First off the iPod was nothing new. It was nothing more than a MP3 player that also had built-in support for protected files (from the iTunes Store). The part where Apple got it right was how they owned both avenues of music. They owned your player and they owned a great way for you, as the consumer, to find and purchase music... from them. If you compare similar products like the Rio or Samsung players (anything non-iPod), you will find quite frankly no real functional difference between any of them. What you won't see are banners and ads all over your city promoting them, you'll see Apple-related ads. That's sort of the ugly reality.
So why didn't people jump ship collectively and just move to let's say the Microsoft Zune? The Zune has most everything the iPod does, in fact, Microsoft has a store as well. The difference is that Microsoft has a lot of unhappy customers (part of the problem when you are one of the largest out there), and lost a lot of consumer confidence. Apple went through this pain many years ago with their PowerPC platform back in the PC days where they were nearly 2x the cost, a stigma that has stuck with them to this date (when it is grossly exaggerated). So where did Apple succeed? It was able to make it's product appear to be the evolution of the Sony Walkman. It was able to effectively target it's store to the younger market. It had the backing of some very popular music artists directly. It was the perfect storm, it doesn't need to be the perfect product.
As Microsoft began improving it's tarnished image, the Zune became a bit more popular. After the fiasco with Vista, however, you'll note that the only Microsoft product you hear about now is the XBOX 360. The reason this has done so well is because Sony charges way too much for it's consoles and Microsoft had no problem eating the cost. Once again, it's not necessarily a better product, but if you play on an audience losing it's confidence in a product, 9/10 you'll get a sale.
Getting back to the iPod -- it seemed no matter what your budget, you were able to afford one. There is value in having the ability to "buy a brand", which is effectively what Apple did and did it well.
The reason I wanted to touch upon this is that I find a lot of people trying to sell me "alternative" solutions, whether it be phone or even Internet service. The problem I have with them is that as much as these are single packages, a stand-alone product, what value does it really have for me? If they sell me phone service, does it mean it will work with my current phone? Do I have to buy a standard unlocked phone or a branded phone by their company to support it? Even if they are cheaper per month by $10, spending $200 for the new phone defeats the annual savings and increases my yearly cost by $80. If I buy Internet-access from them, is the speed the same? If you are saving $10 per month but the speed is 1/4th what you currently have, does that make it worth it? A major problem as I said in a previous post, is that these products are fixed cost and not open to negotiation for a lower rate. The target audience is diminished because the only people who see a real "value" are the ones who have not had that type of service previously. If they haven't had a cell phone service or Internet access, it's going to be a challenge to even find these potential consumers.
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