After a decade spent blanketing the world of 260 million iPods with twee tunes from Jet, Feist, CSS, the Fratellis and every other act of the moment, Apple has to wean its worshippers off a product they love with the vigor of vinyl LPs and VCRs. Unlike those tech-museum relics, though, it's not the medium's obsolescence that's killing the iPod -- it's the iPod itself. The iPod's peak in 2008 came just as all the cool kids were picking up the iPhone, whose 1.4 million sales in 2007 jumped to 11.6 million. Last year, for the first time, the iPhone's total global revenue ($13 billion) surpassed the iPod ($8 billion). People are still listening to MP3s and watching videos -- but on their smartphones.
Consequently, iPod isn't getting the screen time, store space or even market share to which it became accustomed. Roughly 23 million portable digital players were sold just in the U.S. last year, according to NPD Group. That's down 14% from the 26.7 million sold in 2008. The top five sellers in the first half of this year were still all iPod Nano, Touch and Classic models -- with the 8-gigabyte Touch firmly in the lead -- but the field is crowding with cheaper products of similar quality produced by Sony (SNE - Get Report), Samsung, Cowon, SanDisk (SNDK - Get Report) and others. The Apple products tend to rate higher, but a Microsoft (MSFT - Get Report) Zune owner -- or a Japanese consumer who chose the Walkman over an iPod when sales of Sony's player bested Apple there last fall -- knows the quality gap narrowed as the price divide widened.
"We are seeing more inexpensive playback devices enter the market and private-label products in the sub-$100 space," NPD's Rubin says. "Even though the Nano continues to be a pretty strong product, the market is starting to bifurcate more, with these less expensive competitors in the low end and the iPod Touch taking over the high end."After a decade of being nearly as indispensable as human plasma, if the ads and earbudded subway riders were to be believed, the iPod faces the same face-in-the-crowd fate as portable cassette players, boom boxes and other thrift-store gems. The problem is that it isn't a video cassette recorder, compact disc, cathode-ray television or piece of stereo equipment -- it's the equivalent of all of it hitting unsuspecting consumers at the same time. It made Apple's iTunes store a $4 billion enterprise while making hipsters' stacks of records and CDs about as desirable as piles of stone tablets, and VHS and DVD libraries seem as unwieldy as cans of highly flammable nitrate films. Even before the housing bubble burst, the iPod and its podcasts gave gluttonous consumers a valuable lesson: You don't always have to own the things you love.