When Apple and AT&T launched the iPhone, competitors said it would raise awareness
about alternative music devices. But when will cell phones actually replace iPods?

Your mission, should you choose to accept it: Replace all those iPods people are carrying on the streets with cell phones. How? That’s where it gets tricky.

But the tide already is turning, says Brion Feinberg, an analyst at The Diffusion Group who wrote a commentary last month with the edgy title: “The MTV/Rhapsody Deal Confirms It: The iPod is Doomed.” Feinberg’s analysis predicts dedicated portable music players like the iPod will be relegated to museum shelves, right next to the vinyl LP and the 8-track player, within 10 years. Even Apple is aware of the inevitability, he says, thus the iPhone.

Of course, it’s not going to happen overnight. Demand for stand-alone portable music players will peak within the next few years before they begin to slowly fade into the background, Feinberg says.

One of the problems is most consumers don’t know that they can put their existing music collection on their phones. Carriers say they encourage ripping CDs and putting them on phones, but the average non-techie person doesn’t know what’s available or the steps to make it happen, Feinberg says. Where a new iPod owner might know four or five friends who can help them get started, most people probably don’t know anyone in their close circle who can help them with other music services, many of which have tried and never succeeded the way iTunes has done.

CHANGE IN THE AIR?
That could be changing. In August, Verizon Wireless, along with RealNetworks and MTV Networks, unveiled grand plans for an iTunes alternative in the form of Rhapsody America. Since then, the venture’s participants have been tight-lipped about specifics, such as when commercial service will actually launch.

John Harrobin, senior vice president for digital media at Verizon Wireless, says Rhapsody currently offers the best online music experience in terms of ease of use, content offerings and more. Linking the best handset music experience that Verizon offers with the best online music experience and promoting that through MTV will create more awareness and adoption, he says.

It’s inevitable that people will use their cell phones as their primary music players, and how fast that happens is entirely within the wireless industry’s control, he says. Today, Harrobin rips CDs into his V CAST music manager all of the time. “It’s very easy to do,” he says, adding that the carrier wants more people to do it. To make it easier, Verizon Wireless has started bundling its music kits with devices.

The approach for the past couple of years at Sprint Nextel has been gearing up for the day when the cell phone is the No. 1 portable music player, says Alana Muller, director of wireless data marketing at Sprint.

No. 1 is offering a great phone experience. “We’re very focused on the customer experience,” she says. “Our strategy is to make mobile music as easy to use and inexpensive so all our customers can enjoy it.” A promotion designed to get more people interested offers six songs for 99 cents a piece for both data and non-data plan subscribers.

Sprint doesn’t offer a touchscreen device like that found on the iPhone or on Verizon’s new Voyager by LG release, that carrier’s most iPhone-like offering to date. Sprint does offer the Upstage, which has the look of a phone on one side and an MP3 player on the other. It’s available for $99 with a 2-year service agreement. The Muziq by LG is another device with the MP3 feel.

To hear Sprint tell it, its roster of services would seem to satisfy the most enthusiastic of music fans. Besides song downloads, customers can access services from Sprint Radio, Pandora, Sirius Music, MTV Networks, Rhapsody Radio and the Sony Music Box Connection. Music-related video is available as well. And Sprint boasts it was the first U.S. mobile carrier to stream a full-length rock concert, with Bon Jovi in 2005.

Although Sprint is struggling with other issues corporate-wise, it has a “very clear strategy” when it comes to data services, Feinberg says. “Sprint is trying to change the game,” responding to the younger generation that doesn’t think of cell phones primarily as devices to make voice calls but as devices that do a lot of other things.

BIG PIE
AT&T enjoys the exclusive on the iPhone, and Verizon Wireless and Sprint Nextel each claim they are the leader in mobile music. Going forward, it isn’t going to be a question of one carrier trumping another. “It will be a big pie,” says Adam Sexton, chief marketing officer at Groove Mobile, which powers Sprint’s music store, similar to how Verizon uses WiderThan. Right now, “there is one horse that has a very, very big lead,” he says, but that has more to do with the failed models of the past. “I think we’re going to see a lot of rapid development of mobile music in the next six months.”

Sexton points out that Apple CEO Steve Jobs is getting into the cell phone business; it’s not the other way around. “We’re sort of at the tipping point,” Sexton says, noting that mobile music services have been around for several years in the U.S. market, but this holiday season especially will be a big one. “Steve Jobs gets it,” he says. “The future of music is mobile, and it’s going to be on the phone.”

Progress already is being made in fairly short order. Sexton recalls some weeks back when the battery on his BlackBerry died and he visited a Radio Shack store. While there, he picked up – for less than $20 – a memory card that holds up to 1,000 songs. Just a year ago, extra memory would have cost on the order of $80 or so. At the lower prices, the casual music consumer is within reach.

Battery life may still be an issue, but the sound quality is not. “The quality of audio players, the MP3 players within phones – they’re great,” says Brad Mindich, chairman and chief strategy officer of g8wave Holdings, which recently launched drum tones by Rush drummer Neil Peart for mobile phones.

‘EVERYTHING’ DEVICE
Just looking around the streets of Boston – as opposed to London, where consumers are more likely to be seen using their cell phones as music players – it’s obvious that more people are walking around with iPods or traditional MP3 devices than using their cell phones with music players. “It’s getting there, and I don’t know … I sort of wonder if people just haven’t quite bridged the gap, to ‘I’m going to use my cell phone as ‘the everything’ device,’” Mindich says.

The jury is still out on what’s going to happen with the Rhapsody America service, Feinberg says. Meanwhile, he suggests Verizon stop focusing so much on selling music and put more emphasis on letting people know they can listen to the music they already own.

One of his peeves is the 2.5 mm standard headphone plug on cell phones that makes them incompatible with the standard 3.5 mm plugs on current headphones. Representatives at both Sprint and Verizon say they’ve heard that complaint from consumers, and the solution is an adapter so people can use the headphones in which they’ve already invested.

Battery life issues need to be addressed as well. A feature on a phone that tells users how much talk time they have left – before they’ve blown it all on listening to music – would be helpful and probably already is in the works. “They’re making the phones better music players,” Feinberg adds, giving high marks to the LG Chocolate. The iPhone, while nothing to sneeze at, does have that head-scratching battery issue in that customers need to get a loaner phone while their battery gets replaced, Sexton notes.

The sweet spot for Sprint’s target demographic today is the advanced, connected user who is passionate about music and will figure out the steps to get it, according to Muller. For any service – photo sharing, text messaging – a tech-savvy group spearheads it, but it eventually crosses over into the general public, which is where music services are headed.

No doubt, carriers and phone manufacturers alike are hoping to relegate portable music players like the iPod to museum shelves sooner rather than later. And, as Groove’s Sexton points out, even if Jobs is successful at getting 1% of the cell phone market, that still leaves 99% up for grabs.

OEMs Make Moves

The launch of the Apple iPhone with AT&T was arguably the biggest story in wireless this year. Mass media press and bloggers alike siezed on anything iPhone. But as AT&T’s competitors quickly pointed out, the iPhone also raised awareness about music alternatives. Sony Ericsson W580i Naturally, device makers are responding with iPhone-like touchscreen phones and sometimes adding a full qwerty keyboard, as LG did for Verizon on the Voyager, to up the ante. Some device makers, like worldwide leader Nokia, are even getting into the services side of the business. The Nokia Music Store will go live in the United Kingdom and Spain in November, with some key European markets to follow by the end of the year and early 2008, according to a company spokeswoman. The music store will offer access to millions of tracks, from global hits to local artists. But the company isn’t commenting on plans for the U.S. market. Others are seeing growth in their music devices as well. Sony Ericsson sold 36 million Walkman phones worldwide in about two years, so the overall growth has been “very, very strong,” says Jon Mulder, Sony Ericsson product marketing manager for North America. “The brand is so powerful … people immediately know it’s a music device. It happens to be a phone, too, so they’re getting the best of both worlds.” The company recently launched its W580i Walkman phone through AT&T stores, regional operators and national retailers, including Best Buy, Radio Shack and Amazon.com. Prices vary depending on regions, but at least one Website earlier this month was giving it away with a new AT&T account. Sony Ericsson offers seven Walkman devices in North America, where it first launched one in August 2005. But because Sony Ericsson no longer makes CDMA phones, subscribers on those networks are out of luck. What Sony Ericsson brings to the table, besides brand recognition, are applications incorporated into its phones such as the pedometer for people exercising to music, Track ID to identify songs on the radio and the Shake Control in the W580i that changes songs with the flick of the wrist, Mulder says.