Apple may not quite be recession-proof, but it’s darn close.

Reporting earnings for the March quarter yesterday, Apple exceeded Wall Street expectations by a resounding 24 cents per share. Its profit of $1.21 billion translated to $1.33 per share, well above the $1.09 predicted.

To put this achievement in perspective, consider that Apple’s total profit was 26 cents per share as recently as the September quarter of 2004. In its fiscal 2003 Apple’s entire annual profit was just 19 cents per share.

So once again Apple made the gloomy prognosticators look foolish. (Even I admit I had my doubts.)

Overall Apple had its best non-holiday quarter ever, said Chief Financial Officer Peter Oppenheimer, with revenue increasing 9 percent year over year and profits increasing more than 15 percent.

Though Mac sales declined 3 percent from 2.29 million units in last year’s March quarter to 2.22 million, the iPhone picked up the slack and then some.

Unit sales of the iPhone rocketed 123 percent resulting in a 302 percent revenue increase year over year. The iPhone contributed $1.52 billion to Apple’s revenue total for the quarter, compared to $378 million last year.

Of course, the comparison isn’t exactly fair. The iPhone now is sold in 81 countries; in the early part of last year it was available in just four, including the United States.

Meanwhile, iPod unit sales grew 3 percent to 11 million, though revenue declined 16 percent from $1.818 billion to $1.665 billion.

I found this odd since Apple Chief Operating Officer Tim Cook said iPod Touch sales had more than doubled year over year. I’d have thought the Touch’s higher margins would have helped prop up overall iPod revenue.

But the iTunes Store segment (which includes “iPod services and Apple-branded and third-party iPod accessories) had a nice 18 percent bump in revenue from $881 million to $1.049 billion.

The amazing success of the App Store – which is on the verge of selling its 1 billionth app -- apparently gave the iTunes Store an extra boost this quarter.

A less likely contributor to Apple’s successful quarter was the Software, Service and Other sales category, which also saw revenue increase 18 percent to a tidy $625 million. Oppenheimer said that sales of the iLife ’09 and iWork ’09 suites, introduced in January, were better than anticipated.
A few more nuggets from the conference call:

Mac holds its own: For the past three months, numerous analysts and pundits have berated Apple for refusing to lower prices or introduce a low-cost laptop to compete with cheap netbook PCs. Apple has stubbornly held its ground, but was not punished as harshly as some predicted.

In fact, given the “challenging economic environment, Oppenheimer said the company was “very positive about our Mac performance.” He noted that IDC data showed the larger PC market contracting by 7 percent in the quarter, making the 3 percent decline in Mac sales look better by comparison.

No wonder Oppenheimer prefers IDC’s data; its report last week showed Apple’s market share increasing from 7.2 percent to 7.6 percent. Gartner’s report showed Apple’s market share falling from 8 percent to 7.4 percent.

The 2Q results could have been much worse. Cook said the refresh of the entire Mac desktop line March 3 gave sales a big boost at the end of the quarter. He said Mac sales in the U.S. suffered because both creative professionals and education customers were putting off buying due to the poor economy.

Unit sales of laptop Macs dove 22 percent, and many of those who did buy went for the previous-generation model $999 MacBook. Cook called that a “good thing,” seeing it as strength among the consumer market.

The dreaded netbook question: Asked about the diminutive PCs, Cook blasted the category as he has before, criticizing the “cramped keyboards, terrible software, junky hardware, [and] very small screens.”

Cook said Apple had no interest in creating such a product, then deftly pointed out that the iPhone and iPod Touch can perform many of the tasks for which people buy netbooks, such as e-mail and light Web browsing.

And then he hinted once again that Apple might be developing some sort of innovative product in the genre, offering teasers such as “the product pipeline is fantastic for the Mac.”

Retail Stores: The stores made a bit less money, but Apple is selling its wares – particularly the iPhone – in more places these days. Still, Oppenheimer said “about half” of all Mac sales in the stores were to customers who had never previously owned a Mac, same as he always does. So apparently people haven’t stopped switching from Windows to the Mac, no matter what Lauren says.

The money’s in the mattress: Apple’s cash position grew by $841 million, bringing its war chest to $28.9 billion. And no plans to spend it. “Our investment priority for the cash continues to be preservation of capital,” Oppenheimer said. So there.

Steve Jobs: When asked for an update on the recuperating CEO, Oppenheimer reiterated the company line: “We all look forward to Steve returning to Apple at the end of June.”

The iPhone platform: The combined sales of the iPhone and iPod Touch have reached 37 million units, with about 21 million iPhones and 16 million Touches. Both Cook and Oppenheimer spoke often of the new platform’s potential, particularly with the iPhone OS 3.0 coming this summer. “I think it unleashes a whole new level of innovation that keeps Apple years ahead of everyone else,” Cook said.

Feeling the love for AT&T: Piper Jaffray’s Gene Munster, citing survey data showing that some people don’t buy an iPhone just to avoid AT&T, asked why Apple maintains the exclusive relationship in the U.S.

Cook replied that AT&T has “done a very good job with the iPhone.” He said Apple is happy with AT&T and has no plans to change the relationship. He also admitted that Apple’s choice of GSM technology – driven by the need to make the iPhone work with the most common networks globally -- precluded a relationship with Verizon, which uses CDMA.

Posted by David Zeiler at 7:13 AM | Permalink | Comments (0)
                       

AdMob’s January report shows Apple’s iPod Touch with the highest rate of growth among mobile devices capable of browsing the Internet.

The number of worldwide requests from the iPod Touch rose from 4.7 percent in December to 7.4 percent in January, by far the biggest increase of any mobile device. The iPhone’s share rose from 10.8 percent to 11 percent.

Last month an AdMob report on ad requests from mobile devices showed the iPod Touch second only to the iPhone. AdMob supplies online ads to such devices, most of which are cell phones.

Like the monthly reports on Web usage from Net Applications, the AdMob data is not scientific, but can illustrate trends over time.

For what it’s worth, the January report from Net Applications jibes well with the data from AdMob. It’s clear more and more people are using the Internet capabilities of their iPhones and iPod Touches.

As was the case in January, the iPhone and iPod Touch are No. 1 and No. 2 in AdMob’s latest report, with Motorola’s RAZR V3 a distant third and slipping further behind – it lost 0.4 percent.

The Nokia 6300 was the only other device other than the iPhone to register even a modest 0.2 percent increase.

Apple also gained ground on Nokia in the AdMob data broken down by manufacturer. Nokia’s share increased from 29 percent to 30.1 percent, but Apple’s increased from 15.5 percent to 18.3 percent. Third-place Motorola’s share slipped 1.8 points to 9.9 percent.

In the U.S.-specific data, Apple’s mobile platform did even better. Among the handsets, the No. 1 iPhone picked up 0.7 points, generating 16.8 percent of January’s ad requests. But the iPod Touch gained a stunning 5.2 points, reaching 12.3 percent.

The iPhone/iPod Touch’s combined total of 29.1 percent opened up Apple’s lead in the list of manufacturers in the U.S. data. Apple’s 5.9-point gain coupled with Motorola’s loss of 2.3 points and Samsung’s loss of 1.3 points shows how rapidly the momentum is shifting towards Apple’s nascent mobile platform.

AdMob data from Western Europe shows similar Apple dominance. There the iPhone leads among devices with 21 percent of requests, followed by the iPod Touch with 10 percent.

In the operating system data Apple has an even larger lead, an anomaly that holds true in several geographic categories. The iPhone OS made 44 percent of all worldwide ad requests, 51 percent of those from the U.S. and 52 percent of those from Western Europe.

With Apple staking out a big chunk of territory in the mobile Web space, its competitors – primarily RIM, Nokia and Palm – still need to prove they can keep up by building devices people will want to use not just to make calls, but to access the Web.

Posted by David Zeiler at 3:53 PM | Permalink | Comments (0)
                       

With the 25th anniversary of the Macintosh upon us (officially it’s January 24), retrospectives have flooded the Web.

Rather than add to the nostalgia parade, I thought I’d do something nutty: compare the specs of the original Mac 128k not with one of today’s Macs, but with the iPod Touch 2G I got for Christmas.

The iPhone/iPod Touch platform has assumed the paradigm-changing mission of the original Mac -- it’s a new approach to computing for a new era. Someday pundits will look back on the significance of the launch of the iPhone and iPod Touch platform as they’re doing with the Mac now.

It’s amazing how much more powerful the iPod Touch and iPhone are compared with that original groundbreaking Mac despite their far smaller physical size.

And check out the chart’s bottom line: A Mac 128k cost about $5,000 in 2008 dollars, adjusted for inflation, compared to $229 for the least expensive iPod Touch, not to mention a $199 subsidized iPhone.

Happy 25th birthday, Macintosh!!
Long live the iPhone/iPod Touch!!

Posted by David Zeiler at 8:00 PM | Permalink | Comments (3)
                       

AdMob, a company that supplies online Web ads, released metric data on Thursday showing an enormous spike in traffic coming from users of the iPod Touch on Christmas and in the days afterward.

Meanwhile, iPhone users continue to comprise an ever-larger number of people using mobile devices to access the Web.

Apple must have sold mountains of iPod Touches. From Thanksgiving on, the three models of the Touch periodically were out of stock at Amazon and other retailers, and a number of anecdotal reports in December pointed toward strong sales.

If Apple is in a bragging mood at its January 21 earnings conference call, it might break out the iPod Touch’s quarterly sales numbers (it usually doesn’t). In any case, one can find plenty of powerful evidence for the Touch’s success in the metric data supplied by companies like AdMob.

Ad requests from the iPod Touch increased from 86 million in November to 292 million in December, AdMob reported. Worldwide Touch traffic was 2.4 times higher in the week after Christmas than it was the week before.

But things look even sweeter for Apple when you look at the data for the iPod Touch and iPhone together. With the Touch’s surprising performance and the iPhone’s share growing at the expense of nearly all other Web-enabled mobile phones, Apple appears to have a good chance of fulfilling its goal of creating a dominant new mobile computing platform.

In the data that ranks the top handsets by the number of worldwide ad requests, the iPhone holds the No. 1 spot with 10.8 percent. That’s more than double the No. 2 device – astonishingly, the iPod Touch -- with 4.7 percent.

Motorola’s RAZR V3 followed with 3.4 percent; the Nokia N70, with 2.7 percent, was No. 4. The highest BlackBerry on the list, the 8800, was seventh with 1.5 percent.

Of course, Apple benefits in this category by having just one model of iPhone rather than the dozens of models sold by the competition, although the fact the Touch beat them all as well weakens that excuse.

Nevertheless, even in the data that lists the worldwide leaders by manufacturer, Apple’s 15.5 percent is second only to Nokia’s 29 percent. BlackBerry maker Research in Motion came in seventh with 3.5 percent.

And get this: of the 10 manufacturers, only Apple posted a gain in share (plus 7.6 percent) from the previous month. Every other manufacturer lost share except HTC, which was flat at 1.8 percent.

AdMob’s U.S. specific data tilts even more favorably toward Apple. In the handset data, the iPhone-iPod Touch team again take the top two spots with 16.2 percent and 7.1 percent.

Apple leads all manufacturers in the U.S. market with its 23.3 percent share, followed by Motorola with 21.6 percent. RIM is fifth with 6.4 percent.

And again, only Apple gained share from the previous month, picking up 11.1 percent. RIM lost 1.1 percent and Motorola 3.5 percent.

AdMob also breaks the data down by operating system, though in this category it leaves out the iPod Touch because it isn’t a phone.

Symbian leads in worldwide OS share with 41 percent, but the iPhone’s Mac OS nets 32 percent even without the Touch’s help. RIM takes third with 10 percent, just edging Windows Mobile’s 9 percent.

That Apple’s devices show rapidly growing share among mobile devices on the Web tells us that people who want such capabilities – and there are more of them every day – are choosing Apple products.

So far Apple seems to be a step ahead of the competition, with the wild success of the App Store giving it a major advantage over all rivals (for the present, anyway).

The coming year will tell if Apple’s platform can hold off those rivals, primarily RIM’s BlackBerry Storm and Google’s Android operating system. Both have or plan to have app stores of their own.

And just this week, Palm reawakened from the dead with its just-announced Pre touchscreen phone, which has received very favorable early reviews.

What the competition can’t duplicate is the iPod Touch, a means to gain Web share from customers who don’t want a smart phone’s expensive monthly contract. The 8 GB iPod Touch gives customers a Web-capable mobile device for as little as $229.

Posted by David Zeiler at 7:21 PM | Permalink | Comments (7)
                       

One out of ten people browsing the Web in December were using a version of Mac OS X, according to the monthly statistics from Web services company Net Applications.

Users of Mac OS X on Intel (7.19) and PowerPC (2.44) Macs combined for 9.63 percent; iPhone users added 0.44 percent and iPod Touch users another 0.08 percent.

The total of 10.15 percent marks the highest share of users ever for Mac OS X in the Net Applications stats.

A point of clarification: although Net Applications describes its data as “market share,” a more accurate description would be “user share,” as in the percentage of people on the Web using a particular operating system or Web browser.

The free monthly statistics derive from data the company gathers in the course of its business -- measuring Web traffic for its clients. It’s not a scientific process, but the sample is huge – 160 million Web site visits – so the data is useful in detecting trends.

Back in June I noted the Mac’s share had more than doubled from 4.26 percent in June 2006 to 7.83 percent in May 2008. With share now over 10 percent, the upward trend for Mac OS X appears to be accelerating.

A disclaimer on the Net Applications site warns “the December holiday season strongly favored residential over business usage. This in turn increases the relative usage share of Mac, Firefox, Safari and other products that have relatively high residential usage,” but the trend line for OS X had virtually the same trajectory in November (see chart).

The numbers jibe with market share reports on sales from such firms as IDC and Gartner, both of which reported Apple’s U.S. market share in the third quarter of 2008 at about 9.5 percent.

And while most of the gains in the Net Applications stats have come from people using Apple’s computers, one can’t dismiss the iPhone. In fact, one could argue the iPhone’s rise to 0.44 percent is more impressive than the Mac’s gains. We’re talking about a phone, after all.

Compare the iPhone’s number against other smartphone operating systems: Windows CE managed only 0.05 percent and the mighty BlackBerry a tiny 0.01 percent. The iPod Touch – not even a smart phone itself -- had more than both combined.

In the battle for dominance among mobile devices on the Web, Apple has the clear early lead.

Meanwhile, Microsoft’s Windows has continued its slow erosion in share, having slipped below 90 percent (hitting 89.62) for the first time in the November survey. The December stats put Windows share at 88.68 percent, nearly a full percentage point drop in one month.

Windows accounted for 95.25 percent of Web users in the June 2006 survey, so we’re looking at a loss of 6.57 percent compared to Mac OS X’s gain of 5.89 percent over the same period.

Of greater concern to Microsoft might be the relatively small adoption rate of Windows Vista. More than 65 percent of Windows users are still on XP, with only 21.12 percent on Vista. The next version of Windows, Windows 7, is expected in early 2010, so many users may bypass Vista altogether.

And if Microsoft chief Steve Ballmer wants yet something else to stew over, he can check the browser usage numbers. Internet Explorer, which had 84.11 percent share in June 2006, now has only 68.15 percent, a nearly 16 point fall; IE lost 1.62 percent just from November.

Safari has taken some share, having risen from 3.19 percent in June 2006 to 7.93 percent in December 2008, but Firefox has emerged as a significant threat. As of December Firefox has a share of 21.34 percent, nearly twice the 10.77 percent it had in June 2006.

Methinks the era of Microsoft hegemony is crumbling fast.

Posted by David Zeiler at 8:44 PM | Permalink | Comments (0)
                       

I got an iPod Touch for Christmas. And not any iPod Touch, mind you, but the 32GB model.

After playing with it for several days now, I’ve finally experienced first-hand the huge leap this device (along with its more advanced cousin, the iPhone) represents over any previous iPod.

With Wi-Fi available both at home and at work, the Touch truly is a computer in my pocket, giving me the ability to check e-mail, the weather, and the stock market as well as browse the Web.

But that’s nothing compared to the game-changing power of the iTunes App Store. Although I have noted often in this blog that Apple’s aim is to create a new platform with the iPod Touch and iPhone, I still was wowed by the variety, utility, ingenuity and polish of the apps available.

And it’s oh-so-dangerous to your wallet. With predominantly low prices – many apps go for as little as 99 cents -- and purchasing as easy as a mouse-click, you can quickly find yourself scooping up apps like so many holiday M&Ms.

Like the iPod/iTunes ecosystem before it, the iPhone/iPod Touch/App Store ecosystem will grow into a monster that will leave competitors eating Apple’s dust for years. Yes, I know Research in Motion plans to launch a BlackBerry Application Store in March and Google’s Android Market opened a few months ago.

But this is Apple’s strength. It will emerge as the leader in the new “pocket pc” platform race because it knows how to build and perfect an integrated ecosystem better than anyone else.

As with the Mac and iTunes/iPod ecosystems, Apple controls all the elements in the iPhone-iPod Touch/App Store universe, giving it an advantage in avoiding incompatibilities and other user-offending glitches.

The contribution of the iPod Touch can’t be overestimated. The Touch brings in millions of customers Apple’s phone-making competitors can’t reach – people like myself who want many of the capabilities of a smartphone without the steep monthly fees. (My cheap, pay-as-you-go T-Mobile phone suits me fine for my limited cell phone needs.)

Already the iPhone/iPod Touch ecosystem shows signs of explosive growth, with Apple reporting more than 300 million downloads since the App Store’s inception in July. That’s an astounding feat for an entity less than five months old.

I can attest to the lure of the App Store. In less than a week I’ve downloaded 10 apps myself.

According to a story in today’s Washington Post, iPhone/iPod Touch app developers are making more money than they dreamed possible. Long-time Mac developer Brian Greenstone of Pangea Software told the Post the new platform would generate $5 million for him this year.

The holiday shopping season added more momentum, with various models of first and second-generation iPod Touches consistently among the top-selling electronic devices at Amazon.

All those new Touch owners now join the 5 million-plus new iPhone owners as well as the millions of people who already had bought one of the devices. The race to establish the dominant mobile computing platform may be over before it started.

I’ll have more thoughts on the iPod Touch as I continue to play with it. Which reminds me … it should be fully recharged by now.

Posted by David Zeiler at 2:12 PM | Permalink | Comments (18)
                       

Showing surprising strength in a weakening economy, Apple reported an extraordinary September quarterextraordinary September quarter yesterday.

Mac sales up, iPod sales up, iPhone sales way, way up, and an uncharacteristic appearance by CEO Steve Jobs at the analyst conference call. It’s hard to know where to begin.

Jobs showed up in part to discuss Apple’s decision to disclose some alternative financial data from now on. Because Apple periodically issues free software updates for the iPhone and Apple TV, revenue from those sales is recognized over the two-year life of the product rather than entirely in the quarter the product is sold, as with Macs and iPods.

To help analysts and investors better “evaluate the company’s overall performance,” Jobs said the company plans to release “non-GAAP” financial results along with the usual earnings figures. (GAAP stands for Generally Accepted Accounting Principles.)

Tremendous sales of the iPhone 3G – 6.9 million units – prompted the change, Jobs said. The iPhone accounted for a whopping 39 percent of Apple’s 4Q revenue.

“The non-GAAP results are truly stunning,” Jobs crowed, and it’s hard to argue with the numbers. Including the iPhone and Apple TV sales in their entirety adds nearly $3.8 billion in revenue, a 48 percent increase over the $7.9 billion the company reported.

Non-GAAP adjusted income doubles from $1.14 billion to $2.44 billion, a 115 percent increase. For those keeping score at home, the $1.26 per share Apple reported balloons to $2.69 per share in the adjusted figures. Yowza!

Jobs probably has grown tired of AAPL’s slumping stock price – which had slid $6.95 to $91.49 yesterday before Apple announced its results. He wants the world to know how much dough Apple is really making.

Apparently investors got the message: AAPL rose $12.12 in after-hours trading and is up today in a down market.

More details from Apple’s earnings call, by topic:

The blockbuster iPhone 3G/App Store: The star of the quarter, the iPhone 3G blew away all expectations. Customers bought more iPhones in the September quarter than during the entire previous lifespan of the product (6.9 million vs. 6.1 million).

Oppenheimer said Apple has “already surpassed our goal of 10 million iPhone sales in calendar 2008,” but that claim must include some October sales. Adding the reported sales of the first three quarters of 2008, I get 9.3 million iPhones. At the rate iPhones are selling, Apple probably hit 10 million about a week or so ago.

Prospects for future iPhone sales also look good. Oppenheimer said Apple is now selling the iPhone 3G in 51 countries, with the number expected to increase to 70 by the end of the year. Apple has 3,100 iPhone distribution points in the United States and over 30,000 worldwide, he said.

Jobs pointed out that Apple beat Research in Motion’s BlackBerry in unit sales 6.9 million to 6.1 million this quarter. Furthermore, Jobs said, Apple is now the No. 3 mobile phone maker as measured by revenue, with $4.6 billion in sales (behind Nokia with $12.7 billion and Samsung with $5.9 billion).

The App Store, despite some grumblings from developers whose apps Apple rejected, has amply demonstrated the iPhone’s potential as a software platform. “Customers will download the 200 millionth application from the App Store tomorrow [Wednesday], only 102 days since its launch,” Jobs said, noting the availability of over 5,500 apps.

Jobs also said Apple’s strategy is not to build “a hundred variations” of the iPhone like other handset makers, but to use software as the differentiating factor.

The Mac hangs tough: Mac sales fell slightly short of last month’s optimistic analyst projections, but at 2.61 million units still set a record for most Macs sold in a quarter. The growth rate of 21 percent year over year wasn’t as impressive as March’s 51 percent or June’s 41 percent, but remains respectable.

Apple CFO Peter Oppenheimer said cutbacks in education budgets as well as rumors of imminent new MacBook models (which Apple did indeed unveil last week) probably hampered Mac notebook sales at the end of the quarter. Two-thirds of all Macs sold are notebooks.

Apple has its corporate fingers crossed the new models will boost notebook sales going forward. “We’ve had a very, very strong launch and we are anxiously awaiting to see the demand trajectory that will unfold during the quarter,” Jobs said.

When asked if Apple would consider “more affordable” Macs, Jobs repeated a long-standing Apple philosophy: “There are some customers we choose not to serve,” he said. “We don’t know how to make a $500 computer that’s not a piece of junk.”

If fresh iMacs appear in November as rumored, unit Mac sales could set another record come January.

iPod not dying: Apple sold 11 million iPods in the quarter, a record for a non-holiday quarter and an 8 percent increase year over year. Market share for the iPod remains at a healthy 70 percent. The iPod stubbornly continues to defy predictions of its decline.

During what could be a bleak retail holiday season, the line of iPods refreshed in September should keep it high on many shopping lists.

Apple TV on pause: Jobs reiterated his take that Apple TV is “still a hobby.” He said it would stay that way at least through 2009, dashing the hopes of those dreaming of a major Apple TV announcement at the annual Macworld Expo in January.

More stores: The growth of the retail chain continued unabated, with the addition of 31 new stores, bringing the total to 247. As always, Oppenheimer said half of all Macs sold in the stores were to people who had never owned a Mac before.

The stores saw 42.7 million visitors in the quarter, another record and further evidence that the ailing economy has so far failed to impair the lure of the Apple brand.

Rainy Day Fund pays off: Having generated another $3.7 billion in cash, Apple’s stockpile of money stands at $24.5 billion. Jobs brushed off a question about returning some cash to shareholders in the form of dividends. “It’s not burning a hole in our pocket,” he said.

But Jobs also said Apple’s unusual cash position “provides us tremendous stability and the ability to invest our way through this downturn,” which he said means more money going into research and development of future products. He wouldn’t comment, however, on the possibility of acquiring other companies.

Posted by David Zeiler at 1:06 PM | Permalink | Comments (1)
                       

Apple beefed up its market-leading iPod line of portable music players at its “Let’s Rock!” media event today, but had no major surprises to spring.

In fact, the only real surprise had nothing to do with hardware or software – it was the announcement that Apple has settled its yearlong feud with NBC Universal.

Such favorites as “Monk,” “The Office,” “Heroes,” and “Battlestar Galactica” are all back, available in both HD format (for $2.99) and the standard format. It’s about time.

Apple CEO Steve Jobs, still looking a bit thin but otherwise fine, delivered almost all of the one-hour presentation.

He elicited chuckles from the audience when he walked on stage with the phrase “Reports of my death are greatly exaggerated,” projected on the giant screen behind him, a reference to a canned obit on him that Bloomberg News mistakenly transmitted a couple of weeks ago.

Jobs showed off new models of the iPod Nano and the iPod Touch, as well as a new version of its free iTunes software, iTunes 8. While the new models offer some nice enhancements, what Apple offered today can’t compare to the dramatic announcements at last year’s event, which overhauled the entire line and introduced the Touch.

Much of the emphasis was on the iPod Nano, which sits in the sweet spot in the middle of the iPod product line. The Nano gets a new form factor, returning to its previous long, thin shape from the stumpy version introduced last year, just as many of the rumor sites had predicted.

However, this version has a display twice as deep – it takes up half of the front face. The aluminum case is also thinner and curvier than the second generation Nano’s. Viewed from the top or bottom edges, the case looks like an elongated oval.

Though the new Nano didn’t get a touch screen, Apple has added the Accelerometer technology that allows the screen to change its orientation when you tilt the device. With help from the Accelerometer, you can now simply shake your Nano to shuffle your songs.

The Nanos also come in more colors than any iPod model ever – virtually every color in the rainbow from red to purple. Only black and white are missing.

Apple CEO Steve Jobs emphasized the more environmentally friendly composition of both the Nano and the new iPod Touch. The new iPods contain no BFR, mercury or PVC, use arsenic-free glass and are now “highly recyclable.”

The new Nanos come in two models, 8GB ($149) and 16GB ($199), doubling the capacity of those it replaces while keeping the prices the same. The changes solidify the Nano’s place as the iPod suited to the most consumers.

Apple made less substantive changes to the iPod Touch. It’s lighter with a slightly smaller contoured case. New features include integrated volume control buttons and, get this, a built-in speaker.

The new Touch also has a built-in receiver for the Nike shoe sensor (as well as the software needed to operate it) so owners can use it to monitor their workouts. You still need to buy the shoe sensor ($19) separately.

Jobs brought Apple Senior Vice President of Worldwide Product Marketing Phil Schiller on stage to demonstrate a few new iPod Touch games. Apple must think gaming is important to Touch buyers; the headline on the iPod Touch press release calls it “the funnest iPod ever.”

Apple dropped the prices on the Touch models but kept the capacities the same. So now the 32GB model is $399 (down from $499), the 16 GB model is $299 (down from $399) and the 8 GB model is $229 (down from $299).

I had for a 64GB Touch at the $499 price point, but perhaps Apple determined too few customers are willing to pay that much. (It’s a touch too much, as it were.)

Apple only tweaked the iPod Classic, raising the capacity of the 80GB model to 120GB while holding the price at $249. The 160GB model is history.

Apple probably wants to phase out the Classic line, but still needs a large capacity iPod for those who desire huge mobile music and video collections. When larger capacity flash memory gets cheap enough, expect the Classic to die altogether.

Conspicuous by its absence was the iPod Shuffle, which Jobs didn’t even mention. However, a visit to the online Apple Store shows the Shuffle now comes in brighter colors, though still in the same 1GB ($49) and 2GB ($69) versions.

On the software side, Jobs demonstrated a new version of iTunes that added a new way to browse your collections and a “Genius” feature that generates playlists of songs that “go great together.” I obviously haven’t had time to test it yet, but it sounds similar to “The Filter.”

Jobs also announced the Friday availability of the desperately needed iPhone 2.1 firmware update, which he said should result in fewer dropped calls, better battery life and fewer app crashes, among other improvements. The download is free to all iPhone owners.

Posted by David Zeiler at 3:23 PM in iPod | Permalink | Comments (2)
                       

After the botched MobileMe/iPhone 3G launch, as well as more recent problems users have reported with iPhone 3G reception, you’d assume customers would punish Apple.

Add to that an assortment of other issues over the past year or so, from the bricking of unlocked iPhones last fall to a plethora of Mac OS X Leopard bugs to last week’s iPhone “kill switch” dustup, and you have a lot of reasons consumers might want to avoid Apple products.

But whatever the disappointments, you won’t see it reflected in the company’s third quarter sales numbers.

Apple is expected to report another record quarter in September, according to a note to clients by Royal Bank of Canada analyst Mike Abramsky. AppleInsider reported this morning that Abramsky said Apple should see year-over year growth of 44 percent, with Mac sales topping 3 million for the first time.

That would beat the previous record – 2.496 million Macs sold, just set in the July quarter – by an amazing 20 percent. Abramsky also predicts iPhone 3G sales for the quarter to reach 5.1 million, which would nearly double the previous record for iPhone sales (2.315 million in the December 2007 quarter).

Earlier this week Apple made news by scoring 10 points higher than its closest competitor (Dell) on the University of Michigan’s American Customer Satisfaction Index. Apple received its highest score ever, 85 on the ASCI’s 100-point scale. Last year it scored a 79.

"Apple is not without its quality problems," ACSI project head Claes Fornell told Computerworld. "People know there have been some service and product quality problems, but Apple has an almost Teflon-like quality. Its problems don't really seem to matter to consumers."

The ASCI survey was taken before the MobileMe launch and recent iPhone 3G problems, but it seems someone is always complaining about an Apple product or service, if not taking them to court.

How can Apple commit so many wrongs and yet continue to enjoy record customer satisfaction numbers and booming sales growth?

Apple’s hold on customers can’t be completely explained by the “fanboy effect”; that is, people so devoted to the company they forgive it for any transgression. Apple has added many new customers in the past few years that do not fall into that category, from casual iPod owners to disgruntled PC users switching from Windows.

Such customers have bought Apple products with high expectations they would “just work.” I can’t imagine they’d tolerate consistently poor quality and bad service when those factors most likely drove them into the Apple camp.

Here’s what I think Apple’s “Teflon” is made of:

Cool factor: Apple’s marketing machine has successfully sold the idea of Apple as the coolest consumer technology company, a notion reinforced by its acclaimed product designs. People who buy Apple products feel that the company’s hip image will reflect on them. It doesn’t fix the problems, but it makes it harder to turn away from Apple.

Worse alternatives: Even if you have had a bad experience with Apple, many know first-hand that living with a Dell or Hewlett-Packard PC running Windows could be worse. Apple’s seamless control of the entire user experience has no substitute in the consumer technology world.

Apple trying harder: Though historically poor at fixing problems, Apple has gotten better recently. Not only did it work hard to address MobileMe’s problems, it just this week gave MobileMe account holders 60 more free days in addition to the 30 days it awarded a month ago. The company apologized. Customers will forgive a company that makes an effort to make things right.

Apple also has made an effort to get software fixes out to customers more rapidly, although it could do a better job of explaining to affected customers what the heck is going on (e.g., this week’s iPhone 3G reception fix).

Not as bad as it looks: Apple benefits from the media’s obsession with it when it rolls out new products – no tech company gets comparable attention – but that backfires when Apple has trouble. Many of Apple’s problems that draw extensive coverage would be largely ignored if they befell another company.

Squeaky wheels: With the exception of some large-scale blunders, like the MobileMe/iPhone 3G launch, most of Apple’s problems affect a relatively small number of customers, many of whom are very vocal. Most Apple customers have minor, easily rectified problems, and have no serious beef with the company.

For Apple to lose massive numbers of customers, it’s going to have to commit sins far worse than any it has thus far and be utterly non-repentant.

Posted by David Zeiler at 4:37 PM | Permalink | Comments (9)
                       

image from modern mechanix

Sorry folks, I couldn't resist. For a more thorough thrashing of Dell's plans to introduce a new MP3 player later this year, see this entry at MacDailyNews.

Posted by David Zeiler at 8:34 AM in iPod | Permalink | Comments (7)
                       

On multiple occasions during Apple’s earnings conference call yesterday, CFO Peter Oppenheimer cited a “future product transition” as one of the reasons the company expected somewhat lower gross margins for the September quarter.

That any Apple executive would hint at an imminent new product in a public forum is extraordinary. It means whatever is coming will make a big splash, though probably not of the magnitude of the iPhone.

But what is it? It’s likely that the mystery product or products – or as Oppenheimer put it, “state-of-the-art new products that our competitors just aren’t going to be able to match” – will involve a touch screen.

I believe it could be the long-rumored Mac tablet PC. In any case, Oppenheimer’s remarks about it affecting the September quarter tells us it will arrive soon. He also hinted at other products in the pipeline that might shave gross margins in 2009.

As for Apple’s earnings, they were routinely spectacular. Apple made a profit of $1.07 billion in the June quarter on revenue of $7.46 billion. The earnings per share of $1.19 beat Wall Street estimates by 11 cents.

Strong Mac sales led the way. Apple sold nearly 2.5 million Macs, its highest quarterly Mac total ever. According to Oppenheimer, the 41 percent year-over-year growth is three times the overall PC market growth rate.

That would seem to jibe with last week’s market share reports from research firms IDC and Gartner, both of which showed Apple gaining more ground in the U.S. IDC had Apple’s 2Q share rising year over year from 6.2 percent to 7.8 percent; Gartner’s data had Apple increasing from 6.4 percent to 8.5 percent.

The biggest surprise was the iPod, which despite a woozy economy and two years of predictions that the product had peaked, pulled out a 12 percent increase in sales year over year, although iPod revenue was up only 7 percent because of a February reduction in the price of the Shuffle models to $49 and $69.

The iPhone numbers were predictably low – a mere 717,000 -- since Apple cut off the supply of the original iPhone mid-way through the quarter to prepare for the launch of the iPhone 3G on July 11.

Some other clues, news and tidbits from the conference call:

Steve Jobs’ health Ben Reitzes of Lehman Brothers apologized for asking the question, but a story in the New York Post yesterday almost guaranteed the subject would come up. Oppenheimer’s response was less than reassuring: “Ben, Steve loves Apple. He serves as CEO at the pleasure of Apple’s board and has no plans to leave Apple. Steve’s health is a private matter.”

Geez Louise, Peter. How about something like “We’re confident Steve will be leading Apple for a long time to come”? Oppenheimer’s stilted, non-committal answer will only serve to fuel more speculation on Wall Street that Steve is very seriously ill, and probably contributed to the 10.8 percent walloping AAPL took in after hours trading last night.

Margins are everything The other reason AAPL shed $18.04 last night almost surely was the lower guidance Oppenheimer gave for the company’s gross margins – from 34.8 percent in Q2 to a still robust 31.5 percent for Q3. You’d think the booming Mac and iPod sales driving record revenues and profits might count for something. Oh, and Apple did sell 1 million new iPhones in three days. And the company always beats its guidance numbers anyway. But noooo. SELL AAPL!!!

The international factor Apple saw significant growth overseas in the June quarter, which could become insurance against a slowdown in its rate of growth in the U.S.

For example, international sales of the iPod grew 15 percent (compared to 10 percent in the U.S.) While the iPod’s U.S. MP3 player market share has stabilized at about 70 percent, Oppenheimer said it has been increasing elsewhere and now stands at over 60 percent in Canada and over 50 percent in the U.K., Japan and Switzerland.

Apple is adding more retail stores overseas as well. One just opened in Beijing with more expected to open in Switzerland and Germany later this year.

Piggy bank full Oppenheimer blew off a question about what Apple plans to do with its ever-swelling cash hoard – now up to $20.8 billion. Sooner or later shareholders are going to demand Apple use it for something, be it stock buybacks, acquisitions of other companies or dividend payments. Even Microsoft is sitting on a mere $24 billion in cash these days.

The iPhone rollout The iPhone 3G is now shipping in 22 countries, with 20 more coming on Aug. 22. Oppenheimer reiterated that Apple expects to have the iPhone 3G available in 70 countries by year’s end. Also, COO Timothy Cook re-confirmed Apple’s confidence that it will sell 10 million iPhones in calendar year 2008.

Posted by David Zeiler at 8:13 AM | Permalink | Comments (6)
                       

For the second time this month, Apple has chosen strategy over principle.

After losing NBC Universal’s content from the iTunes Store in a much-publicized tussle over variable pricing last fall, Apple today announced a deal with HBO to offer many of its most popular shows at two price points.

Customers can buy some shows at the usual $1.99: “Sex and the City,” “Flight of the Conchords,” and “The Wire” (the brainchild of former Baltimore Sun reporter David Simon). But others cost $1 more: “The Sopranos,” “Deadwood,” and “Rome.”

This follows last week’s announcement that Apple will offer the iPhone through two wireless carriers in Italy, breaking with its policy of one carrier per country.

Apple did not explain why it made an exception for HBO on pricing. In the iPhone’s case, Apple COO Timothy Cook had forewarned back in January that Apple is “not married to any business model.”

I view the Italy iPhone deals and the HBO deal as signs that Apple – and specifically CEO and head guru Steve Jobs -- increasingly is willing to sacrifice its historically stubborn adherence to philosophical ideals in favor of pragmatic solutions.

Perhaps the most infamous example of this was Apple’s enduring commitment to the one-button mouse. After years of grumbling from large numbers of Mac users Apple finally relented in 2005 with the Mighty Mouse.

Not that Apple is wrong to stand on principle – Jobs’ legendary insistence on ease of use in all his products has paid off in the success of the iPod and the resurgence of the Mac – but when an ironclad policy becomes counterproductive, the company needs to change it.

After all these years, Apple finally is getting better at knowing when to dig in its heels and when to be flexible.

That said, the HBO deal raises other issues.

One major question is whether Apple will consider variable pricing for content from other networks, or for music supplied by the major labels. You can bet that each content provider will ask for some kind of flexibility when its contract renews. And Apple will have a tough time saying no now.

I think Apple should strongly consider allowing some variable pricing at the iTunes Store. Such a minor change would scarcely befuddle music and video customers well versed in the ways of retail.

And variable pricing doesn’t have to mean lots of higher-priced content. Frankly, I’d like to see lower prices on some of iTunes’ routine fare. How about 99 cents for episodes of “Bewitched”? Or even “Hannah Montana”? (as if parents haven’t got every word of dialogue memorized already from the incessant reruns on the Disney Channel) For that matter, what about cheap TV episode rentals?

Another question is whether Apple and NBC Universal will kiss and make up now that Apple has compromised on pricing with HBO. Eddy Cue, Apple’s vice president of iTunes, told the Associated Press that NBC is now the only major channel not offering shows through iTunes.

But NBC wanted more than variable pricing. It wanted Apple to build some sort of anti-pirating technology into its iPods to prevent them from playing illegal content. Not surprisingly Apple balked.

According to a technology blog on the New York Times Web site, Microsoft agreed to “explore” content filtering on the Zune while eating the variable pricing – it will charge $1.99 for each episode, as does iTunes.

While Apple might be open to a compromise with NBC Universal on pricing, it does not share NBC’s views on anti-pirating schemes. Jobs discovered first-hand how easily iTunes’ Digital Rights Management could be broken and has pushed the record labels to sell their music without DRM. Approximately 2 million of the more than 6 million songs on the iTunes Store are DRM-free.

Reconciliation, though both companies would benefit, appears unlikely in the near future.

Finally, I see the HBO deal as another piece of Apple’s overall video puzzle. As Apple adds more desirable video content to the iTunes Store, it quietly adds value to its portable video players (primarily the iPod Touch and iPhone) but also to the underestimated Apple TV.

Apple’s video hardware, coupled with its growing stable of movie rentals and the caliber of content HBO brings, has created the embryo of a video ecosystem that someday could grow as formidable as its music empire.

Posted by David Zeiler at 6:45 AM | Permalink | Comments (1)
                       

I have just finished reading an opinion piece that, even by the lenient standards of opinion pieces, does a severe injustice to Apple, Inc.

The sensationalist attack starts with the article’s title: “The Pusher of Cupertino.” The author, James Daley (who apparently works for The Independent newspaper of the U.K., though the piece appears on the MacNewsWorld Web site), goes on to speculate that Apple sabotages its iPods with software updates with the intent of disabling them.

His sources for this very serious accusation are the unfortunate iPod experiences of his wife and the anecdotal stories of friends and people on unnamed Internet forums. No facts, figures or studies, despite his claim of a “growing body of evidence.”

Daley even admits in his first sentence that “there’s no solid evidence that Apple deliberately kills iPods through software updates,” but the entire piece is predicated on the assumed truth of that allegation.

He is upset because his two-year-old iPod has started to malfunction. His wife has had several iPods, including a 30 GB fifth-generation model that went south.

Meanwhile, her iPod Nano still works fine despite being over two years old because, Daley implies, it has never been synced with a computer. According to his theory, syncing iPods exposes them to the deadly software updates.

Oddly enough, Daley says that despite his suspicions about Apple, he will almost certainly buy another iPod because he “loves” it. But he again faults Apple. The allure of the iPod has seduced him beyond reason: “Even though I know I should take my business elsewhere, it’s an addiction.”

Another 30 GB iPod his wife bought “never-used” almost immediately began having issues. “Short of it being a defective unit, the only obvious explanation was that it was struggling to get to grips with the newer software,” Daley says. How could he be certain his wife simply didn’t receive a defective unit, a considerably more obvious explanation than his software sabotage theory?

I happen to have a 30 GB fifth-generation iPod that I bought in January 2006. I sync it with my Mac frequently. I install every software update. Yet it still works.

I’m not saying my experience proves anything, but neither does Daley’s. I can’t say with certainty Apple is not sabotaging iPods to get people to replace them with new ones. After all, the company did brick unlocked iPhones. But as a journalist I’d need solid proof before I’d accuse a company of this degree of wrongdoing.

Perhaps a significant percentage of iPods do fail after two years. But how many last three years? Or four?

For that matter, what’s the failure rate of competing MP3 players? Better than Apple’s? Worse? The same? Daley offers us no data, just unsubstantiated opinion.

I too have read complaints that iPods don’t last much longer than two years, but I haven’t seen any research that gives hard numbers on what customers can expect. And I certainly have never read any suggestions that Apple is deliberately killing iPods.

There’s usually nothing wrong with offering up some opinions based on anecdotal evidence. You want to complain about the shorter-than-expected life span of your iPods, fine.

But Daley is accusing Apple of a criminal act. I think that calls for stronger facts than his wife’s conspiracy theories, his friends’ problems and some rants he read in a few Internet forums.

Posted by David Zeiler at 2:29 AM in iPod | Permalink | Comments (12)
                       

Not only are Apple’s three primary businesses each doing extremely well, but each retains significant potential for growth, Tim Cook, the Cupertino company’s chief operating officer said yesterday.

In a wide-ranging question-and-answer session at the Goldman Sachs Investment Symposium in Las Vegas, Cook fielded queries about “missing” iPhones, the possibility that the iPod market has become “saturated,” why the Mac’s market share has seen explosive growth and what Apple hopes to achieve with the Apple TV.

Much of what Cook had to say wasn’t new, although it was far more engaging than the sleepy, redundant comments he and CFO Peter Oppenheimer serve up to analysts during those quarterly earnings conference calls. Frequently he sounded very much like the Apple cheerleader he is paid to be, but at times Cook offered clues about Apple’s broader strategies.

Let’s look at what Cook said by category (he switched among topics frequently during the session, which you can hear for yourself here):

The iPhone: Cook said the iPhone has received the highest customer satisfaction ratings of any product Apple has ever shipped, a notable achievement for a company that routinely scores very highly in customer satisfaction.

When asked a question that has been buzzing on the Web for weeks – what’s become of the million or so iPhones Apple said it has sold but have never been activated – Cook acknowledged most of them have found their way to countries in which the iPhone is not yet available.

Without addressing the shared revenue Apple loses from its partner carriers when an iPhone is unlocked for use on another network, Cook said the company “smiles” at the problem. “It means there’s great demand for the iPhone,” he said.

The company will apply the lessons it has learned from selling the iPhone in the U.S. and three European countries as it proceeds with plans to expand availability of the product elsewhere in Europe and in Asia this year, Cook said.

Most intriguingly, he said Apple is not “married to any business model,” suggesting Apple could deviate from having one exclusive carrier per country. Cook explained that different market conditions could require a “different business model,” and in some places “being exclusive might not be in our best interests.”

This may be the first public indication that Apple is considering different approaches to the iPhone-carrier model, at least in some nations. However, Cook only had nice things to say about Apple’s relationship with AT&T, a disappointment to those hoping for a re-evaluation of the exclusivity deal in the U.S.

Cook indicated Apple expects the issue of unlocked iPhones to diminish as the device becomes available in more countries, and ominously hinted at a “series of actions” aimed at thwarting iPhone hackers (presumably those unlocking it, not those installing software on it).

Better news for iPhone owners was Cook’s frequent references to the week-overdue announcement and release next Wednesday (March 6) of the iPhone SDK, which will permit developers to write software legitimately for the iPhone and iPod Touch.

The iPod: Cook reiterated Apple’s position that the iPod Touch is a fresh platform for the company and that developing that platform is a priority. He artfully answered a question about flat iPod sales in the holiday quarter by pointing out that while unit sales increased by only 5 percent, revenues increased by 17 percent, primarily due to the higher margins on the iPod Touch, introduced only last fall.

Meanwhile sales of the low-end, lower margin Shuffle slipped 17 percent worldwide. Cook said Apple cut the price on the Shuffle to $49 Feb. 19 because “we believe there’s elasticity in the market,” whatever that means. He added that the price drop should boost sales a bit in “emerging markets” (such as China and India) as well as in the U.S.

The Mac: “The ceiling for the Mac is nowhere in sight,” Cook said in discussing the Mac’s market share. He noted that Apple sold 7 million Macs in a PC market of 260 million, leaving a lot of room for further growth.

In responding to a question asking why the Mac has become more popular with customers – he said the platform grew 44 percent in the last quarter alone – Cook described the Mac’s gains as “almost a movement.” He continued: “I think it’s gone, in many people’s minds, to asking not why buy a Mac, but why not?”

He cited two statistics showing the Mac’s resurgence in the education market. One was Student Monitor’s annual survey of college students conducted each summer asking which type of computer they planned to buy; this past summer those who said they were buying a Mac rose to 44 percent, 20 points higher than the previous year. Cook gave no source for the second statistic but said the company learned Monday that “Apple has surpassed Dell as the number one supplier of portables to higher education for 2007.”

Apple TV: Cook waffled a bit on the Apple TV, last year described by CEO Steve Jobs as a hobby and the low sales of which led to some Apple critics deriding it as a failure. “We say no to a lot of things,” he said in explaining why Apple expended resources on developing Apple TV. “We do products where we can make a difference and where we control the primary technology.”

Later Cook acknowledged Apple TV is a “niche product,” but said the company thinks that “something cool cold come out of this product.” He essentially admitted the company had erred in treating video like music, expecting customers to buy video as they buy music at the iTunes Store.

Somehow Apple missed that most people watch movies just once and would rather rent than buy them (wasn’t Blockbuster a big enough hint?) The availability of movie rentals combined with the recent changes to Apple TV – essentially releasing it from the bonds of the PC so it can download movies directly from the Internet –sets up the video realm as “an area that could be big for us,” Cook said.

Posted by David Zeiler at 4:58 AM | Permalink | Comments (8)
                       

Starting in March, Baltimore-based Polk Audio will be selling two of its iPod-related products in the Apple Store – both the online version and the brick-and-mortar mall outlets.

Baltimore area audiophiles have long known of Polk Audio, which makes speakers and an assortment of other audio equipment. Of course, in the 35 years since its founding Polk has become a nationally and even internationally known brand name.

According to an article in This Week in Consumer Electronics, the two Polk products “are the I-Sonic ES2, an iPod-docking iTunes tagging tabletop stereo with HD radio and the miDock Studio, a portable AC/DC iPod speaker.” The I-Sonic will cost $499 and the miDock Studio $229.

Stereophile magazine noted that getting Apple’s blessing to be carried in its retail outlets means the products have met Apple’s “Made for iPod” (MFI) criteria. Stereophile quotes Apple Senior Vice President of Worldwide Product Marketing Phil Schiller explaining that the MFI program “seeks to formalize how accessory makers work with Apple – while also preventing consumers from getting stuck with knockoff products that don’t perform as advertised.”

Knowing Polk’s fine reputation, it’s no surprise it earned Apple’s stamp of approval.

Posted by David Zeiler at 7:14 AM in iPod | Permalink | Comments (0)
                       

“For some users, there’s never enough memory,” Greg Joswiak, Apple Vice president of Worldwide iPod and iPhone Marketing, said in yesterday’s press release announcing memory-enhanced versions of the iPhone and iPod Touch.

Apple is banking on it.

The new model of the iPhone boasts 16 gigabytes of storage capacity, twice that of the existing iPhone. The catch: you’ll pay a $100 premium for that extra 8GB of memory. Apple will continue to sell the 8GB version for the same price, $399, with the new one going for $499.

The iPod Touch got a similar upgrade. The existing 8GB and 16GB Touches do not otherwise change and will be sold at the same prices ($299 and $399) while a new 32GB model will go for $499.

Here we see Apple applying a lesson it learned with the introduction of the iPhone last year. Recall that originally Apple sold a 4GB model selling for $499 and an 8GB model priced at $599. Just two months later came the infamous $200 price cut on the 8GB model and the elimination of the 4GB model, which wasn’t selling nearly as well.

Apple learned that 1) the original iPhone price was too high and 2) most customers willing to buy a premium mobile phone also were willing to pay an extra $100 for the model with the most storage.

Fast forward to yesterday. Instead of following the pricing strategy it typically uses with new Macs and iPods -- offering beefier specs for the same price as the models they replace -- Apple is offering static prices on existing models while counting on the extra memory to entice customers to fork out $100 more.

Silicon Valley Insider did some math based on iSuppli’s breakdown of the cost of the iPhone’s components and calculated the 16 GB iPhone will reap a profit of $201 versus the 8GB model’s $141. (I’m ignoring the AT&T contract factor, since it provides the same profit in both cases.)

On one hand, this move is good for Apple as a company and good for AAPL shareholders because it gooses the iPhone’s profit margins. But it stinks for customers, who aren’t really getting $100 worth of added value with the new models. Flash memory is not that expensive. Silicon Valley Insider surmised that Apple’s profits could be even higher than its estimates, assuming that flash memory prices have dropped further since iSuppli did its analysis last July.

Why might Apple do this? I’m guessing that the ever-growing number of unlocked iPhones – for which Apple does not collect any revenue from a service contract with one of its partner cellular carriers – has thrown the strategic planners in Cupertino for a loop.

Apple has tried bullying customers to preserve that lost revenue by bricking unlocked iPhones with software updates. But that was a public relations catastrophe. Perhaps fearing damage to its relationships with its partner cellular carriers, Apple also has passed on another option -- selling unlocked iPhones at a higher price.

Beyond the problems with preserving high profits, Apple’s lofty goals for making the iPhone/iPod Touch into “the first mainstream WiFi mobile platform” means it needs to sell a lot of both in 2008.

So we get new models with premium prices based on a solitary improvement (albeit an alluring one) provided by a component Apple can obtain increasingly cheaply.

Small wonder Apple’s customers sometimes can’t decide whether they love the company or hate it.

Posted by David Zeiler at 10:42 AM | Permalink | Comments (8)
                       

The Mac’s resurgence will continue over the next several years, according to Gartner research, resulting in the platform’s doubling its market share in the U.S. and Western Europe by 2011.

That prognostication led off Gartner’s list of 10 key predictions for the tech industry the firm released yesterday. While crediting Apple’s business model for much of the Mac’s success, Gartner notes that “failures” of Apple’s competitors also are playing a part. Here’s what the company had to say:

“By 2011, Apple will double its U.S. and Western Europe unit market share in computers. Apple's gains in computer market share reflect as much on the failures of the rest of the industry as on Apple's success. Apple is challenging its competitors with software integration that provides ease of use and flexibility; continuous and more frequent innovation in hardware and software; and an ecosystem that focuses on interoperability across multiple devices (such as iPod and iMac cross-selling).”

Gartner has figured out what veteran Mac users have known for years. The Mac’s ease of use holds great appeal to people who just want a computer that does what it’s supposed to do. That demographic includes most home users, which is where the Mac has made most of its gains.

Gartner doesn’t name names after citing the “failures of the rest of the industry,” but it’s obvious the primary guilty party is Microsoft. Dashing expectations after years of anticipation, the latest version of Windows – Vista -- has met resistance in its first year of release. Many PC vendors, including Dell, had to start offering XP as an option on new PCs.

But the Gartner statement hints at more than the PC industry’s missteps; if you read between the lines, it’s also an indictment of the PC business model. That would be the chaotic system in which one company makes the operating system (Microsoft) while many others build the hardware (Dell, HP, Lenovo, Acer, Toshiba, Sony). And that doesn’t include all the third-party peripherals that may or may not work with your Windows PC.

Apple has long endured criticism for its vertical integration philosophy. “If only Apple would open up its hardware and software, it could compete and gain market share,” they would opine.

Of course, Apple did allow clone making briefly in the mid-1990s, but instead of growing the Mac’s market share the clone-makers gobbled up Apple’s best customers. Steve Jobs killed that bad idea shortly after his return in 1997.

Now Gartner is lauding Apple’s “software integration” and its “ecosystem that focuses on interoperability across multiple devices.” Apple’s ability to integrate its hardware, software and peripherals is what makes it all work so well. Somebody finally gets it.

One other prediction on Gartner’s list also bodes exceptionally well for Apple. By 2012, the company predicts half of traveling workers “will leave their notebooks home in favour of other devices.”

Gartner explains that workers will tire of notebooks’ size and weight: “Vendors are developing solutions to address these concerns: new classes of Internet-centric pocketable devices at the sub-$400 level; and server and Web-based applications that can be accessed from anywhere.”

Again, Gartner does not mention any names. Can you think of any devices that fit the criteria? Name begins with an “i”? Yep, the iPhone fits the bill perfectly, right down to its $399 price tag. But the $299 iPod Touch, particularly with its newfound software capabilities (mail, maps, weather, notes and stocks), may fit the bill even better.

Apple knows it and is already poised to exploit it. CFO Peter Oppenheimer referred to the iPod Touch as “an entirely new type of iPod” in his comments during Apple’s earnings conference call last week. “This new iPod has the potential to grow the iPod from being just a music and video player into being the first mainstream WiFi mobile platform running all kinds of mobile applications.”

While other companies surely will be competing in this space, Apple is the best equipped to make it work as people will expect it to work; its expertise in hardware-software integration will prove an immense advantage here. In a few years, the iPod Touch, along with the iPhone, could completely dominate this sector.

Just FYI, AAPL closed at $133.75 today.

Posted by David Zeiler at 6:29 PM | Permalink | Comments (3)
                       

Reading through the transcript of Apple’s conference call with analysts yesterday, I ran across several intriguing nuggets of information. Such as:

iPod Touch: On several occasions, Apple Chief Financial Officer Peter Oppenheimer referred to the iPod Touch as “an entirely new type of iPod.” From his opening remarks: “This new iPod had the potential to grow the iPod from being just a music and video player into being the first mainstream WiFi mobile platform running all kinds of mobile applications.”

Many pundits (and Touch owners) have declared the iPod Touch the ultimate PDA, but I don’t recall Apple having been this emphatic about it before. This could be a sign that Apple plans a lot of future enhancements to the iPod Touch, both in the software and the hardware. Evolving the iPod line in the direction of a pocket computer is logical as well as a good business move. Despite its recent successes, Apple recognizes that it can’t stand still.

Apple Retail Stores: Apple opened six new stores in the quarter, and now has 204. The company expects to add 35 to 40 locations in 2008, including more outside he United States. The average revenue per store was $8.5 million, up sharply from $6.6 million in the year-ago quarter. Traffic increased by 10 million visitors from last year, to 38.4 million, which translates to 14,700 visitors per store per week. No wonder it always seems like the Apple Stores are packed.

On a similar note, Oppenheimer said Apple plans to expand its presence in Best Buy stores from 286 to 600 over the next six months. The total number of “storefronts” carrying the Mac has increased to 9,500 from 7,700 a year ago. “We have done that because of the momentum we see in the Macintosh business,” explained Apple Chief Operating Officer Timothy Cook.

MacBook Air: When asked where the MacBook Air fits in Apple’s product roadmap, Oppenheimer uncharacteristically responded with a general description of the target customer: “We think that the MacBook Air will appeal to travelers, to professors, to all different kinds of people who want to access the computer very quickly wherever they are.”

He added that pre-orders for the laptop have been “very strong.” The super-slim MacBook Air has been lambasted by critics who say it omits too many features to suit the needs of most customers. Steve Jobs and his deputies obviously believe otherwise.

Leopard: Sales of the latest version of Mac OS X have far outpaced that of its predecessor, Tiger. Leopard revenue was $170 million in the quarter compared to Tiger’s $100 million in its first quarter. Oppenheimer attributed the growth to both a larger installed base of Mac users and that Leopard comes pre-installed on every new Mac, which sold in record numbers (2.3 million) in the December quarter.

One more thing: In a separate announcement yesterday, Apple added a new color to the iPod Nano line, pink. Available now, it’s perfect for people “searching for a special Valentine’s Day gift,” according to Apple Vice President of Worldwide Marketing Greg Joswiak. Other than the color, the particulars are the same as the other Nanos: 8 gigabytes of storage for $199. Too bad I already bought my Significant Other a Nano for Christmas. Ahh, she hates pink anyway.

Posted by David Zeiler at 12:00 PM in Mac OS X, iMac, iPod | Permalink | Comments (2)
                       

One week before Steve Jobs takes the stage in San Francisco for his annual Macworld keynote, the Mac universe is abuzz with the usual rumors and speculation.

Regulations governing Apple pundits require that I contribute to the collective cacophony or forfeit my license to blog on Apple. In that spirit, here’s my take on what might be coming – or not – on Jan. 15:

Mac Pro update – Apple completely shocked me by announcing new pro towers (and server models) this morning. I don't recall Apple ever making such a major product announcement just one week before a Stevenote. So these rumors panned out early. The twin quad core CPUs (giving this Mac 8 cores of processing power) are standard as expected, but there is no mention of Blu-ray DVD support. Steve will mention this, but not spend much time on it.

Retail stats – Steve will probably open the keynote with a rundown of assorted statistics demonstrating Apple’s prodigious business successes. We will hear about how many millions of people visited Apple’s retail stores, and that half of them were “new to the platform.” Steve will tell us how many new stores opened in 2007, and may announce new stores in such countries as China, Brazil and Mexico.

He should gloat about yesterday’s Bernstein Research report that showed Apple’s annual sales per square foot of retail space light years ahead of other retailers. At $4,491 per square foot, Apple not only clobbered Best Buy at $991/sq. ft. but also handily outshone other upscale retailers such as Saks ($388/sq. ft.), Coach ($1648/sq. ft.) and Tiffany and Co. ($2,746/sq. ft.).

Leopard stats – Steve will tell us how many copies of Mac OS X 10.5 have been sold since its launch at the end of October. Whatever the number, it will be the best operating system launch in Apple history. Leopard also will have had the fastest adoption rate of any Mac operating system version.

Office for the Mac 2008 – Craig Eisler, the new general manager of Microsoft’s Mac Business Unit, will join Steve onstage to introduce Office for Mac 2008. There will be a tedious demo.

Other software – Since iWork and iLife both were released in August, we won’t hear of them in the keynote. In fact, it’s hard to say what other software might get mentioned, since Apple got most of its upgrades out over the summer. He might spend a few moments on the prosumer video editing program Final Cut Express, which was updated in mid-November.

Video – The other week I predicted some major video-related announcements at the Stevenote. We will hear about the new iTunes movie rental service, heretofore unannounced by Apple but widely reported in the mainstream media. Various news reports over the past few weeks have said Apple is on the verge of making deals with almost all the major film studios, including 20th Century Fox, Walt Disney, Warner Bros., Paramount and Sony, MGM and Lionsgate. Availability is the major question here; if the deals aren’t final, the service may not launch for a few more months.

Apple TV – Going hand-in-hand with the iTunes Store movie rental news should be an announcement of a new, improved version of the Apple TV. This is not a shoo-in, but it would make a lot of sense for Apple to fix this product by adding the ability to record TV shows (like a TiVo) and access the Internet independently of a computer. The pièce de résistance will be integration with the iTunes Store, so that music, videos and movies could be ordered directly from the user’s sofa with the included remote control.

New iPods – You got ‘em in September. Let’s not be greedy.

iPhone updates – Some think Steve will announce a 3G iPhone next Tuesday; my gut feeling is that it’s too soon. Even if he does announce it, you won’t be able to buy one for several months. One thing we will get at some point during the keynote: stats on how many iPhones have been sold, and a recap of the product’s launch in the U.K., France and Germany. Steve might announce the next nation(s) set to get the iPhone (Spain? Italy? Japan?), but I haven’t read any rumors that further deals are near.

Steve will definitely mention the software development kit that will allow third-party developers to write programs to run on the iPhone. Although Steve has said the SDK would be available in February, he might wow the crowd by announcing its immediate availability.

One more thing ... One product the rumor sites have convinced themselves is coming at Macworld is some sort of Mac subnotebook, something smaller and lighter than a MacBook. This device could incorporate the same touch screen technology used in the iPod Touch. It could use flash memory in place of a hard drive, or at the very least will use flash memory to speed boot times. It will use a LED display (Apple has committed to using the more environmentally friendly LED technology in all its displays.) Despite the prevalence of rumors about this, no one is quite sure what such a beast will look like. But the odds are high we will see some incarnation of a MacBook Mini.

For anyone who’d like to follow the keynote live (it starts at 9 a.m. PST, or noon Baltimore time), several Web sites will be posting updates during the event. I prefer Engadget, but a full list of sites offering coverage will appear on MacSurfer the day of the event.

Posted by David Zeiler at 7:55 AM in Macworld & WWDC, Software by Apple, iMac, iPhone, iPod, iTunes/iTunes Store | Permalink | Comments (1)
                       

I have been ruminating for days over the antitrust lawsuit filed in California Dec. 31 charging Apple with monopolistic behavior in the digital music market. While the case looks weak, it also draws attention to some questionable Apple policies.

This suit came to light late Thursday when Information Week broke the story.

The suit accuses Apple of using its dominant position in the digital music market to stifle the competition in several ways. One way is the iPod’s lack of support for Microsoft’s Windows Media Audio format (and by extension its accompanying digital rights management), employed by almost all other digital music players and online download stores.

Another way Apple “locks out” rivals is its refusal to license the FairPlay DRM it uses in the AAC-formatted songs sold from the iTunes Store, so competitors don’t have the option of offering FairPlay-compatible devices or music.

After reading through the lawsuit myself, I must say I was astounded at the misinformation and exaggeration it contained. A few examples:

The suit on several occasions refers to how Apple’s behavior has restrained “what little competition remains in the digital music markets.” Although some digital music operations (both hardware makers and online stores) have scaled back or withdrawn, that sort of shaking out happens in every industry.

Furthermore, the struggles of a few have not discouraged new entrants on both sides of the market: Microsoft with its Zune player in 2006 and Amazon.com with its MP3 download store this past fall. If Apple had monopolistic control of the digital music market, new challengers would not dare enter it.

Apple in fact has plenty of competition. Consumers can easily avoid Apple’s products and services if they so choose. It’s been obvious for years that most choose Apple’s products because they like them better, not because they feel they have no choice.

The suit talks a lot about how iPod owners are “forced” to buy online music from iTunes, and that purchasing FairPlay AAC songs from iTunes “locks” that the buyer to the iPod, as the songs cannot be played on any other music player.

First of all, the aforementioned Amazon.com store sells MP3s with no DRM that can play on any player made by any vendor. For that matter, the iPod can play unprotected MP3s obtained from any source (including illegally).

Second, Steve Jobs said in his “Thoughts on Music” essay last year that only 3 percent of the music on the average iPod is purchased from the iTunes Store. Most iPods are filled with music ripped from the owner’s CD collection. Even the FairPlay stuff bought from iTunes can be burned to a CD and re-ripped back to a computer in a DRM-free format.

While the link between the iPod and the FairPlay music sold on iTunes does exert some pull in keeping customers inside the Apple ecosystem, it’s not as ironclad as the lawsuit claims. There’s a fence, but the gate is unlocked.

The suit further alleges that Apple’s monopoly control over the market allows it to “sell the iPod at prices far above those that would prevail in a competitive market.” If the iPod is so overpriced, it should be easy for rivals to undercut it by large margins on price in an effort to lure bargain-conscious buyers. But for the most part, Apple’s competitors sell their music players for about the same price as comparable iPods.

Yet as preposterous as this lawsuit is, it raises persistent troubling issues with the iTunes-iPod ecosystem. Apple may not be in violation of antitrust law, but its refusal to license FairPlay or make iPods compatible with Microsoft’s WMA format will continue to irk some consumers.

The most valid part of the lawsuit notes that many consumers, unaware of the competing DRM formats, could reasonably believe that all online music would be compatible with any digital music player, in much the same way they expect all CDs to play in any CD players.

Now I can’t blame Apple for not wanting to license WMA from Microsoft. Why would Apple want to pay its historic rival an annual licensing fee for a second DRM format (in addition to FairPlay)? There’s no benefit in it for Apple. Not to mention the irony of licensing a format for the iPod that no longer works in Mac OS X – that’s right, DRM-laden Windows Media files won’t play on a Mac. (The excellent Flip4Mac utility only works with unprotected WMA files.)

But why not license FairPlay? In his “Thoughts on Music” Jobs explained Apple did not want to license its FairPlay DRM because it feared that giving the code to other companies would increase the chances of it being leaked on the Internet and cracked by hackers.

That argument feels flimsy; Microsoft has licensed its WMA DRM for years. While it is breached from time to time, a patch has always followed fairly quickly. For that matter, Apple’s refusal to license FairPlay has not prevented it from being breached and requiring occasional patches.

I suspect Apple will keep its iPod-iTunes-FairPlay fence intact as long as it can. Its gaps give Apple a defense against these antitrust lawsuits, but its continued existence helps maintain the business model. Still, it smells just a bit unethical and not at all consumer-friendly – a trait Apple supposedly champions.

Of course, this entire issue will go away whenever DRM-encumbered music does. Business Week reported Friday that the last of the four major labels, Sony BMG, had agreed to start selling unprotected MP3s on Amazon’s online store. So far only EMI is selling DRM-free songs on iTunes, but now that Amazon has signed the others it could only be a matter of time before they all go DRM-free on iTunes. (Well, maybe not Universal…)

With no FairPlay and no WMA DRM music to worry about, accusations of “lock-in” will crumble. Apple almost certainly will continue to dominate the digital music industry, but its foes will need to find a new attack vector.

Posted by David Zeiler at 2:10 PM | Permalink | Comments (11)
                       

While shopping at Target over the weekend I was fortunately able to prevent what could have been a Christmas morning tragedy.

In addition to shopping for my daughter – whose birthday falls exactly one week before Christmas – I was doing my part to enhance Apple’s December quarter results by purchasing an iPod Nano for that special someone in my life.

While I was in the iPod aisle, a middle-aged lady came by and, seeing the display for the rival Zune directly across from the iPods, declared, “There’s the iPods!”

I quickly informed the lady that the product she’d discovered was not the iPod, and that the person for whom she was shopping would almost certainly be disappointed if they had in fact asked specifically for an iPod. I pointed out the iPod display behind her.

“This isn’t the same thing?” she asked, looking at the Zunes.

“It’s made by Microsoft,” I replied. “Need I say more?”

The lady nodded in acknowledgement and turned around to face the iPod display. Another successful intervention by Apple Man! (Though my black cape and tights with the white Apple logo on the chest were at the cleaners that day).

This isolated incident has me wondering whether the iPod’s market dominance eventually could have the unwanted side effect of turning the brand name “iPod” into a generic term, like Kleenex or Band-Aid. In other words, the technically challenged among the population could start calling all MP3 players regardless of manufacturer “iPods.”

If people shopping for iPods don’t realize that only Apple Inc. makes the genuine article, there is some risk that they could inadvertently purchase a rival product such as the Zune, just like the lady I saved at the Target.

Apple someday may need to take this into consideration in their marketing of the iPod to avoid it becoming a “genericized trademark.”

Either that or Apple will need to recruit an army of superheroes to watch over the electronics sections of all retail outlets where iPods are sold.

Posted by David Zeiler at 12:08 PM in iPod | Permalink | Comments (30)
                       

One year after introducing its Zune music player with the slogan “Welcome to the social,” Microsoft is going to Plan B.

The emphasis on the Zune’s primary advantage over Apple’s iPod – its ability to “squirt” songs to another nearby Zune wirelessly – turned out to be a poor sales strategy for a new product trying to break into an established market. That the songs expired shortly afterward didn’t help, either.

Microsoft built an ad campaign on a function most Zune owners rarely were able to use. It’s hard to be “social” when you’re the only one at the party.

While Microsoft has publicly stated it’s pleased with Zune sales, the product nevertheless sits in fourth place with less than 3 percent of the total MP3 player market It trails Sandisk, which has 10 percent of the market and Creative Labs at 4 percent. The iPod, of course, dominates with over 70 percent.

So on the cusp of the arrival of the new Zune models on Nov. 13 as well as the crucial holiday buying season, Microsoft has decided to bag the old campaign for a fresh one from a different ad agency, according to an Advertising Age article published yesterday.

The new campaign is more than a fresh approach; it essentially inverts the message of the original. From the AdAge piece: “Zune is dropping its original strategy, which painted the iPod as an isolating device and Zune as more social because its tunes can be shared among users. Now the campaign is centered on the individual and tagged ‘You make it you.’ ”

Hmmmm ... probably not a contender for next year’s Clio Awards. It may be worse than “Welcome to the social.” And then there was Vista’s underwhelming but costly “The Wow starts now” campaign. You’d think Microsoft would use its bloated bank account to hire better talent.

Microsoft’s only chance at taking significant market share from the iPod is to promote features of the Zune that are different or better. At least the first campaign tried something along those lines, no matter that it was ill conceived.

But a campaign to convince people the Zune is more personal than an iPod? In what way? In both cases, the user personally chooses every song and video he or she loads on the device. There’s no difference. The campaign makes absolutely no sense.

The Zune is a decent product, but it doesn’t particularly stand out in the crowd of portable media players. As the underdog in this category, Microsoft needs to show consumers why they should buy a Zune over not just an iPod, but over any music player.

The “it’s good enough” strategy only works when you have a monopoly.

Finally, I’d like to point out one more priceless tidbit in the AdAge article. Mike Harris, partner-strategy for T.A.G., the ad agency responsible for the new campaign, derided the iPod as “a superficial status symbol” as he praised the Zune as more personal.

Thus, the objective of Microsoft’s new campaign is to get the ignorant hordes to realize that since they bought an iPod only to impress their friends the only thing to do is to toss their Nanos sheepishly into a trash bin before rushing out to buy a Zune.

Good luck with that.

Posted by David Zeiler at 5:01 AM in Taunting Microsoft, iPod | Permalink | Comments (15)
                       

While it won’t be available until 2009, Korean electronics company Samsung unveiled a new type of flash memory chip that it says will enable the manufacture of 128-gigabyte memory cards. Oh, what Apple could do with a 128 GB flash card.

Apple uses flash memory in many of its products, most notably its iPods and iPhone. Flash memory requires less power and is far less fragile than a hard drive, but provides much less storage space -- at least in the capacities available today. While the hard drive-based iPod Classic comes in 80 GB and 160 GB versions – capable of holding 20,000 songs and 40,000 songs respectively – the 16 GB iPod Touch, Apple’s largest-capacity flash-based product, holds just 3,500 songs.

The availability of even 64 or 32 GB flash memory would invigorate the entire iPod product line. A 128 GB Nano would almost certainly kill the iPod Classic. And the introduction of higher-capacity iPhones would help keep that product moving off the shelves.

But it’s not just iPods and iPhones that would benefit from beefier sizes of flash memory. Apple and other PC makers would love to replace the hard drives in their laptops with flash memory to help stretch battery life and provide a hardier storage mechanism less prone to damage if the device is accidentally dropped. Apple is supposedly planning to include flash memory in future Mac laptops to enable much faster startup times.

Knowing Apple, uses like that would just be the beginning. I can envision the Apple skunkworks in Cupertino dreaming up entirely new products. In the near-term, such chips could be very valuable as part of Apple’s long-rumored “mini-computer” that allegedly uses the same touch screen technology as the iPhone.

Over the past several years Apple has gained a reputation as a flash memory hog, gobbling up supplies worldwide from many chipmakers, including Samsung. If I were Steve Jobs I’d be on the next plane to Korea.

Posted by David Zeiler at 1:55 PM | Permalink | Comments (3)
                       

Apple boss Steve Jobs posted a note on Apple’s Hot News section of its Web site this morning in which he changes the company’s position on allowing third party applications to be written for the iPhone – an issue that prompted many of the controversial iPhone hacks.

While this issue has not been as contentious as the ability to unlock the iPhone for use on other cellular networks, it nevertheless had irked many, if not more, iPhone customers. This change will take the iPhone a big step closer to realizing its potential as an ultra-portable mini-computer.

It should also help repair Apple’s relationship with those upset over the closed nature of the iPhone, although I doubt the people who had already hacked their phones – and had them “bricked” by Apple’s recent software update to the device – will forgive the company any time soon. (I know many feel such people created their own problem by hacking the phone in the first place, but most of them blame Apple. Sigh.)

Some may still grumble because the iPhone SDK (software developers kit), the tool developers need to write programs for the iPhone, will not be available until February. In his statement Jobs counsels patience “because we’re trying to do two diametrically opposed things at once – provide an advanced and open platform to developers while at the same time protect iPhone users from viruses, malware, privacy attacks, etc.”

Jobs also responds to critics who had ridiculed his previous explanations about why the iPhone was a closed platform: “There have been serious viruses on other mobile phones already, including some that silently spread from phone to phone over the cell network. As our phones become more powerful, these malicious programs will become more dangerous. And since the iPhone is the most advanced phone ever, it will be a highly visible target.”

I personally can’t speak to how easy it might be to create malware for a mobile device like the iPhone, but in the brief time it has been publicly available many determined people have managed both to unlock the iPhone and create unauthorized third party applications. So I think Jobs’ caution is justified.

In a “P.S.” note tacked on the end of his statement, Jobs mentions that the SDK will work with the iPod Touch, sort of a “one more thing” like those he so often drops on audiences at his keynotes. That should please many iPod Touch owners, who hadn’t been nearly as vocal about this issue as had iPhone owners.

Posted by David Zeiler at 1:03 PM | Permalink | Comments (5)
                       

The new Zunes are coming! The new Zunes are coming! But will anyone care?

Just weeks after Apple raised the bar with a refreshed lineup of iPods, Microsoft is poised to release a refreshed lineup of Zunes. Microsoft Chairman Bill Gates showed the new Zunes, scheduled to go on sale in mid-November, to reporters yesterday. The original Zune now has an 80-gigabyte version; two new flash memory-based models come in 4 GB and 8 GB versions as well as several new colors, though none of the new Zunes is brown.

Going simply by the specifications and prices, the new Zunes match up closely with their iPod counterparts, the iPod Classic and the iPod Nano. (If you want to see all the details, Engadget has created a chart.) The Zune flashes even have a physical shape much like the old, vertical iPod Nanos. The general impression is that the Zune is trying hard to match the iPod, rather than exceed it; it doesn’t differentiate itself enough to get noticed in a market where the iPod is king.

The new Zunes can “squirt” music to each other, as did the first generation. That feature did not prove to be a particularly strong selling point, perhaps because the songs expire after three plays. The Zunes still have an FM radio receiver, which the iPod does not, but frankly I use my iPod to avoid listening to the radio. And the new Zunes can sync their music from Windows PCs wirelessly, which is great if you hate the dreadful inconvenience of having to connect your unit into a USB port.

That’s not going to be enough to lure consumers from the iPod. As Gartner vice president Van Baker told the Los Angeles Times, “They’re not going to gain against Apple because there is nothing really innovative about what they’re doing.”

Microsoft has said it sold 1.2 million Zunes in the first half of 2007. Apple sold 20.35 million iPods in the same period. That ratio almost certainly will not change in the upcoming holiday shopping season. Microsoft needed to do something a lot more dramatic with the Zune to have any hope of eating significantly into the iPod’s 70 percent-plus market share.

Even Bill Gates seems unimpressed. “For something we pulled together in six months, we are very pleased with the satisfaction we got,” Gates told the New York Times. “The satisfaction for the device was superhigh. The satisfaction on the software actually is where we’d expect to see a huge uptick this year. It was just so-so on the software side.” Commenting on the integration of Zune’s hardware, software and music store, Gates added, “I’m sure a year from now we’ll do even better. But I’m blown away by what they’ve been able to do in a year.”

Uh, way to give Zune the hard sell, Bill. In years past, Gates famously touted new versions of Windows as the most robust ever, most secure ever, most feature-rich ever, blah, blah, blah. The hyperbole was staggering, and often misplaced. But it was his job as head of the company and chief figurehead to sell the product. Heaven knows Steve Jobs is legendary for marketing Apple’s new wares, though he usually has the goods to back up his claims.

As it stands, the new Zunes don’t figure to dampen Apple’s holiday cheer, while the increasingly negative reaction to Vista should help boost already rising Mac sales in the final quarter of 2006.

Posted by David Zeiler at 3:48 PM in Taunting Microsoft, iPod | Permalink | Comments (9)
                       

Shortly after the new iPod Touches hit the streets complaints about a glitch with the screens began popping up on the Web. Those afflicted with the bad iPod Touches report that they play video very darkly, with black shades so exaggerated they resemble an old film negative.

A post on a Web site called Apple-Touch.com actually included videos comparing a flawed iPod Touch playing the same scene side-by-side with an iPhone, which also sports a 3.5-inch screen. The difference in quality and the issue with dark areas in the iPod Touch’s video is obvious.

Some unhappy customers asserted that the flaw resulted from Apple using a poorer quality LCD screen in the iPod Touch relative to the one used in the iPhone. Some exchanged their bad unit for another bad unit. In forums, some customers countered that their new iPod Touches looked perfectly fine.

With accusations flying in every direction, I decided to stop by the Apple Store in Towson Town Center yesterday to have a look at the iPod Touch for myself. The store had four on display. I looked at some video on each one and could detect no hint of the problems I saw depicted on several Web sites. In fact, I thought the video on the iPod Touch looked pretty darn good.

I then moved over to the iPhone table and repeated the exercise (for the record, I played videos stored on the devices, such as the Ratatouille trailer, not YouTube videos). Frankly I could not discern a quality difference between the iPhone and iPod Touch, although I could not study them side by side since all the devices were tethered to their respective display tables.

One of the store employees said the staff there knew of the problem (although they learned of it by reading about it on the Internet; the Mother Ship hadn’t supplied any info yet) but had not seen any defective units, either in the store or brought in by a customer. In fact, he said they checked their entire iPod Touch inventory just to make sure.

My guess is that a bad batch of early-run iPod Touches slipped past the quality checks into Apple’s retail channels. If Apple was leaning on its suppliers to make deadline for the product launch, it’s not hard to imagine them shortchanging quality assurance procedures to satisfy Apple’s demands. I don’t think the iPod Touch screen is innately inferior to the iPhone’s. It is possible, but until there’s hard proof otherwise I’ll give Apple the benefit of the doubt.

Which brings us to perhaps most critical issue raised by all this: What’s Apple doing about it? Walt Mossberg, in an uncharacteristically muted review of the iPod Touch in yesterday’s Wall Street Journal, indicated that Apple was taking action:

Also, some early iPod Touch units have had defective screens, where images appeared too dark. Apple says this problem affected a small number of units and is being remedied. My two test units displayed beautiful images.

However, there has been no official word from Apple akin to the iPhone price drop apology and subsequent coupon. My hope is that Apple moves sooner rather than later to replace the defective iPod Touches. One of the company’s many strengths is its consistently high level of customer satisfaction. Apple can’t afford to appear callous when serious problems surface in any of its products.

I’m reminded of the problems that plagued the first MacBooks when they debuted last summer, primarily the “mooing” of the cooling fan and a yellowish discoloration on the wrist rest area that appeared within weeks of use. Apple issued a firmware update to fix the mooing and eventually agreed to replace the MacBooks that exhibited the discoloration.

I bought an early MacBook myself and fortunately experienced no problems with it. Perhaps my ears, ruined by years of listening to loud rock music, simply couldn’t detect the mooing. But the lesson here is that most defects reported in Apple products only involve a small number of units, percentage-wise. Unfortunately, many of those who end up with bad units also have their own Web sites. Within a day or so the entire Mac Web is talking about it, tainting the product’s – and Apple’s -- reputation.

Apple needs to act quickly to prevent the iPod Touch from getting stuck with a bum rap that will cut into its sales. Steve Jobs proved he’s capable of a rapid response to a widespread customer meltdown during the iPhone price cut affair. He needs to make a habit of it.

Posted by David Zeiler at 12:26 PM in iPod | Permalink | Comments (18)
                       

As expected, Steve Jobs unveiled an entirely revamped line of iPods at an Apple Special Event in San Francisco today. Most of the models received respectable upgrades, but the iPod Nano got a significant overhaul. The show-stealer, however, was the iPod Touch, a new member of the iPod family that’s essentially an iPhone without the phone.

The iPhone itself got no major upgrade this time around, but Jobs announced a huge price drop on the 8GB model (which has been selling in far greater numbers than the 4GB model) from $599 to $399. According to an Apple press release the apparently discontinued 4 GB iPhone “will be sold while supplies last.” The $200 price cut on the 8 GB model should get the attention of a lot more customers. It looks like the analysts had better re-think their iPhone sales projections again.

Jobs also announced some enhancements to the iTunes Store: iPhone ringtones that can be created from songs downloaded from iTunes and the ability to download songs over a Wi-Fi connection to your new iPod Touch or iPhone.

Yes, that’s right. The iPod Touch, like the iPhone, can connect to Wi-Fi networks and can do all the cool things an iPhone can do, such as browse Web sites and view YouTube videos. In fact, the iPod Touch looks almost exactly like an iPhone, but it’s slightly thinner.

The iPod Touch comes in two sizes, 8 GB at $299 and a 16 GB at $399. Because the iPhone is the same price as the high-end iPod Touch, customers must choose between phone capabilities and twice the storage space when spending their $399. You’d have to think the iPhone is the obvious choice, but one must assume Apple has a good reason for doing this.

The iPod Nano looks completely different now, fatter and squatter than its predecessor. The main reason for the change in form factor is to accommodate the 2-inch color video screen. The iPod Nano now comes in just two capacities rather than three: a 4 GB version for $149 and an 8 GB version for $199. (This compares to $199 for the previous 4 GB version and $249 for the 8 GB version.)

The original iPod – the one that uses a hard drive for storage rather than the flash memory used in the others -- has been renamed iPod Classic. The main change here is a massive increase in capacity. Instead of 30 GB and 80 GB models, Apple now offers an 80 GB model for $249 and a mind-blowing 160 GB model for $349. Jobs said that’s enough storage for 40,000 songs. Which begs the question: are there 40,000 songs worth having? The iPod Classic also has improved battery life: 30 hours for audio and 6 for video on the 80 GB model, a whopping 40 hours for audio and 7 for video on the 160 GB model.

The smallest of the iPods, the Shuffle got no hardware upgrades or price cuts (it’s still 1 GB for $79), but will be available in several new colors.

Finally, Jobs announced a partnership with Starbucks Coffee in which in extra icon will appear on iPhones or IPod Touches that get close enough to a Starbucks’ Wi-Fi location. That icon will show you the name of song the Starbucks store is playing and allow you to buy it from the iTunes Wi-Fi Store. I can’t get terribly excited about this, but then I rarely go to Starbucks.

All told, Jobs gave iPod fans most of what they wanted in this long overdue update of the product line. And as he noted several times during his presentation, these sexy new consumer toys have arrived just in time for the holiday buying season. I smell profits.

Posted by David Zeiler at 3:35 PM in iPod | Permalink | Comments (0)
                       

The other day I saw something that caught my attention: a 16-pack of Duracell AA batteries with a free set of white earbuds. That may not seem particularly unusual, but the earbuds appear to be exact replicas of those issued with Apple’s iPods. The earbuds are shaped exactly the same and have the same grey-shaded plastic around the earpieces (see photo below). Each earpiece also has six small vent holes on the outer shell.

But a closer inspection reveals minor discrepancies. The small circular “L” and “R” labels are grey on the iPod earbuds, black on the Duracell duplicate. Where the two strands join into the one cord that connects to the music device, the iPod cord is solid where the Duracell cord has a ridge down the center. The jack covers have different shapes and the jacks themselves have different colored rings: white for the iPod, black for the Duracells.

The ultimate test, of course, is whether these freebie Duracell earbuds sound anything like those that come with an iPod. Despite the superficial similarities, the sound quality of the Duracell earbuds most closely resemble that of a cheap AM radio from the 1970s. We’re talking about an aural experience so dreadful as to make these giveaways essentially useless. The Duracell package notes that the earbuds will “work with all portable music devices,” but I can’t imagine wanting to use them with any product by any manufacturer, and certainly not an iPod.

I suppose that’s about what you’d expect from something included with a pack of AA batteries, but it irks me that these earbuds obviously were designed to mimic the iPod’s. I wonder how many battery packs Duracell sold to people who believed they were getting free iPod-quality earbuds? People should know better, but it’s easy to imagine people being fooled by the fakes.

The Duracell package directs purchasers to a Web site for more information, but the page contains only a statement that the promotion has ended. With luck that will mean these bogus earbuds soon will vanish from store shelves.

Posted by David Zeiler at 12:14 PM in iPod | Permalink | Comments (2)