IPod Could Lose Cachet as Competing Devices, Services Arrive

Is Apple's (Nasdaq: AAPL) iPod about to lose its cachet? Last month, Verizon Wireless (NYSE: V) launched a new service seeking to provide its customers with an easy way to download digital music from their own mobile phones. The marketing message was clear: Why carry more than one portable device when you already have a mobile phone?

Sales of digital music -- online music plus mobile music and ring tones -- within Western Europe and North America accounted for an estimated 13.9 percent of total consumer spending on music last year.

Boston-based consultancy Strategy Analytics forecasts that by 2010 more than US$8.2 billion worth of music will be delivered through digital platforms in these same areas, generating almost 30 percent of total music sales in the world.

Increasing Pressure

Additionally, Apple's dominance of the online music space is expected to come under increasing pressure as competitors target the shortcomings of Apple's iTunes Music Store (ITMS).

"As a strategy to bring it into mobile, Apple's partnership with Motorola (NYSE: MOT) has failed. Its lack of a subscription payment model as well as the fact that it is currently limited to iPod music players, will increasingly put Apple at a disadvantage to services such as V Cast Music," said Martin Olausson, a senior analyst at Strategy Analytics. "The speed with which sales of music player enabled mobile phones will overtake dedicated music players will accelerate this trend."

Apple's experience with Motorola may rule out any quick launch of an iPod with built-in cellular radio. Thus, Apple will have to continue to spend resources towards bringing a wireless enabled product to market in 24 to 36 months. "As a result, Microsoft (Nasdaq: MSFT) will gain strength as the most viable immediate alternative for manufacturers and service providers seeking to gain share for themselves," said Philip Taylor, director of Strategy Analytics' wireless Internet applications service.

Analysts reckon that the timing is right for mobile-phone companies to make strategic moves on Apple's turf, which could mean moving beyond ringtones and partnering with outside firms to bring music to consumers over their networks.

"Mobile telcos are finally getting on track," Ronald Fulle, associate professor of telecommunications engineering technology at the Rochester Institute of Technology, told MacNewsWorld. "The honeymoon period is over, and they now must concentrate on the fundamentals."

New Strategies

At the recent Consumer Electronics Show in Las Vegas, the mobile companies' strategies began to emerge in full. Microsoft and Verizon Wireless announced their collaboration on the V Cast music service, which is enabling consumers to access and play full-track digital music downloads on their mobile handsets.

What is more, the music can also be played on Microsoft Windows XP-based PCs, which uses Windows Media Player 10.

At the same time, the majority of analysts remain optimistic when it comes to Apple's future. Researchers at UBS Investment Research this week expressed confidence in Apple's long-term strategy and indicated that there is the possibility of even more cool technology to come from the company down the road, including a 1 GB iPod nano digital music player.

Apple's shares have fallen 17 percent from recent highs, with some Wall Street researchers saying there are legitimate investor concerns that may be causing volatility in the stock. These include slower Mac sales in light of the Intel (Nasdaq: INTC) chip transition and recent news stories about potential competitive offerings from Google (Nasdaq: GOOG).

For the most part, however, the company looks to be in good shape. "While we believe there are some near-term risks to earnings upside due to the transition to Intel processors in the first half calendar 2006, we believe several fundamental positives position Apple for continued growth and share price appreciation over the long-term," said UBS analyst Ben Reitzes.