Competitive Analysis of Apples iPod and iTunes

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Competitive Analysis of Apples iPod and iTunes
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Todays Program

• Music as a Revenue Source
• Apple iPod and Apple iTunes
• 5 Force Analysis
• Summary and Recommendations

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Generating Revenue from Music

• Background - Before Recorded Music
• Musicians and Composers
• Instrument Makers, Concert Halls, and Sheet Music
  Scribes
  

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Generating Revenue from Music

• Background - After Recorded Music
• Recording Companies
• Wholesale/Retail Companies
• Distribution - Media and Equipment
• Electronic Playback Device Companies
• Software Companies
• Computer Companies

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Evolution of Technology

• Devices and Media
• Analog Devices
• Edisons Cylinders
• Vinyl Recordings
• Tape Reel to Reel, 8 Track, Cassette

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Evolution of Technology

• Digital Devices and Media
• CD/DVD
• Flash Memory MP3, iPod

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Previous Customer FocusBefore the MP3 Player

• Pre-recoded Music
• Buy the Entire Album (no 45s from the 70s)
• Buy the Entire Album at Record Store
• Limited Selection
• Limited Shelf Life
• Limited Quality of Originals and Copies

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Current Customer FocusWith the MP3 Player

• Buy Devices On-Line or in Store
• Buy Individual Songs On Line
• Hundreds of Song per Device
• Seemingly Limitless Selection of Songs
• Excellent Quality of Originals and Copies

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Apple iPodThe Leader in MP3 Music

• Provides Complete Music Program
• iPod, Shuffle, mini, nano MP3 Players
• iTunes Music vs. Subscription Services
• Software and Peripherals

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iPod Sales

• Since Introduction in 2002 21 million sold
• First 3 Quarters of 2004 2.4 million sold
• First 3 Quarter of 2005 16 million sold

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iTunes Music Store and Peripherals

• Year to Date Revenue Increase of 252 over 2004
• 0.99 per Song Downloaded
• 9.99 per Album Downloaded
• iPod 60GB Capacity to Store up to 15,000 Songs
• iTunes Revenue to Surpass Power Macintosh
  Revenue

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Internal Rivalry

• Industry expansion
• Price Sensitivity
• Switching Barriers

• Audio books, Videos etc.
• 0.99 Song Downloads
• Digital Rights Management, Preference Tracking

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Threat of Entrants

• Apple is Vertically Integrated

Entrants could be music providers
Entrants could be digital music device
manufacturers
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Availability of Substitute and Compliment Products

• Substitutes
• Digital Music Devices
• Walkman type devices
• CD Players
• Flash Memory Devices
• Legal Downloads
• Piracy
• Subscription services
• CDs

• Compliments
• Digital Music Devices
• FM Radio tuners
• Speaker Systems
• Carrying Cases
• Legal Downloads
• Videos
• Audio Books
• Pod Casts

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Power of Suppliers

• Suppliers Have Other Customers
• Flash Memory
• Hard Drives
• TFT-LCD Screens
• Lithium-ion batteries
• Greed of Content Suppliers
• Want Larger Share of Profits
• Ultimate control over distribution channels

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Power of Buyers

• General Public is the Buyer
• Apple must continually innovate and increase
  content to maintain market share
  
• Apple must maintain low price point avoid the
  publics return to piracy

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Summary and Recommendations
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Strategy Canvas for Apples iPod
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Underpinnings of Apples Strategy

• Product design squarely focused on consumer
  experience
  
• Design innovation through deep collaboration
• Accelerated innovation through seamless
  integration
  
• Strong partnerships with suppliers and
  manufacturers
  
• Rapidly expanding business environment
• Entertainment Computing Hub of the digital
  home
  
• iPod, Mac mini, iMac, Airport Express
• Mac OS X, QuickTime, iChat, iWork, Safari, .Mac
• iLife suite ( iTunes, iPhoto, iMovie HD, iDVD,
  GarageBand)
  

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Recommendations

• Diversify supplier base for critical components
  like flash memory, LCD panels, backlight LEDs,
  micro disks
  
• Keep a close watch on the subscription model and
  explore launching a similar service as complement
  in the future
  
• Tone down the rhetoric against music industry
  content providers
  
• Add an FM tuner to Nano and video iPod

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Conclusion

• Apple dominates the digital music market
• Consumer focus, superb design and continuous
  innovation are the keys to Apples success
  
• A healthy ecosystem has helped expand iPods use
  and spurred its rapid growth and adoption
  
• Content providers and competitive offerings pose
  a serious threat to iTunes but Apple has leverage
  to deal with it
  
• Apple is well positioned to become the
  Entertainment Hub
  

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