iPod Killers

iPod Killers

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New rivals take aim at the champ

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Jason Smikle couldn't get the song out of his head. A freshman at Temple University, the 19-year-old hummed the tune by hip-hop impresario Ludacris, in the shower, over breakfast, and as he walked to class. On a recent 80-degree day in Philadelphia, he started singing the lyrics while he and a buddy, who had just broken up with a girlfriend, relaxed on the campus quad. His friend whipped out his LG mobile phone, tapped a couple of keys, and presto, the melody wafted into the air. "So cool," Smikle recalls. He only wished he could download the song to his own phone on the spot. "It'd be very cool, when the moment called for it, if I could just get the song," he says.

Jason, your wish may soon be granted. Mobile phones that rock, jam, thunder, and swing are on the way. Wireless operators around the globe are working with music studios, phone makers, and artists such as Sean "P. Diddy" Combs in a sweeping effort to turn the mobile phone into a go-anywhere digital jukebox. Foreign carriers such as Vodafone and SK Telecom are leading the way, and U.S. wireless players are following fast. BusinessWeek has learned that Verizon Wireless (NYSE: VZ - News), Sprint (NYSE: FON - News), and Cingular Wireless are expected to unveil services for downloading music directly to wireless phones later this year. "We have a tremendous opportunity to make a big impact in music," says Dennis F. Strigl, CEO of Verizon Wireless.

With innovative services and snazzier phones, the telecom players figure they can swipe a chunk of the digital music market that Apple Computer Inc. (NasdaqNM: AAPL - News) cracked open with its iconic iPod. That sets the stage for a battle between two industries. On one side are Apple and the other tech players concentrated in Silicon Valley that see the computer as central to the future of music. On the other are telecom companies, from Finland to South Korea to the U.S., that think the mobile phone can become the center of this emerging world. "The iPod is great," says Frank Nuovo, chief designer for Nokia, the world's largest handset maker. "But no one has a stranglehold. There's nothing that keeps the mobile phone from moving into that area."

The telecom approach has several strengths Apple can't match. For starters, a quarter of the world's population already has a mobile phone. That's 1.4 billion people, compared with 10 million iPods sold to date. Most of those cell-phone toters pay a monthly phone bill, making it a snap to add a music charge. Perhaps most important, wireless technology could provide access anytime, anywhere to millions of songs. "You don't have to be a genius to see that the phone will be your own portable stereo that's with you wherever you go," says Jordan Schur, co-president of Geffen Records, whose artists include Snoop Dogg and Garbage.

To Apple, this threat may look more than a little overblown. After all, the company's elegant iPod and easy-to-use iTunes have been such breakthroughs that they sparked a musical revolution. The carefully crafted combo gives consumers a no-hassle way to buy tunes on the Net and carry every single song they own with them. Already, Apple has faced a fierce onslaught from the likes of Dell, Sony, and Microsoft, and turned it back with little more than a twist and shout. On Apr. 13, Apple is expected to have announced more than 5 million iPod sales in the latest quarter, building on its market lead. "I absolutely love it," says Michelle Clapp, a 17-year-old student from Saratoga, Calif., who got an iPod for Christmas.

Plus, Apple has learned from the past. Some 20 years ago it lost its lead in the personal computer industry by insisting on complete control over its technology. But Apple has learned from its mistakes and is showing much more flexibility these days. It opened up its iTunes store to people using computers with Microsoft Corp.'s (NasdaqNM: MSFT - News) operating system and let partner Hewlett-Packard Co. (NYSE: HPQ - News)distribute its own version of the iPod.