The lack of a camera in the new iPod Touch models has generated a considerable amount of disappointment in the blogosphere, with some folks going so far as to claim that Apple is getting lazy and insulting its consumers.
But there’s a method to Apple’s madness, and it’s called business. Despite what Jesus Diaz of Gizmodo may want to believe, or expect, Apple doesn’t adjust it’s product roadmap to fit within every single Apple rumor that pops up in the months preceding an Apple event. Granted, credible reports about a new iPod Touch model equipped with a built-in camera have been floating around since April, and I myself was hoping to pick one up as soon as it was announced – but that’s simply not how things panned out. So yeah, it’s disappointing that Apple’s iPod Touch announcement didn’t live up to people’s expectations, but when those expectations are the amalgamation of Internet rumors, anonymous tipsters, and bloggers who think that their idea of an ideal feature set should be written in stone, what else do you expect?
The reality of the situation is that Apple has a lot of balls in play, and its desire to sell as many iPod Touches as possible is tempered by a number of other considerations, interests, and products.
The iPod Touch may be Apple’s flagship iPod, but there’s no question that Apple’s flagship product is the iPhone. Apple already dominates the MP3 player market, and despite the impending arrival of the Zune HD, it doesn’t seem like Apple will be ceding away any significant portion of its commanding marketshare anytime soon. On the flipside, the smartphone market is still in its infancy, and while Apple has exceeded expectations with the iPhone, it faces stiff and serious competition from companies like RIM, and to a lesser extent Palm and an assortment of Android devices. In order to ensure that the iPhone continues to grow, Apple needs to make sure that the iPhone remains more attractive and feature-rich device than the iPod Touch.
One of the key selling points for the recently released iPhone 3GS was its ability to record video, and the idea that that functionality was coming to the iPod Touch got everybody amped up about yesterday’s iPod announcements. After all, a Touch with camera functionality all but puts the device on a level playing field with the iPhone, only without a $60/month commitment to AT&T. In that respect, such a move would arguably make the iPod Touch a much more attractive buy than the iPhone, and would only serve to cannibalize the iPhone sales that Apple isn’t willing to sacrifice at this point.
Apple’s strategy vis-a-vis the iPhone and iPod Touch is to always keep the iPhone just 1 step ahead of the iPod Touch. By the time the Touch gets a camera (presumably next year), the iPhone will probably have some new feature that users will be hoping migrates its way over to the iPod Touch. And so the cycle will continue.
Meanwhile, Apple did add a video camera to the iPod Nano, with the obvious question being, “Why the Nano but not the Touch?” But again, the answer is simply that the Nano doesn’t compete with the iPhone. While Apple undoubtedly wants to increase iPhone sales, that doesn’t mean that it’s content with watching iPod sales dwindle down slowly but surely. Apple’s iPod Nano margins may not be through the roof, but its sales volume more than makes up for that fact, and even with over 70% of the MP3 player market, Apple still needs to add features to its lesser iPod models to, at the very minimum, keep sales steady. The inclusion of a video camera, in this respect, fits the bill 100%, and instantaneously makes the iPod Nano an attractive purchase for those who simply have no need for a wi-fi enabled and app store capable iPod Touch. From a business perspective, Apple’s decision making here is spot-on. The iPod Touch didn’t undergo any revolutionary upgrade, and with the app store at its disposal, it didn’t really need to. The iPod Touch, essentially, doesn’t need a camera to push units out the door. At the same time, in a market already saturated with iPods, Apple needed a compelling new feature to get customers back on board the iPod Nano bandwagon, and the inclusion of a video camera at a price point of $149 does just that. Moreover, it also allows Apple to target people who simply aren’t willing to shell out $200 for an MP3 player in the form of an iPod Touch.
Apple’s announcements yesterday will work to make the iPod Nano a hot ticket item this holiday season, and while the iPod Touch didn’t receive any special treatment this time around, the growing popularity of the iTunes App Store will make the iPod Touch an attractive item this holiday season as well. Consumers have different needs and budgets, and Apple’s moves yesterday address that reality.
Growing the app store installed base
After yesterday’s media event, David Pogue of the New York Times sat down with Steve Jobs and asked him straight up why Apple didn’t include a camera in the iPod Touch. Jobs responded:
Originally, we weren’t exactly sure how to market the Touch. Was it an iPhone without the phone? Was it a pocket computer? What happened was, what customers told us was, they started to see it as a game machine. Because a lot of the games were free on the store. Customers started to tell us, “You don’t know what you’ve got here — it’s a great game machine, with the multitouch screen, the accelerometer, and so on.”
We started to market it that way, and it just took off. And now what we really see is it’s the lowest-cost way to the App Store, and that’s the big draw. So what we were focused on is just reducing the price to $199. We don’t need to add new stuff — we need to get the price down where everyone can afford it.
Jobs response is telling. As companies continue to churn out devices that can rival the iPhone and iPod Touch in functionality, the differentiating factor for consumers, if it’s not already, may soon be which platform has the best app store. Jobs and Apple COO Tim Cook have even said that they view the iPhone more as a software platform than hardware. In that respect, keeping the iPod Touch at an attractive price point outweighs the need to add a new feature like a video camera that can simply be added at a later date.
For the time being, Apple is more concerned with increasing the iPhone/iPod Touch installed base which will only serve to attract a larger percentage of mobile software developers down the line. And as Phil Schiller expressed during his presentation, Apple has found that $199 is the magic number that really sends sales through the roof. This sentiment was echoed by Apple VP of iPhone and iPod Marketing Greg Joswiak who told the San Francisco Gate that Apple’s goals for the iPod Touch are that it be a great iPod, a great mobile computer, and a great gaming device. A camera, Joswiak stated, “wouldn’t necessarily fit into those goals.”