Is 20 iTunes per iPod a success story?

[Josh] Apple has continued to announce new milestones for iTunes, which is now up well over 1 billion song downloads and by some accounts represents 3% of the music industry. What could possibly be wrong with this picture?

Well, we decided to take a closer look at it. Specifically, my colleague Remy Fiorentino delved deep into iTunes credit-card transaction data to look at how buyers actually behave. Here's a link to the research (Forrester clients can see the whole thing; press, request a copy from our PR folks). But some surprising facts dropped out:

• About 3% of online households bought iTunes. On average they spent $35.54 in a 12-month period, in 5.6 transactions. But the median household bought only $16.83 -- the difference being that a few large transactions skewed the average higher.
• The median transaction size is just $2.97. One third of all transactions are for less than $1.08, the price of a single song (plus tax in some states). There's an awful lot of one-off buying going on.
• The "80/20" rule for iTunes is actually 80/34 (the top 34% of iTunes customers account for 80% of the purchases).

But what I think is the most interesting result didn't come from analyzing proprietary data -- it came from Apple's public statements. Remy painstakingly tabulated Apple's announcements about iTunes sales and iPod sales and came up with this chart. (Click it -- it's worth it.).

Since iPods went on sale, people are consistently buying about 20 iTunes per iPod. There's been a small uptick to 23 lately, but that's it. What's the explanation? It's either:

1. People are buying at a low but steady rate, but replace their iPod every few years -- which would imply that iPod user market is growing more slowly than it appears, or
2. People buy about 20 songs and then get tired and don't buy any more.

Or, both are true. Either way, this accounts for a little tarnish on the incredible iTunes success story, with only 20 purchased songs among those thousands of songs in your pocket.

Technorati tags: Bernoff, Forrester, Apple, iTunes

Comments

[GadgetGav]

Isn't the whole point of iTunes that you can buy the one song you like rather than spending $18 on a CD to get it..? It is not surprising at all that 1/3rd of the transactions are for one song. 1.6 billion one song transactions is still 1.6 billion tracks sold.

[timk]

If the number has increased to more than 22 from less than 20 (and this comparison is against ALL iPods ever sold rather than those in use), it seems like consumers are buying more. Since there is an 80/20 rule in effect, that doesn't seem like such poor growth. Even with a straight average and using ALL iPods, that's 10% growth.

Also, if the average purchase is about $35 bucks, this does actually compare well to CD purchases (which are declining). The last numbers I saw were around $65 bucks spent per year on CDs.... To have gotten to almost 50% of that in a few short, transitional years is not bad.

[timk]

I am not a statistics guru (and clearly your recent report using credit data wouldn't help) but it seems like some of your research data could lead to a more telling view into the "success" of iTunes. For example, what would the above graph look like if it subtracted the dead or discarded iPods (I would think your group would be interested in both a churn rate figure as well as an active user group figure anyway) and then you only looked at the 34% of users who are making the 80% of purchases.

I think using the total # / total # is simply misleading and unhelpful... and is the biggest culprit in the recent dust-up. I would think it's much more valid to say: 34% of iPod users have x amount of iTunes purchases while 66% of iPod users have only used the store x amount of times.

[mark]

I think a typical iPod purchaser buys an iPod and fills it up by ripping CDs. Then they start to buy the few one-off songs that they don't have because they were unwilling to buy the albums (on CDs). Then they start to buy new hit songs as they come across them only when they are unwilling to buy the CD. Or they start to fill it with podcasts, video, or movies.

Point 1: The dropoff in CD album sales is not being made up for by iTS one-off sales. iTS music sales are both cannibalizing and supplementing CD sales; (supplemental because the consumer wouldn't have bought the CD anyway).

Point 2: Some portion of new iPods are being bought for and filled with podcasts, video, and movies, and not focused totally on music consumption. So there is little buying beyond what the consumer already owns.

Point 3: Besides replacements, many iPods are being bought as second or third iPods for the household. Older iPods get passed on to other family members. iTS music is being shared across all the iPods. So one iTS purchase covers 2-4 iPods.

The tarnish is really on the music industry. As CD prices decrease, the iTS market becomes just those who are truly impulsive, and those who want to buy only the singles (not a fan of the performer but just like the one song). iTS album prices are often not better than buying the CD (people snapped up CDs by the boatload for $7 or less on Black Friday). iTS purchases have lower quality and less material (no liner notes) than CDs. There are many obvious things the music industry needs to do; tearing down iTS is not one of them.

[Paul]

Anecdotally, 20 songs per ipod isn't too far off what I've done (I'm a 30-something married w/ two kids). However, I have purchased more CD's in the last couple of years than the previous 10. I prefer to purchase a DRM free CD than tolerate the use-restrictions imposed by I-tunes. My I-tunes purchases are limited to one-offs I don't care about enough to merit buying a whole CD or compilations that would be cost prohibitive if I had to buy all the necessary CDs. But at the end of the day, I want to own music, not a liscence, so I-tunes is going to be a minor player in my music collection. I would be interested to know if relaxing the DRM restrictions would enhance or reduce I-tunes sales.

[Gert]

I like to note that the iPod is available in more countries than iTS!

[timk]

I still do not understand how the fact that the number of iTunes per all iPods has grown (from below 19 to above 22) is being ignored and brushed aside. Doesn't this deserve comment?