Analysis: Is Apple moving away from its computer roots?
From the day the iPod debuted, there was little doubt the diminutive music player would become a significant product for Apple. With its ability to play MP3 files and sync up with the jukebox software on your Mac, the iPod immediately leapt to the top of the crowded field of handheld music players.
But the iPod turned out to be significant in other—and more lasting—ways as well. The device marked Apple’s fist major step into the realm of digital media beyond its standard software and computer offerings. Four years after the iPod’s release, the company has only expanded its digital-media presence.
Indeed, thanks to the iPod, the iTunes Music Store, and other digital-media efforts, Apple’s image as a company has undergone a dramatic shift to the point where the age-old question about Apple—is it a hardware company or a software maker—has morphed into a new query. Is Apple a computer maker or a media company?
Consider Apple’s most recent round of product releases. The latest iPods play back videos, including content you can buy off of Apple from the iTunes Music Store. Even Apple computers are becoming more media-centric—at the centerpiece of the latest iMac is a new application called Front Row that lets you control movie, music, and slideshow playback. Once upon a time, Apple touted its computers as the center of a “digital hub”—now, the company has actually released a computer with the explicit purpose of managing your digital-media experiences. How long before that pervades the rest of Apple’s product offerings?
Age of the iPod
Before tackling that question, we should look at the key role the iPod has played in influencing Apple’s brand identity as well as its financial results. In its most recent financial quarter, Apple reported a profit of $430 million on revenue of $3.68 billion—the highest revenue and earnings in the company’s history. During that three-month period, the company shipped 1.2 million Macs—and nearly 6.5 million iPods. That’s a 220 percent jump in iPod shipments from the year-ago quarter, compared to a 48 percent increase in Macs.
And the iPod business should continue growing, analysts say. Earlier this week, Piper Jaffray senior analyst Gene Munster forecast that Apple would ship 37 million iPods in 2005, providing the company “with a greater scope of awareness for various products.” That’’s the iPod halo effect, a theory that the iPod’s success will push sales of other Apple products—including Macs—upward.
If there was any lingering doubt about the importance of the iPod to Apple, the company removed it in mid-2004 when CEO Steve Jobs restructured the company to create two new divisions—iPod and Macintosh. Separate teams now oversee the development of both product lines.
‘Still a computer company’
Despite that restructuring and the iPod’s role in boosting Apple’s fortunes, analysts still see the Mac as an important part of the company’s offerings.
“At this point, the state of the online media market is immature enough that they are still a physical goods company and a company that is driven by great engineering and integration,” NPD analyst Ross Rubin says. “They are still deriving the majority of their revenue from the hardware. I don’t think the content is driving the hardware, yet.”
“Clearly, they are still a computer company,” agrees Technology Business Research analyst Tim Deal. But that could change with continued growth from the iTunes Music Store—particularly if Apple comes to dominate on-demand video sales the way it has music.
“The Apple of the future will be more of a media company,” Deal says. “The media will create demand for the hardware —it may not count as much on the revenue side, but it is becoming a big part of Apple’s identity.”
That future is still a ways off, however. And while Apple’s digital-media moves are grabbing headlines, the company is still making its presence felt in its more traditional business.
Take the announcement that Apple will shift to Intel-built processors for its laptops and desktops. Such a dramatic move—made because Apple considers Intel’s offerings more promising for the computers it hopes to deliver—signals that Apple still places a premium on innovative hardware. The same could be said on the software front, where Apple rolled out a major upgrade to its operating system that contained several significant advances.
Still, Apple’s moves in the digital-media market bear watching, particularly in terms of how they’ll affect hardware and software development.
“There is a long future ahead for the Mac,” Rubin says. “I don’t think Apple would switch to a new processor core if they weren’t looking to carry the Mac ahead for the foreseeable future.”