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NoPod Why America's favorite gadget is doomed.

By Kevin Maney

Take a deep breath, Macaholics. Think different. Apple might be the envy of the technology world right now, 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 mindset. Hauling around thousands of songs on a hand-held 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.

The cloud is already forming. In September, MySpace began offering free, unlimited, ad-supported music. Microsoft's Zune player connects to WiFi, and its $14.99 monthly subscription service allows access to 3 million songs. In Britain this fall, Nokia is testing Comes With Music, a phone-music player offering a free subscription to Nokia's new wireless music service. And next year, Sprint will switch on its Wi-Max system-high-speed wireless internet 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 music hegemony. iPod commands 72 percent of the music-player market; Zune has 2 percent. The most successful music-subscription service, Rhapsody, has never put a dent in iTunes.

But as Intel's Andy Grove likes to say, if technology can make something happen, it will happen. And technology will knit the pieces together. Wireless internet will blanket the earth, and someone will marry that with just the right kind of device and just the right cloud-music service. A true challenger will be born. It might be a startup or an established player like Nokia. "Someone will get this right," says Ali Partovi, C.E.O. of the music-sharing service iLike, but he's not sure Apple can do it: "Apple would be cannibalizing its existing strategy."

Certainly Apple could do it by flipping iTunes into a subscription service that plays over wireless networks on iPhones. "I don't see anyone really making subscription a blowout success for portables until Apple gets into it," says John MacFarlane, C.E.O. of Sonos, maker of a high-end digital home stereo that taps into cloud music. Apple hasn't hinted at any such plan, though.

Apple introduced iPod and iTunes in late October 2001. In tech years, they're older than Henry Kissinger. But while its products have evolved, Apple shows no signs of embracing the cloud model. In September, Apple's "major" iPod announcement turned out to be iPods in new colors, plus an iTunes function, Genius, that finds music you might like-just as several websites already do.

"What Apple does best is make beautiful hardware," says Dalton Caldwell, C.E.O. of internet music service Imeem. "If we live in this universe where hardware matters less, Apple will be in a poor position in the market."

As for personally owning music-still not sure you'll give that up? Just think of what you go through to do that. We find, buy, and download files. We wind up with a jumble of thousands of songs; some play on some devices, some on others. If you lose your iPod, you have to reload another. If your hard drive crashes, you're hosed. And you probably bought a whole lot of songs, like Toto's "Georgy Porgy," that once seemed like a good idea but that you now never want to hear again.

Someday soon, cloud music will make you wonder why you ever put up with digital downloads. Then the question is whether you'll be tapping the world's music through Apple-or if the iPod becomes as quaint as a wooden tennis racket.

Visit Portfolio.com for the latest business news and opinion, executive profiles and careers. Portfolio.com© 2007 Condé Nast Inc. All rights reserved.

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