Is the new iPod Nano a flop? And does it even matter?

Thu, Oct 22, 2009

Analysis, News

Earlier this week, Apple announced that it just recorded it most profitable quarter in company history, a fact largely due to impressive Mac and iPhone sales.  iPod sales, however, were down 8% from the same quarter a year-ago.  Interestingly, though, sales of the iPod Touch were up an astonishingly high 100%, a figure which Apple attributed to its new low $199 entry price and, of course, the ever growing popularity of the iTunes App Store.

But if iPod Touch sales are booming, and overall iPod sales are slumping, does this mean that the rest of the iPod lineup, and in particular the volume heavy Nano, is struggling to stay afloat?  is the iPod Nano, even with its brand spankin’ new video camera, a certified flop?

Apple doesn’t provide detailed iPod revenue broken down by device, so it’s hard to say for sure just how significant the above data truly is, but even if we assume that iPod Nano sales are on the decline, is that something Apple even needs to worry about?

We don’t think so, and here’s why.

Not too long after the iPod rose to MP3 player stardom, analysts were quick to predict that it wouldn’t take long for the market to become saturated with iPods, rendering Apple’s main revenue generating product a shell of its former self.  But in typical Apple fashion, Apple over the past few years has continuously upgraded its iPod lineup with new and innovative features.  First came the iPod Mini, and then the iPod Photo, which were subsequently followed up with the Shuffle, the Nano, and the iPod Video.  By diversifying and improving its iPod lineup, Apple, over the past few years, defied analyst expectations by not only maintaining iPod sales, but by selling record numbers of devices to consumers, many of  whom already owned previous generations of the device.  In many ways, the iPod was the gift that kept on giving, and its shelf life as a top revenue generator lasted far longer than anyone initially thought possible.

As the 2000’s progressed, though, the market did become saturated, not only with iPods, but with a slew of MP3 players from a large number of manufacturers.  Apple, though, realized that the trend in technology was moving towards multi-purpose devices that could play music and video, in addition to performing an assortment of other functions.  And hence, the iPhone was born.

The iPhone not only took the tech world by storm, but completely changed the way people around the world thought of and used cell phones.  When the iPhone first went on sale in the summer of 2007, it was an instant hit, and sales of the device have continued to skyrocket.  And as the iPhone became the new darling of Apple, the iPod soon began to take a backseat, even as Apple introduced new iPod models such as the video-enabled Nano’s and the iPod Touch.

The iPhone wasn’t just a technological breakthrough device and pop culture phenomenon, it was a money making machine the likes of which Apple had never seen before, and it propelled Apple’s share price to new heights.

All that said, the iPod has been taking on a diminished role in Apple’s earnings over the past few quarters.  To put things into perspective, iPod sales during the same quarter a year-ago only accounted for 14.2% of Apple’s revenue.  In other words, the iPod is no longer Apple’s golden child, and it hasn’t been for some time now.  Decreasing iPod sales, therefore, isn’t that big of a deal because Apple’s focus has shifted towards iPhone and Mac development.  There is, of course, the iPod Touch, but that has a whole lot more in common with the iPhone than it does with any other iPod, a fact which helps explain why iPod Touch sales doubled while iPod Shuffle and iPod Nano sales declined to such an extent that they brought down the net total of all iPod sales year over year.

Put simply, lower iPod sales (which are presumably weighted down by the Nano) are irrelevant because Apple’s strategic reliance on iPod sales is a thing of the past.  To wit, during the past 3 years, Apple’s earnings have increased in excess of 50%, and most of that can be attributed to non-iPod related sales.  If anything, the diminished role of the iPod in Apple’s earnings is a good thing, and indicative of Apple’s strategy of not relying and resting on its past successes as a guarantee of future profitability.

So is the iPod Nano a flop?  Perhaps, but that’s probably more of a testament to the sheer number of people who already own iPods and are content with what they have than an indictment against the new video-enabled iPod Nanos.  And when you add that to the fact that the iPod (sans the Touch) is more a part of Apple’s past than its future, it’s really not a big deal at all.


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3 Comments For This Post

  1. Constable Odo Says:

    I doubt that the Nano is a flop, but most likely the shuffle is. You’d really have to define the term flop. Declining sales doesn’t necessarily make something a flop. I doubt if you know exactly what specific model is dropping in sales the most. I’d be willing to bet that the two likely candidates would be the iPod Classic and the latest shuffle. The Nano is really selling well. I still think that Apple should offer those models just so people do have some choice. I wouldn’t touch a shuffle but there are probably a fair number of people who would have a use for one but only as an additional iPod.

    Still, in the general scheme of Apple’s rise, what difference does it make if certain products do lose favor. That’s just the nature of the changing of times. It’s rather ridiculous analysts talking about a 8% drop in iPod sales vs, say, a 40% rise in iPhone sales that have even higher margins. I’m sure when the tablet comes out, $70 iPod sales will drop even more as the $700 iTablet becomes Apple’s next hit device. Seems like a fair tradeoff to me.

  2. Justin Says:

    If a product fills a spot in the product line, it may serve its purpose even if sales on it are low.

    A story:

    Once upon a time I didn’t want an iPod. Then they came out with the shuffle (I was in San Francisco at that keynote!). I decided that the $50 pricepoint could finally get my attention towards an iPod.

    But… for $50 more, I can get something way bigger, with more features.

    So I look at those options. And I think again….

    But… for $50 more, I can get something way bigger, with more features.

    So I look at those options. And I think again….

    And I do this until suddenly I’m walking out of the store with the same $400 iPod that I didn’t even THINK about the day before.

    So yes, filling every spot in a product line, even with “duds”, is very important for apple. They may not be selling themselves, but they *are* selling the other models.

  3. Caloy Says:

    Great insight from that story, Justin 🙂 Apple IS always about the bigger picture 😀

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