Sandisk One Step Ahead of Apple, Will Apple Leapfrog Samsung?

[Damion Chaplin]

<div class='os_post_top_link'><a href='http://blog.seanalexander.com/PermaLink,guid,690400d7-0ff2-42c3-89ad-c9f356691039.aspx' target='_blank'>http://blog.seanalexander.com/PermaLink,guid,690400d7-0ff2-42c3-89ad-c9f356691039.aspx</a><br /><br /></div><i>"It's not often I make predictions here, but yesterday I had an "aha" moment spurred by sites abuzz with Reuters report that SanDisk is launching the Sansa e280, an 8GB version of their e2xxx series for $249.99. This little device will hold about 2,000 songs, double the capacity of the similarly priced iPod Nano. Meanwhile prices on their 2GB, 4GB, and 8GB models are being dropped an average of 30%. This may sound like just another product announcement, but I believe this is much more. This is the equivalent of a shot across the bow of every MP3 player in the market and a new price war is underway... In Q1/Q2, once IM Flash is ramping up, the new Nano/Nano replacement will come out, and a price battle will kick into overdrive. The smaller sized chips + lower price to Apple gives them an edge on size of device, capacity, and without a major price differential."</i><br /><br />With Sandisk releasing an 8GB version of the Sansa, and the Nano still stuck at 4GB (and at the same price no less), Sandisk is currently king of the hill in the flash player realm. Of course, Sandisk can offer such great pricing because they own the flash memory manufacturing plants, which gets them NAND at prices much lower than Apple. Apple, however, has partnered with others to create IM Flash, who is currently working on 50nm NAND flash (current NAND is 500nm, 10x bigger), which will allow Apple to get much smaller NAND at 'unparalleled' pricing. Sean Alexander predicts that we'll see this new NAND in the upcoming iPhone, and in a new version of the Nano in Q1 2007. I'm going to make my own prediction and say if Apple doesn't have a new version of the Nano by Xmas, they may find themselves in trouble. I also predict that sales of the iPhone won't be anywhere near enough to offset no new Nano until next year. And for all we know, the iPhone will be delayed until Q1 2007. They still have to find a carrier to partner with, after all.<br /><br />And, of course, none of this means anything without sales numbers to back it up. Until then, it's sheer speculation. It does get one thinking though...

[Macguy59]

Don't you actually have to sell the most flash based players to be considered king of the hill?

[ojlittle]

They will never be king of the hill while using Windows Media &amp; WMA DRM files. It has been said 10 million times... Neither offers the simplicity of iPOD + iTunes no matter what capacity the drives are. Not to mention the buggy / finnicky WMA DRM.

[Jason Eaton]

Okay, while the new king of the hill comment probably is early... this is a good thing. Competition pushes better products for all of us. I wouldn't mind if Apple got a little worried and upped the storage and features of the nano.

My iPod mini is showing its age. So I am waiting till Zune comes out or the next refresh for the pods with my mp3 collection. Till then go competition. :D

[Macguy59]

Okay, while the new king of the hill comment probably is early... this is a good thing. Competition pushes better products for all of us. I wouldn't mind if Apple got a little worried and upped the storage and features of the nano.

My iPod mini is showing its age. So I am waiting till Zune comes out or the next refresh for the pods with my mp3 collection. Till then go competition. :D

Competition is good and upon further review perhaps he was referring to the players storage capacity.

[Vincent Ferrari]

Realistically, though, is this really "competition?"

Apple owns 76% of the market right now for MP3 players. That means Creative, Samsung, Toshiba, RCA, JVC, and every other company who waded into the market is splitting approximately 24% of the market. Let's be generous and give Sandisk and Samsung a total of half of that.

Are products that are that much less prevalent actually competition aside from existing in the same market?

I doubt it.

Many companies had video long before Apple did. Many companies have players with FM Radios, and so on. Apple doesn't. I don't think they seriously pay too much attention to the "competition" and if they do, I don't think it's going to benefit us as much as you think.

[Jason Eaton]

I would say it is competition in the sense that it is better then nothing.

If you disregard the 24%, what incentive does Apple have to ever change their lineup? If they sell the same number this year as they do next year, why would they want to add more memory? Why would they want to add larger screens?

With a large dominance of the market Apple has to worry about the perception of value and the perception of being the best. In my mind I believe that it is more important then the actual player at this point.

Hype fades with time, and if it grows too large hype becomes anti-hype and eats itself. To maintain its position Apple can not rest on past success but needs to churn it's line up. To keep things fresh and to keep some sort of parity at the very least with what else is on the market.

In this example lets say a new buyer is checking out what is in the market. While the extra storage may not be the seller it places the seed of doubt, that perhaps Apple has some flaws... or is a little behind others. Over time that grows and eats at sales.

So ever little bit is needed for Apple to maintain. This market can only be described as Apple's market to lose. They need to consider all comers and counter.

[Vincent Ferrari]

Apple has never been a company to "counter" and has always been a company that does its own thing. That's why people love/hate/love/hate them. I don't think they're ignoring them, but honestly when your products sell 3 times that of your competitors combined and your competitors are tied into a maligned DRM system they have no control over, you have to wonder how many sleepless nights Steve Jobs is really having.

I'd say none, and only because many companies and products have come and gone but none have made a dent. Then you have a company like Creative who releases a new Zen Muvo Micro Photo Movie Video Small Silver Special Double Green edition every 20 minutes, and people wonder if their player is going to be obsolete in a month (answer? probably).

Look, I'm an iPod fan and an Apple owner. Maybe I just see things differently. The truth is, though, that my iPods (the 2 I've owned in the last 4 years) all use mostly the same accessories, all use the same DRM, and all work on Windows / Mac. iTunes is a breeze to use and buying music is effortless.

Nothing on Windows matches it whatsoever. Nothing from Creative / Samsung / Toshiba comes close.

Apple's advantage is much more than features / storage capacity of the player. The sooner all these other folks realize it, the sooner they can do some kind of triage and stop getting their collective asses handed to them.

[Jason Eaton]

Preaching to the Choir. :)

Original iPod (1g), to iPod (3g), to iPod mini, to Zen micro (very short experience), to LG vx8100, and back to the iPod mini.

The iTunes intergration is the deal sealer to me. Don't get me wrong. Just trying to remove some variables from the playing field is all. If I had a choice of 4GB iPod nano, versus 8GB nano... and the 8GB was cheaper. Well I would be getting the 8GB.

So yeah, the iPod line has a bit more going for it, but if the entire line up of competition had an 8GB, less cost player and Apple was still pushing 4 GB at a higher cost... at some point that catches up with them.

But your right, will Apple react? If they want to maintain, yes. If they don't want to keep their lead. No.

Dollars to donuts, on the next refresh the nano capacity will increase.

[Dyvim]

Read the 1st comment on the original post. The author got his facts wrong about NAND sizes. Current NAND is 90nm process (and supposedly SanDisk is developing a 55nm process). So the 50nm process being developed is smaller, but not 10x smaller. So don't expect them to be able to cram 10x more memory into the same space by Q1 2007.

[Vincent Ferrari]

But your right, will Apple react? If they want to maintain, yes. If they don't want to keep their lead. No.

Dollars to donuts, on the next refresh the nano capacity will increase.

I agree 100%, but is that an evolution or a response?

I tend to lean toward the latter...

[Jason Dunn]

Don't you actually have to sell the most flash based players to be considered king of the hill?

He meant king of the CAPACITY hill, as in 4GB vs. 8GB. No one is disputing that the iPod is the volume leader (although there's certainly more competition in the flash-based market).

[Jason Eaton]

Feeling chatty today. :)

Can I say responsive evolution?

To me most product evolution has a catalyst. Why evolve if you don't need to? Why should Apple take on additional R&amp;D costs, component costs, and marketing costs if their current product is already holding the lead?

Apple (and most of the for profit companies) will not do these things out of the kindness of their hearts. Something has to threaten the profit for a reaction.

I believe that the threat is competition. Sure the amount of threat dictates the level of reaction. Maybe this will be like holding a match under Apple's foot rather then a full blown fire. But the catalyst is still there.

Only time I have seen a product go under evolution without competition is when the market is saturated and the company needs to create an artifical condition to resell their product (Windows OS comes to mind). I don't think we are there yet with music players.

[Felix Torres]

Feeling chatty today. :)

Can I say responsive evolution?

To me most product evolution has a catalyst. Why evolve if you don't need to? Why should Apple take on additional R&amp;D costs, component costs, and marketing costs if their current product is already holding the lead?

Apple (and most of the for profit companies) will not do these things out of the kindness of their hearts. Something has to threaten the profit for a reaction.


Good point there.
Dominant market players face their own set of challenges, often self-imposed. How a company responds to market domination says a lot about its nature. And how they perceive their customers; as a resource to be managed or an audience to be courted. The former takes the installed base for granted, the latter asumes they have free will and must be won over continually.
The latter approach makes for higher customer satisfaction and, often, enduring market domination.

A good example is the ongoing game console war between Sony and MS.
When Sony announced the PS2 they stated that they intended it to be a 10-12 year product. At the time, their only competition was Sega and Nintendo and they were (correctly) sure they were no real competition. In fact, Sony intended for the PS2 to be more of a media box that a gaming console--the bulk of their planned development efforts were to go into media add-ons and spin-offs (like the PSX).
And then MS got into the game and forced Sony to focus their efforts on the games.
The result was a shorter PS2 life-cycle and way better games in the second half of the cycle than the first, lower royalties for developers (with cheaper prices for gamers--or more precisely, no increases as games got more expensive to develop) and a PS3 that arrives in 2007 instead of 2011 as originally planned. Given the current, healthy, sales rate for the PS2 the market would've allowed Sony to get away with no new console until the next decade...if it weren't for the XBOX taking 20% market share.

So its a good thing for consumers when there are strong challengers to market leaders.

Given that the pioneers in the DAP market (sorely missed Rio, Creative, and iRiver) have not been able to profitably compete against the Apple marketing team, Apple now has what Sony had in 1999; a commanding lead in a highly-visible media market. And like Sony, Apple is drawing new competitors into the business who think *their* business model and resources will let them eat a healthy portion of the pie and they don't care if the piece comes off Apple's hide or the pioneers'.

This isn't about being king of the hill in unit sales (Palm made that mistake in the PDA market, thinking that a massive lead in installed base and market share made you invulnerable to competition) but about getting a good enough return on your investment. About making a profit. About getting into the game and staying in it.

Everybody seems to think that the X86 OS business is the shining example of how tech markets behave when the reality is that it is an abnormality; a market that has evolved a very high barrier to entry--new competitors have to match 20 years worth of technology *and* customer expertise. Very hard to pull off. Most markets, however, are like the PDA, game console, and LCD TV businesses--the success of the early pioneers (Palm, Atari, Sharp) draws in bigger and bigger players in successive waves, each looking for as big a piece of the pie as they can get. If they end up being dominant, then so be it; if not, they'll endure as long as they can make money and walk away when they can't.

Sandisk is basically part of the third-wave DAP vendors (Creative/Rio/Compaq/Sony etc, being First wave; Apple, Dell, RCA, etc being second wave) that are looking for piece of the pie. Sandisk has been fairly successful for a recent entry and now they are looking for a bigger piece before MS comes in, probably as the first Fourth Wave player if reports of the Zune feature set are correct.

Apple has, so far, ignored Sandisk.
They may or not continue to do so; its their prerrogative as market leader to react on their schedule, not the challengers' schedule. And, they seem to be more concerned with moving into new markets (cell-phones) than they are in protecting their rear. DAPs are conquered territory in Apple's view.

Should be interesting to see how it plays out.

[mcsouth]

Realistically, though, is this really "competition?"

Apple owns 76% of the market right now for MP3 players. That means Creative, Samsung, Toshiba, RCA, JVC, and every other company who waded into the market is splitting approximately 24% of the market. Let's be generous and give Sandisk and Samsung a total of half of that.

Are products that are that much less prevalent actually competition aside from existing in the same market?

I doubt it.

Many companies had video long before Apple did. Many companies have players with FM Radios, and so on. Apple doesn't. I don't think they seriously pay too much attention to the "competition" and if they do, I don't think it's going to benefit us as much as you think.

Gee, it wasn't that many years ago that Palm had about 70% or so of the worldwide PDA market. MS was the provider of the Pocket PC software that vendors used to compete against Symbian devices in the other 28-30% of the market. Things are a bit different today!

My point is that Apple may be sitting on a huge market share today, but consumers have a tendency to be fickle. If Apple doesn't keep up with market trends and keep giving consumers what they want, they may end up being one of the vendors chasing that bottom 30% in a few years.

[Macguy59]

My point is that Apple may be sitting on a huge market share today, but consumers have a tendency to be fickle. If Apple doesn't keep up with market trends and keep giving consumers what they want, they may end up being one of the vendors chasing that bottom 30% in a few years.

I agree with much of what you say but keep in mind that the simplicity of getting music, videos, etc onto the iPod via the iTunes store plays a large part to. It will take more than a great piece of hardware to unseat Apple in this market.

[Vincent Ferrari]

Except that Palm did NOTHING with their platform and was left behind in features. When talking about a "swiss army knife" device like a modern PDA, that's one thing.

However when talking about an MP3 player, the requirements are much simpler... Good sound, easy interface, and companion software that works really well.

So far the only company that got that mix right is Apple. It may change in the future, but it isn't changing any time soon. Microsoft's Zune isn't even hitting the same market as the iPod, really, when you consider how much of the Zune is beyond music playing.

Palm's situation is close to Apple's, but MP3 players are different than PDA's.

[ale_ers]

I agree with much of what you say but keep in mind that the simplicity of getting music, videos, etc onto the iPod via the iTunes store plays a large part to. It will take more than a great piece of hardware to unseat Apple in this market.

Has it been that long since you used WMP. Everyone touts the ease of iPod+iTunes, and I don't dispute that, but have they even tried the WMP offerings. It may have been buggy 2 or 3 years ago, but today it is seamless. Sure, some complain about needing to sync their subscription player each month (I also think that works flawlessly), but that is not comparing Apples to Apples (no pun intended). Buy a song off Napster, Yahoo or Urge and plug in a Plays for Sure player...then tell me how hard that was.

[Vincent Ferrari]

Oh stop it.

Please.

Until the hardware manufacturers make the software also, it's not going to be anywhere near iTunes-easy.

It's getting there, but in terms of a trip from New York to California, where Apple is California, Windows Media is probably in the neighborhood of Illinois right now. The Zune may push them over the edge, but no one can honestly call the experience, as of right now, "seamless."

Yes they've come a long way, but a long way is not a complete trip.

[Jason Dunn]

Until the hardware manufacturers make the software also, it's not going to be anywhere near iTunes-easy.

Wait a second...have you ever used the crap software that Creative used to ship with their devices? Using WMP as a front-end to their product is the SMARTEST thing they could ever do. Now I'm not saying that WMP is perfect by any means, but man, it's SO much better than what we had a couple of years ago with MP3 players!

[Vincent Ferrari]

Sorry, I should've been clearer.

I don't mean it's an automatic slam dunk, but when you have one party making an OS and the "player" software, and another company making the device, you're sure to end up with cockups.

Creative's software did suck. I agree. I didn't use it extensively, but I've seen it and heard about it. But the key to integration seems to be what MS has in plan for the Zune; they make the software to manage the device, and the software on the device itself (unless I'm mistaken, if I am please correct me).

As people on here have said, it's going to take a lot more than a good piece of hardware to win this battle, and it seems like MS finally is getting the message. Only time will tell.

Apple's advantage isn't the hardware by itself. It's the hardware combined with software made for that device (not software generically made for 30 devices) specifically. The advantage they have (of making both) will be lessened with the Zune if the integration is idiot-proof and works well.

[kiwi]

heh.. well, I met someone this summer who had no clue what "this thing called an iPod" was. Made me smile. :)