Why Apple is likely to fall victim to success of fashionable iPod

But there are three good reasons to think iPod sales will slump in the not too distant future - taking the shares in the same direction.

Apple has a fabulous history of innovating to-die-for products, whose sales then crumble after rivals launch similar offerings. The legendary Macintosh, which introduced the icon interface and the mouse to home PCs, gave Apple a 16 per cent share of the US market in the 1980s. Today it has less than 5 per cent. Its rivals, of whom there were dozens, soon offered the same product for less cash.

Within 12 months, the 370 flagship iPod faces an onslaught of competition from the giants of the electronics world - all of whom have enormous budgets and terrific economies of scale.

Philips has a competing player on the market, the unsnappily-titled HDD100. Dell is investigating its own version, as is Samsung - a company investing more in its future products in 2004 than Apple’s annual turnover.

But the most formidable opponent is Sony. It has a killer brand - its Walkmans have dominated personal music sales for years and have fierce customer loyalty. And its financial clout gives it one up in advertising muscle over Apple, a relative minnow whose earnings are driven by one hot product - the iPod.

"They’re a one-trick pony", the president of Sony Electronics recently told BusinessWeek magazine, casually dismissing Apple’s head start in the personal jukebox market. When Sony launches its rival to the iPod - a product likely to have smarter design and better compatibility, it could decimate Apple’s market share.

Apple, of course, has seen this threat and responded by signing a distribution deal with Hewlett-Packard, to sell HP-branded iPods from this summer. It offers a huge expansion in the number of retail channels offering iPods.

But, crucially, the contract forbids Apple from co-branding iPods with any other PC company. And HP, which is not known for whizzy consumer gadgets, is unlikely to shift enough iPods to fend off the likes of Sony and, potentially, Microsoft.

Problem two: the iPod has poor compatibility. Apple’s best defence is to reinvent the iPod to keep it one step ahead of the game - which is why Silicon Valley tittle-tattle says it’s thinking about putting photos and video on the iPod.

But there will still be a fundamental problem with the iPod’s music-playing ability. The iPod only plays music downloaded from the internet in Apple’s own "AAC" format, combined with its "FairPlay" anti-piracy encoding. The only online store that offers this kind of music is Apple’s own "iTunes".

So in the critical US market, where the mighty Wal-Mart is offering songs at 88 cents, versus Apple’s 99 cents, iPod users must pay more to download. Microsoft, by contrast, has licensed its WMA format to dozens of companies - including Wal-Mart. It is compatible with more than 500 digital players.

Apple, then, has made almost exactly the same mistake as it did with those famous PCs of the early 1980s, when it refused to license its software technology to machine-makers. Bill Gates at Microsoft did the opposite with Windows, and built one of the world’s biggest companies on that decision.

Problem three: the iPod is a potential fashion victim. After a while, trendies will start dropping their iPods and scratching them. They’ll get bored of minimalist white, and the candy colours of the new iPod mini.

Case in point: the iMac. It was a phenomenal success in its original incarnation. But after a few, short years it was old news. Everyone had one.

Apple reinvented it - and the results were ugly. In the quarter to December 2003, iMac sales plunged 24 per cent, revenue 29 per cent. Apple now sells more iPods than PCs. The shares, trading on an incredible price-earnings ratio of 76, on the projection of iPod sales to the Moon and back, look overpriced.

Experian passes credit check

SHOULD GUS, owner of Argos, Burberry and, more recently, Homebase, ditch its Experian business?

On the face of it, yes. Experian sells information services to business in five continents. It’s an odd fit for what is predominantly a UK retail group.

Yesterday’s results showed a high street juggernaut firing on all cylinders. So why bother with Experian? It doesn’t have the same obvious fit as Homebase, bought last November for 900m from Permira.

But actually Experian is one of GUS’s future strengths. With the consumer boom likely to slow, if not collapse, a business-oriented arm that earned about 17 per cent of 2003’s 7.16 billion turnover is a good foil to keep handy.

And Experian is famous, of course, for its consumer credit histories. Surely a growth area as debts turn sour.