The Apple of My iPod

The greatest show in hi-tech chic once again didn't disappoint.

In Hollywood style, Steve Jobs, CEO of Apple Computer (Nasdaq: AAPL  ) and iconic leader of the Macintosh cult, wowed the faithful at the annual Macworld trade show in San Francisco this morning with a sleek, new version of the Mac's first TV debut. The clever retake of the Super Bowl ad that first introduced the Macintosh in 1984 featured instead a heroine sporting an Apple iPod digital music player.

Talk about appropriate. Apple has huge winners in the iPod and the iTunes Music Store. According to its recently filed annual report, Apple sold 1.79 iPods per minute during fiscal 2003. And Jobs announced from the stage in San Francisco that iTunes customers have downloaded more than 30 million songs, accounting for more than 70% of the market for legally downloaded music, according to Nielsen SoundScan.

Of course, it didn't take long for Jobs to trot out a slew of new gadgets and software designed to impress tech-savvy consumers and business customers. The goodies included a new version of Microsoft's (Nasdaq: MSFT  ) Office productivity software for the Mac, a low-cost server utilizing Apple's G5 64-bit processor, and new software called GarageBand for recording original music, introduced with the help of pop musician John Mayer.

But the star of the show was, as expected, the iPod. The finale featured a new business card-sized iPod capable of storing 1,000 songs. The new player will sell for $249, slightly more than the portable Flash players they are designed to replace.

Apple's digital hub strategy -- where Apple products serve as the centerpiece for enabling a digital lifestyle filled with photos, movies, music, and the Web -- appears to be working. But investors have to wonder if the good times will last. History says not likely.

The company has forfeited the lead in nearly every other major market it has invented or changed, including personal computers, laser printers, and personal digital assistants. (Remember the Newton?)

Back in the early days of computing, its chief rivals in those markets were tech heavies Microsoft and IBM (NYSE: IBM  ) . The Newton, although incredibly cool, never caught on with a wide audience and faded away in time for palmOne's (Nasdaq: PALM  ) Pilot to emerge. IBM has given way to Dell (Nasdaq: DELL  ) in PCs but Microsoft and Palm continue to dominate their respective niches.

Apple's aspirations with iPod and iTunes will have it facing off not only with Dell and the rest of the PC crowd, many of which are making MP3 players like the iPod, but Wal-Mart (NYSE: WMT  ) , which has opened its own online music store. Microsoft also has teamed with digital media provider Loudeye (Nasdaq: LOUD  ) to make it possible to create music stores like iTunes using Microsoft's Windows Media platform.

Still, Jobs -- in accordance with the company slogan -- appears to be thinking differently, and aggressively. In February and March, Apple will team with PepsiCo (NYSE: PEP  ) to give away 100 million songs on iTunes. The campaign will kick off during the Super Bowl, reminding Mac fans once again of 1984.

In addition, the new version of Apple's digital software, which includes GarageBand -- dubbed iLife '04 -- will sell for $49 individually and ship free with every new Mac.

Hollywood magic aside, the question remains: Can Apple maintain, or even grow, its lead in digital music? It's too early to tell, but this ought to be a fun iMovie to watch.

What do you think? Talk it over at the Apple discussion board -- only at Fool.com.

Tim Beyers doesn't own shares of Apple or any of the other companies mentioned. He isn't cool enough to have a digital lifestyle, but that doesn't stop him from using a G4 PowerBook. Tim welcomes your feedback at TimB@fool.com.


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