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You are here: Home / Personal Tech / Will the iPhone Cannibalize iPod Sales?
Will the iPhone Cannibalize iPod Sales?
Will the iPhone Cannibalize iPod Sales?
By Jennifer LeClaire / CRM Daily Like this on Facebook Tweet this Link thison Linkedin Link this on Google Plus
As the engine of iPhone hype gears up for its final power thrust, discussions about the new device range from how many units it will sell to how developers can cash in with widgets to how its iPod-like features might cannibalize iPod sales.

Apple reported sales of 10.5 million iPods last month, and, according to most estimates, owned over 75 percent of the media-player market as of the first quarter of 2007. For all the talk of a Google online advertising monopoly, Apple has all but cornered the market on digital-media players.

If Apple reaches its stated goal of the iPhone winning 1 percent of the market by the end of 2008, its launch on June 29 might end up being the most successful in history. Or it could be a flop that cannibalizes the iPod in the process.

By the Numbers

The prospects for the iPhone seem good. In a ChangeWave consumer survey, 9 percent of respondents said they are "very" or "somewhat likely" to buy the new iPhone. Another 7 percent said they are likely to buy the iPhone as a gift for someone else. And about 79 percent of potential buyers said they would cancel a contract with their existing carrier to use the new iPhone.

Having an iPod built in is certainly one of the iPhone's attractions. The iPod features leverage the iPhone's touch controls to allow users to scroll through lists of songs, artists, and albums. The iPhone also features Cover Flow, an Apple technology that facilitates browsing music libraries by album covers.

Although the standalone iPod lets users scroll through songs with a finger, the iPhone's widescreen offers, well, a widescreen that increases the viewing size of digital video. There are even touch controls for play-pause, chapter forward-backward, and volume.

"We are all born with the ultimate pointing device -- our fingers -- and the iPhone uses them to create the most revolutionary user interface since the mouse," said Apple CEO Steve Jobs in announcing the iPhone at the Macworld Expo in San Francisco. Jobs never said that about the iPod.

Cannibalizing the iPod

The question, then, is whether the iPhone will cannibalize iPod sales. While that possibility might exist, Tim Deal, a senior analyst with Pike & Fischer, said he believes that the iPhone will occupy its own position in Apple's product portfolio. The iPhone will come with a price tag of either $499 or $599, depending on its configuration. Consumers can buy an entry-level iPod for as little as $79.

"The iPhone's high price point, along with its limited storage capacity of 8 GB will probably prevent cannibalization of Apple's iPods," he predicted. "It's entirely possible that the iPhone will reach out into a new user base -- the mobile-savvy crowd -- that desires multifunctionality in their mobile devices."

Avi Greengart, principal analyst for mobile devices at Current Analysis, also has considered the possible negative impact the iPhone might have on the iPod. However, he has concluded that even if the iPhone does cannibalize iPod sales, it's not necessarily bad for Apple.

Are Two Better than One?

"Better that Apple should cannibalize its sales than Sony or Nokia. In terms of storage capacity and its widescreen, the iPhone is a different class of products," he said. "But if you have a 20-GB music collection, it's not going to fit on your iPhone."

In other words, there is still plenty of room in the market for both the iPhone and the iPod. In fact, Deal said there is a good chance that users might own one of each. He contended that the success of the iPod, though fueled by many things, is based upon the item's singular purpose.

"Although the iPod offers a list of features, its primary purpose is the playback of content," Deal noted. "It is that simplicity of purpose that has wooed hundreds of thousands of users since its inception."

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