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Lower iPod Pricing to Squeeze Competition, Analyst Believe

TMO Reports - Lower iPod Pricing to Squeeze Competition, Analyst Believe

by , 11:10 AM EST, February 23rd, 2005

Wednesday's updates and lower pricing on the iPod mini and iPod photo are the latest moves by Apple Computer to stay one step ahead of their competition in the ever-growing market of digital media devices, analyst said Wednesday.

Apple announced 4 gigabyte (GB) and 6GB models of its iPod mini starting at US$199, a slimmer 30GB iPod photo for $349, and a 60GB model for $449.

Analysts see the announcements as Apple's way to retain its number one position in the digital music world.

"Pricing is the most significant of today's announcements," Joe Wilcox, an analyst with Jupiter Research told The Mac Observer. "There is only $50 now separating every iPod except the 30GB and 60GB iPod photo. That $50 difference is a great up sell opportunity. So, if someone is looking at a $149 iPod shuffle, they can add three more gigabytes of storage for $50 more."

"Today's announcement of lower pricing clearly shows Apple is looking at the iPod as a mass market product that they are going to drive as much volume sales into as they can," Steve Baker, an analyst with the NPD Group, told TMO. "This is a strategic move to say they are not going to give up their leadership in music players without a fight."

Mr. Wilcox also believes that the $50 difference between most models means Apple has covered the main price points where their competitors could try and fill niches.

"Apple is saying to its competitors, 'If you want to sell against us, it better be under $100 or over $500," Mr. Wilcox commented. "That's going to be tough to beat, given Apple's reputation, at present."

"Some might see these lower prices as a negative," said Gene Munster, an analyst with Piper Jaffray. "But it appears these changes are more offensive than defensive. They want to hold their leadership position and they can do that by lowering prices, increasing capacity and keeping the ease of use as a major competitive advantage."

Greg Joswiak, Apple's vice president of iPod products and worldwide product marketing, told MarketWatch the new iPod models are meant to "turn up the heat" on Apple's competitors.

"We are the leader, and we want to act like the leader," Mr. Joswiak said. "We want to stay ahead of the others."

Mr. Wilcox agrees with Mr. Joswiak's assesment.

"They've got the mind share among consumers and the iPod has this iconic status. Apple knows if they lower prices and increase capacity, their competitors have little else they can say they're better at. Apple has pretty much closed that gap now."

"It is not a typical Apple strategy to stay competitive in pricing," Mr. Munster said. "Now they are saying, 'we're going to lower prices if we have to to drive our sales.' One of the big sticks they have is price and they're using it."

For the third quarter of 2004, the iPod accounted for 92.1% of the market for hard drive-based music players, according to the NPD Group, up from 82.2% a year ago. Players from Creative Technology and Rio were a distant second and third, with 3.7% and 3.2% of the market, respectively. Market share numbers for the fourth quarter have yet to be released.

Apple has sold more than 10 million iPods since introducing the product nearly four years ago. iPod revenue grew to $1.21 billion in the fiscal first-quarter from $256 million a year before and accounted for almost 35% of Apple's $3.49 billion in revenue during the quarter.

Apple's press relations department turned down a request from The Mac Observer for comments by company executives for this story.

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