Business | Features
iPod 'ecosystem' offers rich pickings
When Steve Jobs unveiled the latest version of Apple Computer's iconic iPod digital music player in October, the company made a small but significant change that went largely unnoticed in the hullabaloo surrounding the launch of the iPod video.
- Financial Times
- Published: 00:00 January 29, 2006
When Steve Jobs unveiled the latest version of Apple Computer's iconic iPod digital music player in October, the company made a small but significant change that went largely unnoticed in the hullabaloo surrounding the launch of the iPod video.
Apple dropped the top-mounted remote control socket that had been a feature of all iPods since the third-generation iPod was launched in April 2003.
Nevertheless, that change triggered a frenzy of activity at Griffin Technology, one of the estimated 100 or more companies that manufacture accessories and peripherals for the iPod and which together comprise what has become known as the "iPod ecosystem."
Griffin qualifies as a founding member of that ecosystem. The Nashville, Tennessee-based company was founded 14 years ago to sell a $40 adapter that enabled Apple Mac computers to work with older-style -monitors.
Then, when Apple launched the first iPod in October 2001, Griffin spotted a new opportunity. Today the company sells a range of iPod add-ons including the iTrip FM Transmitter. This clever little tube-shaped device plugs into the headphone and adjacent remote control ports on older-style iPods and wirelessly "broadcasts" the sound output to any nearby FMradio, including a car sound system.
When Apple removed the remote control port from the new iPods in October, it made older-style iTrip devices obsolete."We had to scramble to develop a new iTrip and make sure we did not miss out on the holiday season," says Jason Litchfield,Griffin's marketing director.
In just 45 days Griffin redesigned the iTrip to work with the new fifth-generation iPod - moving the device from the top to the bottom of the player where it plugs into the iPod's proprietary 30-pin connector.
As a result, Griffin's redesigned iTrip FM transmitter was once again one of the most prized "must-have" accessories for new iPod owners.
By common agreement, the success of innovative accessories such as the iTrip is also one of the reasons why Apple's iPod retains a dominant 70 per cent plus share of the digital music player market in spite of a raft of rival products from companies such as Creative Technology and iRiver. Indeed, Griffin's experience with the iTrip highlights both the symbiotic relationship between Apple and the manufacturers of iPod peripherals and, perhaps curiously, the arms-length relationship between them.
While the phenomenal success of iPod 42.3m of them have been sold, including 14m in the past quarter owes much to the emergence of the iPod ecosystem, companies such as Griffin,Belkin, Kensington and other accessory makers insist they get no preferential treatment from Apple and must wait just like everyone else to see what the company does next.
"It's very much a hands-off relationship," says a Griffin spokesman. "We do not know what is coming down the pipe ahead of time." He does admit that sometimes Griffin's engineers get an inkling of what is about to be announced, "by watching the dilation of pupils, listening to the breathing and taking note of the pregnant pauses in conversations," with their counterparts at Apple.
Jacqueline Romulo, a public relations co-ordinator at Belkin, another leading iPod accessory maker, agrees. While she says the company's line of iPod add-ons is "a very important part of our business," she adds: "We have our own development team and we do not get any advance information from Apple."
Apple receives a licensing fee and royalties from companies whose products access the iPod ports. But even when Apple does not receive any direct benefit, for example from the sale of iPod cases, the sheer range of innovative and desirable iPod accessories helps drive sales of iPods themselves.
Riding on the coat-tails
Once the iPod user market reached critical mass - something no other digital music player has managed to date - it became attractive to accessory makers and that in turn helped fuel iPod demand, generating what some have described as a "virtuous circle."
Companies such as JBL, Plantronic's recently acquired Altec Lansing unit and Kensington, all make speakers that are designed to work with the iPod, using its 30-pin dock connector. Bose's SoundDock iPod speakers, which cost $299 a set - as much as anew iPod itself - are another hot seller along with Shure's E5cstudio quality headphones costing $500 a pair.
Other companies, including Griffin, have developed add-ons that allow your iPod to record your voice, charge your iPod on the go, play your tunes over the radio, or use your iPod wirelessly with a remote. Then there are iPod cases, neck straps and belt clips. Some are designed to protect the iPod's distinctive white and silver casing and scratch-prone liquid crystal display screen; others, sold by companies such as iSkin and Coach, make bold fashion statements.
All these accessories and iPod peripherals have one thing in common they have enabled their developers and mostly Taiwanese manufacturers to ride on the coat-tails of Apple's iPod success.
By some estimates, the iPod ecosystem has grown into a huge and highly profitable industry in its own right. At the recent consumer electronics show in Las Vegas, Richard Doherty, an analyst with the New York-based technology consultancy Envisioneering, said he counted more than 10,000 iPod accessories including some pirate devices.
"The iPod accessory market is now a multi-billion dollar industry," he says. He estimates $1bn worth of iPod accessories were sold during the fourth quarter of 2005 alone, on everything from crush-proof aluminium cases to plug microphones and Hi-Fi speakers. That compares with iPod accessory sales of just $200m to $250m a year earlier in the 2004 fourth quarter.
And success breeds success. iPod accessories are among the highest margin products for retailers, says Doherty which is why many retailers have not just cleared shelf space for iPod add-ons, but set up whole sections in their stores dedicated to the iPod ecosystem.
Fatter margins
Doherty believes Apple makes fatter margins on iPod accessories sold in its stores and online than on its iPod players themselves. But the iPod accessory makers are not complaining.
Many are small private companies and most are reluctant to reveal exactly how much they make from their iPod peripherals. But companies such as Belkin, one of the biggest iPod accessory vendors, admits that its iPod business is "very important to us."
Others such as Kensington Computer Products, a veteran of the computer peripherals industry, have parlayed their design and marketing flair into a booming iPod accessories business.
The company, based in Redwood Shores, California, is the technology division of ACCO Brands, an office product group, listed on the New York Stock Exchange. Kensington now has a portfolio of more than 300 products, including almost two dozen iPod accessories.
"Our iPod business is one of the fastest growing segments,"says Rob Humphrey, director of marketing at Kensington. Thecompany's best-selling products include the $90 Stereo Dock and the recently launched and critically acclaimed SX 2000 flat-panel speaker system that costs $160.
Even carmakers led by BMW, the German automaker havejumped aboard the iPod bandwagon. BMW has developed a custom interface that allows drivers to control their iPod through the built-in steering wheel controls and the radio unit buttons. Since then Mercedes-Benz, Volvo, Nissan, Alfa Romeo,Ferrari, Volkswagen and others have followed suit. With these deals Apple now has 15 car companies worldwide planning to offer iPod integration and more than 30 per cent of the cars in the US now include iPod support. The music player has boosted business at small companies such as Griffin while prompting innovation at bigger ones such as BMW. Doherty of Envisioneering is clear about the motivating factor: "It's the iPod economy."
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