When Steve Jobs returned to Apple after his hiatus from the Mac maker, he rejoined a company struggling against Microsoft and its various hardware partners. After forging a "frenemies" agreement with Microsoft, and securing some much needed cash in the process, Jobs released the iMac to much fanfare. However, it was Apple's next major product—the iPod—that changed the trajectory of the company. The product went on to inspire Apple's iPhone and iPad, leading to a mobile revolution and propelling Apple to the highest-valued company ever.
Alas, things of late haven't gone so well for the iPod. Last fiscal year, the company reported a year-over-year revenue drop of 48% for the product as consumers gravitated toward the iPhone and iPad lines. And earlier this year, Apple CEO Tim Cook announced the death of the first iteration of the iPod, the iPod Classic, because they could no longer get their hands on the necessary parts to make the product..
And yet, this holiday season one of the hottest Apple products is that same iPod Classic: As of this writing, Amazon's listing prices as high as $475; eBay, $460; and The Guardian is reporting prices as high as $1000 in the UK. This is the same device that sold for $249 before it was discontinued in late September.
On the surface this makes no sense, you can buy the newest iteration, the iPod Touch, starting at $199 and get the newest operating system and apps. But there are two reasons why consumers are flocking to the iPod Classic. The first is storage. The iPod Classic was a storage monster, coming in at 160GB at the high end. The newest iPod Touch only goes up to 64GB, the iPod nano only has a 16GB version, and the economical iPod shuffle comes in at a paltry 2GB. For perspective, one gigabyte holds approximately 250 songs. Some iPod Classic owners are buying backups in case the one they currently have stops working.
Of course, there's another reason for "consumers" to rush in to buy iPod Classics. Actually, consumer isn't the correct word; that word should be "investors." As previously stated, in September the iPod Classic could be purchased directly from Apple for $249, even if you sold the product on eBay (the apparent cheapest market) you'd be sitting on a nice percentage gain of nearly 85% in roughly three months.
And that's not the only Apple product that's fetched a nice return. In 2012, a rare Apple 1 computer sold for $374,500 in an auction. The product retailed for under $700 in 1976. In response to the huge price the Apple 1 fetched, computer collector Dick Huston commented "[t]his sale takes us across a boundary line to where you have to start looking at these things as art pieces, like Monets."
I'll stick to Apple stock for an investment
Here at The Motley Fool, we fiercely believe the stock market is the best long-term driver of wealth. And while I personally acknowledge there's a market for unconventional investments including antiques, stamps, cars, wine, art, and even sneakers, there are many risks mom and pop investors aren't prepared to face: liquidity, storage, and information asymmetry among others.
For the vast majority of investors, these markets should be considered hobbies, not investments. My recommendation, avoid buying the iPod Classic and research the company's stock, unless you have 40,000 songs you need to store on an iOS device.
Jamal Carnette owns shares of Apple. The Motley Fool recommends Amazon.com, Apple, and eBay. The Motley Fool owns shares of Amazon.com, Apple, eBay, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.