The iPod's Tipping Point?

Now that the dust has settled a bit from Monday's surprise announcement of a 4th generation iPod, I'd like to step back and analyze the strategic implications of this move.

First the backstory. As is widely known, Apple has an enormous lead on its nearest competitors in the audio player market. In the minds of much of the American general public, MP3 player equals iPod. Period. The average person has probably never heard of iRiver or Creative (unless they happen to own a Soundblaster or some other accessory where Creative is a brand leader). Simply put, to the masses, Apple has total mindshare and its hardware competitors might as well not even exist.

However, hardware competitors such as Creative and iRiver (and Rio and Cowon and on and on) are not what drive Apple's business strategy. Microsoft drives Apple's business strategy. This is because the real, long-term, clash-of-the-titans fight is over whether Apple or Microsoft ends up as the dominant digital rights management (DRM) technology. Apple has iTMS that powers its iTunes online music store and only works on its iPods. Microsoft has WMA, which works on just about every audio player on the planet except the iPod.

So how does new-iPod-Monday figure into all of this? Normally when a company has such high brand awareness, it can charge a hefty premium for its products. Until Monday, this was the case. iPods have always been quite a bit more expensive than rival devices. But the hipsters had to be seen with the white headphones, so they bought them in droves, prices by damned.

Why then did Apple lop $100 off the price? This is the key to their strategy: they've already sold the hipsters, now its time to cleanup selling to everyone else (translation the other 99% of the population).

I think that Apple is trying to manage the iPod's Tipping Point, a la the Hush Puppy revival that rapidly quadrupled sales of a moribund brand sparked only by a few New York City hipsters. As an aside, I can't recommend Malcolm Gladwell's The Tipping Point highly enough, which explains and gives endless, highly-entertaining examples of the Tipping Point in effect. What Apple wants is for the iPod to "tip" into being a nearly ubiquitous device in the way that cell phones and DVD players are now. This, I believe, is the "it" Apple CEO Steve Jobs referred to in the Newsweek article:

Steve Jobs noticed something earlier this year in New York City. "I was on Madison," says Apple's CEO, "and it was, like, on every block, there was someone with white headphones, and I thought, 'Oh, my God, it's starting to happen'."

That big price cut was designed to fuel this. Today the iPod is a whole lot more appealing to all of us less hip and more price-sensitive types. Before Monday the two main drawbacks of the iPod were high price and short battery life. Guess what? That's exactly what the 4th-gen iPod ponies up. The remaining gripes about the iPod pale in comparison and I can be cool with the cool kids without having to break the bank. Oh and there are hundreds of accessories available too.

At this point, I think that this is a very astute (dare I say brilliant?) business move on Apple's part. I expect them to immediately follow up with expanded marketing efforts to the mass market. And assuming they can deliver 4G iPods in volume, I expect Apple to blow the lid off iPod sales records.

Microsoft, for the time being at least, has put its money on portable video players (or at least has its attention divided between audio players and PVPs). Apple disagrees and has gone all-in with the audio-only iPod. Only time will tell who has the winning hand.

Related:
4G iPod Officially Official
More on the New iPod

• Rio Says "Me Too!" to 6GB
  
• iRiver H10 Gets a 6GB Boost
  
• New Roc Box Site
  
• Cowon iAudio X5 Info and Photos