iPod eclipse

Some time in the last quarter, cumulative sales of iPhones passed those of iPods. This is no great surprise - the iPod has been in decline for a long time, as use moves to smart phones, and quarterly iPhone unit sales passed iPod sales back in 2010. Even within iPods, half of the volume in recent years has been the Touch, which is much more than a music player. Music now means smartphones.

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As music has moved on from the iPod, it has actually become much less important to the tech industry. With streaming and the decline of ownership, there are fewer barriers to switching service, and every device has a choice of music services, both from the platform owner (i.e. Apple/Google/Microsoft/Nokia etc) and as third-party apps. In effect,  music has become a commodity. The big platform companies make sure they have it as a checkbox feature - they need to have music - but it’s not really important as a point of strategic leverage anymore. Music doesn't give you a lock-in. 

In addition, total 2012 recorded music revenue was only about $19bn - Apple made $18bn in revenue from the iPhone last quarter. When you subtract what you pay to the labels and artists the revenue left over to the music service itself is almost a rounding error in the scale of the tech industry. One could argue that trying to charge a little extra and make more profit is more trouble than it’s worth for Google or Apple (or even profit-hungry Amazon) - better to offer it at cost or thereabouts to enhance the value of the broader platform, which is where the real money comes from (advertising and devices respectively).

The same thing is happening in books and video - content is a condition of entry to the platform game that you provide at cost. This obviously makes life pretty tough for startups - it's hard to try to build your own ebook store or download-to-own music store right now when any device your customers might use probably already has an at-cost service built-in. The one place this might be different is in video, since in that business it is actually possible to have unique content - but of course this is very expensive. 

In other words, music is now arguably irrelevant to the tech industry, in strategic or ecosystem terms. You have to have it, but it really doesn't give much leverage, because everyone else has the same stuff.  And so the attention that music gets rather outstrips how important it actually is.  

Meanwhile, app stores grow and grow. We have no data for Google Play, but it looks like run-rate gross revenue on the Apple app store is a little under $3bn a quarter, and growing. That would give revenue for this year of $11bn to $12bn, perhaps. Add in Google Play (half the size?) and it seems pretty clear that app store revenue will pass recorded music some time in the next year or so.