Analysis : Apple's iPod is Not Dying, It's just Evolving

To say that the iPod is on its last legs would be unfair to Apple's impressive achievement in turning a seemingly unambitious device - essentially a music box - into one of the great achievements in technology (and modern culture) in the past 20 years.

Apple still derives most of its revenues from sales of iPod. In the first fiscal quarter of 2008, the computer firm raked in more than USD 4 billion - or 42 percent of its revenue - from the iPod and peripheral sales, selling more iPods than ever before with more than 163 million iPods sold to date.

And in what is tantamount to continually high product demands, the suggested retail prices of the iPod family barely bulged while second hand iPods still command premium price on auction sites.

But Apple already knows that the tide is turning and the iPod can no longer sustain the Apple's long term strategic growth in revenues; which is why plans to turn the iPod into a phone have been laid down on the table with the iPod iTouch bridging the gap between the traditional iPod user and the prospective iPhone.

Convergence is the keyword and Apple has been smart enough to steer changes early enough to prevent a blood bath. iPod marke share is relatively flat at roughly 70 percent over the past year or so but Apple care more about overall revenue than marketshare (otherwise, it would have dropped the price of Apple Mac laptop and desktop range).

The MP3 market - which was originally the iPod turf - is evolving rapidly; users are no longer content with audio, they now want video, games and applications as well. Users no longer want to pay per song, they want unlimited access to their tracks for a fixed fee (anyway, that's where the market is heading).

At the end of the day, the iPod, like the Monarch Butterfly Metamorphosis process, will emerge as a better device - the iPhone - in the phone market where the worldwide number of phones will reach 4 billion in 2008 and one billion handsets are expected to be sold this year alone.

Steve Jobs will take his time to make the iPhone as pervasive and as "essential" as the iPod and rather than cut prices and flood the market with dozens of handsets, the company focuses on one "exclusive" smartphone which happens to integrate (and gracefully extend) all the iPod functionalities.

Apple is still milking the iPod but certainly knows that this can't go on forever; expect the iPhone to become Apple's main revenue earner by end of 2009, beginning 2010 (or earlier depending on market conditions).

The company is unlikely to launch an eat-as-much-as-you want model for music, video and applications (that's on top of our wishlist) BUT who would have predicted last year that all tax-paying Britons would, against their will, have £13,000 shares in UK banks?