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December 11, 2004

Panning the flash (iPod)

I'm a big fan of John Gruber's Daring Fireball. He's a knowledgeable Mac user, a terrific writer, and really gets what makes the Mac insanely great. I proudly wear my Daring Fireball t-shirt.

John was also among the first pundits to appreciate the attraction of the iPod mini, which has, of course, been a huge success.

Last week, John ran a post debunking rumors of a flash-based iPod, whose intended appeal he says he just can't understand.

Gruber complains that people advocating a flash iPod are proceeding from the mistaken impression that there are two kinds of music players, flash and hard-drive. Both, he argues, are “implementation details,” unimportant next to essentials like the user interface.

That much I agree with, but Gruber's argument against two kinds of music players essentially boils down to an argument for only one kind of music player: He argues that only the hard drive player has what it takes. There I disagree: different component choices lead to a range of different products, just as my 12-inch PowerBook and G5 are both Macs, but radically different.

Part of the brilliance of the iPod is the way it overcomes compromises that crippled previous hard drive players. The scrollwheel/clickwheel took what had been 5 or 6 different controls and combined them into one intuitive package. Another innovation: the iPod doesn't actually play your music off the hard drive; it would exhaust your battery in no time and skip like crazy, so Apple periodically spins up the drive, grabs a bunch of music, and loads it onto ... some flash memory, from which your music is played.

John looks at three different angles he think Apple could take with a flash iPod: “iPod cheapy,” “iPod tiny,” and “iPod sport.” None of them warrant a second look, he says.

Cheapy: John says Apple can work their way down in price point by dropping prices on the mini and offering larger capacity drives at the current price point. But Apple's in an enviable position with both lines of iPod, selling all they can make. There's really no reason to lower prices on either line until demand at the current prices abates, so Apple has maintained (even raised) their price points over three years and kept the value up by raising capacity on iPod drives. Why sell a $199 iPod mini with a 2-gig drive when there's someone in line waiting for a 4-gig mini at $249?

On the other hand, Apple has to know there are millions of sales out there for the right player at the right capacity at a lower price. And most people would pay more for an iPod-brand player than your generic Coby. The Mac Observer posted some music player market share data last month showing that sales of hard drive and flash-based players are both growing, but that flash players are growing faster, with no single manufacturer taking more than 20 percent of that market. Smells like an opportunity. By introducing a flash player as a third product line, Apple can hold the line on pricing and margins on the existing models while opening up a new market, and introduce Apple products to a wider variety of people than ever before.

Also note that retail prices for flash (so presumably wholesale prices) appear to be dropping faster than prices for small hard drives, probably because there are many other consumer uses for flash memory (cameras, phones, PDAs) and very few for tiny hard drives.

Tiny: John says there's no utility to a player smaller than an iPod mini: the screen wouldn't show enough text, and the clickwheel is the perfect control mechanism. The rumored flash iPod over at MacMind takes an interesting approach here: no display at all and a minimal clickwheel.

I can actually remember the bad old days of a 64-meg Rio 500 (second from left, above), and what I remember most is how often I had the damn thing hooked up to my computer, since I had to swap music onto it pretty frequently, and it was USB 1.1, so it took a long time to load (small AND slow -- such a deal!). This design makes that an advantage: FireWire takes care of the download speeds, and iTunes can dynamically handle the rest, with smart playlists. Why not manage your music on your computer's big screen, and only use the player to listen? Bang -- there's the cost of a display saved, and the price point lowered.

Another advantage is that you don't have to power the screen, so you can have a smaller, lighter battery or longer battery life, and a smaller package. Add in the power and form-factor savings of ditching the hard drive, and you can build a seriously tiny package. Sony used to sell an MP3 player in a pen.

And perhaps there's an optional display, letting Apple tout the low entry price, but selling most of them with the optional display at a higher price.

But nobody has built an MP3 player without a screen, I've seen people argue. That's sort of true, but Apple partner Audible.com worked with IDEO to build an award-winning audiobook player, based on flash memory, that worked great without a screen (at right and above, far left), and had an FM transmitter (a la iTrip) on board, to boot. The Audible MobilePlayer used audio cues for user feedback, and held hours of spoken-word content in its 4 megabytes (!) of storage, circa 1998. Flash memory was pretty expensive then.

Sport: I honestly don't get John's argument here:

One other difference between flash-memory and hard-drive based players is that because it’s a solid state technology (i.e. no moving parts), flash-memory players are skip resistant and less prone to break if dropped. Thus, a flash-memory iPod might conceivably be targeted as a workout companion. Lower weight would also be a plus in this market. But if this is the case, I see even less reason to expect that such models would cost less than existing models.

He seems to admit the flash player has advantages here, but can't see a reason to charge less for it just because you can manufacture it for less, since this isn't the “iPod cheapy.”

The shortsighted thing about Gruber's post is that he's thinking one-dimensionally times three: either cheaper, or smaller, or more rugged. Any flash iPod will improve in all three dimensions: it will be the “iPod cheapy tiny sport,” not just one of the above.

A flash iPod that was $99, smaller, and tougher than the existing models would be a great gift for 'tweens and teens, a great workout companion (where the iPod classic is a little bulky), and priced for impulse buyers.

Every time Apple has launched a new model of iPod, they've been able to hit a price point at or below retail for the storage itself. The 5-gig drive in the original iPod was about $400 when the iPod was introduced at $400; the Microdrive in the iPod mini was $300 and up when the mini was introduced at $249. Volume wholesale prices mean Apple can build in a profit margin and the other components for less than the difference between wholesale and retail.

On a less expensive player, there's less money in the markup on the storage, so an iPod flash might have more invested in other components than in the memory, but I doubt it. Flash cards at 1 gigabyte are around $90, with 256 meg cards in the $30 range -- at retail. If the MacMind rumor plays out, and Apple sells a 256-meg player at $99, they should be able to maintain very healthy profit margins on the new players.

Will they cannibalize sales of other iPods? Maybe a little, but that's all the more reason for Apple to reinforce how useful the current iPods are for a million things other than playing music, like photos. It might also explain why the flash iPods haven't been released, despite earlier rumors that they would be available for Christmas: Apple may have a specific level of demand for current models, or a specific wholesale price for “iPod classic” components, that would trigger the flash player's introduction.

December 11, 2004 in Apple - iPod, Seen browsing | Permalink

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