Busting the myth of the iPod Halo Effect

People love to gamble. Folks will gamble with dice, bet on a single pitch in a baseball game, they will even wager on the future prospects of a corporation. In order these behaviors are known as: craps in Vegas, bookie in the bleachers, and investing in the stock market. In each instance after the gambler has won or lost they will patiently explain why they were successful (or not). The explanations, as involved as they will be, amount to nothing more post hoc reasoning. In short, they were either lucky or unlucky, all the myriad of reasons they give to enhance their perceived prowess as futurists or mitigate their responsibility as prognosticators is little more than window dressing. With this in mind an examination of the near sacrosanct iPod halo effect is in order.

First a brief restatement of the iPod halo effect is in order. The effect is said to be as follows: people who don’t use the Mac buy an iPod. Impressed with the quality engineering and ease of use they consider buying a Macintosh instead of a Windows based PC as their next computer. Some certain percentage follows through and Mac sales skyrocket. Which is a nice, comforting scenario for those who care deeply about Apple’s market share.

The next time Apple reports sales I confidently predict that they will sell a record number of Macintosh computers. I’ll go further and predict that the second quarter of 2005 will feature computer sales growth of 50% over the same quarter of 2004. When this happens, and it surely will, the analysts touting the iPod effect will all sit back and congratulate themselves on their seeming prescience. The problem is that while they were correct in predicting record sales it turns out it had little to do with the iPod halo effect. In short they might have chalked the sales effect up to the big slashes in PT cruiser prices because the evidence connecting the two events is just as solid.

So where have the Haloers gone wrong? How can we possibly conclude that the halo effect is, in fact, simple logical fallacy? Well one of the best ways to ascertain the validity of a claim is by the predictive value of the preposition. This, unfortunately, will not be the case with the Halo effect. Sure Macs are flying off the shelves at a remarkable clip but with the introduction of the Mini it would be foolish to assume that the record numbers will be owed to the halo effect. The increased sales might be more a product of the voluminous excitement generated by the Mini or the widened availability of the iMac than people jumping ship after being impressed by the iPod.

So with the convergence of a multitude of likely factors for the (predicted) monster upswing in Mac sales how can we be sure it isn’t due to the iPod halo effect? The predictive value of the claim has already been dismissed as a source of validating evidence. There is another avenue worth pursuing to adjudicate the veracity of the iPod halo effect and that entails discerning just how completely the iPod halo effect explains the past data. The excursive is based on the assumption that if the data explains past events it may be useful for predicting future events. Worded in a different fashion: If the supposed effect doesn’t explain past data then there is no reason to assume that it will explain future data.
At this point the astute reader has realized the point: thus far there has been no discernable iPod halo effect. It is one thing just to blithely note the absence and it is quite another to actually provide confirmation of the non-effect. The necessity of stating parameters is a given at this point. We note that the iPod was introduced in 2001, we further note that the diminutive hard drive gained windows compatibility in 2002. Finally we note that the iPod halo effect is claimed to be somewhere between six and twenty percent (both the polls are horribly flawed in methodology). Unfortunately we are now faced with the prospect of examining actual numbers (we’ll avoid the graphs to minimize the numbers of eyes glazing over).

First we’ll start out with the assumptions used: the computer upgrade cycle will be estimated at three years and 75% of iPods are purchased by Windows users. Remembering the iPod first featured Windows compatibility in 2002 we note that there have been roughly 7 million iPods sold since then. Going with the 75% number we note that that is some 5 million iPods going to Windows users. Using the analyst’s figures somewhere between 300,000 and 1,000,000 people should be salivating to buy a Mac. Unfortunately this is not reflected in the sales of Macs..at all. 2003 saw exactly the same number of Macs sold as in 2002. 2004 did see a nice increase in sales of the Macintosh, some 400.000 units, but this was attributable to the introduction of the iMac (sales were fairly stagnant until the fourth quarter).

So with the effect effectively dispensed and with the prediction of a stellar quarter we are left to wonder where the actual credit should go. Call it the “Jobs effect”, or the “Apple effect” or even “every thing Apple does lately is perfect effect.” Call it whatever you want but the fact is it isn’t the iPod that is moving Apple towards a record quarter. It is the iPod, the Mini, the iMac, OS X, Windows issues, iTunes, and the G5 chip. In short it is the whole picture. Sure the iPod brings some badly needed market presence but it is the whole package that moves the computers.