Do The Math: iTunes Sales Are Not Collapsing

There has been a lot of press today about a recent Forrester report that states that sales of digital music from the Apple iTunes Store has dropped off dramatically this year. See this coverage here for example.

Apple Computer’s iTunes music store suffered a 65 percent slump in sales during the first six months of the year, reversing almost two years of gains, according to a Forrester Research report.

The number of iTunes transactions declined 58 percent between January and June of this year, while transaction size fell 17 percent, said Forrester, a market research firm based in Cambridge, Massachusetts.

Well, not quite. This article from the New York Times is a little more clear on what the Forrester research stated:

Apple’s ubiquitous iPod and its iTunes music store were intended to be a kind of perpetual motion machine, with iPods helping to sell iTunes and iTunes helping to sell iPods.

Although both are successful, the relationship may not have worked out exactly as expected. At any given point, the cumulative number of songs sold by the iTunes store has generally been about 20 times the cumulative number of iPods sold, according to Forrester Research, the technology consulting firm. That ratio has recently crept up to roughly 22 to 1, as 1.5 billion songs have been sold. The figures were compiled from public statements by Apple.

OK. Well, that’s interesting, but less troubling. Something to be concerned about, for sure, if it means what they say it means.

But this is what I love about the web. No sooner than a very expensive analyst from Forrester publishes this research than another site immediately rips said analysis to shreds.

From Blackfriars’ Marketing blog:

The graph above looks at cumulative iPod and iTunes sales on a logarithmic scale. Now to review a little high school math (yes, high school was a long time ago here as well), when you plot things on a logarithmic scale, exponential growth shows up as a straight line. A gradually tailing off curve generally still implies substantial growth — iTunes sold a billion songs just in the past 12 months. So the first takeaway from the above curves should be that both the iTunes and iPod sales are growing dramatically.

You can read the full analysis, but the short story is that the growth rate is slowing, but sales are still increasing markedly. In fact, the research doesn’t account for the basic fact that many iPod sales go to owners of previous iPods, thus the number of songs per iPod may in fact still be increasing. It also doesn’t account for the new streams of TV & Movie revenue.

Still, slower growth is slower growth, and it may point to the maturation of the iPod business. When you are selling 14 millions MP3 players a quarter, you might hit the limits of large numbers. Let’s remember, Microsoft states that selling 1 million Zunes by next summer is how they define success.