Why the iPod is doomed

By Portfolio.com

Take a deep breath, Macaholics. Think different.

Apple (AAPL, news, msgs) might be the envy of the technology world, yet in its core business of music -- iTunes and those beloved iPods -- the company is veering toward trouble.

Sooner than you think, the iPod as we know it will seem as nutty as a no-down-payment balloon mortgage.

For generations, consumers have wanted to own their music -- vinyl, cassettes, CDs and 99-cent downloads. But today, the economy seems stuck in a death spiral, just in time for a sure-to-be-dismal holiday shopping season, and that malaise will nudge consumers toward a massive shift in mind-set.

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Hauling around thousands of songs on a handheld device or computer hard drive just so you can listen to your favorites will soon feel overly extravagant and cumbersome, like keeping a cow so you can eat your favorite cheese.

Instead, we'll get music from "the cloud" -- technically, "somewhere on the Internet, but who cares where, as long as it shows up when I press this button."

We'll have access to a service that holds every song ever recorded, letting us listen to anything, anytime, from any device. Pocket-size gadgets will connect to high-speed cellular, WiFi and satellites linking to the cloud -- to your music -- at home, at work, on overseas flights.

Want to hear that Bread album you used to have on vinyl? Just tap into the cloud and listen. Maybe you'll pay a subscription fee, or maybe you'll put up with ads in order to listen for free. When that happens, Apple's model will be toast.

The cloud is already forming. In September, MySpace began offering free, unlimited, ad-supported music. Microsoft's (MSFT, news, msgs) Zune player connects to WiFi, and its $14.99 monthly subscription service allows access to 3 million songs. (Microsoft owns and publishes MSN Money.)

In Britain this fall, Nokia (NOK, news, msgs) is testing Comes With Music, a combination phone and music player that features a free subscription to Nokia's new wireless music service. And next year, Sprint Nextel (S, news, msgs) will switch on its Wi-Max system -- a high-speed wireless service covering large areas and easily delivering music to gadgets -- in a handful of cities.

Fortunately for Apple, these emerging pieces don't work together. On their own, they can't challenge Apple's hegemony. The iPod commands 72% of the music-player market, while Zune holds only 2%.

The most successful music-subscription service, Rhapsody, owned by RealNetworks (RNWK, news, msgs), has never put a dent in iTunes.

Continued: What Apple does best

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