One Reason the iPod is so Successful
The iPod initially got its success by being the largest MP3 player – one that used a hard drive rather than a flash drive – and by having a strong content library of songs legally available at a price consumers were willing to pay. Its continued success is due in part to its continued stylish innovation, in part to its position as the leader (whose iTunes-purchased titles cannot be played on other players) and in part due to the fact that it has avoided the kind of quagmire described in this Fortune story:
It seemed like a routine marketing ploy when Finnish mobile-phone giant Nokia (NOK) trumpeted a global survey in early June showing that two-thirds of handset users think music-playing phones will replace standalone MP3 devices like Apple’s (AAPL) iPod. After all, Nokia is hoping for a high-margin revenue stream from new computer-like telephony devices.
Not to mention the story is in sharp contrast to this one.
But look between the lines of the survey results, and you see a ferocious tug of war breaking out between handset companies like Nokia (NOK), Motorola (MOT), and Sony Ericsson on one side and their longtime customers, mobile operators like Vodafone (VOD), Orange, and Verizon (VZ), on the other. They’re grappling for control of the $42 billion worth of entertainment that Informa, a London market research firm, says mobile phone consumers will purchase by 2010.
At issue: How will songs, videos, and games get to the phone?
Will they travel through operator-controlled “portals” (called “decks” in the U.S.) and over the 3G networks that operators have paid dearly to build, or will they land on the phone through the many possible routes that bypass the operators, some of which can channel revenue directly to the handset vendor?
Both the handset vendors and the carriers need to figure out that it isn’t their decision – it’s the customer’s. Verizon can insist users use its portal all they want but if the customer finds it inconvenient or overpriced they will just carry both a cel phone and an iPod. It’s not like that Nano is weighing them down. Likewise, Nokia can develop a cool phone that is easy to use and has a great MP3 player that can be filled through the computer – but it will do no good if Verizon chooses not to sell it.
Companies on both sides of the divide are so worried about protecting their silos that they can’t see they don’t have a silo to protect. Unless they start experimenting with different products that allow consumers to do different things they will never find out what their customers actually want – and they will lose sales as a result.
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