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January 17, 2007updated 19 Aug 2016 10:08am

Why iPhone will cannibalise iPod sales

CEOs have often told me that sometimes it is necessary to make your earlier products obsolete by bringing out new, improved versions. ‘Eat your young’, they say, or ‘cannibalise your products.’ When Gillette brings out a 5-blade razor, it’s 3- and

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CEOs have often told me that sometimes it is necessary to make your earlier products obsolete by bringing out new, improved versions. ‘Eat your young’, they say, or ‘cannibalise your products.’ When Gillette brings out a 5-blade razor, it’s 3- and 4-blade razor sales suffer as a result.

I made the point in an earlier blog that Apple’s iPhone, which essentially combines a phone and an iPod, is likely to eat into its sales of iPods. That’s not necessarily a bad thing if it starts selling iPhones at the rate it has been selling iPods, and anyway the logic described above is that although you may make your own earlier product almost obsolete, it is better that you do so than one of your competitors does it for you. If Gillette hadn’t come out with a 5-blade razor, then someone else would.

I just read a piece on Apple and the iPod that touched on this angle. From iTWire: “Some observers believe that the iPhone, being an iPod (Jobs said the best ever iPod) will merely eat into existing iPod sales. However, this is unlikely. Despite its large 3.5 inch screen, the iPhone does not have enough storage to compete directly with the iPod Video.”

But while it may not have quite the storage capacity for real video fanatics, the iPhone will probably have enough capacity for, say, 80% of users’ video storage demands, so the iPhone will probably still eat into iPod sales for all but the most video-storage-hungry users.

iTWire adds that, “Likewise, the much cheaper iPod Nano just does not have the same feature set as the iPhone.” But their logic seems slightly muddled here. The fact that the Nano is less feature rich than the iPhone does not mean that the iPhone does not compete with the iPod Nano, indeed it may simply amplify the amount by which the iPhone eats into iPod Nano sales.

I agree that it seems unlikely the iPhone will entirely decimate Apple’s iPod sales.

Why? There are users who already have a perfectly good phone and are willing to pay for a cheaper iPod but not an expensive iPhone. There are users who would prefer to know that if their MP3 player breaks or the battery fails, they can still use their phone (because it’s a separate device). There are users who would happily sweat away on a treadmill with an iPod strapped to their arm who would probably not want a $500 iPhone subjected to that treatment. And there are those who will buy a new mobile phone and a new iPod rather than sign up to the two-year contract with Cingular that the iPhone requires.

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But for a lot of iPod fans, many of whom are the kind of people who were whooping and cheering at the iPhone launch, there will be no need to buy another iPod after they get their hands on an iPhone. Cue lots of older iPods given to friends and family or turning up on eBay. And what does a big second-hand iPod market do to sales of new iPods? You guessed it. Whichever way you look at it, the iPhone will cannibalise iPod sales. The only question is, to what extent?

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