In January 2001, Apple released iTunes, software for managing digital music collections after absorbing SoundJam and its developer. Apple then launched the first iPod on October 23, 2001. The first iPod had 5GBs of storage and cost $399, a price that analysts at the time considered too high. I bought one the day it was released. In 2003, Apple releases iTunes into the Windows world, allowing PC users to enjoy the Apple experience. Windows users in good numbers swapped their “jukebox” software and moved away from Windows Media Player, in favor of Apple’s iPod and iTunes for managing their digital music.

Every music-player manufacturer, and companies that have tried jumping into this market, have been playing “catch up” ever since. Some analysts and people without vision, instantly labeled the iPod a “TOY.” What they did not realize was Apple was not just selling a portable music player, like Sony did years ago with the Walkman. Apple was creating a “platform.” Well five years later I think it is clear that the iPod is far more than a “toy” or just a personal music player.

Weighing it at only 6 ounces, the iPod showed it was actually a huge product, selling more than 60 million units in its first five years. It is pretty hard to overstate the impact of the Apple’s iPod/iTunes platform with the impact it has had on the music, TV, movie, consumer electronics, and computer industries. The iPod has become a part of our culture and has transformed the way we listen and buy music and video.

Before the iPod, digital music meant downloading illegal mp3s from the “old” Napster mostly by college students. Many people wondered how Apple could compete or even survive against the low-cost commodity PCs that Dell and others were selling. Dell was quickly pushing out low cost computer “towers” that lacked any design or innovation like “washing machine” appliances that Matag sells. No insult meant to Maytag, they make nice washers and there repairman are nowhere as busy as Dell’s. At the same time Dell was commoditizing PCs, Apple was busy innovating and inventing new products and markets. Apple had just come off a successful introduction of the colored iMacs. The iPod was then added as the first new product that Apple hoped would help sell more Macs and revitalize their company.

The iPod/iTunes platform has taken and held a huge market share and certainly has helped Apple sell more Macs. By making the iPod/iTunes easy to use and fully integrated, Apple created a seamless platform for listening, buying, managing and syncing your music that has not been easy to duplicate. Sure nobody likes the restrictions of Digital Rights Management (DRM), but Apple has done a good job of making most of this invisible to most users by concentrating their efforts on the “user experience” forgoing lots of complicated “bells and whistles” along the way.

The iPod has been “music to the ears” of Apple stockholders. zooming the stock price about 800 percent, from $9 per share to $79.95, after a split. For this fiscal year, Apple has rung up $7.7 billion on the sale of 39.4 million iPods, which now come in four models. Analysts estimate that Apple will sell 111 million iPods and generate $18.7 billion in sales over the next two years alone. And that’s not including revenue brought in from the iTunes Store and the continuing of the pumped-up sales of Macintosh computers.

Although, nothing is impossible, any potential “iPod killer” will have an uphill climb. Like “climbing Mount Everest in sandals” as I like to say. Apple, has an estimated 70 percent share of the U.S. digital music player market and a 80 percent share in legal downloads. A 2005 survey would report that the iPod is more popular on college campuses than beer. Competitors like SanDisk, Creative, Sony and others have depending on software from Microsoft or Real Networks have proven as popular as the iPod/iTunes juggernaut. Sony and Microsoft should have been able to beat Apple to market. Now they are both struggling to put out products that resonate with consumers to merely, compete.

The reason for this may have been Apple’s track record for innovation, their vertical model of hardware and software, and their understanding of the digital hub. Sony is not really a software company and is way too caught up in protecting content making the user experience poor. Microsoft has little experience in hardware or consumer devices, and has never fared well in open competition, was also at a disadvantage. True Sony and Microsoft have huge resources to spent, but this has not done much to hurt the iPod and iTunes far leading position.

Anybody, that does not believe in the so called “iPod halo” effect, where the iPod’s popularity would help sell new Macs, might want to take a look at the amount of Macs being sold by Apple these days. They might want to visit one of those crowded Apple Stores. Apple’s Mac numbers have been growing and growing quarter after quarter. A recent report showed Mac sales tripling at Princeton with students buying Macs even with majors requiring them to use Windows applications.

I think this is why Microsoft is jumping in with the Zune player and trying to copy Apple as close as possible. Clearly Microsoft’s “PlaysForSure” partnership with Napster, Yahoo, Urge, and Real’s Rhapsody online music stores and the compatible hardware makers, has been a complete failure in stopping the iPod/iTunes dominance. Microsoft is now tearing down this partnership to go head-to-head with Apple as the Zune will be, at least for now, incompatible with the “PlaysForSure” online stores.

Microsoft is already seeing the “PlaysForSure” partnership fallout. Napster, who has been publicly critical of the “PlaysForSure” partnership, is for sale. Real is bailing out on the Microsoft DRM technology in favor of their own closed model. Microsoft realizes that Apple’s growing dominance in digital media is a much bigger threat. The “little music player” is actually BIG business and the iPod/iTunes platform will soon lead to more innovative products from Apple. Like the “iTV” Apple recently previewed, these digital entertainment products can do what Microsoft unsuccessfully has tried for years. Get into your living room.

The iPod helped Apple create the first legitimate online store to purchase and download music files that caught on with consumers. By adding video capabilities to the iPod and adding TV shows, movies and games to the iTunes Store, Apple is positioned to do the same thing to the digital video market that it did for digital music. The iTV product due will be the next piece in the puzzle.

Consumers increasingly tune in to their iPods, instead of radio, making it tougher for advertisers to reach target audiences. Apple having forged so many deals with car makers and accessory makers have played a big part of this. Something like 70 percent of new cars have iPod connections available and there are more than 3,000 iPod accessories being sold. Record companies had been able to sell CDs by offering only one hit song. The iTunes Store has changed this with the popularity of single-song downloads, the record labels are now having to work much harder to sell whole albums.

Apple has kept the iPod as fashionable as clothing by continuously revamping the iPod lineup including different sizes and colors makes the gadget personal. With threats emerging from cell phones and satellite radio, expect Apple to keep the iPod fresh by adding new features. There have been many rumors that Apple will introduce a “true” iPhone and a “true” video iPod as analysts like to call them. But Apple is already in these market and will surely expand their offerings.

Well the iPod has already made a big impact in so many areas and not just for Apple. The iPod has made its “mark” on our culture and history. This will have an effect on the way people relate to digital media for a longtime to come. Not bad for a “toy” as some claimed when it was introduced.

The iPod Family Tree. Thanks to Engadget for the great picture.

Well after five years of seeing all those white earbuds, Happy Birthday iPod! You have truly changed the world.

    | Tags: Apple, iPod, iTunes