Apple Talk: The iPod made Apple - but its future lies with the iPad and iPhone

The big bucks are in smartphones and tablets...

The iPod may have been the product that pushed Apple into the consumer mainstream, but the facts suggest its significance to the company is fading, says Seb Janacek.

A few years ago, the average Mac user quickly became uncomfortable when the latest Apple advert aired. Inevitably, the ad had nothing to do with new Power Macs or mythical G5 PowerBooks. In fact, the ads rarely had anything to do with the Mac at all.

Instead, the ads featured silhouettes dancing to music with white earbuds. It was the age of the iPod and, for a company used to skirting the edges of the doldrums, it was a very good time indeed.

During the noughties, the September music events were the most anticipated dates in the annual Apple calendar, as the company prepared new iPod-based delights. The Mini, the Nano, the Touch were investors' darlings and propelled the company's brand into the mainstream like never before.

Relaunch of iPod range
Yet this month's music event was low key and, despite a relaunch of most of the iPod range, it was difficult to get too excited about the updates, other than the largely predicted changes to the iPod Touch.

The latest iteration of the iPod Touch, launched earlier this month
(Photo credit: Donald Bell/CNET)

When Apple's revenue and share price were tied to the success of the iPod, the markets reacted badly when there was any suggestion that sales of the MP3 players were dropping off. Investor concerns about the iPod sales endured because the Mac continued to occupy a precarious minority share.

Despite the minor sales blips, rumours about the death of the iPod remained off the mark.

In fact, the take-up curve of iPod sales since its launch at the end of 2001 were in line with the famous Rogers bell curve for innovation adoption - a graph handed out as part of Product Management 101 classes the world over. There were seasonal adjustments, particularly around the Christmas holiday quarter, but the curve still pointed up.

Mac, iPod-iTunes and iPhone
For the best part of a decade, the fortunes of the iPod and Apple itself were tied together. With the launch of the iPhone the company had "three pillars" as Apple CEO Steve Jobs described it - Mac, iPod-iTunes and iPhone. The company was no longer reliant on one bellwether to direct its growth.

The iPhone, however, remains the product that...

...makes Apple investors happy.

Two years after its launch, revenues from the iPhone overtook those from the iPod and in the last quarter, Apple sold almost 8.5 million units which contributed revenue of $5.33bn - up 74 per cent year-on-year, according to the company's latest quarterly results.

Apple added another pillar to its product line-up earlier this year - the iPad reported sales of 3.17 million units in its first quarter alone.

The iPad already represents more value to Apple in revenue terms than the iPod. In the last quarter - and the one in which it started selling iPads - Apple reported revenue of $2.16bn for the tablet compared with $1.55bn for the iPod.

The iPad is already making a bigger difference to the company's bottom line than the iPod
(Photo credit: James Martin/CNET)

Importance of iPod
There's no doubt that the iPod is still important to Apple, with particularly large spikes around the winter holiday season - even my mother requested one for Christmas last year. Yet its importance is no longer what it used to be.

But, despite this change of circumstances, it is impossible to overstate the importance of the iPod in Apple's history. The iPod dominated and continues to dominate the MP3 player market. According to Jobs at this week's event, the company has sold 275 million units since the launch in 2001.

The company has benefited from tremendous momentum in recent years that has seen its market capitalisation propelled into the stratosphere. This momentum was due to the iPod, which transformed the fortunes of the company, adding value to its coffers and more significantly to its brand.

In addition to momentum, Apple has a lot of market space to operate in and room to grow, expand and fill.

Smartphone and tablet growth
The most ominous aspect for the company's competitors is that Apple reportedly enjoys a majority hold on the profit generated by smartphones and tablets, which are relatively nascent markets that will continue to grow.

The smartphone itself will simply be "the phone" in a few years' time, with basic mobiles denoted by some other moniker and probably available inside upmarket Christmas crackers.

Likewise, the tablet market is only going to expand rapidly. Apple certainly didn't invent the tablet computer but it invigorated the market after years of stagnation.

The iPod is far from dead but its importance to Apple is diminishing as the MP3 player market itself continues to slow. If the iMac saved Apple from the abyss, then the iPod set it firmly on the path to mainstream and sustained growth.

Now that Apple has reached the lofty heights of the world's most valuable technology company, the iPhone and the iPad provide the opportunity to take it to a new level.