I used to think that the iPhone was cannibalizing iPod sales, but for this holiday season, the reverse may be true.
The iPod Touch seems to be flying off the shelves. Its the perfect gift for someone who is lusting for an iPhone, but either doesn’t want to change cell carriers, or doesn’t want to pay the monthly data plan that is required for the iPhone.
In the short term this cannibalization depresses Apple’s potential profitability, since the margin is hugely higher for the iPhone with the carrier subsidy.
But in the long term, it’s all good news. Once users gets hooked on their iPod Touches, it should quickly occur to them that they don’t need to carry around and charge two devices, and that their next phone should be an iPhone. Almost every Touch customer is a future iPhone customer, and will have paid Apple for an extra high-end device along the way.
To gauge the future of Apple and APPL, the most interesting number is not the number of iPhones sold, or the numbers of iPods sold, but the aggregate number of iPhones and iPod Touches sold. THAT is the installed base of Apple’s mobile platform. When you compare that number to RIMM, which only has phones as their mobile platform, Apple’s advantage going forward becomes much clearer.
In the short term this cannibalization depresses Apple’s potential profitability, since the margin is hugely higher for the iPhone with the carrier subsidy.
Here’s another way to look at the situation.
If the Touch did not exist, would those people purchase an iPhone? If they would not (for the reasons you provided) then how is it cannibalization or a suppression of Apple’s profits? I’d rather sell a Touch than nothing at all.
[ Edited: 04 December 2008 09:19 AM by mightydog ]
This development is excellent news for the iPhone S/W platform. It may also be great news for this quarter’s numbers since Touches don’t have deferred revenue accounting.
In our Mac club, there is only one regular that has an iPhone while about 4 others have a Touch, plus basic cell phones. Talking to the Touch owners, they have all the things they want except a $100/month phone.
I was dead set on buying an iPhone until I did the AT&T math. I realized I would be paying greater than $360 more per year for cell phone service, and I just don’t need to access the internet from anywhere. By that logic, I guess my 32GB iPod Touch paid for itself.
I think just the opposite could be true. I was not planning on buying an iPhone. I did not want to pay a monthly fee to use my iPod, so I bought an iPod Touch when they came out.
Now, after using my iPod Touch for awhile, I really like the interface and I am getting more disgusted with my cell phone interface and usability. Next time my contract comes due I am going to switch carriers and get an iPhone for myself and my wife.
It is almost like the iPod Touch is a “gateway drug”, get people used to the interface on the iPod Touch and they will buy and iPhone.
I think the iPhone is spurring iPod Touch sales. Where I work I see a lot of people wanting a PDA to replace their Palm Pilots, but don’t want a monthly data charge. The iPod Touch syncs wirelessly with our Exchange server and it a great choice for them.
I think just the opposite could be true. I was not planning on buying an iPhone. I did not want to pay a monthly fee to use my iPod, so I bought an iPod Touch when they came out.
Now, after using my iPod Touch for awhile, I really like the interface and I am getting more disgusted with my cell phone interface and usability. Next time my contract comes due I am going to switch carriers and get an iPhone for myself and my wife.
It is almost like the iPod Touch is a “gateway drug”, get people used to the interface on the iPod Touch and they will buy and iPhone.
Just MHO, YMMV
Andy
I tend to agree. The iPod Touch is almost a “try before you buy” option.
Further, in a few years, when the iPhone is available through Verizon or Sprint, those that have held off purchasing due to ATT will quickly jump on board.
Almost every Touch customer is a future iPhone customer, and will have paid Apple for an extra high-end device along the way.
There’s no proof of that. In fact, I would say that if someone picks a Touch over an iPhone, the opposite would be true. I would agree that sales of both should be considered an aggregate though, since their form and function are essentially identical.
IPod Touch is currently a “lust object” of mine; I pick up one in a Best Buy and play around with it, and it’s like brain candy. I have one of the new Nano’s that I’m very happy with, so I really have no need for it. Still… if I find a way to justify a purchase…
IPhones are great, but I can’t ever see myself owning one in the current environment. $70 a month for a phone plan??!? No thanks. I also know several people who complain about that spottiness of 3G service, and I’m in a major metro area. Not exactly a selling point on both counts.
For many the iPod Touch may be all that they need when the many alternatives for converting it into a Web phone are realized, which will only become more common as ease of install an use is made easier. This has to be driving AT&T nuts.
I can’t personally justify paying for any data plan right now, not a serious one that would cost effectively $100. Paying $1200+ to AT&T is too much, right now. Perhaps I could have managed the old $59.99 plan, but I’m sure I would have exceeded the 5000-minute data limit…
But I can’t bring myself to buy an iPod touch either, when I know I will get an iPhone eventually.
I do know a couple of people who bought the iPod touch and then bought iPhones a few months later, much to my surprise. They generally sold their old iPods at that point.
My father bought his first iPod during the weekend, a touch model, at Best Buy. Their display model was gone, damaged by excessive, erm, touching. If he likes the iPod touch, he will probably get an iPhone during his next subscription cycle.
In my case it’s not costing Apple an iPhone sale. I don’t want an iPhone. I will be getting an iPod Touch. As others have said before it has everything I want except the bloody monthly payment to Rogers (this is Canada).
Personally I think the two are going to different markets. In the long run it might even increase Apple Sales. Get an iPT now and if as you said they decide to stop carrying two devices, get an iPhone later.
In the future, either cellular network destroys Wi-Fi or the other way around. The fight could be decades long without a clear winner. Hence, Apple launches two products to deal with the situation. iPhone for cellular network and iPod touch for Wi-Fi. My relatives bought iPod touch because they don’t want to pay for the data plan, initially they plan to buy iPhone. They’re not staying in US. Unlike US, Wi-fi is prevalent in their country. My immediate family owns three iPhones. Obviously, I’m in the camp of considering iPhone and iPod touch as an aggregate ... has been so since launch.
For many the iPod Touch may be all that they need when the many alternatives for converting it into a Web phone are realized, which will only become more common as ease of install an use is made easier. This has to be driving AT&T nuts.
I have four iPhones on my household plan and there are real economies of scale with each iPhone added. For $30 per month we have unlimited texting on all phones (a real money saver with teens on the plan). Each additional iPhone costs $40 per month (provided additional minutes are not needed).
All that said, there’s a definite role for the iPod touch in the mix. As a handheld entertainment center, there’s nothing to match the touch. It’s only in comparison to the iPhone does it appear to be missing a feature - the phone.
The iPhone and iPod touch are similar but different. As an AAPL investor I’d of course desire for every cell phone owner to consider an iPhone. When someone purchases an iPod touch I don’t see as a lost iPhone sale but one more person embracing Apple’s new and emerging handheld computing paradigm.
Look at it another way: If the iPhone didn’t exist, we’d all be cheering every iPod touch sold. There’s no reason not to cheer. The touch and the iPhone may be similar, but they are also quite different, even if they share 10,000 apps between them.
