Journal of Business Case Studies – Summer 2005 Volume 1, Number 3
Factors Of Market Performance
Of Apple Ipod:
A Preliminary Desk-Based Study
Eric Shiu, (Email:
[email protected]), University of Birmingham, United Kingdom
ABSTRACT
The Apple iPod is a hugely successful new product. This study conducts a secondary research in
order to trace the technical and market development of the product, and then to suggest
contributory factors of its remarkable market performance. These suggested contributory factors
include opportunity identification, product design, product platform, external and internal
coordination, speed to market, and advertisement and publicity. Future research can incorporate
all these factors in a hypothetical causal model in order to test the statistical significance of these
factors and the relative importance between them.
INTRODUCTION
g he Apple iPod is a small, portable digital music player. Its original version has a 5GB hard drive, thus
enabling it to store up to 100 hours of MP3 music files. The lithisum-polymer battery powers the iPod
for ten hours between charges. The small device features a high-resolution liquid-crystal display and a
thumb-wheel to scroll through the menus. There is a headphone-jack and a socket to connect the iPod to a computer
using a firewire cable, which allows high-speed transfers of digital files. It also contains memory chips and various
other circuitries including a microprocessor. The iPod comes with Apple’s iTunes digital-jukebox software, which
gives users the ability to organise their music into play lists (Schlender 2001).
New products usually face a high rate of failure somewhere in the order of 25 to 45 percent (Cooper 2001).
Despite this norm, the market launch of Apple iPod has proved to be hugely successful. After the dot com crash,
Apple’s share price tumbled and didn’t recover until 2004 when it dramatically tripled towards US$80 a share.
During the first financial quarter of 2005, Apple registered its highest revenue and profit in its 28 years of history.
This has been propelled by the sale of 4.6 billion iPods, occupying 74% market share of the digital market (Mac
Publishing 2005). The iPod is now bigger than the whole of Apple in 1995. Table 1 illustrates further the market
performance of iPod based on measures including sales volume, market share and profitability, all of which have been
claimed as effective measures of performance (Crawford 2003).
RESEARCH OBJECTIVE AND APPROACH
An increasing amount of research, field-based or desk-based, has been conducted on the factors of success of
a new product (e.g. Ayers, Dahlstrom and Skinner 1997; Moorman and Miner 1997; Ittner and Larcker 1997; Song
and Parry 1997; Edgett, Shipley and Forbes 1991). Many of these studies endeavoured to come up with factors that
can account for new product success. They have contributed significantly to our clearer understanding of the causal
relationship between these factors and new product performance in general.
23
Journal of Business Case Studies – Summer 2005 Volume 1, Number 3
Table 1 – Sale Volume, Market Share And Profitability Of Apple Ipod
December 2003 Apple has sold 1.3 million iPods so far.
January 2004 Apple has 31% share in the digital music player market.
January 2004 Apple boasts a net profit for 1st quarter of $63 million.
February 2004 iTunes is the most popular music-download store.
April 2004 Apple reports a net profit of $46 million in the 2nd quarter of 2004.
April 2004 Apple has sold more than 70 million songs via iTunes in its first year (Mintel 2005).
April 2004 iTunes controls 70% of the music-download business (Quittner 2004).
July 2004 Over 3 million people now own iPods (Stone et al. 2004).
October 2004 Apple announced a 44% year on year increase in profit to $106 million. This is due to a 344%
increase in sales from iPods and a 600% increase in sales from iTunes (Bulik 2004).
October 2004 Apple has 66% share of the market for digital music players (Burrows 2004).
December 2004 65% of all MP3 players are iPods and 92% of all hard drive-based music players are iPods
(Vence 2004).
However, it is always likely that the factors that are validated in a study may be quite country-specific or
product-specific. For example, cross-functional integration, which measures ‘internal environment’, is influential in
new product performance for both the US and Japan, but the magnitudes of the influence are different (Ayers,
Dahlstrom and Skinner 1997; Song and Parry 1997). ‘Competitive environment’ exerts a significant impact on new
product performance within the electronic products industry (Zirger and Maidique 1990) and the industrial products
industry (Cooper 1979). Yet Cooper and Kleinschmidt (1987) found that the same category of determinants is
significantly and negatively correlated with only one of ten measures of new product success for a wider scope of
industries. In 1993, the same authors focused on the chemical industry and concluded that ‘competitive factors did
not discriminate much between successful new products and unsuccessful ones’. Take another example,
preannouncement can be beneficial in one new product launch setting, but can have disastrous consequence in
another. Considering all these potential complications, this study concentrates on only one product – Apple iPod,
whose remarkable market performance is not country specific.
The market performance of Apple iPod is indisputable. It is proclaimed as one of the top ten most successful
product launches (Advertising Age 2003). Smith (2004) also maintains that the iPod is ‘one of the most successful
products launched in the last decade’. It would be beneficial for businesses, particularly technology businesses, to
understand what could be contributing to the huge success of Apple iPod, which becomes the research objective of
this study.
To meet this research objective, the study will borrow established concepts in new product development and
hi-tech product marketing, such as product design, product platform and speed to market, in order to offer
explanations of the market performance of Apple iPod. This is accompanied by secondary research of the technical
and market development of the product. Undeniably this study is a desk-based study, and therefore any contributory
factors suggested are still to be validated. The following section is an account of these factors.
SUGGESTED FACTORS OF PERFORMANCE
Through a desk research on factors of new product success in general and Apple iPod in particular, six
factors of performance of the product have been proposed. These six factors could be crucial, but not exhaustible.
Opportunity Identification
Opportunity identification is the first stage of product innovation process, and is ‘strategic in nature’
(Crawford 2003) because everything that follows along the process is all about to effectively and efficiently take up
the opportunity concerned. However, it is often difficult to identify opportunities and choose the best of all these
opportunity. Crawford (2003) once noted that opportunity identification is the fuzziest stage of the product innovation
process.
24
Journal of Business Case Studies – Summer 2005 Volume 1, Number 3
Apple had effectively identified an opportunity within the digital music market. They had noticed that
‘digital music players weren’t selling’ because the products currently on the market were insufficient (Stone et al.
2004). Smith (2004) notes that ‘Apple saw that the digital music players were lousy’.
Product Design
It appears that the iPod was designed with a number of desired attributes in mind. The product uses 1.8”
Toshiba hard drive technology, rather than the conventional flash memory facility, to store music. Until then, the
Toshiba technology had not been used on other similar products. This suggests that Apple wants to benefit from
design differentiation by enabling users to store their entire music collection, as opposed to a selection of songs, onto a
device. By storing music songs onto its memory chips, the power-hogging hard drive developed by Sony is allowed
to shutdown during playback, which results in a battery life of ten hours compared to two hours of its competitors
(Brent 2001).
In addition, Apple iPod was designed to meet customers’ functional needs in that an ingenious two-inch-
diameter thumb-wheel is incorporated on the faceplate for scrolling through hierarchical menus on the six-line
display. Furthermore, firewire connectivity has been utilised to allow high-speed transfer of digital files, which is in
direct contrast to its competitors who all used the slower USB connections. The functionality of the product is further
enhanced with the use of the iTunes software, which allows easy transfer synchronisation of new files from the
computer onto the iPod, and also allows playlists to be effortlessly created and categorised.
The design is not only functionally attracting the customers, but also aesthetically pleasing to them. The
product is represented by the sleek lines with the less conventional white colour, and provides a sense of user-
friendliness. These are all in line with and therefore further enhance the established corporate image of Apple
(Crawford 2003).
The ease of manufacture is also evident, as the iPod’s casing is clipped together instead of the use of more
time-consuming screw fixings (Brent 2001).
The high quality design of iPod could be summed up by Donaldson (2002), who commends that ‘Apple has
always been ahead of the curve when it comes to innovative design … with the new iPod MP3 player, the company
sets another benchmark’.
Product Platform
The original iPod was designed in a way that it can be treated as a product platform, which ‘can be shared by
one or more product families’ (Crawford 2003), and can incorporate new advancements and add-ons to be developed
at a later stage. Schlender (2001) states that the team behind the iPod ‘knew they were designing what was in effect a
computer platform that could be improved with software upgrades and adapted to other uses’. The product platform
strategy can help to further increase sales of the product by introducing continuously improved versions of the
product. This can be seen with the advent of the second, third, and fourth generation iPods’ all offering advanced
features over their predecessors, as well as the iPod Mini, iPod Photo and most recently the iPod Shuffle (Burrows
2004). Table 2 outlines the launch of Apple iPod and its next generation products.
25
Journal of Business Case Studies – Summer 2005 Volume 1, Number 3
Table 2 – Launch Of Apple iPod
February 2001 Having recognised an opportunity in the digital music player market, Steve Jobs (CEO of
Apple) put together a team to come up with a ‘groundbreaking’ digital music player.
October 2001 Launch of the 5GB Apple iPod, priced at $399 (Levy and Stone 2004).
June 2003 Apple launches a new improved iPod, with 10GB ($299), 15GB ($399) and 30GB ($499)
hard disks. The device is slimmer than the original model, includes a docking station and the
user can now store up to 500 hours of MP3s. New features include a song-rating facility
(Dreier 2003).
October 2003 Apple launches iTunes music store (in USA); consumers can purchase songs to play on their
iPods.
January 2004 Apple makes a pre-announcement for the launch of its new Mini iPod.
February 2004 Apple launches the Mini iPod.
March 2004 The global launch of the mini iPod is delayed due to stronger demand than expected. It had
been planned to launch worldwide in April.
June 2004 Apple launches iTunes in Britain.
July 2004 Mini iPod is launched internationally at a price of $249.
July 2004 Apple introduces a new iPod available in a 20GB model ($299) and 40GB ($399). It features
a click wheel, 12 hours of battery life and a new ‘shuffle’ feature. It is also slightly thinner
than its predecessor.
October 2004 iTunes is launched in 9 more European countries.
October 2004 Apple launches new colour-screen iPod, which can store up to 25,000 photos or 15,000 songs.
The 40GB model costs $499 and the 60GB model costs $599.
January 2005 Apple launches the iPod Shuffle, a lightweight, cheaper version of the standard iPod.
March 2005 Apple cuts the price of iPods - the iPod Mini costs $199 (previously $249), the 60GB iPod
photo is $499 and the 40GB version is $349 (Mintel 2005).
External And Internal Coordination
To achieve the best possible functions of the product, Apple strategically coordinated with companies with
core competencies in respective areas all of which contribute to the functional performance of the product. Table 3
outlines the key partners of Apple for the development of its iPod product.
Table 3 – Apple’s Key Partners And Their Respective Expertise Areas
Company Component
Sony Battery
Wolfson Codec/DAC
Toshiba Disk drive
Texas Instrument Firewire
Linear Technology Power management
Apple used dual approaches in internally coordinating its specialists for the development of the iPod product.
A functional approach was initially utilized in order to project the secrecy of the iPod’s development, as many
employees were enlisted without knowing what the final aim of their work was. A total of approximately 50
specialists were working on the iPod at any one time, consisting of 35 designers and a handful of software and
hardware engineers, including several from outside the company. Many Apple engineers drifted in and out of the
project as their expertise was needed.
26
Journal of Business Case Studies – Summer 2005 Volume 1, Number 3
This then transformed into a venture based approach, with employees being pulled from their original
departments to work fulltime on the iPod and to establish new ideas to solve product related problems.
Speed To Market
The advantages for a company to bring its newly developed products to market as fast as possible can be
crucial. Cooper (2001) advocates that ‘speed is the pivotal competitive weapon: the ability to accelerate product
innovation – to get new products to market ahead of the competition and within the window of opportunity – is more
than ever central to success’, and speed to market is particularly necessary in an environment where ‘markets and
technologies are changing more quickly than ever’.
Apple achieved a very rapid entry into the digital music player market. They progressed from opportunity
identification in February 2001 to market launch in October 2001 in just 8 months. This is faster than any other major
product in the company’s history (Brent 2001). They managed to do this before the competitors realised the same
opportunity, which eventually contributed to their attaining clear market leadership.
Apple not only speeded up the launch time in order to get ahead of potential competitors, but also timed the
launch time nicely in order to obtain the maximum possible initial sales. The first version of Apple iPod was launch
in October, right just before the Christmas shopping season, when demand for the product was expected to be the
greatest than otherwise (Schlender 2001). This launch timing strategy dovetails Hisrich and Peters’ (1991) suggestion
of the importance of the timing of new product launch.
Advertisement And Publicity
Advertising is important in new product launch as it can help to increase the awareness of the product
amongst the public, which is ‘the necessary first step towards adoption’ (Crawford 2003). Apple has launched a
successful advertising campaign for its iPod product (Creativity 2004). The advertisement, on the television, depicts
silhouetted bodies dancing along to the music played by their iPods. The bright white iPods are in contrast with the
bold colours in the background, which results in a strikingly visual effect. The advertisement emphasises on ‘the
enjoyment of music on the go’ (Vence 2004).
Apple has also benefited from free publicity for the iPod. Hisrich and Peters (1991) argue that ‘one of the
most effective means of facilitating the introduction of a new product is to obtain free advertising’. Apple achieved
free publicity from articles in newspapers and magazines whereby the features and benefits of the iPod were reviewed
(Mintel 2005). It further gained free publicity when David Beckham was seen in the newspaper using his iPod, which
helped to boost demand (Mintel 2005). Will Smith also provided free publicity for the iPod by talking on a chat show
about his infatuation with the ‘gadget of the century’ (Stone et al. 2004).
CONCLUSIONS
The iPod has clearly been a highly successful new product, with an increasingly high level of sales since its
launch in October 2001, and a market share of over 60%. This success can be attributed to a number of contributory
factors discussed above and summarised below.
Apple has identified an opportunity in a growing market and has exploited it effectively by coming up with a
concept that is valued by consumers. The iPod is an innovative idea which was brought rapidly to the market, and the
competition could not match its outstanding design and functionality. Cooper (2001) argues that a successful new
product is ‘a unique, superior and differentiated product with good value for money for the customer’. The iPod
fulfils each one of these criteria. The launch of the iPod has been supported by an effective advertising campaign, and
has been further strengthened by a number of publicity events, which have established the product as a ‘cultural icon’
(Bulik 2004). Apple constantly makes improvements to the iPod in order to sustain its market leadership status.
27
Journal of Business Case Studies – Summer 2005 Volume 1, Number 3
The success of the iPod is likely to continue into the future. Using the iPod as a product platform, Apple is
able to have further product innovations. Possibilities include a wireless iPod which uses Bluetooth to connect to a
computer without a docking station, a vPod which plays videos, and an iPhone which allows users to play MP3 on
their mobile phone (Sloan 2005).
REFERENCES
1. Advertising Age (2003) Ten most successful product launches, Advertising Age, Vol. 74, Issue 51, p. 26.
2. Ayers, Doug, Robert Dahlstrom, and Steven J. Skinner (1997) An exploratory investigation of organisational
antecedents to new product success, Journal of Marketing Research, 34 (February), p. 107-116.
3. Brent, S. (2001) Apple’s 21st century walkman, Fortune (Europe), November, 144 (9), p. 113.
4. Bulik, B.S. (2004) The iPod economy, Advertising Age, Vol.75, Issue 42, p. 1-2.
5. Burrows, Peter (2004) A rising iPod lifts all boats, Business Week Online.
6. Cooper, Robert G. (1979) The dimensions of industrial new product success and failure, Journal of
Marketing, 43 (summer), p. 93-103.
7. Cooper, Robert G. (2001) Winning at New Products, Perseus Books.
8. Cooper, Robert G. and Elko J. Kleinschmidt (1987) New products: what separates winners and losers?
Journal of Product Innovation Management, 4 (3), p. 169-184.
9. Crawford, M. and Di Benedetto, A. (2003) New Products Management, McGraw-Hill.
10. Creativity (2004) Campaign: Apple iPod, Vol. 12, Issue 1, p. 2.
11. Donaldson, S.A. (2002) New products, Black Enterprise, Vol. 32, Issue 8, p.56.
12. Edgett, Scott, David Shipley, and Giles Forbes (1991) Japanese and British companies compared:
contributing factors to success, Journal of Product Innovation Management, 9 (1), p. 3-10.
13. Hisrich, R.D. and M.P. Peters (1991) Marketing Decisions for New and Mature Products, Macmillan
Publishing Company.
14. Ittner, Christopher D. and David F. Larcker (1997) Product development cycle time and organisational
performance, Journal of Marketing Research, 34 (February), p. 13-23.
15. Mac Publishing (2005) http://www.macworld.com accessed on 25 April 2005.
16. Mintel (2005), http://mintel.com accessed on 25 April 2005.
17. Moorman, Christine and Anne S. Miner (1997) The impact of organisational memory on new product
performance and creativity, Journal of Marketing Research, 34 (February), p. 91-106.
18. Schlender, Brent (2001) Apple 21st century walkman, Fortune (Europe), Vol. 144, Issue 9, p. 113-117.
19. Sloan, Paul (2005) What’s next for Apple? Business 2.0, Vol. 6, Issue 3, p. 68-75.
20. Smith, Steve (2004) iPod’s Lessons, This Week in Consumer Electronics, Vol. 19, Issue 15, p. 12.
21. Song, X. Michael and Mark E. Parry (1997) The determinants of Japanese new product successes, Journal of
Marketing Research, 34 (February), p. 64-76.
22. Stone, et al. (2004) iPod Nation, Newsweek, Vol. 144, Issue 4, p. 42-50.
23. Vence, D.L. (2004) Ad campaign, simplicity drives sales of Apple iPod, Marketing News, Vol. 38, Issue 20,
p. 16.
24. Zirger, Billie Jo and Modesto A. Maidique (1990) A model of new product development: an empirical test,
Management Science, 36 (7), p. 867-883.
28
