Is the End Near for Apple's Digital Music Dominance?
A lot of things happened in 2007 that seemed to threaten Apple's stranglehold on the digital music market. Microsoft launched its new Zune MP3 players, which received mostly glowing reviews, and they kept their installed user base happy with major firmware updates for old players. Meanwhile, Amazon launched a major DRM-free MP3 download service at a cut-rate (compared to Apple's). But generally, the facts still point to Apple dominance for awhile to come.
Why it Looks Like Apple Should Sweat
Yesterday, we heard that Warner Music Group had teamed up with Amazon to offer its entire catalog DRM-free. They joined Universal music and EMI music, as well as 33,000 independent labels in pushing Amazon's catalog to 2.9 million tracks. That's still well short of Apple's 6 million or so tracks offered via iTunes, but Apple's DRM-free selection comes only from EMI. Warner and Universal have chosen so far to deal just with Amazon.
Amazon is starting to feel like a real threat to Apple's monopoly on the music download biz. They seem to have the cooperation of the music industry in offering DRM-free tracks, and their lower pricing (generally $.89-.99 per track) already forced Apple to lower its own DRM-free prices earlier this year.
Further, Amazon's MP3 store soft launched in September and has had little advertising. So far it has gained about a 3% share of the total market (more according to other reports) -- measly compared to Apple's iTunes -- but in just over a month, Amazon and Pepsi are planning a large Superbowl promotion to give away 1 billion free songs via the service. According to Billboard, when Pepsi offered 100 million free tracks via iTunes in 2004, just 5 million were ultimately redeemed over the 5 month promotion period. But since then, digital music has grown 416%, so it's a safe bet tht this promotion will be more successful. Could the Superbowl be a coming out party for Amazon in the music download business?
Additionally, Apple faces more competition in the digital media player market. Microsoft's Zune.net web site reportedly saw a 299% jump in traffic on Christmas day. Granted, Apple's iTune's store page still received 6 times the traffic, but the Zune.net numbers might be indicative of a strong holiday season for Microsoft's player.
Apple's iPod line still holds about a 70% market share (March), but that is down from over 90% just a couple of years ago. Better offerings from Microsoft, Sandisk, and other competitors are certainly putting a dent in the iPod's commanding position in the MP3 player market, albeit a small one.
Why Apple Will Continue to Rule the Digital Music Landscape
Even though it looks like a confluence of recent events is finally pointing to a weakening in Apple's digial music strangehold, the reality is that there still remains a long, long uphill battle for Amazon, Microsoft, and the rest. Further, in order to really take down Apple, both Amazon and Microsoft (or Sandisk, Creative, etc.) need to succeed. Apple has opened two fronts in this battle, iTunes and iPod, and in order to take them down, you have to beat them on both.
Too many people are already ingrained in the iTunes+iPod experience, and for many of them, DRM doesn't matter. They buy tracks on iTunes and put them on their iPods. As long as iPods control the player market, iTunes will control the download market. And let's not forget that Apple sells about 2 million DRM-free tracks of its own, so it has hardly sat on the sidelines while competitors have added copy protection-less tracks to their offerings.
Until the music player market shifts dramatically away from iPod dominance, DRM-free tracks will generally matter less to the majority of the MP3-buying public, who just won't be affected since they are using iPods. Once that happens, though, then all things being equal selection-wise (i.e., assuming the major labels working with Amazon eventually work with Apple as well to sell DRM-free tracks) and price-wise (which it is already), it likely comes down to buying experience.
The most intriguing prospect for that shift? The potential for an Amazon digital media player. Amazon began selling hardware late in 2007 with the release of the Kindle e-book reader, so perhaps an Amazon media player isn't so far-fetched. It would replicate the vertical integration of the iPod and iTunes store that has been a major part of Apple's rise to control over the industry.
Then again, as TheStreet.com points out, "with iPod satisfaction rates running at over a staggering 90%, and competitors like Microsoft failing to dent its market share, an Amazon-made device would likely struggle to dislodge Apple."
Conclusion
Eventually, Apple might lose some of its grip on the music download and media player industry. But while Amazon and Microsoft take baby steps in competing with Apple, the Cupertino, CA-based company is not standing still. Microsoft made positive changes to its Zune, but Apple released the iPod Touch (and updated the rest of the iPod line), plus signed distribution deals with Starbucks to deliver iTunes tracks over wifi in-store. Amazon signed two more major labels onto its MP3 download store, but Apple is already expanding into video rentals (i.e., onto Amazon's turf to compete with their Unbox service).
It seems likely that Apple's dominating position over the music download and media player markets will continue for at least a few years. What do you think? Is there and end to the iPod/iTunes monopoly in sight? Does Amazon, Microsoft, or some other company have what it takes to take on Apple? Let us know in the comments.
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Amazonmp3 is North-America only. Itunes Store is worldwide. As long as this continues, I don't see any change coming.
I don't have an iPod. I think AmazonMP3 will succeed. Using a standard mp3 format, instead of Apple's DRM format, is the difference. Amazon already has a great shopping experience to base their online music store.
iTunes makes DRM almost invisible. It was Apple that started the non-DRM movement, not Amazon. Amazon is only a merchant. Apple started online sales as well. Before iTunes, there was nothing. It's no wonder Microsoft and Amazon are playing catch up.
But Apple doesn't have a monopoly here, just great products and services. Microsoft, OTOH, is a convicted monopolist, in multiple countries (not just the US) and it's player only works on Windows (surprise, surprise).
Until someone offers a seamless hardware/software/infrastructure play to compete with iPod/iTunes/iTunes Store, I don't see a real challenge for Apple. Even teens seem to understand that their time is worth money, and the hassle of concocting an alternative method of managing music isn't worth it for most of us.
My son can, with just a few clicks, download music, videos and movies (there's room for improvement here, and it may be coming soon), university lectures, audio books and podcasts. Who else offers such a fertile ecosystem?
I've been an iPod/iTunes user for a few years. I got an Amazon gift card for Xmas and decided to try out their MP3 service. My impression is that it sucks. They didn't have most of the music I was looking for. When I tried to buy, their downloader software repeatedly crashed with "out of memory" messages on my 2gb system. Until someone offers the music and easy purchasing options of iTunes, I will continue to give my money to Apple.
Rudy said:
Using a standard mp3 format, instead of Apple's DRM format, is the difference.
This is a common misconception among many. Most of whom despise Apple for whatever their reasons are.
First off, Apple does not own the format that they sell their music in. The format is AAC which is a non-proprietary format. Most of the decent digital media players (including the Zune I believe) support the format and will play those files. The part that IS proprietary is Apple's FairPlay DRM. No player other than an iPod can play an AAC file encoded with it. Microsoft has two of their own (Plays4Sure and whatever they call the Zune Marketplace DRM) and music encoded with that cannot be played in an unauthorized player. DRM sucks. Apple and Microsoft both know this in regards to the audio content they sell for their players. They have no choice in putting it on however NOT because either wants to lock you into their players, but because the content copyright holders (EMI, Universal, Sony, Warner, etc) will not allow their content to be sold without out.
Fortunately, some of them are seeing the light. EMI is allowing both Amazon and Apple to sell songs without it and as expressed within this article, others are jumping on too. Apple, Microsoft, and their partners welcome the elimination of DRM as it means more tracks purchased from their stores. More tracks means happier buyers, which means hopefully they will return the next time they need a new player which is where Apple, Microsoft, Sansa, and the rest make their real money.
Initially DRM is something the music companies demanded before their music could be sold on iTunes. This is not something Apple wants! As soon as the music companies wake up and realize that all of the music they sell on CD’s is not protected, they might realize that DRM is a foolish attempt to thwart piracy. All iTunes music will be sold DRM free eventually. Hope that Apple keeps control on maintains low prices on digital downloads. Given a free rein, these greedy music company executives will bring digital music prices up to CD prices - believe it!
1. Warner says it is trying to sell DRM-free on iTunes. Just a matter of time.
2. AAC is an open standard; part of MPEG-4, and has nothing to do with DRM. AAC is actually the follow on to MP3, offering smaller file sizes for the same quality, and higher quality for the same file size. As more non-iPod players are able to play AAC, in time there will be a transition.
3. Song purchases at Amazon still help to sell iPods primarily.
4. Like you said, the next growth area is video. And it's about to take off under iTunes.
first of all the iPod had a 90% market share of the HARD DRIVE based music players, after it began selling FLASH BASED iPods then the market share was 70% of the entire music player market. It has not lost 20% market share since the 90% and 70% market share numbers are for 2 different markets.
Amazon selling DRM free MP3's does not in any way hurt Apple or the iPod. The iPod can play them and Apple makes very little money from the iTunes store. As long as the product, ie:music, movies, videos are playable on the iPod other stores actually help Apple since the iPod is where they make the money at. The more available the useable media is the more iPods they will sell.
I think Apple still has an awful lot of mileage, simply because many of their users are Apple evangelists and are unlikely to investigate other products for quite sometime regardless of whether they are better or not.
Bravo to Apple for achieving this, however I don't use them myself for many reasons and think they fell a long way short of providing the best user experiance for many reasons. including my thoughts here http://chris-on-the-web.blogspot.com/2007/09/evil-ipod.html
How many times have mainstream media articles predicted the demise of Apple anyway. It seems like this is at least the millionth "The End Is Near" article I've seen.
And while these articles allow the media to milk the interest in music and music players. These articles also offer fairly convincing proof that the media doesn't get it when it comes to Apple's secret sauce.
After all, the media always predicts that Apple is about to get taken down. And they are always wrong.
Of course there's no saying that Microsoft or Amazon or anyone else might come up with something better. And if they do, I'm certainly willing to get on the bandwagon. But the product has to actually be BETTER than what Apple is selling.
I've read lots of the "glowing" reviews of the Zune. And clearly Josh, our fearless journalist, needs to brush up on his integrity. Because hardly anyone was "glowing" about the new Zune. Almost all the reviews said it was a worthy attempt but not something that Apple should worry about.
Same with Amazon. The site isn't better, not yet anyway. And no one has been glowing about the new MS operating system. So I don't think Apple needs to worry on that score either.
I just with that journalists would start looking for real news to write about instead of trying to create articles out of refried, second-rate opinion. Apple didn't become successful by rehashing other company's ideas, so maybe some of these media outlets can do the same and come up with a little original thinking.
339% web traffic increase to the iTunes website this Christmas. It doesn't seem Apple needs to distract themselves with your nonsensical prognostications.
Anyway. Why does Apple have to loose in order for dear Microsoft to win? It seems Microsoft and their fans are obsessing much too much over Apple to their own detriment.
1) If AMZN becomes a threat, Apple can cut prices on iTunes
2) Apple still has the best hardware BY FAR. The Zune barely hits where Apple was three years ago.
3) IF Warner deliberately excludes iTunes, they could suffer BIG TIME from an anti-trust lawsuit. I assume Warner has lawyers and will ultimately back away from that cliff.
Apple's market share will slip to 55% by the end of 2008 - all attributable to Zune, not Sandisk or the others.
And when the Zune communications device, i.e., the "ZBox", is launched in late 2008, the momentum for Zune will be unstoppable. Remember, Microsoft has something that Jobs doesn't: a massive presence in gaming. And the synchronicity between the Zune and Xbox will be the key to Zune eventually taking the lead from Apple...and Jobs knows that.
Great Piece.
Gene from ZuneChannel.com
I firmly believe that iTunes holds the key. iPods are ubiquitous and consumers have adopted brand loyalty because of their relevance/dominance in the marketplace.
People tend to disregard AppleTV but once the recently announced movie rentals appear in the iTunes store, three Apple product lines will be entirely dependent upon the program (iPod, iPhone, AppleTV).
I've posted two columns recently about companies catching up to Apple's technology, but I'm convinced that Apple will remain on top. Doesn't everyone remember Jobs writing his open letter to music labels denouncing the DRM world and projecting his wishes for DRM-free music. Sure enough shortly thereafter, iTunes Plus was created and select record companies jumped aboard.
Create a competitor to iTunes by coming up with something revolutionary that trumps the current user experience and you might have the slimmest of shots. Best of luck.
@Gene from ZuneChannel
I'm sure Xbox will do just fine, just not at Apple's expense. Xbox targets a completely different market than Apple's products.
Gaming is a niche market predominantly for adolescent males. More people listen to music and watch movies than play games, so Apple's products are for a broader ranger of users.
Also, Apple has it's own synchronicity happening: iTunes Wi-Fi store, Starbucks iTunes, Nike+, mature podcast distribution, iTunes tagging, iTunes university. And these are only the things that exist today.
In your article, you mention that the 299% growth for Zune Marketplace indicates that iTunes Music store marketshare is under pressure. But in the same period, the iTunes Music Store traffic grew a 339%. Just looking at that number, while foolish due to the measures that were used, you could conclude that the iTunes Music Store is expanding their lead, not shrining as you suggest.
Microsoft Windows remains strong year after year for a number of reasons, but one particular reason is that it (usually) offers upward compatibility with previously purchased hardware and software.
iPod's strength shares some parallels with the position enjoyed by Windows. As old iPods wear out, you may see some natural inertia as people want to get a new iPod, plug it in, and go on without disruption to any songs, videos, podcasts, or accessories they have obtained.
The same could be said for Nintendos, and Playstations, and Xboxes. Satisfied users come back for more.
The strongest inertia in favor of iPod is not the purchased songs, since the average iPod only has about 20 purchased songs on it. Selling MP3 songs which play on iPods doesn't directly damage the iPod's position, though it might make getting music for the other models of player easier. Does the typical non-iPod player have more or less than 20 songs on it?
Tring to introduce a new hardware or media format that doesn't play with iPods is a bit like trying to introduce a new PC architecture today. It could be done but it would face a very strong uphill battle against the installed base. Which is why even Apple is not introducing new PC architectures any more, they are following the industry's lead there. This 800-lb elephant effect is why you will see new music stores or accessories going out of their way to say "iPod compatible" - no one would want to turn their back on a market of that size.
@Marcel #29: That's not what I said at all. I said it potentially pointed to a strong holiday season for the Zune. I never suggested that iTunes' lead is shrinking. I think you need to reread what I wrote.
@TimT #11 and anyone else who followed with similar comments -- I looks like you only read half my article. This was not the "millionth "The End Is Near" article," nor did I predict the "demise of Apple."
To quote myself, "It seems likely that Apple's dominating position over the music download and media player markets will continue for at least a few years."
Thanks for the comments, but reading the entire article, rather than just the headline, might make for better discourse. Trying to argue against things I never actually said is just kind of silly...
The combination of iPod/iTunes was born out of necessity, not love. To score deals with the Majors way back when, DRM certainly helped A LOT. The music companies were busy closing down (illegal) distribution channels for digital DRM free music.
Now, digital music is something that people CRAVE, but music with DRM is something that people will generally HATE, so it has to work as seamlessly as possible. Almost like there was no DRM. So making DRM foolproof, rock solid and easy to use was the order of the day. This required control over player hardware, distribution platform and DRM technology.
Hence Apple's winning strategy of end-to-end control of digital music distribution.
But now it appears...DRM is no longer prerequisite for scoring big distribution deals with the majors. At this point, the Apple logic of end-to-end control falls apart, and things revert back to the way they were in the good ole days: an industry standard (MP3) - download it from anywhere - manage it on any platform and in any software - copy it to any device and format - play it anywhere.
iPod/iTunes was the first to give consumers a legal choice in digital music. But it did so by taking away their freedom to chose quite a few other things: Which device to use for listening, which software to use for managing their library and which operating system to use for running that software.
DRM-free MP3 music is ultimately all about giving consumers back their freedom to chose. And this alone will level the playing field. Apple and will have to fight a hard, tough fight. Owning a closed, end-to-end system will prove to be no longer an asset but a liability.
@Josh Catone
We did read your article in its entirety.
I take issue with its premise that iTunes is a monopoly. At least by the DOJ and EU's standards it isn't when compared to Microsoft's real monopoly.
Also, given that Microsoft is still $350 billion strong and maintains a 95% market share of the PC market, I am not as anxious as you to see Apple's dominance killed let alone diminished now or even in a 'few' years as you vaguely put it. Today's announcement of Netscape's death only reminds us of how Microsoft is capable of instantly killing a great technology with its monopoly. By Microsoft time, a 'few' years would be enough time to ensure iTunes would follow in Netscape's footsteps.
I don't think anyone misread your article. The headers say it all. We just have differing reactions to it. Gene from ZuneChannel approves of your article and feels inspired to recite his Zune mantra in its comments section. And yet you only find fault with the Apple fanboy's reactions.
I think we understand your article all too well. We see its premise too often around the internet by ZDNet, Thurrott, Ou, Enderle, et. al. It hopes that we have short memories, that we can't connect the dots, and it tries to portray Microsoft as the poor underdog.
We're not buying it.
@HG: There you go putting words in my mouth again. When did I say or even imply that I am anxious to see Apple's dominance end? That was never the point of the piece. I merely posed a question (the headline) and then answered it as best I could (the article). Not once do I feel that I put forth my own opinion on what I think should happen. Certainly I have my biases -- all writers do -- and perhaps some of them seeped into this piece. But to argue from the point of view that this is a hit piece on Apple or that I feel that Microsoft should "kill" iTunes is erroneous and to me demonstrates that you didn't really closely read the article.
It's not about Amazon or MS beating Apple. It's the music industry beating the consumer. The exclusive deals with Amazon are punishments levied against Apple for Apple's resistance to raising prices by some record companies. The whole iPod/iTunes thing started as an experiment within the small Mac market. If it didn't work the damage would have been minimal and limited to the Mac. It is obvious to everyone now that digital music distribution works and now the record companies want to take back pricing control. TRANSLATION: RAISE PRICES.
@FAH - Yes, for the music industry, this most certainly is about regaining control over pricing. And of course it's also about diversifying distribution. Imagine having to rely on ONE outlet you can't control for 90% of your revenue - how scary is that?
So, for the music industry this is certainly a strategic effort. I wouldn't call it "punishment", they're simply trying to rely less on the uneasy, increasingly one-sided relationship with Apple.
But the EFFECT of this will be the introduction of competition and therefore true market mechanics to the wider online music space:
1. Devices: iPod v. Zune v. the "industry standard" crowd (Creative, Sandisk, iRiver et al)
2. Control: DRM Protected v. Free
3. Revenue model: Purchase v. Subscription v. Ad supported
4. Distribution: middleman v. no middleman (think Radiohead)
5. Open v. closed platform: Lock-in to Windows/OSX & iTunes & iPod v. any software, OS & device you prefer.
Apple is a company built around control and closedness (and there's many positive arguments to be found in support of those). So they have a very, very distinct footprint in these conflicts, and if any of these should prove to be untenable, will find it very hard to change.
1. iPod is increasingly coming under attack by other devices in the U.S. - never mind the rest of the world, where Apple did not reach a level of dominance similar to the U.S. Now, iPod is Apple's crown jewel, and there's no way they can shift their music business model away from that.
2. iTunes redefined online music by offering legal, albeit DRM-protected downloads. Switching to DRM-free is something they *are* doing - but it's a shift into a different market, it's a shift that levels the playing field, and there will be intense competition and many, many more competitors, large and small - not just Amazon & Microsoft. This means that profits likely will fall for the ITMS.
3. Apple has not made any moves into subscription models (think Napster or Rhapsody), and this may prove a mistake further down the road - if the music industry is moving towards a service-based revenue model, as is already happening for the industry as a whole (think concert revenues soaring, CD revenues death-spiraling).
4. The middleman - and this means not only record companies, but also distributors like ITMS - is becoming more and more part of the problem, and is adding less and less value. That is why more and more big ticket bands like Radiohead move into direct downloads. For them, many middlemen doe not make any business sense anymore. And for up-and-coming bands, the means of getting traction without any middlemen are rapidly improving: Falling costs of production and marketing (think MySpace, last.fm etc.) are depressing barriers to entry. Apple right now is firmly entrenched in a Web 1.0 business model, reselling stuff from the major players. They have not any stake in promoting new music, music discovery, social networking around music. iTunes is the epitome of a closed, clunky, non-social, piece of desktop software. It would require a major effort to change that. If they don't (or do and fail) there is a real danger that "Music 2.0" will eat their lunch.
5. Even if Apple develops a Linux version of iTunes (unlikely), it will be a closed system: You can only manage your music in iTunes, you can use only iTunes to sync music to your device, and this means you can only sync to devices that iTunes knows and likes (i.e. the iPod). Don't like iTunes (easy)? You're screwed. Don't want to pay the iPod premium or prefer iRiver devices? Tough luck. Think syncing to a device should be as simple as a file-system copy&paste operation? Well, not with Apple technology.
I know, it sounds far-fetched. But WHAT IF...Apple is the new AOL? ("So easy to use, no wonder it's number one!" Remember that one?)
@mr_white
mr_white writes: "The middleman - and this means not only record companies, but also distributors like ITMS - is becoming more and more part of the problem, and is adding less and less value."
I disagree that Apple is a traditional distributor or that they are not adding value to the media consumption experience.
iTunes is adding value by aggregating content so that it's easily discoverable and Apple's devices are adding value by making it simple to distribute your content anywhere. It's a total solution which works. Even Microsoft has conceded that its PC/commodity approach has failed, abandoned it (and its partners), and is now copying Apple's approach. No one thinks Microsoft would copy a failed idea, one which consumers have voted approvingly with their wallets.
Remember iTunes doesn't come bundled with every PC sold. People chose to use it and if you think people are locked in because of their iPods, again you're mistaken. Lack of software for the iPod is due to lack of interest by the Windows development community. At least on the Mac side there's plenty of third party software and certainly plenty of software from peripheral companies like car stereo and speaker companies. All the Windows development community has to do is strike a relationship with Apple, if they could only set aside their prejudices first. This ice breaking could start with Microsoft, but they're more interested in resting control from Apple rather than cooperating with Apple.
Distribution is a necessary evil for the arts. The problem is finding the most efficient and fairest financial solution possible. Every one agrees that the old school distribution system is a hindrance to both efficiency and fairness. But it's not true that Apple is of the old school. They are not wedded to working exclusively with the big companies and anyone can start their own record company and deal through iTunes. While they're at it they can deal with any number of new distribution channels. Companies now exist to make this easy for independents.
Your focus on openness teeters on what hackers typically desire of their systems. That's fine for computer clubs, but consumers are a different breed of human. There are plenty of proprietary parts in automobiles, refrigerators, toasters, etc, but no one is required to know their inner workings to use them. So after 7 years, iTunes has proven that no one wants to tinker with their entertainment systems either. They simply want to enjoy the mood of the moment and expect their systems to simply work. Simply.
@HG: Points well taken, BUT.
1. I'm all in favor of systems that work, and work well, and work easily. BUT we used to have an open system that worked well, and easily LONG before ITMS, and it was based on MP3 as an industry standard, and (illegal) file sharing as distribution channel. The reason why ITMS superseded that system is that the music industry succeeded in closing down illegal, but open and wildly popular distribution channels - and offering a legal alternative required DRM, which necessitated a cumbersome system that only works well with end-to-end control of distribution and consumption technology.
2. As for ITMS not being a traditional distribution channel - that depends how you define "traditional". Of course, they're non-traditional in that their only moving bits, not bricks. But merely aggregating inventory for sale is decisively a very, very traditional modus operandi. The way they are NOT engaging in all things 2.0 actually makes them a much more traditional player at this point even than Amazon, who are still moving much more bricks than bits. The fact that ITMS has left the social music space to last.fm and Myspace is testament to a breathtaking lack of vision. Even Zune got that part right.
3. As for the other value that ITMS is adding as a distributor and aggregator - well, yes. There is (of course) value in aggregation. But without the compelling need for end-to-end control (see 1.), Apple's platform is losing its network effects, and this is lowering the barrier to entry. So there will be many aggregators, and Apple will have lots and lots of competition from all kinds of places, expected and unexpected. This is already driving down margins for Apple.
4. As for distribution being a necessary "evil"... Well, increasingly, it's not an evil, but something that artists are taking charge of themselves, to great benefit. Direct-to-consumer offerings large and small are here to stay, and artists have so much to profit from it - directly, or indirectly.
So: While there certainly will be no sudden bust for Apple, it looks like things will never be quite as good for them in digital music. And this is probably good news for consumers and artists.
@mr_white -
Do you then predict that 2007 is Apple's peak year in any of these axes?
a. flash based iPod sales (dollars)
b. HD based iPod sales (dollars)
c. flash based player market share
d. HD based player market share
e. total iPod revenue
f. total iPod profits
g. total iTMS revenue
h. total iTMS profits
i. iTMS market share relative to other purchase-based music stores
@Bob: As for a & b - it's not hard to foresee saturation in some of the more mature markets, but there is still plenty of room left to grow in other markets. The traditional iPod lines (classic, nano, shuffle) should have some sales growth left for 2008 and maybe 2009. But it is going to be more difficult, since it means conquering markets that have not endorsed the iPod/iTunes experience as enthusiastically as the U.S. (e.g. Europe) - or where intellectual property is not protected as much (i.e. China, where most music is being downloaded for free).
For c & d - I think it is a given that Apple's market share in the traditional iPod space will start to decline (it is already beginning), and this will probably start making a dent in 2008, and accelerate in 2009.
For e: As goes for a and b, there is room left for growth, and if you add in the innovation away from pure music devices (iPod touch, iPhone), things are looking even better.
f - I think we will begin seeing some downward pressure on device prices, due to increased competition. Apple will also need to spend more on R&D in order to keep up with new competitors such as Nokia and to some extent Google, as well as its old foe, Microsoft. In all, I think profitability may go down some, but profit from device sales should rise some on increasing volume and high-margin products such as iPhone and iPod touch.
g & h - Again, I don't think total revenue and profits will drop in 2008, at least by much. But *margins* are likely to go down, and i - market share - is almost certain to drop.
Overall, I think 2008 will see the emergence of serious competition for ITMS. And there will also be a heating up of the device space. With decreasing margins, Apple will have to fight at least three very serious competitors - Microsoft (Zune & Windows Mobile), Google (Android) and Nokia.
Apple is already in danger of overstretching, with evidence emerging that the rush to launch iPhone diverted much-needed engineering resources away from OSX Leopard, causing quality issues.
So AGAIN - I am not predicting any imminent downfall for Apple (do NOT read my posts that way). But the gravy train is certainly slowing down.