Download the authoritative guide: Cloud Computing 2019: Using the Cloud for Competitive AdvantageMost predictions about Apple's big event today were wrong. No, Steve Jobs wasn't a no-show. Apple didn't kill the iPod Classic. And the company didn't announce Beatles music on iTunes.
But the wrongest prediction of all was that the iPod Touch would grow a video-capable camera.
Pundits were certain iPod Touch would get a camera just like the iPhone's. Whether the tiny Nano player would get a camera as well was a point of controversy.
Nobody predicted that Apple would announce a video camera for the Nano, and not for the Touch. But that's what happened. In fact, the Nano was upgraded not only with a video-capable camera, but also an FM radio and pedometer. Meanwhile, the only improvement to the iPod Touch was to the price -- the gadget now sells for $199.
Why iPods Are Addictive Drugs
Last month I wrote in this space about something I called Apple's Incredible Power Grab.
The point of that column was to lay bare Apple's long-term strategy, which I predicted would lead to "Apple dominating consumer electronics and digital media in the next decade the way Microsoft dominated the PC industry in the 1990s."
Packing the iPod Nano with a video camera, radio and pedometer, and dropping the iPod Touch price without adding a camera all represents to me the perfection of the Master Plan.
I believe Apple made the Mother of All Discoveries a few years ago, when it stumbled upon the magic formula for iPod. That discovery had three parts:
1) Make profits on hardware, but break even on cheap media (mostly songs) to get users "addicted" to the platform. Once a user has invested in media that will play only on Apple hardware, he'll keep buying upgraded versions of the profitable hardware.
2) If you make the user experience brilliant on something simple like an iPod, it drives purchases of something complex, like a Mac.
3) If you get Windows and Linux users loving pocket-size Apple gadgets, they're more likely to become "switchers" to more expensive items in the future.
Apple learned this powerful lesson, and then applied it to iPhone. Instead of low-cost songs, the iPhone gets users hooked on low-cost apps.
Just like on the iPod, the iPhone enables Apple to profit from the three-part formula: 1) get 'em invested in apps and they'll upgrade the hardware serially; 2) make people love the iPhone, and they'll want an Apple computer as well; and 3) get Windows and Linux users loving the iPhone, and they'll be softened up for future switching to Apple computers.
Why iPods Are Gateway Drugs
In keeping with Apple's larger strategy, Apple wants all upgrade paths in the industry to lead to full-fledged Apple Computers.
So let's back up a minute. Thanks to the incredibly useful features in the new Nano, and the killer price point on the iPod Touch, Apple is making these devices must-have purchases for anyone who doesn't have an iPhone.
If you don't have an iPhone or iPod Touch, but go to the gym, run, workout or enjoy listening to music, the Nano is now super-compelling. A camera is always fun, useful and compelling. The FM radio will be mostly useful for gyms that broadcast TV signals to people on the treadmills and Stairmasters. And the pedometer is great for anyone who exercises.
But the iPod Touch is now almost perfectly compelling. For $199, you get the world's leading mobile game system. You get Internet access, e-mail, chatting, HD movie watching, productivity -- you could go on and on. Thousands of these ultra-appealing apps are totally free.
The iPod Touch at $199 is perfect for kids and teens who either already have a phone on a carrier other than AT&T or don't have a cell phone. Whenever I visit with my extended family, every child between the ages of 4 and 14 immediately asks to play with my iPhone. They instinctively download apps and play with them for hours.
I always tell their parents: Just buy them an iPod Touch for Christmas. You'll spend less than you otherwise would, but the gift is more like a hundred gifts, thanks to the versatility of the apps.
I think the iPod Touch gives more value for money than any product in the history of consumer electronics. Apple is going to sell a gazillion of these things by Christmas.
In the case of the Nano, all these non-iPhone users will be investing in -- becoming addicted to -- their iTunes music and video libraries. The iPod Touch users will invest in games and other apps, as well as music and video.
Once that financial and emotional commitment is secured, all upgrades lead users up the food chain to iPhone, future Apple Tablets and Mac laptops and desktops.
In other words, Apple has no doubt reasoned that current Nano and Touch owners are future iPhone, Tablet and Mac customers. Therefore, it makes sense to tweak features and prices in such a way as to maximize the number of these users. They represent the future of the company.
The most important part of this strategy, however, is that these "gateway" devices be compelling enough to drive massive sales, but not so compelling that they serve as substitutes for devices higher up on the ladder.
So if iPod Touch were upgraded with a camera, for example, Apple might see more people using Skype or some other cell phone alternative on the device, and not feeling the need to upgrade to an iPhone or tablet.
The safe bet is that Apple's tablet will hit next year, and it will support iPhone apps. Future versions of Mac OS will get iPhone-like touch user interfaces, and the hardware will follow suit.
In the meantime, Apple is doing a bang-up job selling "gateway drug" iPods to people, and "hooking" them on cheap or free songs, videos, apps and games.
It works for drug dealers. And it will work for Apple.