THE IPOD AS A MODEL OF TRADE
by Virginia Postrel • Mar 9, 2004 at 11:16 am
Forbes.com has an interesting short piece on PortalPlayer Inc., the privately held Santa Clara company that supplies the chips and internal software for the iPod. PortalPlayer gets about $15 for every iPod sold, which makes it a very happy company. Peter Kafka reports:
Gary Johnson is having a very good 2004, too. His Santa Clara, Calif.-based shop, PortalPlayer Inc., supplies the chips and internal software that power Apple's iconic music player. More than 2 million of the white beauties have sold so far, with PortalPlayer grossing about $15 a pop.
Time for some boasting, no? No. Though PortalPlayer's connection to the iPod has been an open secret since 2002, Johnson doesn't dare acknowledge the relationship, for fear of offending his best--and a notoriously secretive--client. "I'm not even going to refer to those guys," he says.
Which is a shame, since Apple plays a starring role in PortalPlayer's success story. (Apple, for its part, will only confirm that PortalPlayer supplied "one of many components" for the iPod.) Privately held PortalPlayer says its revenue more than doubled to $20 million last year. In the fourth quarter it broke even for the first time (in the sense of earnings before interest, taxes and depreciation). Some people say the outfit could go public later this year....
Apple's in-house designers provide the look and feel that make the iPod so distinctive; PortalPlayer provides the innards that lie beneath. It won over Apple with a design that uses two modest processors and an operating system two years in the making.
PortalPlayer's "firmware" makes it easy for makers to mix and match features and rapidly stamp out upgrades without having to start from scratch. Apple picked PortalPlayer in the summer of 2001, and the iPod was in stores in November of that year.
This vertical disintegration is known as "outsourcing," whether it takes place at home, abroad, or in some combination. Companies, like individuals, specialize at what they do best, their partners to do the same, and the result is an increase in economic value all around. Self-sufficiency--for individuals, nations, or companies--sounds like a romantic ideal, but it's really a prescription for mediocrity and hardship.