Technology categorization: MP3 and iPod

Note translator: This article is a translation of material from the blog of one of the leading third-party analysts Apple Horace Dediu (Horace Dediu). In his materials, Horace transforms data from open sources into interesting charts and graphs and draws non-trivial conclusions from them. In this article, he demonstrates the relationship between sales of iPod touch and the degree of penetration of MP3 technology into the US market and concludes about which category of gadgets to listen to music in MP3 format and how it sees their future compared to other technologies.

The graph at the bottom of the gray shows the penetration rate of MP3 players into the US market (the percentage of the population that owns MP3 players).
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The line superimposed on the sparse sampling plot shows iPod touch sales. The overlaid graph has a different scale - 10,000; it is marked on the grid line of the coordinates and represents millions of units of goods that went on sale from Apple. To smooth out the seasonality, I highlighted the average four quarter quarter period with a thick line.

The relationship is pretty obvious. As iPod sales grew, market penetration also increased, and the “peak of MP3” was registered in September 2010, while the highest peak of sales was at the end of that year.

It is no exaggeration to say that sales of iPod touch contribute to the introduction of MP3 players into the market. This can be argued mainly due to the fact that the iPod remains the leader in terms of its market share in this segment (its share is at least 70%) for a long period, and sales of the iPod, respectively, are half or even more composed of iPod sales touch.

Thus, the lack of data on the market share after 2012 is not a problem. We can assume that MP3 playback devices have a limited lifespan and, if they aren’t replaced by another technology, their penetration rate will decline.

I modeled both situations - both a growth situation and a fall, in which the propagation curve looks like this:



Since the lifetime tends to expire, you can make a “generous”, but reliable assumption that by the end of the decade, less than 10% of the US population will have a separate device specifically for listening to MP3 files.

The fact is that MP3-players can be counted as “ballistic technologies”. There are two reasons for their decline: firstly, the demand for them did not reach saturation, they gained popularity only in half of the US population, secondly, MP3 players were easily replaceable, and therefore out of use. Please note that I have limited the maximum value to 90%, assuming the limited popularity of the device.

There are many technologies that are in the same position: video cameras, pagers, tape recorders, game consoles.

At the same time, there are a number of technologies that are both widespread and viable. I call them "perpetual technology." Yes, an alternative may appear for them and a substitution may occur, but it will take decades. Examples include cookers, cars, microwaves, refrigerators, radios, vacuum cleaners, televisions, and telephones (both fixed and mobile).

There is another category that includes technologies that are not widely spread, but are so popular that only 20% of the population does not use them. I called this category "inert technology." In addition, the technologies of this category have a rather long period of slow growth and decline occurs over the same long time. Sometimes substitution occurs, but more often they are replaced by services rather than other equivalent devices. Examples include washing machines, the Internet, personal computers.

And some technologies will never be used massively (their market share is less than 10%). I call this category "inefficient technology." These “losers” are very common and easy to identify. For example, this category includes: Segway, Google Glass, SPOT watch, pocket PC.

So, to summarize:

• Ineffective technologies : market penetration will never reach 10%; these are unprofitable technologies that do not determine the industry.
• Ballistic technology : market penetration ranges from 30 to 70%, but is quickly replaceable. They are profitable, but only during their rise. As a rule, do not create an industry, ecosystem or network effect.
• Inert technologies : have stable growth, but will never be widely used. The contradictory market situation on the one hand hinders their widespread adoption, but at the same time makes it difficult to replace them. These technologies do create industries and have network effects, but suffer from obsolescence and monopolies.
• Perpetual technologies : they are widely distributed, as a rule, this happens quickly and persists for an indefinitely long period. They are replaced only by improved technologies, which are distinguished by a more perfect performance of the same task (for example, a black and white TV has been replaced by a color one). As a rule, they solve the universal tasks that each person faces. Show "breakthrough" growth and have effects that can change the world.

It is useful to know in advance which of the categories the technology will fall into. This can affect not only the choice of investment area, but also decisions about career and education. Also, thanks to this, areas for basic research can be better formulated.