Rory Reid

Wander down your local high street, or cast a casual eye over your fellow commuters, and you'll notice a lot of people with white headphones, the sign of a nation obsessed with the Apple iPod.

Its popularity is undeniable, as is its effectiveness as a digital audio player, but for how long can Apple dominate in an area that's increasingly being eyed by larger competitors, many of which have more experience and deeper pockets?

Looking at today's sales figures, it would appear that the iPod and its umbilically linked iTunes Music Store has an unassailable lead. According to Apple, iTunes users had downloaded more than 150 million songs up to October 2004.

This news was supported by the NPD research group, which stated that iTunes accounted for some 70 per cent of music files downloaded legally between December 2003 and July 2004. In the same report, it was claimed that Apple's biggest rivals in this area only accounted for a combined 23 per cent market share.

The main reasons for the iPod's success are its fashionable image and a cult-like following of users who evangelise the brand. The mere mention of its name conjures up images of cool, and an association with a group of people that have bucked the Microsoft trend and sided with the underdog.

Its popularity has also been helped by a lack of credible rivals. Many of these pretenders offer a larger list of features, but most of them are unwieldy, unattractive and therefore unlikely to win the hearts of a consumer market so obsessed with style.

But what of the future? Can the iPod maintain its popularity based on image, or will it need to evolve to avoid extinction?

The growing popularity of legitimate music download services is fast becoming a factor that drives sales of digital audio players. ITunes has helped the iPod mature, but both the player and its native audio format look set to suffer at the hands of competing devices and services.

Napster, Musicmatch, Tesco and the MSN Music Store all offer wma audio, a file format with which the iPod is currently incompatible. Although iTunes has a larger selection of music and is less expensive than its rivals on a per-track basis, the mass influx of competition can only lead to wma music providers reducing the cost of music to gain market share.

Proponents of MSN Music expect it to overtake iTunes shortly, although this view does not take into account the installed base of iTunes users running on a PC.

Consumers have historically been reluctant to invest in proprietary formats, favouring instead those that have wider acceptance. It follows that digital audio consumers, in spite of the iPod's current popularity, will migrate to devices that offer greater compatibility. You only have to consider the Apple Macintosh's comparatively small market share against the PC for evidence.

Despite its current popularity, iTunes is actually a loss leader, maintained mainly to help boost the growth of the iPod. Should wma-based download services begin to eat into iTunes' market share, Apple can expect greater losses and will be less able to combat price drops from its rivals.

Without iTunes, the iPod's brand strength could start to diminish, as there are a number of existing and emerging players that could relegate it to a niche market. The Creative Zen Micro, for example, is more portable, and offers more storage, features and format compatibility than the iPod Mini. It also has the substantial backing of a proposed $100m marketing campaign.

Whether the onset of rival players and competition from music download sites will affect the iPod is debatable, but all the signs point to this being the case. If this does happen, Apple could rely on its almost fanatical brand recognition continually to herd consumers towards support of its formats and players.

More realistically though, the company will have to give in and include Microsoft wma audio support on future revisions of its products. Some believe this to be inevitable, particularly as the iPod is already capable of supporting wma files by way of a firmware upgrade.

Apple, however, will be reluctant to tread this path as it could greatly damage its broader objectives. The company's chief financial officer has gone on record as saying that he believes the popularity of Apple's music products creates a "halo effect" which translates to more sales in its computer business.

This adoption of wma could have one of two outcomes. First, it could make the iPod the only digital audio player worth owning. Why, after all, would anyone consider buying a less well-known device when the all-conquering iPod does it all?

The second outcome is rather worrying for Apple. If iTunes becomes less competitive in the face of wma, it will make a greater loss and become less able to nurture sales of the iPod. This leaves the iPod with little more than its brand image to fall back on.

In many cases, history has dictated that when the emotional investment in a product is greater than its tangible worth, it will become superseded by better adapted rivals.

Large popular brands (such as Atari and Kodak) have been dealt similar fates. The question is this: when the iPod is inevitably forced to evolve, will it be too little too late?

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