iPod Slayers Misdirecting Efforts

Competitors lusting for a slice of Apple's (Nasdaq: AAPL) iPod market need to rethink their current strategy, according to an analyst at Forrester Research.

Ted Schadler, who authored a report released last week on youth and online music, told TechNewsWorld that iPod competitors have been ignoring a key attitude uncovered in Forrester's survey.

The personal computer has a critical role in the online music equation for youthful listeners, he maintained.

Just an Accessory

"Targeting an MP3 player is a mistake," he declared. "You should target the PC if you're a music retailer. The MP3 player is just an accessory.

"People who make MP3 players are missing it," Schadler contended. "They think they're competing only on the device, but that's just not true. They're competing with the fact that the PC -- in this case iTunes -- plays a critical role in how consumers experience their music."

"If you're Samsung or Dell (Nasdaq: DELL) or Sony (NYSE: SNE) making an MP3 player and you're only focusing on a feature-function battle with an iPod, you're missing it," he said.

More Than a Jukebox

The survey of 5216 online consumers aged 12 to 21 found that 84 percent of that demographic group listened to music on their PCs.

According to a copy of the report obtained by TechNewsWorld, "Windows PCs and Macintoshes are more than a jukebox for young consumers; they are also the tool for ripping CDs, making custom CDs, and uploading and downloading MP3s.

"These benefits make the PC more valuable than an MP3 player to a consumer," continued the report, which sells for US$249. "In fact, 27 percent of online youth say they couldn't live without their PC, while only 4 percent say they can't live without their MP3 player."

Unbeatable Package

Rob Enderle, president and principal analyst with the Enderle Group in San Jose contended that iTunes music isn't the best of the online music services, but as part of a digital music package, it's hard to beat.

"When you combine the iPod and iTunes, there's still not much that can top that combination," he said. "It's more than just one or the other."

The last thing that digital music player makers want to hear is that they need to compete with the iTunes software, he observed. "They've shown in the past that they really don't have any software capability," he said.

He asserted that the best online music service is offered by Yahoo (Nasdaq: YHOO). "But so far nobody has targeted the Yahoo service with the kind of compelling solution that Apple has built around iTunes and the iPod," he said.

CD Exchange Popular

The Forrester report, which is titled "Musical Youth: Still Stealing, But Also Buying," also revealed that 21 percent of online youth buy music downloads, compared to zero percent in 2003.

Song sharing, however, dominates the demographic's musical experience with 50 percent of the respondents saying they share music with family and friends, 75 percent saying they burn CDs and 61 percent saying they rip CDs.

"CD exchange is the most popular way that online youth share songs," the report noted. "Of consumers that have stopped downloading songs because of fears of prosecution, 49 percent still share songs by exchanging CDs."

P2P Sharing Down

Surveyors also found that file-sharing software -- whose users have been targeted for legal action by the Recording Industry Association of America (RIAA) -- is still used by youths, but usage has decreased. Forty percent of respondents said they used file sharing software compared to 55 percent in 2003.

"It's really good to know that fewer of this age group is using peer-to-peer networks and more of them are opening up to the possibility of buying music," Napster Corporate Communications Senior Manager Dana M. Harris told TechNewsWorld.

The survey also found that consumers who share and buy music -- which represent 15 percent of the respondents -- spend more on music and music services -- on average, $27.33 a month -- compared to consumers that buy but don't share, who represented six percent of the survey sample and spend an average of $24.70 a month.

"People who share are also a music retailers most valuable customers," Schadler said. "That's a bit of surprise. I would have expected the people who buy and don't share to be the most valuable customer segment, but they weren't."