing to customers Apple doesn't know how to appeal to, and using supply and distribution channels Apple doesn't have.

The Consumer Electronics business plays by very different rules.
Just showing up and proclaiming yourself a player isn't enough.
Cute ads don't get you very far here; just ask Philips.

And convergence is well along at this point.
The players have already signed up and ponied up the ante.
I don't think being fashionably late will get you very far in this market.

Wanna suggest another CE option for Apple?
I think they *might* have a chance in the nascent electronic picture frame business...
They do match with the likely buyer of those products, too.
Not sure if there's much of a market there but at least Apple has the tools to play that game...

[Mojo Jojo]

I think at this point we are just going to have to agree that we disagree with one another and call it a day. :)

Apple has a good business model and even though people have been trumpting its death song for at least the last ten, they are still here. They make a product that fits my needs and others. Comparing prices show that they are inline with other markets and only slightly more but not bloated...(pick one, go ahead) their usability is great and very friendly to consumers.

I would like to see that in the media center market, and perhaps others would too. But just saying they are going to fail doesn't mean that they are... doesn't meed they will succeed either.

If I was a CEO, saw a fledgling market that my company could play its strengths too, maybe make a few hundred million as an early player AND with good deals possible be a big player... but decided not to because MAYBE the market might dry up in the long run... I would be fired.

I guess Apple should do nothing as a company and wait for someone to hand them a market. Heck maybe they should just give up altogether. :D

[Felix Torres]

I guess Apple should do nothing as a company and wait for someone to hand them a market. Heck maybe they should just give up altogether. :D

Dunno.
Not sure if anybody would notice outside the true-believer. :twisted:

Seriously, I don't much care what happens to Apple either way.
I don't *think* they'll vanish any time soon unless Jobs' ego makes him jump into a fight he can't win and bet the farm on a losing bet.
But they're not about to become the center of the universe, either.

Right now they are fighting outfits of about the right size for them; Creative and Denon. And they are cherry-picking the high-end, non-price-sensitive customers. The market share *will* come down but the profits won't. If they can find a few more mini-markets like this, they might prosper.
But they are not going to create new markets.
They can barely hang on to what they have.

I actually think there are worse things they could do than becoming a Bang&Olufsen-style boutique vendor. Given their focus on the stores, maybe Apple could become a sort of upper-crust Radio Shack.

But a market-swaying consumer electronics player?
Sorry. Not in the cards.
To do that you need market power; either size, unique inhouse tech, or the ability to prosper on predatory pricing and minimal profit margins. None of which describes the Apple of today.

The year is 2004 not 1984, and the game is way different than it used to be.
Peace.

[James Fee]

The year is 2004 not 1984, and the game is way different than it used to be.
Yet they still make money and are going their business.