CS 453 E-Commerce Technologies Sweet Spot Case Study 11 September, 2003 Ryan K. Dickey

1. CS 453 E-Commerce Technologies Sweet Spot Case Study 11 September, 2003 Ryan K. Dickey

2. 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

3. 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

4. Background Why iTunes? • Fall of Napster • Lawsuits from the RIAA against individuals • Huge demand • There were no legal “800 pound gorillas”

5. Background Creator? • Jeff Robbin, SoundJam developer • Hired from Casady & Greene

6. Overview What does iTunes do? • Large database of mp3s • Download at a low price • Large selection of music • Search options • Organize and play mp3s

7. 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

8. Overview More iTunes advantage: • Displays album art while playing • AAC MPEG-4 audio • iPod sync • Audio books

9. Overview

10. 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

11. 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

12. Success Competitors: • Existing competitors: • mp3.com • buymusic.com • listen.com

13. 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

14. Financial

15. Financial Stock information: • Traded publicly as AAPL • Currently trading for approximately $22.18 (as of 9 / 10 / 03) • Average Volume: 3,763,000

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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.com a, “Sympathy for the File Swapper” by Cynthia L. Webb b, “Universal Slashing CD Prices” by Frank Ahrens [4] http://www.apple-history.com/

22. 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/mercurynews/ [9] mp3.com, listen.com & buymusic.com Logos