CS 453 E-Commerce Technologies

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CS 453 E-Commerce Technologies Sweet Spot Case
Study 11 September, 2003 Ryan K. Dickey
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Background
Founders of Apple Computer

• Steven Wozniak and Steven Jobs
• Friends from high school
• Both dropped out of college to work in industry
• 1 April, 1976, company founded

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Background
The name

• Steve Jobs had worked at an apple farm
• Big fan of the Beatles album, Apple
• Could not come up with a
• better name

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Background
Why iTunes?

• Fall of Napster
• Lawsuits from the RIAA against individuals
• Huge demand
• There were no legal 800 pound gorillas

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Background
Creator?

• Jeff Robbin, SoundJam developer
• Hired from Casady Greene

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Overview
What does iTunes do?

• Large database of mp3s
• Download at a low price
• Large selection of music
• Search options
• Organize and play mp3s

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Overview
iTunes advantage

• Hundreds of thousands of mp3s
• Preview songs for free, Download for 99 / song
• Virtually every category of music
• Exclusive iTunes tracks
• Personalized play lists

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Overview
More iTunes advantage

• Displays album art while playing
• AAC MPEG-4 audio
• iPod sync
• Audio books

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Overview
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Success
Opening day

• 275,000 downloads in first 18 hours
• Equaled number of legally downloaded songs
  over a six month period last year
• These results are unprecedented

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Success
Surprise

• Sold more than 10 million songs since launch
  in April
• One million in first week alone
• Less than 1 of computers nationwide are
  compatible with iTunes

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Success
Competitors

• Existing competitors
• mp3.com
• buymusic.com
• listen.com

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Success
Future Competitors

• Sony plans on releasing an internet music
  service next spring
• Amazon.com will sell single tracks
• America Online, MSN, RealNetworks and Yahoo
  are creating plans

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Financial
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Financial
Stock information

• Traded publicly as AAPL
• Currently trading for approximately 22.18 (as
  of 9 / 10 / 03)
• Average Volume 3,763,000

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Breakthrough
The iTunes difference

• Other groups such as eMusic, Liquid Audio and
  RioPort have failed
• Offered over 200,000 tracks by quality acts
  with no strings attached
• Painless transaction process

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Breakthrough
More difference

• Combine ease of use with up to date technology
  (AAC encoding)
• Apple is already a brand name
• Low / no cost to reproduce merchandise
• Low / no inventory
• Secure payment

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Problems
Potential problems for iTunes

• Major record labels are resisting, while sales
  are plummeting (25 this year alone)
• Some bands have not released their music
• Red Hot Chili Peppers, Metallica, Led Zeppelin,
  the Beatles

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Problems
More problems

• Price is too high
• Kazaa and other programs still exist
• Apple must depend on the RIAA to push users
  toward a legal solution

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Prediction
iTunes will be highly successful

• Major record labels will continue to join
• Database of mp3s will continue to grow
• Price will drop as sales increase
• Opening up to the PC market by the end of the
  year

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References
1 http//www.apple.com/itunes a, Source of
all graphic images and feature descriptions b,
Apple Reports Third Quarter Results 2
http//www.businessweek.com Byte of the Apple
by Charles Haddad 3 http//www.washingtonpost.c
om a, Sympathy for the File Swapper by Cynthia
L. Webb b, Universal Slashing CD Prices by
Frank Ahrens 4 http//www.apple-history.com/
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References
5 http//www.wired.com/news 6
http//www.nytimes.com a, Music Download Suits
Could Raise Backlash, AP b, Girls? Check.
Cristal? Check. iPod? Check by Neil
Strauss 7 http//www.cnnfn.com Stock
information 8 http//www.bayarea.com/mld/mercur
ynews/ 9 mp3.com, listen.com
buymusic.com Logos