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Why I'm Keeping an Eye on the New iPod

With this design and Wi-Fi-based functionality it could be the forerunner of a product Apple takes to the mid-to-lower end of the mobile handset market.


A version of this essay was originally published at Tech.pinions, a website dedicated to informed opinions, insight and perspective on the tech industry. (Insider Exclusives registration required for this one.)

When Apple introduced the iPod, it pretty much changed my mobile music life. Before, I depended on a Sony Walkman and cassette tapes. But like many of us in tech, we liked the concept of the early MP3 players, but they were hard to use, and difficult to find content or music to play on them.

I was working with one of the early vendors of MP3 players and, from the beginning, I saw firsthand its potential as well as its problems, since at that time, getting music onto them was not for the faint of heart. Apple changed all that with the iPod. While the iPod itself was a great product, the real value came via Apple’s dedicated area to download music and the ease of side-loading music from the Mac to the iPod.

Over time, all of those iPod music features were rolled into iPhone and the need for a dedicated iPod player declined. Even so, there is still demand for a dedicated iPod, and Apple recently introduced an updated version with new colors, particularly a gold one that will have great appeal in China. It has an M8 coprocessor that makes your iPod capable of supporting ambient activity, and it has an A8 chip for faster processing. There is a new camera, too, which makes the iPod a solid alternative for people who don’t have a dedicated smartphone but want the ability to take photos, use the Web and maybe make some Wi-Fi calls.

Clearly, this audience is much smaller than the market for the iPhone, but Apple knows it still appeals to a relatively broad audience, so it brought out these new models with that in mind.

But if you look closely at these new iPods, they are basically an iPhone without the 4G cellular radio in it. This makes me think there may be more to these new iPods than one sees on the surface. One key thing is it costs much less than an iPhone, and you buy it at a fixed price. No contracts or other costs are associated with owning it beyond what you might buy in terms of apps, music and videos. Another interesting thing is that in the U.S. and many places in Europe, Wi-Fi is available in almost all public places, hotels and even stores — with this type of connection, the new iPods can function as an iPhone.

But the reason I am keeping my eye on the iPod is that with this design and Wi-Fi-based functionality it could be the forerunner of a product Apple takes to the mid-to-lower end of the mobile handset market. We all know that Apple owns the premium market for smartphones, and that won’t change. But in terms of unit shares, the premium market for smartphones represents less than 15 percent of the overall smartphone market that will sell close to 2.1 billion smartphones this year.

Yes, Apple gets most of the revenue of all smartphones sold, but keep in mind that Apple’s apps and services could be used well beyond those who buy iPhones in the future. More importantly, the market for premium smartphones is not actually growing. Most of Apple’s sales are from those who can afford the pricier models and update them on a semiannual basis.

There is an emerging middle class that aspires to own an Apple product. But the lower end of this audience still can’t afford an iPhone. And what people often forget is that in most of the world, they are still on 2G and 3G networks, and the cost of a 2G or 3G modem is very cheap these days.

What if Apple is able to leverage this new iPod design that is much less expensive than any iPhone they have today, and eventually put in a low-cost 2G or 3G cellular modem and target it at what is a large and growing lower middle-class market? They could use this to get customers into the Apple ecosystem, which could be a gift for Apple that keeps on giving. Its design is very Apple, but well under the premium cost of an iPhone. It would have the Apple cachet without the high price.

For many years, I thought Apple would never go after a lower-end audience. I still don’t think they will go after the sub-$100-to-$125 smartphone market that dominates the really low-end smartphones today. But I have a hard time believing that Apple is willing to give up on this emerging middle class, even at the low end, one they could win with a less expensive product and still give them the great Apple experience the company delivers on more expensive iPhones. More importantly, as the low end of this middle class rises in earning potential, this would assure Apple a built-in audience for more expensive iPhones in the future.

That’s why I am keeping an eye on the new iPod. I think there is more there than meets the eye.

Tim Bajarin is the president of Creative Strategies Inc. He is recognized as one of the leading industry consultants, analysts and futurists covering the field of personal computers and consumer technology. Bajarin has been with Creative Strategies since 1981, and has served as a consultant to most of the leading hardware and software vendors in the industry including IBM, Apple, Xerox, Compaq, Dell, AT&T, Microsoft, Polaroid, Lotus, Epson, Toshiba and numerous others. Reach him @Bajarin.

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