The iPod Ecosystem

The NYT (The iPod Ecosystem) has an interesting description of the “ecosystem” surrounding the iPod:

An entire ecosystem has emerged around the music player, introduced by Apple in October 2001. Other manufacturers had produced MP3 players earlier. But the simple design of the iPod, plus Apple’s iTunes store, quickly helped Apple to dominate the market. And that simple design — some might even call it bland — encouraged people to personalize the machine.

Then numbers are quite impressive:

Apple sold 32 million iPods, or one every second. But for every $3 spent on an iPod, at least $1 is spent on an accessory, estimates Steve Baker, an analyst for the NPD Group, a research firm. That works out to three or four additional purchases per iPod.

Call me an academic, but here’s why I prefer the language of networks to ecosystems. Ecosystems infer evolutionary (and relatively unintelligent) design while networks are, in most cases, intelligently, or at least intentionally, designed. Jobs and Co. have done a remarkable job designing the iPod network. Granted, Apple should be able to by now, having failed to build effective networks around so many of their previous products–from the original Macintosh to the Newton to the failed clones market. Nevertheless, they have succeeded brilliantly here–by focusing first on the consumer experience but then, second, on the entire set of related products and services that bring value to that experience:

That obviously makes accessory makers happy. It thrills retailers, whose profit margin on the accessories is much higher than on an iPod. And it delights Apple because the racks of add-ons made just for the iPod — 2,000 different items at last count — send a strong statement to consumers that the Apple player is far cooler than a Creative or Toshiba player, for which there are few accessories.

So far, Apple has managed to limit their greed this time and, in the process, get a smaller slice of what grew to a large pie. However, it’s not too late for them to revert back to their old ways.

Some creations, like Mickey Mouse for Disney or Barbie dolls for Mattel, created an enormous market for accessories, but most of those items, like the Mickey Mouse watch or the Barbie Dream House, were licensed or made by the same company that created the original product. In contrast, Apple has encouraged a free-for-all, and its own share of the accessories market remains small…That will change. Apple is aware of the power of this market and is getting more active. Indeed, at the recent Macworld conference, Apple demonstrated that it wanted more of this lucrative field. It made a splash with an attachment, the $50 Radio Remote, that plays FM radio through the iPod.

I can’t help but marvel how, in building this network, Apple could share the growth while never losing sight of the strategic high ground–those aspects of the entire network that would provide profitability and defensibility. That takes intelligent design. Let’s hope Apple can stay that way.