In spite of its phenomenal success with iPod, the iconic portable digital music player, Apple needs to crank up its innovation machine to drive its future growth. Ever since it launched iPod in 2001, Cupertino, California-based Apple Computer has not looked back. The sales of its ubiquitous portable digital music player has kept soaring with the company selling more than 14 million units in the quarter ending December 2005 as compared to just 4.5 million units in the same quarter in 2004. iPod's `halo effect' has seen Apple's PC sales too jump up, which helped the company improve its share of PC market from 3 to 4% in 2005. However, with the hot-selling iPod now commanding more than two-third of the market share, it poses a significant challenge for Apple to maintain its growth tempo. Stock markets too have become concerned about Apple's ability to repeat its recent success. However, the challenge for Apple lies not only in sustaining the current growth rate in iPod sales and improving the lackluster sales of iMac, but also in finding new product categories to boost its future growth. With competitors like Microsoft and Sony eyeing the lucrative digital music market, Apple needs to crank up its innovation machine.

Developing innovative ways of computing has been the driving force for Apple's growth. Several of its `disruptive innovations' have caused existing technologies to become obsolete, giving competitors a run for their money. Its Macintosh PC, produced in 1984, was the first PC with a Graphical User Interface (GUI) and a mouse to be sold in the market. The Macintosh was a big hit with people who struggled to operate a computer through a command line-based Operating System (OS) like Microsoft's MS-DOS. In fact, many of today's `standard features' such as the Universal Serial Bus (USB) and the CD-ROM were offered by Apple, way before other PC manufacturers even thought about them. Though these innovations did make Apple a favorite with consumers, they never really helped Apple compete with the likes of Microsoft and Dell, mainly because of the high costs of the products and its proprietary software and hardware.

But iPod was a big exception. The features that stood out in the iPod included a hard disk to store songs and the usage of Apple's proprietary FireWire technology. Following the initial success, very little has changed in the basic architecture of iPod. Apple kept introducing newer versions of iPod based on the same architecture with added features such as Windows compatibility. It was only during 2004-2005 that iPod became more than just a household name in the US. The year saw as many as four variations of iPod being launched including iPod Photo (later renamed iPod), the fourth generation iPod and the Harry Potter collector's iPod. By the year-end, i.e., quarter one of (the holiday season in the US) Apple's fiscal 2006 (Oct 1-Sep 30), the craze for the iPod scaled unprecedented heights as its sales touched $2.9 bn compared to the $1.7 bn worth of PC sales. By the end of fiscal 2005, iPod's contribution to the company's total net sales zoomed from a meager 5.5% in 2003 to 32.5%; whereas, contribution from Macintosh fell from 72 to 60% in the same period. Apple's iTunes service has also proved to be a big hit not only with the customers but also with anti-piracy activists and music companies across the world. More recently, Apple has concentrated on launching low-cost products such as the iPod Nano and the iPod Shuffle in its attempt to keep its stronghold on the market for portable digital music players.

The Analyst Magazine, Apple Computer, iPod, Digital Music Player, California-based Apple Computer, Digital Music Market, Universal Serial Bus, USB, Graphical User Interface, GUI, iPod Nano, Media & Entertainment Strategies, Windows Media Player, WMP, Video Gaming Market, Digital Hub Strategy.