Apple: The iPod Company That Happens to Make Computers? The Numbers Say “Yes”

by Chris Seibold Feb 07, 2006

When Apple released their results for the first quarter of 2006 people oohed and ahhed over the number of iPods sold while fretting mightily over Apple’s very conservative guidance for the second quarter. The less than enthusiastic guidance is based on Apple’s fears that the market for non-Intel based Macs will be soft and negatively impact earnings. The quarterly sales of Macs may be interesting to stock analysts and day traders, but most of Macdom is populated by big picture folks, people more concerned with the longer view than any single fiscal quarter.

For those interested in the big picture the quarter’s results are not bereft of interest. In fact, it was Apple’s most interesting quarter since Mac sales outsold the Apple II for the first time in 1987. This quarter’s not unanticipated revelation with long-term consequences? For the first time, the iPod accounted for substantially more revenue than the Mac. In cold hard numbers: the Mac brought in a substantial 1.724 billion dollars while the iPod brought in a staggering, for Apple, 2.9 billion dollars. In terms of total revenue the iPod and the closely associated “Music related Products and other Services” revenue accounted for nearly sixty percent of Apple’s income.

At this point, it should be noted that Apple fans are enraptured by the iPod’s market dominating success. Every slight against the Mac, every school contract lost, every Apple derivative feature found in Windows can now be tempered with the knowledge that Apple is coming to sell iPods and kick ass….and they run out of iPods a lot. Those warm feelings towards the iPod should be tempered with the realization that market dominance, as displayed by the iPod, usually ends up depriving consumers of otherwise nifty products and that, with the revenue streams switched, Apple is going to have to focus their efforts more on the iPod and less on the Mac.

When the realization that Apple is now more of an iPod company than a computer maker finally hits home, many are going to remember the quick ride the Apple II took to oblivion once Apple realized Mac sales could support the company. Don’t expect that to happen to the Mac, the cases are substantially different. Apple knew the Apple II was unsustainable and had been looking for something, anything to replace the lost revenue. If the past five years has taught Apple anything, it has taught them that the Mac is a viable profit center in its own right.

With that dire scenario dismissed, one is left to wonder if the Mac won’t still won’t suffer from institutional disinterest. With the iPod bringing in the lions share of the revenue will the most able employees and managers be shunted to the iPod division (created in May of 2004) leaving the Mac side to languish at the hands of second rate Apple employees and less able managers?

Now is the opportune moment to realize that the differences between the iPod and, say, an iMac aren’t as great as you might believe. Sure, the iMac is much more powerful but both devices are, in essence, a computer. You can install Linux on either, both have processors, RAM and storage and both rely on programs to do anything useful. The differences come down more to how the unit is intended to be used than any fundamental reason why an iPod couldn’t be considered a portable computer. To better illustrate this notion take a look at an Xbox. The Xbox runs a modified version of Windows 2000, features an Intel chip, a hard drive and a CD ROM. Yet, for all the obvious reasons the Xbox is just a computer in a black box, most people consider the Xbox a gaming console. Call it a triumph of marketing, digital devices are defined more by what the manufacturers tell consumers the device is for than their actual capabilities.

With little more than intent, power requirements, and form factor separating the iPod from its desktop cousins it becomes easy to see that there is a lot of overlap between the two ostensibly walled off product lines. Pretend you’re Steve Jobs and you’ve decided, in a fit drunken hubris, to mistakenly release a living room computer. The computer will be able to store some DVDs, output Hi-Def to your TV and include full PVR functionality.* In essence, the machine will be a stylish version of Windows Media Center. You have an option, do you call it “MacTV Pro” or do you call it the “Video iPod” and stick a scroll wheel on the remote?

The answer is pretty clear, and Steve Jobs gave a hint at MacWorld when he said they were trying to get the Mac names back into the Mac line (here it should be noted that by putting the Mac back into the Mac line you are also saving the iPod line from being confused with Macs, heady move Steve). The only rational option is to associate the device with the iPod. The fictional, in this case, device may be a full-fledged Mac in every way, but consumers are obviously hesitant to buy Apple computers when pitched as computers. Calling it an iPod of some sort frees it from the usual compatibility and price objections and puts it in a different class than a computer, a class consumers are much more receptive to.

The biggest trick for Apple, the trick they have to pull off if the “Halo Effect” is ever going to come to fruition, won’t be pushing Mac sales through the roof but convincing consumers that the computer they are buying is really another form of the iPod. With that in mind there’s no reason to worry about the Mac, as always it will be the platform that exercises Apple’s muscles of innovation while the iPod will be the division that puts Apple’s marketing strategies to the test.

* A device like this, even called “iPod living room” (or some such twaddle), would be a bad idea.


  • Income figures are nice, but do they breakdown profits from macs versus ipods?  That would be the more enlightening comparison.

    sworthy had this to say on Feb 07, 2006 Posts: 10
  • The number I have don’t provide that breakdown, though it may be available elsewhere. I’ll see if I can find it somewhere.

    Chris Seibold had this to say on Feb 07, 2006 Posts: 354
  • Remember Macs probably have more stable long-term revenue potential than iPods.

    Benji had this to say on Feb 07, 2006 Posts: 927
  • I wonder if iPods will replace Macs one day.

    Imagine if Apple killed off the Mac line and went iPod only. And then the new features added to the iPod, quarter by quarter, - video here, small applications there, ended up turning it into a unit identical to what we know as a Mac.

    The iPod would have just been a trojan all along to convert people to Mac wink

    Luke Mildenhall-Ward had this to say on Feb 07, 2006 Posts: 299
  • Isn’t it already?

    Chris, when you say “Apple is now more of an iPod company than a computer maker” are you just being controversial?

    Benji had this to say on Feb 08, 2006 Posts: 927
  • Hmmm,I don’t think so Ben. The statement is just a reflection of an objective measure, in this case revenue. People who were saying three years ago when the iPod was cool but not bringing in nearrly as much money could have been deemed controversial, they lacked evidence. With the mst recent quarters numbers, it is hard to see it otherwise.
    Examples abound of companies starting out doing one thing and then, to varying degrees, becoming reliant on an ancillary process or product. the one I’m most familiar with is a company that started out by making oven windows. During my sint as an engineer wwe made far more autoparts that oven windows.  So would that company be an autoparts maker or an oven window manufacturer?

    Chris Seibold had this to say on Feb 08, 2006 Posts: 354
  • On the other hand, revenue is only one measure of a company, and I’m a bit more cautious than you in making the jump from revenue source to the definition of a company.

    Firstly, I strongly doubt that the guys in charge of apple, steve included, see it as principally an ipod company. You could argue that a company is defined by whatever it is that it mostly puts its efforts into.

    There must be *vastly* more people and resources working on macs and mac-related software & peripherals than there are on the ipod/itunes team(s). The comparison with your engineering company is under that view not completely analogous because the shift in revenue would have tallied exactly with the shift in emphasis. The latest macworld stevenote (which was essentially extolling the latest in mac virtues) suggests strongly to me that the emphasis at apple has not shifted in that manner. Rather, what appears to have happened is that the ipod division has been _added_ to the company.

    And that means that apple is as much a computer manufacturer as it has ever been - in fact, looking historically at mac sales, more so. My problem with saying that apple is principally an ipod company is that it suggests ipod’s runaway success somehow detracts from the (much larger and much more interesting) computing side of the company. In general, I would also suggest that apple is one of the few really interesting companies that are not (and should not be) judged by their latest cash cow, but by the true state of their innovation.

    Benji had this to say on Feb 08, 2006 Posts: 927
  • Good points Ben, I would tend to agree with most of them. On the other hand since the iPod is now the main source of revenue would it not be wise to try to unleash all that innovation under the guise of the iPod, which sells like the proverbial hotcakes, or the increasing, but slower selling, Mac brand name?

    I suspect that there will be some very interesting introductions this year.

    Chris Seibold had this to say on Feb 08, 2006 Posts: 354
  • Well I think the innovation should go where it can make useful differences.
    The ipod doesn’t need much innovation to survive at the moment. It does what most people want nicely and so by and large people appreciate it for that. But on the other hand when I got my ipod photo last year I was so taken with it I said I exepected in 20 years we would all be running our lives from this thing’s descendants. And, madly, I stand by that.

    Benji had this to say on Feb 08, 2006 Posts: 927
  • One thing I don’t think has been mentioned is the time-frame of that particular quarter. Yes iPod revenue took over Mac revenue, but it was Christmas, and 2 new iPods had just been recently released, whereas the Mac line was gearing up to switch to Intel. That quarter was absolutely in favor of iPods and not so for the Macs.
    You never know, the ‘real’ Mac revenue in comparison to the ‘real’ iPod revenue could look a lot different.

    Luke Mildenhall-Ward had this to say on Feb 08, 2006 Posts: 299
  • One thing everyone is forgetting when they start talking about “discontinuing the Mac line” and “becoming an iPod only company” is the enormous investment Apple has in Mac only software - not to mention that one big piece called OS X. Oh, and then there is the profit margin. I am sure they make more money per sale of a Mac than they do per iPod. How much of that 2.9 billion is profit? How much of that Mac’s 1.724 billion is profit? That is what defines a company.

    MacDan2004 had this to say on Feb 10, 2006 Posts: 8
  • ^ Gooooood point.

    Luke Mildenhall-Ward had this to say on Feb 25, 2006 Posts: 299
  • When Apple appear their after-effects for the aboriginal division of 2006 humans oohed and ahhed over the amount of iPods awash while annoyed mightily over Apple’s actual bourgeois advice for the additional quarter pass4sure 70-284. The beneath than agog advice is based on Apple’s fears that the bazaar for non-Intel based Macs will be bendable and abnormally appulse earnings. The annual sales of Macs may be absorbing to banal analysts and day traders, but a lot of of Macdom is busy by big account folks, humans added anxious with the best appearance than any individual budgetary quarter. For those absorbed in the big account the quarter’s after-effects are not beggared of interest. In fact, it was Apple’s a lot of absorbing division back Mac sales outsold the Apple II for the aboriginal time in 1987 pass4sure E20-001. This quarter’s not hasty adumbration with abiding consequences? For the aboriginal time, the iPod accounted for essentially added acquirement than the Mac. In algid harder numbers: the Mac brought in a abundant 1.724 billion dollars while the iPod brought in a staggering, for Apple, 2.9 billion dollars pass4sure 350-029. In agreement of absolute acquirement the iPod and the carefully associated “Music accompanying Products and added Services” acquirement accounted for about sixty percent of Apple’s income pass4sure 642-983.

    Monika had this to say on Jun 12, 2010 Posts: 4
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