Tag: predictions

So it seems Wal-Mart is entering the digital movie download service. But they’re doomed to fail. I combed the article looking for how Wal-Mart is going to distinguish itself from Apple’s iTunes. You know, that competitor that has nothing but dominated the digital download market? Instead, I found that the only thing they could talk up was:

It will have access to 3,000 productions, including films like “The Devil Wears Prada” and “Little Miss Sunshine” and TV series like “24” and “Veronica Mars.”

So they’re going to have more movies than iTunes? There are three questions anybody is going to ask: Do any of those 3,000 movies play on my iPod? Consumers won’t be happy to hear the answer. And will you be able to burn the download to DVD? No.

Mr. Swint of Wal-Mart said the company would create discounts that encouraged shoppers to purchase both DVDs and digital videos.

Wow, so what part of this will be appealing to the average consumer? The price, perhaps?

Nope. The worst part is the pricing.

To avoid running afoul of studios, who want to protect their DVD business, Wal-Mart said the price of a digital movie would be comparable to that of the DVD at its stores.

How will Wal-Mart become king of the movie download business if they are purposely inflating their prices. If there is a better form of self-sabotage, it would be the equivalent of oil companies building electric cars, but pricing them too high to protect their gasoline market. We all know how that would turn out.

But the shooting-of-feet doesn’t end there as evident by this little tidbit:

It will have to pass the same test all services do at Wal-Mart.com: to lure customers into Wal-Mart’s 4,000 stores, to buy groceries, electronics and clothing… “If you are doing digital distribution, you are doing it because you do not want to be in the store,” said Mr. Goodman of the Yankee Group.

The single greatest incentive to buy a digital download is so you don’t have to get off your lazy butt. Unfortunately, the success of Wal-Mart digital downloads would also means decreasing a customer’s likelihood of entering the store – something they will stop at all costs.

Wal-Mart seems to have too many conflicting interests to want to make this work. This will fail just like their online DVD rental business.

Update: It seems TechCrunch seems to mostly be in agreement, mostly focusing on the price being “too high.”

Crunch Gear has broken a new story that indicates Microsoft is working on a Zune Phone. But is anybody surprised? Honestly?

Probably not. Even the most anti-Microsoft haters knew that Microsoft would immediately follow the iPhone to kill its thunder. This phone will do what Microsoft does best: be a “good enough” alternative. It will likely be in bed with Verizon (more on this below), which will likely be a love-hate relationship. It may look similar to the iPhone (hopefully not shit-brown), have many of the same functionality, but have one distinguishing feature.

Will that feature be more of that useless sharing crap? Who knows. We’ll see in the next year when it comes out. We’ll probably hear an official announcement from Microsoft right before the iPhone launches in an attempt to:

• Kill iPhone launch thunder
• Give users time to not renew their plans, just as Apple did
• Steal potential customers by promising the world

Apple Isn’t Stupid

But this made me think. If everybody saw this coming, Apple must have seen it coming from the days the iPhone was just a sparkle in Steve Job’s eye. So what are they going to do?

That’s right, we will have to expect a big surprise come launch time. Steve Jobs isn’t done revealing all of the secrets of the iPhone. Any potential competitor will get a slap in the face in six months as a counter-counter measure. We should expect a new feature that is not yet confirmed or announced. Stream content to friends like you would with iTunes over the network? Integration with Apple TV? Customizable song-based ring tones? Well, we’ll find out in June. And so will Microsoft.

And in the December months during the peak spending season? Oh, you can expect another change, most notably in the price. And conveniently, my iPhone Prediction post happened to cover this. The article is long, so I will quote the most relevant part about the iPhone price drop in conjunction with a Nano upgrade:

The iPhone’s price must drop. However, that price drop can’t happen until the Nano lineup gets a storage space upgrade. When the price of flash drives drops again (to Apple wholesale), Apple will use this margin to upgrade their Nano lineup. Then, rather than apply that margin on the capacity of the iPhone, Apple will use it to drop its price instead. This will happen at the same time or a few months after the Nano drop.

If this happens in December, it will keep Nanos competitive, and the iPhone becomes more affordable since its number one drawback is that it is too expensive for Average Joe. If a Zune Phone turns out to be real, it will greatly increase the likelihood of my prediction coming true.

People have been practically begging for an iPhone product since 2002. Why compete with the juggernaut while it’s running full steam? Realistically, I expect a Zune phone in 2008 after the iPhone madness dies down.

Of course, if a decent Zune Phone can be released by 2007’s end, much props must go to Microsoft. It took Apple three years to produce their phone. If Microsoft can match that in under a year, they deserve all the credit they can get.

I want to point out that Microsoft already sells smart phones — way to irk all of your existing partners. Just goes to show that partnering with the devil only gets you screwed in the end.

Don’t Count MS Out… Right?

In order to reach the mass market, Microsoft will be forced to partner with Verizon since Cingular/ATT is already taken by Apple. A lack of a partnership would put their phones in no better of a position than their current smart phones offered by many carriers (AKA expensive). And, unlike Apple, Microsoft doesn’t have a religious following for its Zune Phone to bargain with Verizon for an extra special deal.

If it happens, Zune Phones could be subsidized. This may help Microsoft gain considerable market share among the money conscious consumer (everybody). So up to this point, things sound great!

But I Noticed a Storm Ahead, Sorry

Unfortunately, this taps into a whole new set of problems for Microsoft. With a phone priced at a directly comparable range to other phones that offer music, such as Verizon’s Chocolate, Verizon has a lot to lose if Microsoft’s phone takes off. Microsoft would cannibalize Verizon’s own customers at the direct expense of Verizon’s music store and music phone peripherals (like that retarded $14 custom headphone).

Which means Verizon isn’t exactly happy to see the Zune Phone’s price lower. Verizon makes a killing on ring tones and music, but if a new cheap phone came in that stole their market, they will not let that happen laying down. This will inevitably place Microsoft between a rock and a hard place when doing negotiations. You want it cheaper, but they don’t want it cheaper. What do you do?

Apple escaped this problem because Cingular loses no money to subsidizing the phone, although it is rumored Apple takes a cut of your monthly payments. But, the iPhone is expensive enough, especially during the first two years in which Cingular has exclusivity, that it will not impact the majority of the potential customer base. This means Cingular will retain their ring tone market for low-end consumers and benefit from Apple’s popular iPhone — at the same time.

And if Microsoft plans on releasing a phone at the same price point by either not partnering with Verizon or by going at it alone, well, that’s going to be a hard sell to consumers. There’s plenty of great smart phones out there that aren’t the iPhone. And, as this article probably makes clear, from here on out it’s all about the iPhone vs the rest.

Good luck, Microsoft.

I predict that thanks to Apple, DRM on music, and eventually movies, will become far less restricted, possibly even eliminated.

Brief History of Why a Collapse was not Possible Before

People got sued, negative publicity flew around every week, and there were even reports of DRM root kits! Many people loathed DRM, and yet it persisted. Some would argue it is because “average Joe/Jane” doesn’t care enough to make a scene. This is true to an extent, but the real reason DRM has not let up is because the content owners would rather die first. In short, the reasons against DRM were all from the consumer’s view point, not the sellers.

Idealists tend to forget that the RIAA and friends hold all of the cards. All of them.

In Came Apple

So after the rabid freebie era of Napster, Apple signed up to distribute music with DRM. Studios were “happy” that they would finally make money with digital music (no additional production costs!), and Apple got to push iTunes as the first and only.

Years later, Apple pulled a switch-a-roo and somehow, without the content owners realizing, Apple held virtually all of the cards.

DRM Prevents Competition

DRM is one of those technologies that doesn’t bother you until you have to switch products. That means nothing to consumers who love the iPod (pretty much everybody), but is extremely bad news for competitors.

The average consumer doesn’t understand the ramifications of DRM. All they understand is that digital music means iPod. But it’s actually worse than that. Even if I want to buy music from, say, Microsoft, it turns out I can’t play it on my precious iPod! You can see why Apple continues to dominate digital music sales.

This means competitors have a huge uphill battle to fight. They have to make consumers abandon their old legal library each time they want to switch brands. Good luck.

Labels Shoot their Feet

The labels accidentally created a monopoly on digital music, and they aren’t it!

To be specific, the problem is that the monopoly isn’t on the music itself; it’s the music players. This concerns the labels because so long as Apple has a dominant market share, they are stuck dealing with iTunes. They can’t pull support for iTunes because if nobody can sell iPod compatible music, everybody would just revert to piracy.

It doesn’t matter how much greater the iPod’s competitors are: if the consumer owns even one iTunes song, that becomes a huge mental barrier that the consumer must overcome. And competing stores are demanding better rates than iTunes in order to over come this.

DRM is not about Piracy, It is about Control

Have you ever thought about why labels are so adamant about DRM? Is it to fight piracy? No. It’s all about maintaining control.

DRM’s sole purpose is to maximize revenues by minimizing your rights so that they can sell them back to you.

But, in a funny and ironic twist, the labels lost control of digital music thanks to their self-imposed DRM. This is a lose-lose scenario for the labels. No matter what they do, so long as Apple dominates, they have no control. DRM isn’t helping them in any way.

What is Left But to Gut Yourself

The only option remaining is to force Apple to remove the DRM. If Apple refuses, simply offer competing stores a chance to sell without DRM: they will murder iTunes overnight. Proof? The second biggest music seller in the country is not MSN, Rhapsody, or even Real; it is eMusic.

Market share for online music retailers:

Apple iTunes: 67%
eMusic: 11%
Real Rhapsody: 4%
Napster: 4%
MSN Music: 3%

Why is this amazing? Because they sell only indie music! Their market share is the sum of the next three competitors combined, all three which have huge brand name recognition and sell mainstream music. How is this possible? They don’t use DRM. They are able to compete with iTunes because of this.

Removing the DRM guts Apple’s control of the market and once again gives the labels control over what to price their product. Until they do this, Apple remains the bench mark that every music store will need to beat to compete: $0.99 cents a song or less.

Ah, I love karma.

Note: I do not own an iPod. I prefer to “rent” (stream) and know I don’t own it, than “buy”, and not actually own it.

I’ve got another Apple prediction. Judging by how Apple is setting up their prices, I conclude that we will see our first touch screen Video iPod in one year from now, but not in six months. In fact, just analyzing their prices and past history, I can conclude a great deal about how their lineup will change over the next year.

1. Nanos will start playing video, but will keep their tiny screen.
2. The shuffle will double in capacity, but only if the market pressure rises.
3. Video iPods get no capacity upgrades, but will get multi-touch about a year from now.
4. The iPhone will see its first price drop. No other spec changes.

And over the next three years, I even predict the tumble of hard disk based Video iPod. It will no longer be the top tier iPod – iPhones will become that – and it may even be retired.

I drew these conclusions by looking at Apple’s strategic pricing, which is far more revealing than one might think.

Look at the Prices

Below is a list, current as of today, of the entire iPod lineup. The numbers in parentheses are the price difference from the next lower model.

Shuffle 1Gb: $80
Nano 2Gb: $150 ($70)
Nano 4Gb: $200 ($50)
Nano 8Gb: $250 ($50)
iPod 30Gb: $250 ($0!! Take note of this)
iPod 80Gb: $350 ($100)

Figure A

For those of you who don’t know, this is a different price breakdown than what existed not even six months ago (this list was a pain in the ass to figure out):

Shuffle 512: $70
Shuffle 1Gb: $100 ($30)
Nano 1Gb: $150 ($50)
Nano 2Gb: $200 ($50)
Nano 4Gb: $250 ($50)
iPod 30Gb: $300 ($50)
iPod 60Gb: $400 ($100)

Figure B

Look at Figure B. Notice that the price differences between each model of iPod is very consistent at around $50 until the very top of the line 60Gb iPod ($100 difference). When Apple dropped their prices in September 2006, people widely speculated (although that murmur quickly died) that Apple would probably fill in those gaps made in the pricing. However, instead, Apple simply placed two new products far and above the current top iPod:

iPhone 4Gb: $500
IPhone 8Gb: $600

Why? What about the gap? Well, the price reduction wasn’t about making room for a new product — it’s about replacing one. More on this a little later.

Apple wants its iPhone to succeed, but not at the expense of its iPod line up — not yet. So it widened the price difference to keep a significant buffer between the products. Right now, all Apple wants are the loyal early adopters to build up the hype, and make the product the next iconic status symbol (remember the Razor?) of cell phones. They don’t want mass market. They want 1%. Remember that.

But within two years, I predict Apple will fully embrace iPhone, adding in a whole new tier of products that will widely overlap with its hard drive based Video iPods. As I will demonstrate shortly, Apple is prepared to destroy a portion of their own music player market, but only when iPhone sales are picking up steam, and only when the iPhone is technologically ready to do so. With only 4Gb/8Gb of capacity, that day is still a few years away.

Here is how I see the lineup looking by February 2008:

Shuffle 2Gb: $100
Nano 4Gb: $150 ($50)
Nano 8Gb: $200 ($50)
Nano 16Gb: $250 ($50)
iPod 30Gb: $250 ($0) – Multi-Touch, wide screen
iPod 80Gb: $350 ($100) – Multi-Touch, wide screen
iPhone 4Gb: $400
iPhone 8Gb: $500

Figure C

The Shuffle

The Shuffle will remain a valuable part of their entry level market. It will continue to target people “on the go”. Capacity will be increased and this time next year, I expect a 2Gb model. Unlike its big brothers, it will continue to focus on music. The increase will be due to competitive pressure and may not come if its sales continue to dominate.

The Nano

The Nano lineup will start supporting video playback. This is important to keep it competitive with current generation video playing competitors. Also, the Nano’s capacity will be increased so that it can actually store all this video.

Will it have full screen? No. That won’t come for another year or two. Apple will release Mutli-touch from the top and move its way down. This is to give consumers additional reasons to up-sell to the next better iPod.

Notice how the price points will remain exactly the same. This is because I speculate the bottom tier of the prices are the most sensitive to price changes. In other words, budget consumers will weigh price in much more heavily that consumers ready to drop half a grand on a music player. Apple realizes this.

The iPod

This is the most critical aspect of my prediction: iPods will gain the touch screen, but only *AFTER* the iPhone’s price drops. Here’s why:

The Video iPod lineup does not compete with the iPhone. The iPhone has — most critical to a video carrying device — far less storage capacity than what you’d want in a movie playing device. Apple is happy with this because it will keep the “store everything” consumers buying the top-end iPods. Consumers uninterested in storing everything would have bought the much cheaper and smaller Nano anyway. And obviously such a consumer is not interested in the iPhone’s storage capacity either.

Because the iPhone will not cannibalize this particular model, Apple will release their new Multi-touch wide screen interface into the Video iPod lineup. This will give the Video iPod a huge image boost, effectively stamping out all of the video playing competition. But they won’t integrate multi-touch into regular iPods when the iPhone is released because Apple wants to maximize iPhone sales that come from people who want the touch screen. In short, I see the iPod with a touch screen cannibalizing sales of the iPhone, but the iPhone doesn’t threaten sales of iPods – at least not at its current price. Expect this feature released just months before Christmas.

And why does the capacity remain the same? Apple needs to offset the cost of putting in the touch screen while keeping the price the same. The easiest way of doing this is keeping the capacity the same.

The iPhone

The iPhone’s price must drop. However, that price drop can’t happen until the Nano lineup gets a storage space upgrade. When the price of flash drives drops again (to Apple wholesale), Apple will use this margin to upgrade their Nano lineup. Then, rather than apply that margin on the capacity of the iPhone, Apple will use it to drop its price instead. This will happen at the same time or a few months after the Nano drop.

This is, again, brilliant because the iPhone, while $100 cheaper, will not compete with the Nano, due to the fact that the Nano will now have more capacity (double) than the iPhone. This allows the Nano to stay focused as a media device while the iPhone becomes more affordable. And, of course, the iPhone will have that cool full screen view while people that skimp on the Nano are still suck with small screens.

That $0 Price Difference

Remember how I pointed out the $0 price difference in Figure A (current)? And did you notice it appears in my prediction as well (Figure C)? Apple is noticing that the capacity of flash drives is nearing what a consumer would need on a video device, which is part of why I believe the next generation Nano will play video. But why did the iPod sink to the same price point as the Nano? Competition? No.

Within another year or two, the touch screen will become the uniform interface for the entire iPod lineup (sans Shuffle). By the time this happens (less than 2 years), the Nano’s top end model will likely have around 30 Gbs and a wide screen for video viewing. This is inevitable by the fact that Apple’s flash-based player competitors will put pressure on Apple to continue increasing their Nano’s capacity — at the expense of the Video iPod. Sure, a Video iPod by then could have 200Gb of capacity, but there’s another problem. Flash players have far better battery life and are much more immune to physical shock. Not to mention they are just getting ridiculously small.

So Apple is going to phase out their hard disk based players. They aren’t phasing them out because they want to, but, rather, because they have to. And as the Nano gains popularity (perhaps even renamed to “iPod” some day), the disk based player will drop in price until it matches up dollar for dollar with the Nano line up. And some day, perhaps, Apple will simply retire them.

What About the iPhone’s Price?

But what about the iPhone? What happens to its price while all this is happening? Well, while the Nano can play video and will likely have twice the capacity of the iPhone, the iPhone will continue to distinguish itself with the simple fact that it is a phone and is the Internet in your pocket. As the technology matures and the market comes to embrace broadband Internet on mobile devices (as it is in Asia), the iPhone will be a strong player on its own. It will replace the current Video iPod in terms of pricing. But it will always lag behind its flash based Nano counterpart in terms of capacity to keep the Nano in a separate (media player) market.

Remember how I said I can make predictions based on past pricing? Well I’m going to assume for a moment that the old lineup was the way Apple liked it. The following is a chart directly based off of Figure B with only the product names changed. The iPods are all flash based and contain touch screens.

Shuffle 2Gb: $70
Shuffle 4Gb: $100 ($30)
iPod 16Gb: $150 ($50) – flash based, touch screen, formerly Nano
iPod 30Gb: $200 ($50) – flash based, touch screen, formerly Nano
iPod 60Gb: $250 ($50) – flash based, touch screen, formerly Nano
iPhone 8Gb: $300 ($50)
iPhone 16Gb: $400 ($100)

Figure D

That is how I predict the iPod lineup will look in 2 – 3 years: back to its original breakdown, only adjusted for the market disruption caused by the iPhone. Will there be a huge 200Gb hard disk based iPod? I can’t really say it with any confidence. Perhaps, simply because people may demand it. But its bulky, power hungry nature will be offset with the fact that it will be as cheap as the flash based Nano players.

Hard Drives Are So Last Year

The other reason I think the current hard disk based iPods will pass away is because of the popularity that consumes the Nano. The name “iPod” is Apple’s baby. And yet if their derived product, widely known as “The Nano” is their best seller, it would make a lot of sense to re-brand the Nano as the new iPod and rename the old iPods to something else (or discontinue them). And observing that slimmer players with greater battery life (Nano) are increasingly popular, I can only conclude the 200Gb disk-based iPod will probably never be born.

But if they are, expect it to be right there next to the 30Gb flash based iPod (Nano), and probably costing only $50 more. There is the possibility that HD media becomes the norm before the flash drive technology is far enough along, which would allow the old iPods to stay around, although I would gamble they would be renamed and heavily discounted.

I’d say it’s a coin toss at this point.

What Happens When Bundling Puts the iPhone at $150?

One other point I wanted to discuss was the inevitable iPhone/service bundle that a carrier will provide that will place the iPhone at a price point at or below the $150/$200 Nano. My entire point was that Apple doesn’t want to cannibalize its Nano sales, but most people can see how any sane consumer would skip the Nano if they could get the iPhone for the same price or less.

Apple already sees this coming, and my answer to you is this: Apple is phasing itself out of the media-only device market. Why? Because there is a much brighter future in communication-media hybrid devices.

Apple must believe that people are growing weary of carrying both an iPod and a phone. How much time is there before a smash-hit device comes out that can do media and communications at the same time? Cell phone companies have been taking shots at this concept for some time now and they are starting to see success. In a few years, what market will be left for a device that does only media, especially when it costs the same as its cell phone counterpart? Apple decided to strike preemptively.

Conclusion

The iPhone is a market disrupting product because it has the potential to become a run-away hit as a video player but it is a cell phone first. The iPhone’s true success will come when the price reaches current iPod levels. But until then, Apple has literally sacrificed its first born as an investment in this new market.

Apple is the first successful media-device company to entire the cell phone market. Its new competitors are renown for building horrible phones with even worse software, a fact that places Apple high in the minds of consumers. Until Apple’s old competitors (such as Creative) – companies known for building solid media devices – follow them into the market, the iPhone will only gain momentum as the single most desired media phone.

I have a secret to share: Google cares half as much about Gmail, Gchat, Gmaps, and virtually every other spin-off they have recently made combined when compared to Google Checkout. Google Checkout is Google’s new secret weapon, and its value to Google has nothing, absolutely nothing, to do with the payment processing market.

This isn’t about competing with PayPal, even though that’s what it looks like at first glance. It is their way of cornering a totally new market: a different ad model commonly known as cost-per-action. Currently, Google is the king of pay-per-click (where you get paid when someone clicks on an ad). But pay-per-click is getting heavy competition from Yahoo and Microsoft. Now Google wants to jump ahead and enter a new market. This market isn’t exactly without its competitors, but as I will demonstrate shortly, Google has a secret weapon called Google Checkout that gives it a huge edge over the currently entrenched king ValueClick.

What’s Google Checkout? I recently tried it out following up on a promotion they were running. After using it twice, I am convinced it is highly under-valued. It is like a universal shopping cart account. It is so sweet not having to create an account at random websites (and having to remember them). Here are the top three features Google Checkout offers consumers:

1. It remembers you. After your first purchase, it remembers everything about you so you never have to type in your email, shipping address, or payment information again. Just like Amazon.
2. One login for every site you purchase from.
3. Email privacy. The explicit option to opt out of promotional emails from that seller *and* the ability to hide your email address from the seller.

#3 is great. I was able to cancel my order without emailing the store directly using a web form, allowing me to keep my email address hidden from them. Just how easy was purchasing with Google Checkout?

Here’s the steps it requires after you click on “Checkout using Google Checkout“.

Step 1: Sign in.

Step 2: Checkout.

This looks just like any other checkout application, right? Wrong. This could be any online store. The checkout process is exactly the same and the amount of typing I do is absolutely minimal. I register with Google once, and I can go and buy stuff at any store that supports Google Checkout without further handing out my personal information.

It’s like PayPal, but not scummy.

One observation I will make is that Google Checkout allows Google to fully track the purchases its users make. This could be another long term investment for Google in terms of targeted ads. If they found that a certain user recently purchased an iPod, for example, they could show that user more iPod accessory ads. If they noticed you like Best Buy, they might show you more Best Buy ads. The possibilities are endless.

But most importantly, Google Checkout closes a huge loop in their ad program. They now have data on who purchases what. Well, let’s rewind a bit and explain the current cost-per-action model.

After you click on an ad, some data is stored by the online store you are visiting, and the owner of that ad A.K.A. publisher. After you’ve paid up, you’re sent to a confirmation page that says stuff like “Thanks for buying!” On this page, there is code (a 1×1 pixel image) that tells the publisher you bought stuff. This allows the publisher to close the loop and know which clicks led to sales. The publisher is then paid per sale that resulted from a click from their ads (thus, “action”).

There are two main obstacles in the industry currently.

1. Ad blockers and various security settings can disable this extremely vital code, depriving the publisher of revenue. Stores that are aware of this can game the system and purposely eliminate some percentages of sales from being credited.
2. Post-sales data is unavailable. Cancellations and refunds still have to be treated like sales. It’s 100% the honor system.

But with Google Checkout, everything changes. Google knows you made the purchase right then and there. There is no external “code” that can be blocked or lost. And unlike regular cost-per-action companies, it also knows if a purchase is later refunded, returned, or canceled – something that is extremely difficult (impossible) to track for all modern day publishers.

If this is widely adopted, they will corner the cost-per-action market since they would be able to track a sale with a much higher degree of confidence than their competitors. This is beneficial to both merchants and publishers. And as I demonstrated above, the application is also awesome for consumers.

I have three pieces of evidence that signify that their interest is in the cost-per-action market rather than, for example, Paypal’s turf:

1. They’ve shown nearly zero interest in consumer to consumer payments. This makes sense since they don’t care about that market. They’re happy letting Paypal have that pie and dealing with all the eBay fraud. They’re even letting merchants use the service free of charge.
2. They started a super-private cost-per-action test several months ago. Google Checkout launched only days later.
3. It is directly related to their core business model. In fact, it is the logical next step. It’s an industry they know well.

They need market share for this plan to work. I predict they will continue to take huge aggressive steps for this product in 2007. Think about it: what other product have you seen Google take losses and offer huge discounts to consumers and merchants just for using it? Right now, Google has only one cash cow. Gaining this market gives them two.

They need this to be a home run success to safeguard their future. I am willing to bet a fortune that Google will push this service as if their life depended on it. Because it does.

In another blog prior to this one, I wrote about a prediction I have for iPods. Because I plan on fully retiring that blog in the near future, I thought I would port the post here to keep the prediction alive. Note: I wrote this post long before the recent flurry of iPhone headlines.

Here’s my prediction: The next iPod will be the new hook Apple will use to enter the cell phone market.

A little history:

1. First Apple introduced an iPod. It played music well.
2. Then Apple introduced color iPods with photo capabilities. A mostly useless upgrade, but still cool.
3. Then Apple introduced a video iPod. Suddenly portable video became a hit.
4. Then Motorola introduced the completely shitty Rokr iTunes phone. Nobody cared.

The reason why no cell phones have been successful with music playing integration is because the two tasks require use input methods that are starkly different. Making calls requires a number pad and the ability to browse through a phone book. Sending text messages requires typing abilities. Browsing music, on the other hand, requires volume control, music selection, and play control. Let’s not forget the entire device must be able to sync the music files too. Dumber people in the past have speculated Apple would release a phone iPod that had an old fashioned digital number dial type of thing that would super impose over the click wheel. Wrong. Dead freaking wrong!

Let’s fill in the gap. Recently there have been very prominent rumors about a new version of the video iPod that has a giant touch screen with a digital click wheel that only appears as necessary. Sounds cool, right? Now you’ll be able to enjoy videos more than ever! But wait, there’s more.

Apple’s newly rumored screen-only interface is the key. No, not because they can superimpose numbers over it when you’re in “phone mode.” Like I said above, wrong! Rather, because when you go into “phone mode,” the click wheel disappears and is replaced by a cell phone style keyboard. That’s right. The new all digital front panel allows Apple to overcome the problem of mixing two different devices with completely different input methods. The new iPod will simply drop the click wheel if you aren’t doing a music or video related action. It’s genius.

Imagine an iPod that has a small, albeit low-quality, speaker that allows you use the iPod like a phone as well as hear your movies. Imagine newly upgraded iPod ear buds that allow you to make and receive phone calls without ever taking your iPod out of your pocket, all while simultaneously pausing your music. Imagine a phone where your ring tone could be any song you own.

Apple won’t be pushing this new idea forward any time soon. The world is not yet ready for an all-in-one device. But the day will come. The current big personal electronic devices are:

• Camera
• Music player (iPod)
• Movie player (iPod)
• Cell phone
• PDA
• Internet device

It’s clear that some devices are best left independent. Apple won’t want to make their pristine products murky by adding mediocre peripherals such as a crappy 3.0 megapixel camera; not to mention such a hardware extension will probably compromise the sleekness of an iPod. That said, cameras are likely off the list for ever merging with the iPod unless they can integrate it without messing up the smooth curves on the device.

Apple could go another route by integrating Internet access, but I predict that Internet access has too many geek-only issues such as security that may confuse or annoy consumers — Apple will probably never merge Internet access with the iPod. However, they may integrate wireless networking functionality to allow syncing with iTunes on a computer located nearby. And maybe, just maybe, on some random whim, Apple could integrate Internet access simply to allow direct purchases from the iTunes store. However, a consumer who can’t trial samples of music is less likely to buy anyway, so, again, I predict Apple probably won’t introduce this feature in order to protect its “just works” iTunes music-purchasing experience.

Before the cell phone is introduced into the iPod, I predict Apple will test this different-interface idea by introducing a new sub-feature into the iPod that will make use of it. Potential applications are:

• Ability to sync with your iCal program (PDA integration). This would introduce a new task managing / calendar interface.
• A different interface to browse photos.
• The ability to edit music tag information (such as artist or song name).

Apple will be careful about this. They will avoid the (noob) trap of creating 18 different interfaces for 18 different types of situations. Likely, there’s only a few types of visual interface layouts they will introduce:

• Buttons (like on a web page)
• A number pad like on a phone
• Yes / No / Cancel dialog

I predict this will be introduced in early 2007 and polished by year-end. Tell me I don’t sound right.