Here's An Idea: Give Away 1-Gig iPod Shuffle

Posted by: Arik Hesseldahl on February 19

Colleague Peter Coy floated an interesting idea my way this morning in the wake of Apple’s price cut on the low-end iPod shuffle to $49. Why not give them away? His thinking was simple: Giving away the low-end version would get new consumers to the iPod platform, and get them interested in perhaps buying a higher-end model, say a nano or an iPod touch fairly soon after. Additionally, it would boost sales of iTunes songs.

It seemed like an interesting idea, at first but as I ran through the scenario, it would be a money-loser up front. Remember that the average iPod owner buys only 22 songs on iTunes, and while Apple doesn’t disclose how much it makes as profit on each song, the iTunes Store operates on a pretty thin margin. If you assume that Apple books between 25 and 30 cents on a 99-cent song download, then you’re probably pretty close to the mark.

Assume further that Apple’s cost on the $49 shuffle is about $25, and you’ve got to boost that per-iPod average purchase by a factor of five to make up the loss. Sell each recipient of a free iPod shuffle 100 songs and you’ve made up the cost of the device.

The trick would be in marketing iTunes correctly alongside the freebie iPod. The message would have to be something along these lines: “You just saved $50 on a free iPod. Why not spend that savings on music?” Or make it a package deal: $50 gets you the iTunes gift card and the 1-gig iPod shuffle, for a one-day special? But imagine the floor traffic at the Apple Store that day, and all the other ancillary sales that might take place.

If flash memory prices continue to drop, then it won’t be long before the 1-gig shuffle can conceivably sell for less than the $49 announced today. And in time that could almost make them cheap enough to make as to consider some kind of crazy giveaway promotion. Just a thought.

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Reader Comments

Jim

February 19, 2008 06:32 PM

Tell your colleague that he better not think about putting up his own company soon.

Perry Clease

February 19, 2008 07:01 PM

Jeez if you think that Apple's stock dropped because of the Shuffle price reduction wait until the investors hear that Apple is giving away the Shuffle.

Furthermore the iPod has about 80% of the market. Now correct that number if you want, but the iPod is a lot more popular than the Zune, Rio, or whatever combined.

A better idea would be to give the Shuffle away with the purchase of a new iMac.

John Jantsch

February 21, 2008 08:08 AM

What, however, if you gave them away fully loaded with, say, a chapter of your book, the content of an industry white paper or you 10 hottest podcast episodes.

What if Apple got the labels to fund the giveaway by loading them up with hot new acts?

Steven Klein

February 21, 2008 08:46 AM

The problem with your thinking is Apple makes much less than you think on a 99 cent download.

The actual breakdown looks something like this:
65 cents to the record label
27 cents in credit card processing fees
05 cents for storage, bandwidth, & other overhead

Leaving Apple a whopping 2 cents per song profit. They do some tricks to try and reduce that cost. For example, they only charge credit cards once every 24 hours, so if you buy 5 songs in one day, they pay just one credit card processing fee, instead of 5.

But overall, the iTunes store is a barely-break-even business.

walter Dithers

February 23, 2008 03:06 AM

Apple dont need give-aways, the product is a runaway success, and is STILL growing well.

Also, Apple is rather obviously end-of-lifeing the smallest shuffle, and is using some stock to pull more customers in when sales of ALL consumer goods are a little bit weak.

Give-aways are fine for zunes, (which I heard today are soon to be discontinued and the Zune division to close), but not for the massively dominant iPod line.

It would only make Apple look as if they are struggling, and they are actually booming, despite the idiots at the stock market.

Islay Malt

February 23, 2008 06:15 PM

How about a test market the size of a small city
to see if the idea will fly?

Say, Buffalo, New York, for the additional reason
of making for a bad pun.

Hugo van der Vlist

February 24, 2008 09:09 AM

I think the Shuffle 1GB will only stay available for a limited time, until they have sold out their inventory. The 2 Gb will then become the cheapest iPod.

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A blog on the daily doings of Apple and the many companies in its orbit, with insight and analysis by two longtime Apple-watchers BusinessWeek Senior Writer Peter Burrows and BusinessWeek.com Senior Technology Writer Arik Hesseldahl.

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