With Apple commanding nearly 76% of the digital music player
market and its multitude of competitors fighting for the remaining share, the
company finds itself in a rather interesting position. Apple could have made even
deeper price cuts across the board to increase its marketshare even further,
but instead decided to maximize
the profit margin of its popular iPods, particularly the flash-based models.
Analysts from Gartner point to the cost of materials for
several of Apple's new flash-based iPod models to drive home their point.
Here's a breakdown on the cost of materials versus the retail price of four new
iPod models:
- iPod Shuffle: $30/$79
- iPod Nano 8GB: $130/$249
- iPod Nano 4GB: $90/$199
- iPod Nano 2GB: $70/$149
There's some wiggle room for Apple to get really aggressive
with pricing (after other costs are taken into consideration), but the company hasn't seen any reason to do so. The iPod has
successfully fended off every attack from competitors relegating them to
also-rans in the market. SanDisk is holding on with 9.7% of the market while
Creative is a distant third at 4.3%.
Apple’s latest competition has come in the form of
Microsoft's Zune which was announced last Thursday.
That player comes with a 30GB hard drive, 3" QVGA screen and WiFi
connectivity for Zune-to-Zune media sharing. It appears that the folks at
Microsoft don’t know quite what to make of Apple’s decision to drop the price
of the hard disk-based 30GB iPod, the Zune’s most direct competitor, to $249. At that price,
Microsoft has its work cut out for it as far as pricing goes with the Zune. You can hear the uncertainty in statements
made by Microsoft’s General Manager of Marketing Chris Stephensen:
Yeah, it's interesting
that they decided to reduce the price of the 30GB. It's come down $50. That's
obviously a huge financial hitch. I'm not sure what they think we're doing.
It's certainly an interesting thing to do - to reduce the price of a
good-selling product like that - that was selling well at $299. We'll take it
as it is. It's an interesting move on their part, and it's an interesting
opportunity in the market place.
No matter what Microsoft does as far as pricing is concerned
with the Zune, Apple is sure to hold the line on iPod pricing for the
foreseeable future. We'll likely see a new 6G flagship iPod with features worthy
of a next generation device before we see any knee-jerk reactions to what could
amount to Apple's stiffest competition yet.
