Jobs and Apple Must Address Competition They Created

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by: Diane Mermigas

More notable than news about iPod upgrades or Steve Jobs’ return to the public spotlight this week is the wave of change that competition has brought to Apple (NASDAQ:AAPL), which has shifted into defense mode -- even with itself.

iPod Touch price reductions, iPod Nano new features (camera and FM radio) and an updated iTunes were among the anticipated, albeit modest, responses to an exploding consumer electronics marketplace.

With 74 percent share of the digital player market, 225 million iPods sold and the world’s largest online music store in iTunes, Apple has nothing to worry about even if its iPod sales have slowed. Apple stock this week hit a new 52-week high on the way to $200 a share, reflecting that investors like what they see, absent a new device.

But Jobs and Company take nothing for granted. Everything is an integral part of Apple’s formidable, lucrative ecosystem which faces heavier competition in more places than ever.

What Apple and Jobs set out to accomplish in the highly touted annual Apple event was a renewed pursuit of consumers.

If that sounds a bit strange, consider this. Half of all iPod sales are made to new users. Apple is in stiff competition with itself in new ways. Its brisk iPhone sales cannibalize iPods, which share touch technology. And rivals in many consumer electronics category mimic the technology and strategy Apple pioneered.

So, as consumers claw their way out of the depths of a recession, Jobs had Apple appealing to their first love with enhanced iPods at a new low price tag.

“We really see is it’s the lowest-cost way to the App Store, and that’s the big draw,” Jobs told The New York Times’ David Pogue. “So what we were focused on is just reducing the price to $199. We don’t need to add new stuff — we need to get the price down where everyone can afford it.”

Jobs also told Pogue that he believes “general devices will win the day” because consumers generally dislike paying for dedicated devices.

That may be a tip of the hat to the secret touch tablet, e-reader and all-purpose big screen device Apple is developing (and won’t discuss) to compete with Amazon’s Kindle (NASDAQ:AMZN). That also explains broadening iPhone’s simple video game play (can you say EA’s “Madden” on the iPhone?) which are designed to head off Microsoft’s (NASDAQ:MSFT) Sony (NYSE:SNE) PSP, Nintendo (OTCPK:NTDOY) DS and others.

The 30 million iPhones sold worldwide the past two years is as critical an “installed base” as the iPod for the more than 21,000 available games and entertainment as well as more than 75,000 apps generating a record 1.8 billion downloads from the Apple Store.

While Apple’s ecosystem remains a dominant force, it is in a new stage of wrestling with (and beating) the unprecedented competition it has spawned.

In recent months, Google (NASDAQ:GOOG) has emerged an unlikely Apple competitor with its development of YouTube into a movie rental service countering the likes of iTunes, with Android smart phones under brands like Motorola (MOT) to take on iPhone, and with its own Chrome operating system and powerful apps.

The explosion of touch-screen, pocket-thin and app-crazed devices Apple has wrought is coming back to haunt the company. On Sept. 9, the same day as Apple’s “let’s rock” event, Dell (NASDAQ:DELL) slightly lifted the veil on its new less than a centimeter thick Adamo laptop. Palm (PALM) unveiled the smaller, less expensive smart phone Pixi, a companion to its Pre and iPhone rival.

Bottom line: it will come down to two factors at which Apple excels: consumer-friendly design and service, and value pricing. But, it’s clear, that hungry rivals learn quickly. When the boss becomes the highlight of the show -- the way Jobs did this week in a remarkable recovery from a liver transplant – Apple probably has a laser-like focus on what it does for an encore so that it is not chasing or beating back a market it created.

Original Post in TrueSlant

Disclosures: None