Analysis: iPod thrives, but so does the Mac

George W. Bush and Al Franken both have one. So do the Pope and Bono. iPods are everywhere, putting Apple’s logo in more places than the silhouette of a once-bitten apple has ever been before. Yet the advent of the earbud nation has to some extent overshadowed Apple’s more venerable stalwart product, the very one from which this publication takes it name and upon which Apple built an empire: the Mac.

Over the past five years, Apple has sold more than 67 million iPods—it unloaded almost 9 million in the quarter ending September 30 alone. In that same period, the company sold 1.6 million Macs—and that figure represents the best quarter for Mac shipments in company history.

What’s more, the iPod has even entered the lexicon, in the form of “podcasting,” 2005’s word of the year.

And the iPod has achieved all of this while pulling off perhaps its most impressive feat—expanding Apple’s customer base beyond the Mac market and into the vastly larger world of Windows users.

“The iPod’s definitely changed the way I see Apple,” said Anil Dash, a Windows user and VP of Evangelism for Six Apart (a title that Dash notes is a nod to the position once held at Apple by Guy Kawasaki). To Dash, the iPod has helped transform his view of Apple “from a company that makes me roll my eyes because of all my zealot friends, to [one] that I buy things from regularly. Albeit begrudgingly.”

Beyond just expanding its customer base, the iPod has helped drive Apple into other businesses—namely iPod accessories and the sale of digital multimedia such as music, TV shows, and now movies. During Apple’s fourth quarter earnings conference call last week, Chief Financial Officer Peter Oppenheimer said the company commands 85 percent of the legal music downloads in the United States. And that’s a figure that could soon balloon globally: Apple’s iTunes Store now has a presence in 21 countries, representing markets where 90 percent of the world’s music is legally sold. The company also announced that it plans on taking its movies sales business international in 2007.

The purpose of all that digital content is pretty clear cut. “Selling music and TV shows, and now movies, helps us sell iPods,” Oppenheimer told analysts.

But has all this iPod-fueled digital success moved the Mac out of the spotlight? Or to put it even more bluntly: Is Apple even still a computer company? No, not exactly, says Robert Semple, an analyst with Credit-Suisse First Boston who closely follows the company.

“It is my belief that Apple stopped being a computer company a year ago, when it launched its video iPod,” said Semple, “a move which foretold a transition to other forms of media outside of just songs, and cemented the company’s image as being more than just a two-trick pony (Macs and music). However, the success of iPod has bred success in the Mac, essentially rejuvenating Apple’s namesake product.” In fact, according to fourth-quarter numbers, the company’s Mac sales exceeded even the most optimistic expectations, generating more than $2.2 billion in revenue, representing 46 percent of its quarterly revenue.

Although the individual unit shipments were far lower than iPods, all those Macs add up to big dollars. For this reason, it isn’t hard to find analysts who argue that Apple certainly is a computer company, as that remains its core business.

One of those analysts is Needham and Co’s Charles Wolf, who has tracked Apple since the 1980s. “I think that over the next few years you’re going to see a fairly sharp increase in Mac shipments once Windows apps can run well on the Mac,” he said.

Although Wolf also notes that its business is changing, he says that the Mac’s revenues continue to make it the core business for Apple.

“Now, in a sense, Apple is wearing two hats, as a computer company—which is traditional—and as a digital entertainment company with a subset being iTunes and the iPod,” he added. “I would classify it as both a computer company and a digital entertainment company. Obviously the units shipped are greater on the iPod, but [Average Selling Price] on it are far lower, and likely to fall more. Going forward, revenues generated by the Mac—which would include software and peripheral—will greatly exceed the iPod.”

Indeed, even Semple doesn’t argue that Apple is no longer a computer company at all—but that it is no longer merely a computer company.

“Apple will continue to move further towards its ultimate goal of establishing a digital hub in the living room, but if iTV is any indication, they still want the Mac to reside outside of the living room, acting as essentially a off-site server of digital content,” Semple said. “So the way I would view it is Apple is becoming much more than a computer company but the core part of its strategy still revolves around the Mac as the center of the digital lifestyle.”

Yet for all the hoopla over the iPod—the innumerable magazine cover stories, the fawning celebrity playlist confessionals, the name-dropping on TV shows and movies—branding and marketing experts note that the Mac is still the stronger product.

“No question, it’s the Mac,” said branding guru Rob Frankel, author of The Revenge of Brand X . “iPods are a very successful innovation, but their potential is limited. If for no other reason, Macs were invented to help people create; iPods were invented to help people consume.”

Josh Rubin, editor of the trend-tracking Web site Cool Hunting, has a similar perspective. The iPod, he says, doesn’t have the ability to forge the same relationship that a Mac does.

“The Mac has greater mindshare and loyalty from its users than iPod,” Rubin said. “Though the portability of the iPod makes it a more personal device, the life-changing benefits and experience of the Mac foster a more significant bond between person and machine.”

Yet as Dash—who can count four iPods in his household—points out, sometimes you don’t necessarily want to forge a bond with your machine; you just want to listen to music. And for that audience, the iPod seems to have found a sweet spot.

“The truth is, I’ve been around creative people or digital artists my whole life, exactly the people that have always been Mac diehards,” Dash said. “And the fact that they acted like zealots was completely off-putting to me. I don’t want a lifestyle change, I just want to use computers!

“The iPod acted as a great gateway drug to Apple usage. It doesn’t require a wholesale change of my daily digital habits, and I don’t have to throw away my experience as a Windows expert—yes, those exist,” Dash continued. “The best part is that the iPod can stand on its own merits; I don’t have to drink the Steve Jobs Kool Aid to recognize it’s worth having.”

[ Mathew Honan is a San Francisco freelancer whose work has also appeared in Wired, Salon, and Time. ]

This story, "Analysis: iPod thrives, but so does the Mac" was originally published by PCWorld.

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