Apple looks to maximize its profits on flash-based iPods

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.

"We can't expect users to use common sense. That would eliminate the need for all sorts of legislation, committees, oversight and lawyers." -- Christopher Jennings
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