Game Changer

CHAPTER 7The Value Game: When Art Trumps Science

With contributions from Jean‐Sébastien Verwaerde, Joël Hazan, and Rodrigo Garcia‐Escudero

In the early days of MP3 players, consumers could buy a device with portability or high capacity, but not both. Devices such as the Rio PMP300 offered portability but could store only a couple dozen songs. The Creative NOMAD Jukebox or the PJB100 stored gigabytes of music, but their bulk and weight limited their portability.

Then came Apple.

The iPod, launched in 2001, erased that frustrating tradeoff for good by offering room for up to 1,000 CD‐quality songs on a 6.5‐ounce device that featured unprecedented ease of use, sleek design, and an iconic scroll wheel.

Supported with an annual advertising budget on the order of hundreds of millions of dollars, the iPod swept the market. By 2004, it claimed a share of 82% in the US retail market for hard‐drive‐based digital music players.¹ iPod sales peaked at almost 55 million units in 2008. The iPhone, which debuted in 2007 with an even stronger value proposition, would eventually replace the iPod and revolutionize the market for cell phones. Apple's complementary products have achieved similar success. If the AirPods or the Apple Watch were standalone companies, they would be in the Fortune 500.

After being around 90 days away from going broke in the late 1990s, Apple may have accomplished ...