May 12, 2005: Longtime Apple frenemy Bill Gates tells a German newspaper that Apple may have hit it big with the iPod, but that its success isn’t going to last forever.
The reason? Mobile phones are going to steal the iPod’s market share. The good news for Gates is that he was right on the money. The bad news for Microsoft is that Apple cannibalized itself by making the iPhone. And Apple’s smartphone became even more successful than the iPod.
“As good as Apple may be, I don’t believe the success of the iPod is sustainable in the long run,” Gates told the Frankfurter Allgemeine Zeitung. “You can make parallels with computers: Apple was very strong in this field before, with its Macintosh and its graphics user interface — like the iPod today — and then lost its position.”
Gates went on to predict how things would play out. Cellphones, capable of doing much of what an iPod could do, would destroy the market for MP3 players, he said.
At the time, the Apple press viewed Gates’ dismissive comments about the iPod as sour grapes from a man who — having stepped down as Microsoft CEO in 2000 — was no longer relevant in the tech world in the way Steve Jobs was.
Sony sold 340 million Walkmans over 25 years, pundits noted. Since Cupertino had sold just 15 million iPods at the time, most observers remained confident that Apple’s portable music player would enjoy a long, successful future.
Cellphones are the new MP3 players
Today, however, we know that Jobs agreed with Gates. The year before, at a time when sales of the iPod made up approximately 45 percent of Apple’s revenue, he struck a deal with Motorola to produce a cellphone that could play songs from iTunes.
That phone wound up becoming the immensely disappointing ROKR E1, the grandfather of the iPhone and the first Apple-sanctioned cellphone to run iTunes. It was a bust, but it pushed Apple to enter the smartphone market — which it did two years later with the iPhone.
However, despite Gates’ prophetic words, Microsoft didn’t take the iPhone too seriously, either. Watching this classic Steve Ballmer clip makes clear how badly Microsoft misjudged Apple’s phone:
Yeah. Who would ever want a smartphone without a physical keyboard?