iPod Add-Ons: The Craze That Lasts

By Peter Burrows The lust of iPod owners for their lovable little digital-music players is well-documented. But another group may be even more smitten with Apple Computer (AAPL) these days: The makers of the 400-plus iPod accessories that have stormed to market, from $19 plastic cases to $350 speaker systems.

Take Tim Hickman, general manager of the three-employee company Speck Products in Palo Alto, Calif. A former dot-commer who worked at Netscape in the mid-1990s, Hickman was amazed to see sales of Speck's iPod cases top $1 million in December alone -- not bad, given that net profits on such products often exceed 20%. "We thank our lucky stars, for the time being," he says.

But Hickman got something of a scare during Apple CEO Steve Jobs's Jan. 11 keynote at the Macworld confab in San Francisco. After unveiling a new, low-price version of the iPod, the iPod shuffle, Jobs also announced that his outfit would sell its own Apple-branded, $29 waterproof sport case -- the first time it had offered any such product. What's more, Jobs made a quick note of a "Made for iPod" program, in which only authorized accessory makers would get the right to put Apple's stamp of approval on their wares.

PARTY OVER? The fear: After watching the early development of the iPod accessory ecosystem, Apple will crash the party and make it harder for little companies like Speck to make a go of it. Apple has a reputation for trying to control as much of the "user experience" as it can -- especially when big profits on accessories could ease Apple's recent move into low-cost hardware markets, where both prices and profits are lower.

Fear not, iPod accessory makers. Rather than aggressively expanding into iPod accessories, Apple's plan appears to be: keep the party going for its many partners. Besides the iPod shuffle sports case, it has no plans for a broader product rollout, says Executive Vice-President Phil Schiller.

Schiller adds the Made for iPod program seeks to formalize how accessory makers work with Apple -- while also preventing consumers from getting stuck with knockoff products that don't perform as advertised. "We have worked hard on this market, to help developers design, market, and sell their products," he adds. "And that's what we intend to keep doing."

LOGO-MOTION. That's smart, says Tim Deal, an analyst with Technology Business Research. "When you consider that there are so many competitive alternatives to the iPod, it's important for Apple to keep these accessory makers happy," he says. "It adds to the iPod's viability as the digital-music standard."

Accessory makers that have been briefed about Apple's plan say it will help more than hurt. While none revealed the exact details, Made for iPod is essentially a way to make sure all electronics accessories work properly with the iPod. It doesn't apply to nontechnical products, such as cases or polishes. Those who agree to follow Apple's technical specifications will be able to include a "Made for iPod" logo on their packaging. The logo should start appearing on speakers, car adapters, power supplies, and other such gizmos within a few weeks.

Apple may modify an existing licensing program, by which accessory makers that use the iPod's proprietary dock pay a small royalty. The dock is used to sync an iPod with a PC and connectors for plugging in other gadgets, such as a headphone, to the iPod. But most accessory makers say the royalty is well worth it, given the millions Apple pours into hawking the iPod. "There's nothing in this that threatens our business model," says Brian Van Harlingen, a senior technology manager at consumer-electronics outfit Belkin, one of the largest iPod accessory makers.

ACCESSORIZE THAT GIFT. Moreover, these players say the market just keeps gaining steam as new iPod-friendly products continue to reach consumers. For example, carmakers Mercedes- Benz (DCX), Volvo (F), Nissan (NSANY), Alfa Romeo, and Ferrari plan to include an adapter as an option, to enable customers to operate iPods through their car stereos. BMW already has a connector. "Now you can get anything from a plastic red case for a few dollars, to a red Ferrari for a few hundred thousand," jokes Schiller.

While the number of accessories continues to grow, so does the size of the market. All told, Apple has sold 10 million iPods -- and that could get another big boost with the iPod shuffle. It has a $99 starting price, vs. $249 for the iPod mini, the next most affordable model. "We're seeing a really good January," says Belkin's Van Harlingen. "We think a lot of the people who got iPods for Christmas are now going out to get accessories."

What's more, given thin retail margins on the iPods themselves, retailers are hankering to sell as many accessories as they can. That became clear after retail powerhouse Hewlett-Packard (HPQ) began reselling iPods last year. With HP opening the door, Hickman soon got Speck's cases onto shelves of Circuit City (CC), Good Guys, and RadioShack (RSH).

EXTENDED PLAY. "Apple has never had accessories in RadioShack, and probably never will," he explains. But with more than 7,000 storefronts, "You just have to put two or three units in every store, and it adds up pretty quick."

Of course, some of Apple's hipper-than-thou customers wouldn't be caught dead in a RadioShack. But there's no lack of accessories for them, either. Gucci sells a $195 iPod case, while New York fashion veteran Aneta Genova sells its versions for $79 to $120, many of them leather-and-metal designs to appeal to urban fashionistas. Genova says the 10-person outfit has sold thousands of them -- far more than expected when she started her company in mid-2003. "I expected a six-month run," she says. "I never expected this [boom] to last this long." Burrows is Computer editor in BusinessWeek's Silicon Valley bureau

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