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Competitive Analysis of Apple’s iPod and iTunes

Competitive Analysis of Apple’s iPod and iTunes. Today’s Program. Music as a Revenue Source Apple iPod and Apple iTunes 5 Force Analysis Summary and Recommendations. Generating Revenue from Music. Background - Before Recorded Music Musicians and Composers

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Competitive Analysis of Apple’s iPod and iTunes

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  1. Competitive Analysis of Apple’s iPod and iTunes

  2. Today’s Program • Music as a Revenue Source • Apple iPod and Apple iTunes • 5 Force Analysis • Summary and Recommendations

  3. Generating Revenue from Music Background - Before Recorded Music • Musicians and Composers • Instrument Makers, Concert Halls, and Sheet Music Scribes

  4. 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

  5. Evolution of Technology • Devices and Media • Analog Devices • Edison’s Cylinders • Vinyl Recordings • Tape – Reel to Reel, 8 Track, Cassette

  6. Evolution of Technology • Digital Devices and Media • CD/DVD • Flash Memory MP3, iPod

  7. Previous Customer FocusBefore the MP3 Player • Pre-recoded Music • Buy the Entire Album (no 45’s from the 70’s) • Buy the Entire Album at Record Store • Limited Selection • Limited Shelf Life • Limited Quality of Originals and Copies

  8. 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

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

  10. 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

  11. 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

  12. Internal Rivalry • Audio books, Videos etc. • $0.99 Song Downloads • Digital Rights Management, Preference Tracking • Industry expansion • Price Sensitivity • Switching Barriers

  13. Threat of Entrants Apple is Vertically Integrated Entrants could be music providers Entrants could be digital music device manufacturers

  14. Substitutes Digital Music Devices Walkman type devices CD Players Flash Memory Devices Legal Downloads Piracy Subscription services CD’s Availability of Substitute and Compliment Products Compliments • Digital Music Devices • FM Radio tuners • Speaker Systems • Carrying Cases • Legal Downloads • Videos • Audio Books • Pod Casts

  15. 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

  16. 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 public’s return to piracy

  17. Summary and Recommendations

  18. Strategy Canvas for Apple’s iPod

  19. Underpinnings of Apple’s 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)

  20. Recommendations • Diversify supplier base for critical components like flash memory, LCD panels, backlight LEDs, micro disks • Keep a close watch on the subscriptionmodel 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

  21. Conclusion • Apple dominates the digital music market • Consumer focus, superb design and continuous innovation are the keys to Apple’s success • A healthy ecosystem has helped expand iPod’s 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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