The first version of iTunes was simply a managment tool for a Mac library of mp3 files that also allowed Mac users to burn CDs of songs from their personal library. For the first eight months of its release, CD burning was the only method of extracting mp3 music from storage on the computer.

Combining Hardware and Software

In November of 2001, iTunes version 2.0 first offered iPod connectability and therefore a means of exporting a music library other than CD. While subsequent versions of the software continually helped to make the iPod/iTunes synchronization more and more user friendly, the major enhancements were the Music Store and local network file sharing added with version 4.0. Users could now preview a song on another computer within an established iTunes network and then legally download it from the Music Store for $.99 and take it with them everywhere on the iPod. Once this system was established, interesting trends emerged in the growth seen in both the iPod user base and the volume of downloading happening through the Music Store...

Growing Together

iPodlounge's analysis of sales of iPods since their release in 2001 and iTunes songs since the music store opened in April 2003:

Historical Growth of iPod and iTunes Sales

iPod Sales
iPod sales were good but not fantastic until around the May 2003 release of the third-generation iPod, which marked a turning point in the sales history of the device. Prior to that release, Apple’s sales were directed initially towards a relatively small audience of Macintosh users, and even when a PC version of the iPod was released, its FireWire-only design limited its appeal to mainstream PC users.

It took over a year and a half for Apple to hit the one million mark for iPods sold, but then the third-generation iPod was unveiled in Tokyo. Only six months later, the company had sold its second million iPods. Four months later, aided by the release of the iPod mini, they’d sold another million units of iPod hardware. By late October, aided by the release of the fourth-generation iPod, Apple was up to almost 6 million total units, and an additional 2-4 million units were predicted to be sold by the end of 2004.

Importantly, Apple’s sales milestones were achieved despite the continued introduction of cheaper alternatives by Creative, Dell, and iRiver, amongst others. None of these companies’ products appears to have significantly impacted the iPod’s sales growth or undermined its perception as king of the digital music hill.

iTunes Music Store Sales
Though the history of the iTunes Music Store dates back only a year, there have been two important positive changes in its sales trends. The first was in October of 2003, starting with the release of the PC version of the Music Store. In December 2003, following a flurry of holiday season iPod purchases and media mentions, the second upward tilt began, dramatically accelerating the pace of iTunes Music sales. Apple hit the 100 million song mark in July, 2004, ahead of some expectations (but later than initial Apple predictions), and 150 million by October, 2004, a dramatically increased pace.

History Repeating

The intimate relationship between iTunes and the iPod draws an interesting parallel to the development of the electric light bulb (the electric light bulb - building technical networks). Much like Edison's light bulb in the late 1800's, Apple was not the pioneer in the technology of mp3 coding and distribution, nor was it the first company to release a portable mp3 music player. However, the insight to imbed the iPod within the framework of the iTunes network has undeniably contributed to the wild success of the system as a whole.

Also, just like Edison had to focus efficient use of copper in order to prove the value of his electric light system, Apple too had a reverse salient issue to overcome along the path of the iPod's life. In this case, it was constructing a device that provided an unprecedented amount of space for file storage at a price point that could still compete with the iPod's flash based competitors. In addition, Apple had to convince the record industry that the iTunes Store model of music distribution would be able to overcome the 'pirate' stigma of downloadable music. By charging a low per song price as well as the option to buy an entire album at comparable or often lower prices than store bought CDs and giving the Apple distributed mp3 files limited tranferability, consumers were convinced they were getting a deal while record producers' concerns of further piracy could be abated enough for them to approve the iTunes model of distribution. This combination of clearly establishing the iPod/iTunes connection and carefully designed price points for both hardware and music were crucial factors in establishing the iPod and iTunes as the market leader in digital music entertainment and distribution.

Tim Mattran