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Sun 6 Aug 2006 04:00 AM

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Rivals rally to take bite out of Apple

Apple’s dominance of the MP3 player sector is set to be challenged by a raft of new players, including Microsoft.

While Apple’s iPod continues to dominate the portable MP3 player market, a new report from industry analyst IMS Research predicts its market share will be significantly eroded over the next five years as rival handheld multimedia players penetrate the market.

“Apple has shown remarkable powers of innovation, but it remains to be seen whether it can rise to the formidable competitive challenges ahead,” IMS Research declared in a statement.

The company found that while iPod sales rose massively from almost 1.5 million units in 2003 to almost 32 million units in 2005, Apple’s estimated global share of shipments of stand-alone handheld media players increased only slightly over the previous year, from 23% in 2004 to 27% in 2005.

“The strongest growth in shipments has come from low-cost, flash-based players,” claimed Peter Cooney, IMS Research senior market analyst.

“Apple certainly made the right moves with its timely iPod shuffle and nano introductions, and reaped the market benefits. However, the company’s continued focus on the higher end of the market could [lead to its] downfall. Continued global unit growth will be driven by low-cost, flash-based players, largely supplied by Chinese companies.”

In 2005, Apple led the market for flash-based players, but with only a 15% share of the global total.

It continues to dominate the market for HDD-based players with almost three-quarters of all units shipped globally in 2005, but this market is forecast to grow less than 10% a year over the next five years.

IMS Research found that another key threat to Apple’s dominance in the sector was the increasing availability of low-cost multimedia cellular handsets, boasting music and video players.

The company cited a recent Nokia-commissioned survey of consumers aged 18 to 35 in 11 countries, which showed that the desire for separate cell phones and media players was very much a US phenomenon. Elsewhere, most of those surveyed expected their phone to replace their portable music player.

Meanwhile, after months of media speculation, Microsoft has confirmed that it is working on a rival to the all-conquering iPod.

The portable MP3 player, codenamed Zune, is expected to be launched in time for the pre-Christmas shopping period in the US and Europe.

According to reports, Microsoft plans to take a unique ‘flanking’ approach to challenging Apple’s dominance in the sector in a bid to ensure it doesn’t suffer the same fate as those that have attempted – and failed – in their efforts to take the company head on.

Microsoft’s strategy will aim to unseat Apple by working in conjunction with music artists to develop an all-encompassing alternative to Apple’s iTunes music service, providing unique content and other incentives for both artists and consumers.

Analysts predicted that Microsoft may also take a loss in the initial product roll-out phase by offering low-cost or in some cases free Zune players to consumers willing to undertake contracts to use its online music service exclusively for an unspecified period.

The strategy is designed to organically erode Apple’s position and influence in the marketplace, unlike other previous efforts which have attempted to swiftly take away the company’s market share.

In a bid to shore up its position, Apple confirmed it was working on a number of innovations for the iPod.

A company spokesperson also declined to confirm or deny rumours the company was considering replacing its existing iPod line-up with an all-new range of portable digital music and video storage and playback devices.

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