|Amazingly, consumers like new things that are familiar, but better. So consumers liked audio cassettes, which were like records but smaller, and also allowed you to record; they loved the VCR, which was like an audio cassette player for video. But they didn't like the Laserdisc, because it was big and couldn't record anything.
They loved the CD however, because it was dramatically better than audio cassettes, and more durable and smaller than records. MiniDisc, DAT and the 'digital compact cassette' all failed miserably in the market place, because unlike cassette tapes and VCRs, they were encumbered with paranoid restrictions on recording and duplication.
The CD-R, which snuck from the land of computers into the music world and so avoided those restrictions, was a revolutionary success, while the VideoCD wasn't; it couldn't record and offered poor video quality. The DVD was vastly sharper than VHS and it took off, while DIVX (the original, rental self-destruct DIVX product, not the humorously named DivX codec) went nowhere. Wow, a pattern emerges: customers like getting improvements, and hate getting ripped off!
The iPod is just that: this decade's Walkman, with a significant set of new features on top. What it does not do is try to be a iffy sound recorder, or a $400 radio, or a crappy camera, or any other of a variety of things that do not complement being able to carry a large selection of your own favorite songs and other information where ever you go.
Nor does it try to wring the last cent out of every sales opportunity. You can freely copy your own music to it in an open format, and optionally buy songs online at a lower price than CDs. It also won't kill your downloads because you stop paying fees. Customers can't get enough of it.
Any analyst worth a paycheck should have seen this coming, but instead they uniformly panned the lethal combination of QuickTime, iTunes, the iPod, and trumpeted Microsoft's WMA, which has gone nowhere, despite heavy investment by Microsoft and a wide array of powerful partners.
Apple has drawn and quartered Microsoft, and the peanut gallery seems to have failed to notice. They must be plenty worried though, because they already look silly, and in a couple year's hindsight, they will look very foolish indeed. And who needs analysts telling you things you know to be rubbish?