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Will Apple Ditch the iPod?

By Mac Greer
December 20, 2006

What does the future hold for Apple's (Nasdaq: AAPL) iPod? Will Microsoft's (Nasdaq: MSFT) Zune strike a chord with iPod users? Will the Mac continue to be part of Apple's core business? I recently put these questions to tech guru Bob Cringely, employee No. 12 at Apple, and part of the team that developed the desktop trash-can icon. Cringely is currently the host of the PBS online television show Nerd TV and the author of Accidental Empires: How the Boys of Silicon Valley Make Their Millions, Battle Foreign Competition and Still Can't Get a Date.

The Future of the iPod
Mac Greer: Apple has had tremendous success with the iPod, so much so that a lot of consumers these days associate Apple more with digital music players than with personal computers. Do you think Apple will quit making personal computers in the near future?

Bob Cringely: Not in the near future, because the whole creative industry of Hollywood and the television industry and publishing are all based on Macintosh technology, and being a part of that creative structure, that whole architecture, is vitally important to Apple. Plus, they are making money on those things. Their margins are great. So why would they get out of a business that they were so successful at? No, I don't see that at all.

The better question to ask is, when will Apple stop making iPods?

Mac Greer: OK, when will Apple stop making iPods?

Bob Cringely: Apple will stop making iPods the day that they can make more profit from an iPod license than they can make from selling an iPod. And that day will come. A switch will flip, and suddenly you will be able to buy an iPod from anyone, and Apple will just be in the iTunes business, but they will be making money from Apple IPE [intellectual property enforcement] and iPod licenses.

Microsoft vs. Apple
Mac Greer: And Bob, Microsoft recently introduced the Zune, its rival to Apple's iPod digital music player. What do you make of the Zune?

Bob Cringely: Ha! You know, the Zune, it fits in what we talked about with Google having to be in the business. Microsoft sort of has to have an iPod alternative, and they rolled out the Zune, which, the fact that it is brown is, I think, so meaningful.

Mac Greer:Yeah, why brown?

Bob Cringely: Well...

Mac Greer: Apart from the obvious joke there.

Bob Cringely: I know, I know. But my joke is a little different, because for years Bill Gates wore brown suits. And you know, you look at Bill Gates in a brown suit and you would say, "Well, at least it is a suit, but it is a brown suit." And so now you look at Zune and you say, "Well, you know, OK. Let's wait for Zune 3.0, which we might buy." Because it takes Microsoft three times to get anything done right.

Mac Greer: (Laughing.) And maybe the brown; maybe they are going for that whole UPS (NYSE: UPS), you can trust us, we'll deliver.

Bob Cringely: Yeah, but at UPS, at least they wash the trucks every day.

Mac Greer: The thing I like about the Zune is not the brown color, but the idea of being able to beam a song that I have to someone else, or someone being able to kind of beam a song to me, because it is great for someone who is lazy like me, who has an iPod but hasn't really updated all of their music in ages.

Bob Cringely: That is great for you, but I just don't see people doing it, and Jobs made actually the best point of all, because the way Microsoft is essentially pitching this is it will help you pick up chicks. He said, why would you go to -- it is rather complex, this thing you have to do to send a song to someone across the room. Why not just go over to them and offer them one of your earpods?

Mac Greer: Because that would require talking. (Laughs.)

Bob Cringely: That would require talking, physical contact -- it might lead to intimacy. Oh wow, do I really want this or not? Well, I think Jobs has a good point.

Microsoft's digital-music diversion
Mac Greer: And thinking about the strategy in general, it seems to me that with the Zune, it seems like Microsoft is fighting the last war. They are taking on Apple's iPod, which has been big for several years now, instead of focusing kind of on the future, and being a bit more forward-looking. Why not just cede that ground to Apple and say, "You know what? We need to focus our energies elsewhere."

Bob Cringely: You know, I think Microsoft is not stupid. Microsoft is big and lumbering and brutal, but they are not stupid, and what they know is that they have more resources than anyone, and they are fully capable of doing some little Zuney thing that is relatively meaningless except that every potential competitor has to take it into account. So Microsoft spends $500 million developing the Zune. Five hundred million is nothing to them, and they spend that much marketing it, which again, is nothing to them. And Apple and Samsung and all the other guys have to respond to it. In the meantime, what is Microsoft's real strategy? Microsoft's real strategy in the home has to be built around Xbox, and Xbox is actually doing some smart things, so I view Zune as a deliberate distraction; it is a decoy.

Mac Greer: Interesting. So they can afford to bet on every horse, but ultimately they don't really need this horse to win the race. They don't necessarily need this horse to finish the race.

Bob Cringely: Well, do we see Apple doing a game machine?

Mac Greer: No.

Bob Cringely: No, because they are defending their iPod turf.

Check out previous Ahead of the Curve articles:

Microsoft is a Motley Fool Inside Value recommendation, while UPS is a Motley Fool Income Investor pick.

Mac Greer does not own any of the stocks discussed. He owns an iPod, but still has a soft spot for his Walkman.