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Who Will Make the iPod Phone? And When?

Nokia and Microsoft made rumbles in the online music market this week with an agreement under which Nokia will integrate Windows Media Player 10 in future cell phones. Given the bitter rivalry between the two companies (which is by no means completely resolved by the announcement at the 3GSM World Congress in Cannes, France) the détente between the world's largest cell phone maker and the No. 1 software provider may come as a surprise.

However, the announcement dances around the real powerhouse in digital audio market: Apple Computer, with its iPod player and iTunes music store.

Firstly, some might wonder how big audio on cell phones will really be with consumers. Well, as they say, your bet is as good as mine. Predictions for the mobile phone business have frequently been off the mark (just remember how earth-shattering the buzz around WAP a while ago), so as far is music on cell phones is concerned, it seems reasonable to adopt a wait-and-see approach.

Whether this market takes off in a major way or not will depend much more on user-side factors such as style, attitude and convenience than technology considerations. If Nokia makes it simple (and most of all cool) to listen to music on a cell phone, it might be a huge hit. Make it complicated or confusing and this 3G capability could just be another also-ranfun, but not big business.

On the other hand, if audio on cell phones does take off, it could be the biggest threat yet for Apple's iTunes music store and the iPod ecosystem. Nokia is to cell phones (almost) what Microsoft is to personal computers, so at first look one might think that this announcement is bad news for Apple.

Still, with such a powerful position in the cellular market, Nokia chose Microsoft. Why?

Nokia stated that the company is going with the market standard by adopting Windows Media Player. That is somewhat surprising, though. Isn't the market standard for music the iPod and the iTunes Music Store? If Nokia really wanted to go for market share in music, surely the company would interface with what Apple has to offer?

No doubt, Nokia tried and Apple nixed the idea. But, why would Apple say no to a partnership with the world's largest cell phone maker? Cupertino must have plans of its own.

If you consider the iPod as a platform for listening to music, the logical next step of the evolution is the cell phone.

Motorola made some noise at CES in January by demonstrating a cell phone running a special version of iTunes. This phone may be available this spring, but it certainly won't be an iPod look-alike.

However, Motorola appeared to waffle Tuesday at 3GSM. While it used its new E1060 model, announced on Monday, to demonstrate the technology, the new handset will not ship with it, the company admitted in a statement.

This begs the question: Who will make the iPod phone? It is unlikely that Apple would do this on its own; it will need some partner with lots of manufacturing experience in this field. We know that Nokia's not a candidate. So will the producer be Motorola? Or Samsung? LG?

And then there's the other side of the coin: When will Apple bring the iPod phone to market?

If there is one lesson CEO Steve Jobs has learned the hard way, it is that being first rarely pays in technology markets. Part of the success of the iPod was exactly that it did not come first, and it is likely that Steve Jobs will play this game the same way.

It is one thing for Nokia to start shipping a WMP (Windows Media Player)-enabled phone, and a completely different one to create strong momentum around it, provided the significant "ambient noise" in the cell phone market.

In addition, given the complexity of the music download business, even when the phone ships it is pretty obvious it will initially only work with a limited number of sites, and even on those, glitches and incompatibilities are likely.

In other words, it is likely that Apple will simply wait until Nokia starts shipping WMP phones, and when people find out that of course these phones don't work with the songs they have purchased on the iTunes Store, Apple can unwrap what it has in store.

Nobody should expect Apple to announce its iPod phone anytime soon. We are still early in the gameand there is always the possibility that music on cell phones won't really materialize as strongly as some predict. In that case, a premature announcement could be fatal for Apple.

So far, every installment of the iPod product line has worked extremely well. But with each new member in the family, options become more confusing, and the consumer market does not like confusion very much.

The cell phone market is particularly tricky and whatever Apple announces (if the iPod phone ever does take shape), it will be the most challenging product to successfully bring to market. The one thing Apple can not afford is to stumble.

Editor's Note: Andreas Pfeiffer is the editor in chief of the Pfeiffer Report, a newsletter offering news and analysis of the digital publishing and content creation market.

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