It was the size of a deck of cards, could store about 1,000 songs and no one knew what to make of it.
On Oct. 24, 2001, The New York Times published a story about a quirky new portable music player that was small enough to fit in a pants pocket. The story appeared on page 8 of the paper's business section. Not exactly prime real estate.
Analysts were bemused. The little device had limited commercial potential, they said. After all, it was made by a computer company. More importantly, it was compatible with less than 5 percent of the computers in the United States.
Well, we know how that turned out.
While the global music industry bled revenue, Apple Computers Inc., AAPL-Q as it was then known, locked down the digital-music scene with the introduction of the iPod and iTunes software and, two years later, the launch of iTunes Music Store.
According to some of the Apple executives who were part of the company at the start of the digital revolution, Apple -- and specifically chief executive officer Steve Jobs -- recognized the exploding consumer demand for digital media and capitalized on it, turning a flagging computer manufacturer into one of the most powerful technology companies on the planet.
Before digital came along, the music industry had total control over its format transitions. However, with each change of format, control slowly transferred from the record companies to the consumer.
Napster, the online file-sharing service, effectively removed the music industry from the distribution equation. In just eight years, the music industry has watched its global revenue fall from $36.9 billion in 2000 to $18.4 billion last year, according to reports from the International Federation of the Phonographic Industry. Globally, the industry estimates that of the millions of songs that are downloaded from the Internet every day, only 5 percent are actually paid for, while the other 95 percent are pirated.
And the music industry was just the start. The Motion Picture Association of America estimates the film and television industries lost as much as $18.2 billion in revenue from piracy in 2005.
While the onset of digital media forced a new reality onto the entertainment industry, it provided limitless opportunity for Apple. And its remarkable turnaround -- from niche PC maker to the largest retailer of music in the United States -- started long before Jobs pulled an iPod out of his pocket.
Jobs's strategy was two-pronged. First, he wanted to make things easier on the customer, a mantra of simplicity that would work its way into every Apple product, service and piece of software.
Second, as David Sobotta, the former head of Apple's federal sales division explains it, was that the company was moving from being a computer maker to being a consumer electronics company.
"There was a mission for a long time at Apple to switch from selling very few of expensive products to selling very many of inexpensive products," Sobotta said.
Even before the iPod was released, Apple enjoyed great success with its iTunes music-library software, which enabled users to rip CDs to their iMacs. But the iPod was something more: It opened an entirely new category for the company.
And the key to simplifying the process of getting music from CDs and other sources onto an iPod was a piece of software called iTunes, released in January 2001.
"The beauty of the iPod is not the iPod itself, but the integration with iTunes -- iPod without iTunes would be just another MP3 player," said Guy Kawasaki, one of the first "evangelists" hired by Apple in the mid-1980s to interact with the Mac community.
More than 275,000 people downloaded iTunes software in its first week of release. But people still had to get their music somewhere else.
In October 2003, Apple's iTunes Music Store was launched online. It was supported by the major record labels and featured more than 200,000 songs. Every song cost 99 cents, and users could buy them individually or by album with the click of a button.
The numbers told the story: One million songs sold in the first week, 10 million in the first year. Apple has expanded iTunes' retail operations to include videos, movies and, now, with the launch of the iPhone, software applications, morphing the service into one of the most popular media retailers on the planet.
(Distributed by Scripps Howard News Service, www.scrippsnews.com.)
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