IPod rival is happy to nibble at Apple
Why aim high when there’s money in conquering the low?
That’s the approach SanDisk Corp. is taking as it chips away at Apple Inc.'s iPod empire. The company has carved out a successful business as the No. 2 maker of digital music players, targeting people who want to spend less than $150.
SanDisk is seeing how low it can go. One of its newest players, the Sansa Shaker, is aimed at kids and shaped like a toy bongo drum. It’s sold at retailers such as Walgreens and Wal-Mart for only $30.
The tiny Sansa Clip player with 1 gigabyte of storage goes for $40, half the price of an iPod shuffle with the same capacity.
When your main competitor controls 69% of the market, you need a good rallying cry to motivate the troops. For SanDisk, it’s simple: Target the market that Apple neglects.
The Milpitas, Calif.-based company, primarily a flash-memory manufacturer, says it makes digital music players for people who care less about fancy design and the latest bells and whistles than Apple’s customers usually do. SanDisk says it wants people to focus on music.
“Apple products are works of art,” said Daniel Schreiber, a SanDisk senior vice president and general manager of its audio and video business unit. “We’re looking to make devices that you don’t need to worship.”
The strategy has shown signs of working. For the 12 months ended in August, SanDisk made 11% of all digital music players sold in the U.S., up from 9% a year earlier. Apple’s market share during that time fell to 69% from 72%. Music players from Creative Technology Ltd., Microsoft Corp. and Samsung Electronics Co. each captured less than 5% of the market.
SanDisk is no Apple, which sports a market valuation of $133.5 billion. But investors like its style. SanDisk shares gained 32 cents to $55.10 on Friday, raising its market value to $12.6 billion.
SanDisk does hold one advantage over its larger rival: It makes flash memory, the key ingredient in many digital music players. It sells the memory to cellphone and digital camera makers.
Analysts say SanDisk entered the music player market as part of its larger strategy to sell its flash memory for as many devices as possible. “They got into the market without overly ambitious expectations,” said Ross Rubin, an analyst for NPD Group. “They were probably as surprised as anyone by their success.”
SanDisk has spent little to advertise the Sansa line, aside from in-store promotions with retail partners.
For SanDisk, which introduced its first music player at the end of 2004, the digital music market has been a bright spot and helped offset the turbulent flash memory business, which often sees sharp price drops.
SanDisk executives say they don’t want to out-Apple Apple.
But their modesty has an edge. The company’s underdog approach belies a desire to challenge Apple in places where SanDisk believes the computer maker is lagging.
SanDisk has recently beaten Apple to the market with some features, IDC analyst Susan Kevorkian said. In April, it began selling the Sansa Connect, a $150 digital music player with an FM radio and a Wi-Fi connection. Apple started selling its first Wi-Fi-capable player, the iPod Touch, this month. Selling for $299 or $399 depending on the storage, the iPod Touch lets users do some things the Sansa Connect doesn’t, such as surf the Web and watch videos.
SanDisk has also been more willing to experiment with music subscriptions, letting owners of its players upload songs from services such as Yahoo Music and RealNetworks Inc.'s Rhapsody. Most of the Sansa line has flash memory card slots for customers who want to move music and photos from their players to another device, a feature iPods do not have.
Analysts say music listeners are becoming less enamored with Apple’s approach of generally insisting that it’s a one-stop shop for music players and online music.
“There are a lot of customers that want either an alternative to an iPod or are looking for a subscription-based model,” said Samir Bhavnani, an analyst with Current Analysis West.
SanDisk was encouraged by this week’s launch of Amazon.com Inc.'s digital music store, which could challenge Apple’s iTunes. The No. 2 music-player company hopes Apple’s reign might one day come to an end.
“The mere fact that they were the dominant player the first five years doesn’t mean it will be true the next five,” SanDisk’s Schreiber said.
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Chief executive: Eli Harari
Headquarters: Milpitas, Calif.
Products: Digital music players, storage devices, flash memory chips
2006 revenue: $3.3 billion
Market valuation: $12.6 billion
U.S. market share, digital music players: 11%, making it No. 2 in the market, behind Apple’s 69%
Source: Times research