iPod at 5: The little gadget that could

The Macintosh may be the soul of Apple Computer, but the iPod is its wallet.

Five years ago, the Silicon Valley icon reported quarterly revenues of US$1.45 billion, down 22 percent. Profits were cut in half, and some wondered if Apple would forever suffer at the hands of low-cost PC competitors like Dell.

Apple fans needn't have fretted, because six days later on October 23, 2001, Apple unveiled the iPod, and its fortunes along with those of the music industry dramatically changed.

Spin forward five years. The company said Wednesday that it shipped 8.7 million iPods during its fourth fiscal quarter, which ended September 30. In fact, Apple's US$1.6 billion from iPod sales in the quarter was more than it generated as an entire company back in October 2001. Those iPod sales were also 35 percent more than the same period last year and a lot more than cautious financial analysts were expecting.

It's hard to overstate the impact of the iPod on the computer, consumer electronics and music industries since it was introduced in 2001. The iPod, arguably, is the first "crossover" product from a computer company that genuinely caught on with music and video buffs. It's shown how a computer can be an integral part of a home entertainment system, and it's led pop stars from U2's Bono to Madonna to trade quips with Apple's own rock star, CEO Steve Jobs.

Today, Jobs -- a Walt Disney board member thanks to the media giant's acquisition of his other company, Pixar -- is arguably one of the most influential personalities in entertainment. Imagine that, a computer executive is today lumped with entertainment titans like Steven Spielberg and David Geffen.

So how did a little gadget have such a big impact? The combination of the hardware and the iTunes software and music store gave people an easy way to obtain digital music. It assured the music industry that legal music downloading could work, and gave rise to a seemingly endless parade of iPod accessories and add-ons. Now Apple is expanding into video, with popular television shows and movies available through iTunes for watching on a computer or a video iPod.

"It's so intricately tied to an ease-of-use model for acquiring and accessing content, but also being able to play it and distribute it among other devices," said Tim Bajarin, an analyst with Creative Strategies. Apple declined to make executives available to look back on the company's progress or to shed light on its future ambitions.

Can any company loosen Apple's hold on digital music now?

Never say never, according to analysts, but any potential iPod killer has an uphill climb. Apple, which some estimate has a 70 percent share of the U.S. digital music player market, has been able to design strong products while also coming up with savvy marketing, quality control and ample distribution, said Shaw Wu, an analyst with American Technology Research.

To date, no other company has been able to come up with a competing model. The few players from other manufacturers like SanDisk, Creative, Sony and others competing for the rest of the music player pie have to depend on software from Microsoft or Real Networks to manage their music collections, and none of those combinations has proven as popular as the iTunes-iPod juggernaut. Sony and Microsoft are two companies that have the resources and connections to match Apple's efforts, but they haven't put out products that have resonated with consumers.

Apple could face a competitive threat if mobile phones ever take off as a platform for digital music, said Samir Bhavnani, an analyst with Current Analysis. The company has taken tentative steps toward the mobile phone market in partnership with Motorola on the Rokr phones, but those designs have not caught fire with consumers. Instead, Apple is widely believed to be designing its own phone that would allow users to listen to music in between calls or text messages.