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Apple's Success Begets An Economy Of Its Own

Tuesday, 9 Sep 2008 | 10:16 AM ET

When it comes to Apple,the profits can fall pretty far from the tree.

The cult of Apple has spawned its own economy of sorts, with dozens of companies dedicated partly or entirely to supporting the company's line of groundbreaking products, creating a multi-billion dollar business for everything from battery chargers to carrying cases.

A customer hands over hundreds of dollars at the Apple Store in downtown Chicago, Friday, June 29, 2007, to purchase the company's new iPhone, a gadget that combines the functions of a cell phone, iPod media player and wireless Web browser.  Apple is banking on the new do-everything phone with a touch-sensitive screen to become its third core business next to its moneymaking iPod players and Macintosh computers. (AP Photo/M. Spencer Green)
M. Spencer Green
A customer hands over hundreds of dollars at the Apple Store in downtown Chicago, Friday, June 29, 2007, to purchase the company's new iPhone, a gadget that combines the functions of a cell phone, iPod media player and wireless Web browser. Apple is banking on the new do-everything phone with a touch-sensitive screen to become its third core business next to its moneymaking iPod players and Macintosh computers. (AP Photo/M. Spencer Green)

"In the U.S., the accessories market for iPods and iPhones is certainly in excess of $2 billion annually, as of at least the end of 2007," says Stephen Baker, vice president of industry analysis at the NDP Group. "What Apple is trying to do is create a whole ecosystem around the iPod and around the iPhone."

Contour Design of Windham, N.H. is part of that ecosystem, or economy. When the company was founded in 1995, it's business was based on making an ergonomic computer mouse. Now some 70 percent of the company is dedicated to making Apple accessories. Contour specializes in making cases for the iPod and iPhone, but it has recently started making chargers for both products and Blue Tooth headsets for the iPhone.

"It gives us the opportunity to tag along to the success of the iPod and the iPhone," says Mike Jackle, head of product development at Contour. "Our division here that deals with the iPod and iPhone cases, for example, has just exploded." Jackle added that from 2001, when Contour started making iPod cases, until now, the company's iPod and iPhone case unit has grown 20,000 percent.

(The ever-growing universe of Apple products will be on display later today at the company's special event, "Let's Rock", in San Francisco, from where Tech Check's Jim Goldman will be live blogging.)

Griffin Technology of Nashville, Tenn. has seen a similar Apple effect. The company started out by making accessories for Apple computers, and has since evolved along with Apple. Griffin was on the forefront of the iPod accessories market and has thus reaped the benefits.

"We've grown from a one- to two-person [company] to a 200-person company, and a lot of that would be do in large part to iPod accessories," says Jackie Ballinger, a spokeswoman for Griffin.

The company's first major iPod accessory was launched in 2003. Called the iTrip, it was an FM transmitter allowing users to play their iPod music through a car radio. The company currently makes cases, chargers, speaker systems and headphones for the iPod and iPhone., accounting for some 90 percent of the Griffin technologu's business.

The iPhone in particular pushed Griffin into territory it would not have otherwise visited.

"The iPhone kind of bridged the gap between iPod and cellphones. We just went right over that bridge and moved into the cellular market as well. So now we are working directly with AT&T and all the international carriers of the iPhone, and before we never would have been partners with them," says Ballinger.

Big, brand-name companies have also tapped into the business model. France-based luxury goods maker LVMH, for instance, sells a carrying case for the iPhone.

And what's good for companies like Griffin and Contour is good for Apple, says Baker.

Apple not only benefits by selling those products through its stores and website, it receives the equivalent of a licensing fee from accessory makers who play off of Apple's proprietary technology and design.

In addition, the connectors for the iPhone and iPod are proprietary, and accessory makers must pay a fee to be able to use those connectors on products such as chargers and speaker docs.
Though Contour and Griffin would not disclose terms of their business relationship with Apple and Apple itself does not break out accessory revenue, its quarterly income statement gives some idea about the size of the business.

For the third quarter of 2008, for instance, "music-related products and services," which consist of iTunes Store sales, iPod services and Apple-branded and third-party iPod accessories, generated $819 million in revenue. IPhone handset sales, carrier agreements, and Apple-branded and third-party iPhone accessories brought in $419 million in sales.

If that weren't enough, the accessories business has another virtue, given Apple's unusually trendy, fashion conscious clientele.

It "makes their products more interesting," says Baker.

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