iPod Nano: Color Me Mine

I would have blogged about the new iPods yesterday, but I spent the day at DEMOfall 08 here in San Diego. Journalists can't defy laws of physics, meaning be in two places at once. Gambling that Apple would only announce new iPods and iTunes 8, I chose to attend DEMO instead. It was the right call. The new iPods aren't that exciting.

But the new models ride the pinnacle of great marketing, so clever as to hide mistakes with the third-generation Nano. Good marketing is like magic. Magicians' tricks are about distraction, getting the audience to look there so they don't see what's going on over here.

GOT A TIP OR RUMOR?

I wasn't a fan of what I have described as the "squat" iPod Nano, which Apple unveiled a year ago this week. Thin is in, particularly among younger consumers. The third-generation Nano is wide, as in fat. The form factor is good for video, but it's clunky to carry around. There are reasons why Apple returned to the original tall and thin design. Consumers don't want squat.

But Apple isn't going to say that; no smart marketer would admit such a gaffe. Instead, CEO Steve Jobs brings back the old, but with bold new colors. They're the biggest new feature. Sure, fourth-generation iPod Nanos are more oval than flat, add an accelerometer and support Apple's new Genius feature (do I have loads to say about that in the next post). But the biggest new feature, the one that will generate sales, is color—nine of them.

The Rainbow Connection
Color is not a new differentiator for Apple. In the late 1990s, Apple moved the original iMac from one to five colors. Since the iPod Mini, Apple has repeatedly followed the pattern of introducing smaller-size models in a couple of colors, then adding many more during a future refresh. Style matters; it makes people feel good about themselves and how others see them. Color is a personal statement. People will even pay more for style, as evidenced by the black MacBook, which is functionally equivalent to the white model but sells for $150 more.

These new colors come at a critical juncture for Apple, as does the surprising lack of other compelling features. The iPod is at its peak of popularity and perhaps as high as it may ever go.

By just about any measure, the iPod is hugely successful. During the first half of 2008, Apple sold 21.6 million iPods. In 2007, Apple sold 51.7 million iPods, a stunning number; 46.4 million in 2006; 31.9 million in 2005; 8.3 million in 2004. From July 1, 2003, to June 30, 2008, Apple sold approximately 161 million iPods, unless I made a math mistake while poring over five years of quarterly earnings reports.

While these numbers are seemingly great, they also show a product the growth of which is slowing. It's also uncertain how much the iPhone will pull sales from iPods. The biggest competitive threat to the iPod probably won't come from Microsoft but from Apple. Much depends upon how many more tricks Apple can produce that make new iPod iterations much better than the old ones.

The problem with any successful product is saturation. There comes a point where most people who want one have one. Sales then begin to decline. Saturation isn't just about how many people have product X. Fatigue is a related problem, where at some point product X is no longer new and so seems less exciting. There are very good reasons why clothing stores refresh their wares throughout the year and why consumer electronics manufacturers update their wares almost as often.

So Small I Could Cry
The iPod evolved in iterations from its October 2001 release over the next four years. The first major redesign of note, the iPod Mini, was announced in January 2004, but didn't ship until more than a month later and was back-ordered for about another six months. I only got one for my wife, for Mother's Day, because Apple stocked up the Montgomery Mall store for its grand opening. During the first half of 2004, Apple sold about 1.7 million iPods, with the number jumping to 2 million and 4.5 million in the third and fourth quarters, respectively. The iPod Mini made a huge difference for the product line—that and Apple's rapidly expanding distribution channel.

In 2005, Apple's iPod first three quarterly shipments ranged from 5.3 million to 6.4 million, but hugely increased in the fourth quarter. In early September 2005, Apple introduced the iPod Nano, which was truly a breakthrough product, in terms of size, design and user benefits—it defined "cool." iPod sales were good before the Nano, but a whole lot better after its release. Apple sold 14 million iPods in the fourth quarter of 2005.

The Mini and Nano are true to two of my seven principles for technology products. To displace a successful product, the new one has to be a whole lot better; people must feel better about themselves for using the new product, or at least think that they will. Before the Mini, the iPod's form factor and features changed modestly; increased storage capacity, decreased bulkiness and better battery life—all important changes but not breathtaking. The Mini was much smaller and more colorful—it didn't look like an iPod. But the Nano made the Mini look absolutely huge and oh-so last century.

Apple's fourth-quarter iPod shipments jumped from about 4.5 million units in 2004 to 14 million units in 2005. Apple added color to the iPod Nano a year later, bringing already rising sales to crescendo: 21 million units shipped in the fourth quarter of 2006. The squat Nano was released about a year ago, with great screen resolution but nothing compellingly different from its forebears. That was OK, because Apple had the iPod Touch, which would have been revolutionary from a design and marketing perspective if not for the iPhone. Fourth-quarter 2007 sales were strong—about 22.1 million units—but there weren't huge gains, either.

Something's Missing Here
The question: What would Apple do for the 2008 iPod product line? Would there be yet another revolutionary refresh, so compelling that people just had to buy another iPod? No. The Nano and Touch have evolved, but the compelling new feature is color.

Color isn't a bad way to go, given where Apple is in the iPod Nano life cycle and looking at how much marketing attention and dollars are going to the hot-selling iPhone 3G. Color is a feel-good feature, and it's an expression of individual style. Color also is a way to differentiate a single product, so that people don't feel like they're buying the same thing as everyone else. Good marketing often balances the belonging (everybody has one, so it must be cool) with individuality (I don't want to be like everybody else).

But for all the iPod Nano's color, some of which Apple sprinkled on the iPod Shuffle, there is nothing super-trendsetting about the 2008 product refresh. Product shipments will tell the story, but I'm guessing they won't surge for the year. Sometime soon I'll look at analyst forecasts and see how they look for iPod shipments.

[Please send your tips or rumors to watchtips at live.com]

Posted by Joe Wilcox on September 10, 2008 4:54 PM