If you follow Apple (NASDAQ:AAPL) today, you know its star product is the iPhone. For example, last fiscal year the product provided nearly 56% of Apple's revenue, growing 12% year over year and topping the $100 billion mark. After its 2007 launch, the iPhone quickly became Apple's most-important product. But when it was announced, the iPhone leaned heavily upon the success of another ground-breaking product.
Current CEO Tim Cook once noted, "[m]usic runs deep in Apple's DNA," so it's no surprise the iPhone was designed to and packaged as a phone combined with Apple's most revolutionary product: the iPod.
A revolutionary product
When former CEO Steve Jobs took the stage that January night in 2007, before announcing the iPhone he took some time to address Apple's past. Specifically, he pointed out the Macintosh's launch in 1984 and the aforementioned iPod in 2001 as revolutionary products. Jobs further stated, correctly, the iPod changed the entire music industry.
But perhaps more telling was the way Jobs positioned the iPhone [emphasis added]:
Today, we're introducing three revolutionary products of this class: The first one is a widescreen iPod with touch controls; the second is a revolutionary mobile phone; and the third is a breakthrough Internet communications device... These are not three separate devices; this is one device. And we're calling it the iPhone.
It may not command much respect now, but the iPod's importance cannot be overstated. In addition to being perhaps the biggest selling point for Apple's initial iPhone concept, the iPod changed the way we bought and consumed music. As such, I feel Apple's iPod was its most revolutionary product.
Don't believe me, ask a major record label
For the best example of how Apple's iPod, and supporting iTunes media player, has disrupted the music industry, ask a major record label. If you've been paying attention lately you'll notice there a fewer labels now than when before the iPod's release. Before the turn of the century there were six major labels: Warner Music Group, EMI, Sony, BMG, Universal Music Group, and PolyGram. Under competition from illegal downloads, PolyGram was acquired by UMG in 1999.
Initially wary of working together to form a digital solution, the record companies aggressively pushed back against illegal downloaders without offering a competing, legal product. Apple, sensing a changing market, shrewdly offered its iTunes platform along with its iPod player and acquired substantive market share in the process. Record labels continued to suffer in the digital world, consolidating among a mature and pressured industry, and now there are only three major labels: Universal Music Group, Sony Music Entertainment, and Warner Music Group.
How soon we're forgotten
As always with technology, new and competing products relegate once-revolutionary ones to the dustbin of history. And although Apple's iPod isn't quite dead yet, it is getting close. A combination of cannibalization from the aforementioned iPhone and iPad, along with the rise of streaming-based music services like Pandora, Spotify, and even Apple's iTunes Radio, has contributed heavily to the iPod's demise.
As of Apple's last quarter, the company stopped reporting its iPod revenues as an individual product -- putting the player in its "other products" category -- to de-emphasize its importance. But make no mistake -- the iPod was Apple's most revolutionary product, providing a blueprint for the iPhone and iPad while disrupting the entire music industry in the process.