The steady demise of Apple's iPod
Apple last week released its earnings for the March quarter and posted revenue of US$43.6 billion along with a quarterly net profit of $9.5 billion. Product wise, the company sold 37.4 million iPhones, 19.5 million iPads, and 5.63 million iPods.
All in all, another impressive quarter from Apple. But one data point in particular that jumped out at me was just how insignificant the iPod has become to Apple's bottom line. In the quarter gone by, Apple's iconic MP3 player accounted for a paltry 2.2% of Apple's quarterly revenue.
Meanwhile, the iPhone and iPad together comprised 72.5% of Apple's Q2 revenue.
Think about that for a second -- the iPod, the device that fundamentally changed the musical landscape and raked in millions upon millions in profits for Apple is now nothing more than a footnote on Apple's balance sheet. In fact, during the quarter gone by, Apple generated more revenue from accessory sales than it did from iPod sales.
While pundits over the years have consistently questioned Apple's ability to generate new revenue, Apple has uniquely been able to anticipate, if not create, shifts in the technological landscape and react accordingly.
Apple's uniqueness in this regard becomes apparent when one looks at other tech heavyweights. Take Microsoft, for example. The majority of Microsoft's profits still come from sales of Windows and Microsoft Office. Meanwhile, the vast majority of Google's revenue continues to come from advertising.
Sure, both companies aren't shy about entering new product categories, but these new ventures, more often than not, fail to deliver any appreciable increase in revenue. In some instances, and Microsoft's Xbox comes to mind, new ventures ultimately become projects that bleed money rather than generate it.
From that standpoint, Apple's ability to generate significant revenue while moving from the Mac to the iPod to the iPhone, and more recently to the iPad, underscores the company's ability to successfully enter new markets in a way that most companies of comparable size and resources still haven't been able to replicate.
In what seemed like a rather natural progression, Apple was able to seamlessly transition from the iPod to the iPhone, and thereafter to the iPad. Impressively, Apple was able to completely revamp its product line so successfully that the product that once accounted for the bulk of its revenue now accounts for a measly 2.2% of their quarterly revenue.
All that said, I decided to take a look back at Apple's Q2 financial data over the past few years to track the steady demise of the iPod. It's also interesting to observe how Apple's primary source of revenue quickly shifted from the Mac to the iPod and now the iPhone.
During Apple's second fiscal quarter of 2002, Mac sales comprised 80% of Apple's revenue.
During Apple's second fiscal quarter of 2004, iPod sales accounted for 13.8% of Apple's revenue while Mac sales comprised 60.7% of Apple's revenue. Notably this quarter saw the release of the first-gen iPod Mini.
By the second quarter of 2005, Mac sales comprised just 46% of Apple's revenue as the iPod continued to gain traction. Now, Apple's MP3 player was responsible for 31.2% of Apple's revenue.
One year later, the iPod's share of Apple's Q2 revenue rose to 40% on the strength of 8.52 million units sold during a traditionally slow quarter. During the previous quarter (Q1 2006), the iPod accounted for 50% of Apple's quarterly revenue.
At this point, the iPhone had been introduced to the world, though had not yet been released. During Apple's Q2 of 2007, iPods accounted for 32.08% of Apple's quarterly revenue even though unit sales from the year-ago quarter remained consistent.
At this point, the iPhone was 9 months old and the toll on iPod sales and revenue was beginning to become apparent. During Apple's second fiscal quarter of 2008, the iPod accounted for 24.2% of Apple's revenue while the then nascent iPhone accounted for 5% of Apple's revenue. Mac sales, meanwhile, comprised 46.5% of Apple's quarterly revenue.
By Q2 of 2009, revenue from the iPod was responsible for just 20.39% of Apple's bottom line while the iPhone accounted for 18.6% of Apple's quarterly revenue.
One year later, the writing was on the wall. During Apple's second fiscal quarter of 2010, iPod sales contributed 13.7% to Apple's bottom line while the iPhone became responsible for 40.3% of Apple's quarterly revenue. Though Q2 2010 iPod sales year over year remained somewhat steady, the skyrocketing success of the iPhone meant that the importance of the iPod to Apple's bottom line was becoming more and more inconsequential, respectable sales figures notwithstanding.
By this time, the first-gen iPad had been released and the iPod accounted for just 6.48% of Apple's quarterly revenue.
By Q2 2012, the iPod was contributing 3.08% to Apple's bottom line.
And again, during Apple's most recent quarter, the iPod, once Apple's crown jewel, contributed just 2.2% to Apple's bottom line.
Now that we've already seen six iterations of the iPhone and four generations of the iPad -- not to mention the first iteration of the iPad Mini -- tech analysts and pundits are once again expressing doubt that Apple can find new streams of revenue as its product line continues to mature.
Looking forward, there's really no way to know if Apple will, in fact, be able to deliver a mind blowing new product that will take its profits to even higher and more impressive levels. At the same time, Apple has a pretty strong track record of delivering innovative new products just as analysts deem it time to label Apple a 'has-been'.
During a December interview with NBC's Brian Williams, Apple CEO Tim Cook addressed concerns that Apple's past success was somehow turning off the company's spigot of innovation.
"Don't bet against us, Brian," Cook warned. "Don't bet against us."
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