How Much Cheaper Is the iPod Going to Get?
When the first iPod came out it held 5 GB of music and cost $400. Today that same $400 can buy a 60 GB iPod. That means in five years the capacity has increased by a factor of 12 while the price has remained the same. To help put that into perspective for you I have compiled some statistics on the history of the iPod as it relates to price, size and value.
(author’s note: due to their short existence the Mini, Shuffle and Nano are not included in this comparison)
Another way to examine the iPod’s value is to compare the price per GB of each model. The first iPod, at only 5GB, cost $80 per GB. However when the next model was introduced (the 10GB model) the price per GB dropped to only $50 per GB and it has plummeted ever since. Comparing the price per GB of the largest capacity iPod to the corresponding iPod of the previous generation shows with each new iteration the price per GB drops by 33% each time!
This means you are paying 33% less per GB every generation. That is why the first iPod was so expensive at $80 per GB while the newest one is a great deal at barely $7 per GB.
As harddrive technology improves prices will of course fall to the benefit of the consumer. However what the numbers and graph don’t show is that as the price of storage fell, the devices themselves were improved in other ways. They became thinner, got larger displays, longer battery lives, brighter screens and better interfaces. And though the traditional iPod always used harddrives as its storage medium, the Shuffle and Nano both use flash drives. And even though they haven’t been around long enough to merit that many new additions, in time they will become a much better deal than they are now. Much like the original iPod did.
There must eventually be an end to this cycle, though. Prices can only drop so far, likewise harddrives can only store so much data. Eventually the technology will progress to the point where digital music players are no longer special devices but rather cheap commodities. Much like the walkman and diskman eventually became.
At that point, regardless of how good Apple’s products are, they will lose marketshare. Some time in the future portable media playing devices will become cheap to the point where not having such a device isn’t even an option. And while Apple will certainly do well in this market, they cannot rely on it as an indefinite source of income.
I predict Apple has at least 3 years (but up to 5 at the most) in which they can enjoy a de-facto monopoly in this space. After 5 years the price for components will have dropped to the point where almost anyone can, and will, compete with the iPod. If someone emerges as a viable competitor to online media distribution (my money is on Amazon) then Apple’s dominance in this area will be over. By the time that happens though Jobs will have hopefully found a new star to hitch his wagon to.
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Comments
Well, I hope $/GB drops to 5$ real soon. Not because I want it any cheaper (although that would be nice) but beacuse I want an 80GB unit.
You keep getting it wrong. My wife gave me the first iPod for Xmas. It cost $500 new at the Apple store.
I don’t know what Apple store your wife shopped, but the 1G iPod was listed for only $399. I know because for about $50 less I laughed about purchasing a “better” minidisc recorder with built-in FM tuner. Boy was I wrong.
sandia67,
Dude, no need to get upset. Your wife actually bought you the 2nd iPod to come out. It was 10GB and cost $499. The original iPod was only 5GB and cost $399. But thank you for your faith in my ability to do some basic research.
And by the way, I accept your apology.
Slightly disingenuous analogy in that walkmans etc basically were a largely static technology with very minor improvements over their popular lifecycle, whereas the ipod rides on the state of technology. So, I think the idea that the technology will ultimately be the limiting factor is flawed - you don’t seriously think that storage will reach their best possible price/capacity ratio within the next 3-5 years??
Obviously though the main point is that the technology required to make a good ipod will eventually be so cheap that media players will be mucho cheapo too. Which is a good point. Well done.
I think eventually all iPods will use flash memory and they will be selling in a range of prices from $35 to $150 depending on features (not storage capacity!). The business model will be like Swatch watches or disposable cell phones. Apple will crank out different designs, some from ‘guest’ designers, every six months and we’ll all buy the one (out of 100 new models) that appeals to us, replacing the old one that we bought six months previously.
In the mean time Apple would have moved on to take over all the living room electronics that Sony used to dominate. But in a totally new, uniquely Apple approach.
Ben Hall,
No, I don’t think that storage will reach its best price/GB ratio in the next 5 years. However, I do feel that in 5 years that ratio will have dropped to the point where Apple’s unique advantage will be greatly diminished.
Think about it like this. How much space do you need in a portable player? 10GB? 20GB? 50GB? I only have 8GB of music. However I bought a 60GB iPod because I plan on using it as a portable storage device as well. That is why I paid the $399 premium that Apple charges.
But what happens in 5 years when I can get 100GB device for $75 from Sony? Do I really need Apple’s 500GB player for $399? I mean, 100GB is plenty, even for me. I don’t imagine needing half a terabyte of storage anytime soon. At least, not in a portable drive. And I am a very tech savvy kind of guy.
Now look at your average consumer. Sony (or MS or Creative or WalMart or anybody with some cash and a dream) can sell a 50GB sized player for $35. Yeah the interface will suck, yes the programs that load music on it aren’t the best, but for $35 people can get over such petty concerns.
It is at that point that Apple has a problem. Because it can no longer sell players for $200-$400 when WalMart can churn a decent one out for such a lower price. Even if Apple has every advantage on its side that low a price will ensure that at least some other MP3 players are sold.
That was my point and that is why I was saying that Apple needs to come up with a new business model soon because this one won’t last as long as many people seem to think.
And when I said, good point, that was exactly what I was referring to.
You are right I am wrong, or rather my wife was wrong. The original price was $399, not $499.
If I apologized for being wrong, that would be a bad precedent. After 68 years of life I have only apologized once. And it wasn’t over a piece of electronics!
Even if the price is low enough for everyone to make an iPod, Apple will still maintain its lead due to brand awareness and first to market. As so many people have pointed out, in order to beat the iPod you actually have to beat it, not just match it’s features and then slap a lousy interface on it.
Personaly I’m pretty tired of the iPod fiz, to me Apple is a computer company that happens to make iPods, not the other way around that seems to be the wallstreet view.
At the age of 68 I don’t blame you for making these minor mistakes.
I would think that Apple realizes that the commoditization of the iPod is inevitable. In my opinion, this is one of the reasons that iTunes works only with their player and is one of the reasons that will be able to sell a commodity product for a value-added price. Think about it. If you buy 1000 songs from the iTunes store over a five-year period, you have way more invested in your portable music than just the cost of the iPod. You also have $990 of music that won’t play on any other MP3 player. Perhaps someone will come up with some sort of work-around that will enable you to move your music to another type of player, but as an Apple stockholder I am not interested in cheating the company out of any potential revenue since that only hurts my stock price in the long run. I happen to believe that the iPod of five years from now will be radically different from what is now state of the art as Apple continues to improve the product.
Sorry about, my previous comment. I wanted to say that I agree with you, and it’s nice to see a fellow shareholder.
James R. Stoup, what makes you think that your needs are typical? I have a 70GB music library and it isn’t getting any smaller as I have a habit of buying more.
Additionally, the kids out there are storing video too and that’s a whole new ball game as far as storage requirements goes.
Nobody will ever need more than 60GB of storage on their iPod like nobody will ever need more than 640k of RAM.