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Apple Inc., formerly Apple Computer, Inc. was established in Cupertino, California on April 1, 1976 by Steve Jobs, Steve Wozniak and Ronald Wayne. The company manufactured consumer electronics particularly computers, computing devices and peripherals including printers and displays. Despite astonishing figures of sold Macintosh computers and boost in sales, apple soon fell into severe crisis in 1984. Although Apple computers gained sales and were successful but they still lacked behind in market share, from its competitors like IBM. According to the critics the entry into consumer market was gradual for apple because of non-availability of the software's supporting apple machines and also the products aimed at a specific segment of customers. Apples history of its first 30 years has been full of ups and downs and company lacked stability until 21st century. Apple machines did not have a good media player and customers relied on external software: Audion or SoundJam MP. Understanding the need of a decent media player for Mac machines, in year 2000 Apple purchased the licenses for SoundJam MP from Casady & Greene, which further became the basis of iTunes.
In 90's the music industry was undergoing a major transformation from vinyl records to compact disks and by late nineties: Mp3 players, a portable flash drive which could store and play music. Mp3 formed the basis of digital music of new era with better audio quality and smaller file size. Popularity of mp3 format coupled with rise in internet users show significant rise in the use of Mp3 players. Napster one of the most popular music file sharing services on internet, operated from june 1999 to july 2001 allowed people to easily share their mp3 files with each other. Because of this free sharing of music amongst internet users the music industry suffered heavy losses and accused Napster of massive copyright violations i.e. music piracy. In 2000, Sony introduced ‘The Store' an online music shop with each song track priced at US$3.50 and after a certain point the files got expired and could not be played without repurchase. Looking at the failure of ‘The Store' and struggling to survive the losses from the internet boom, the record companies teamed up with online services. Universal Music Group and Sony teamed up with service called ‘pressplay' where as other group comprised of EMI, AOL/Time Warner and BMG teamed up with ‘MusicNet'. Both the services struggled as people were reluctant to pay high prices with limited ownership on the purchased downloaded music. Other services like eMusic, Cductive and Listen.com (now Rhapsody) were also not very successful. The use of free downloadable material via torrents, P2P networks and other file sharing networks hampered interest of people to pay for the music. However, digital audio downloads began to gain popularity after the launch of iTunes Store, which by April 2008 became the largest online music service with 80% of market share.
Apple iTunes was introduced in Mac World Expo, San Francisco on Jan. 9, 2001 claiming to be the world's best and easiest to use free downloadable jukebox software, which could help users create and manage their own music library, exclusively on Mac. iTunes could then import songs from CD's, burn audio CD's, powerful music searching, browsing and playlist features along with impressive visualizations. Steve Jobs, CEO of Apple exclaimed: “iTunes is miles ahead of every other jukebox application, and we hope its dramatically simpler user interface will bring even more people into the digital music revolution.” The digital music revolution has just begun. With the success of iTunes, Apple Inc., in Oct 2001 launched its portable media player, iPod which surpassed the expectations of millions worldwide. The first generation iPod, with innovative design and user friendly interface became popular. With the popularity of iPod, iTunes also grew as it was needed to synchronize and manage music on iPod devices. Steve Jobs, understanding that internet had a great potential for music industry and learning from the failures of various online music services, introduced iTunes Store to the world.
On April 28, 2003 Apple Inc, launched the iTunes Music Store, a revolutionary online music store that let customers quickly find, purchase and download their favorite music at a single click. The iTunes Music Store initially featured over 200,000 songs from music labels including Universal, Sony Music Entertainment, EMI, BMG and Warner. Users could search entire music store by any song title, artiste, album or browse the collections by genre. Customers could hear a free high quality preview of any song for first 30 seconds and could purchase the song minimally priced at 99 cents each or $9.99 for whole albums, without any subscription fee. It also featured exclusive tracks from over 20 artists along with special music videos which users could watch for free. “The iTunes Music Store offers the revolutionary rights to burn an unlimited number of CDs for personal use and to put music on an unlimited number of iPods for on-the-go listening,” said Steve Jobs, Apple's CEO. “Consumers don't want to be treated like criminals and artists don't want their valuable work stolen. The iTunes Music Store offers a groundbreaking solution for both.” The iTunes Music Store was fully integrated in iTunes 4, the fourth major release of Apple's digital music jukebox software which was easily available for download, allowing users the freedom to purchase, download, organize and listen to their music, using single application.
One of the major factors behind the success of iTunes store was innovation. With iTunes, Apple entered into a mature market, learning from the struggling past of music companies and services which tried to implement e-business. Apple differentiated its model from other online music services. Some of the significant attributes of Apples business model were the pricing, song catalog, ease of use and conventional experience of customers i.e. the way they bought LP's, CD's , similarly they could now buy downloads. iTunes was the first service with content from the big 5 major labels to sell songs on à la carte without any subscription fee. The flat price of 99 cent per song track was significantly lower than the previous services which attracted a large customer base. à la carte provided people with flexibility and convenience to preview and pay for the track they wanted unlike buying the whole albums. The huge music database with attached metadata, gave customers more choices/wide variety to choose from just like an experience in conventional music buying. Ease of using the store and availability of the songs also played an important role in success of iTunes. The freedom to store music indefinitely and burn custom CD's, such value to customers was not provided by any online music service earlier and above all it was legal. (green paper itunes) To provide further flexibility to users, apple released a windows compatible version of iTunes, enabling pc users to use its services. By the end of 2003, Fortune declared Apple iTunes Music Store to be the product of the year. (http://money.cnn.com/magazines/fortune/fortune_archive/2003/12/22/356108/index.htm ).
Apple's iTunes business model can also be considered to be close i.e. songs bought through iTunes could only be played on iPod. (https://www.judicialeducationprogram.org/journals/lawreview/v102/n4/1987/LR102n4Evans.pdf) The biggest reason for adoption of closed system was convincing great number of labels and music artists allowing them to sell their songs through iTunes with an assurance that their tracks would be impossible to pirate.
(http://rfrost.people.si.umich.edu/courses/SI110/readings/IntellecProp/iTunes_Business_Model.pdf). To put a check on the piracy of the music bought from iTunes, Apple used FairPlay Digital rights management technology (DRM) which encrypted the AAC audio files and prevents these files to be played on unauthorized computers. Fairplay prevented the customers from using the purchased music on any other digital music player other than Apple's owned iPod and iPhone and some mobile phones manufactured by Motorola. Due to some legal issues of antitrust allegations, the DRM was waived from the songs bought from iTunes. The approach was also vertically integrated with apple providing both hardware (iPod) and software (iTunes). The sales of iPod corresponded to the profitability from iTunes (189). By the second half of twenty first century, iTunes music database grew huge and apple introduced its other hardware innovations like a whole range of iPods with different storage capacities, Apple TV, iPhone. Today iTunes is not only a platform to sell music but also audio books, mobile applications including games for iPods and iPhone along with full length movies and TV program series which users could watch while being on the move. ‘iTunes U' service managed, distributed, and controlled access to the educational audio and video content for students within a college or university. Steve Jobs announced in his "It's Showtime" keynote that Apple had 88% of the legal U.S. music download market on September 12, 2006. By Jan, 2009 there were around 8.5 billion songs sold and more than 1.5 billion applications downloaded.
The business model of iTunes can be considered to be an ecosystem. The iTunes application supports media management, creation and editing of playlists, media playback, access to iTunes Store, importing music from CD's and other tasks through a desktop sized multi-pane user interface. iTunes which is designed to be used together with other hardware like the product range of Apple iPods, iPhones, and even Apple TV. The two devices compliment each other's functionality, interact and depend upon each other and collectively fulfill the user goal of either listening to music or watching a TV program. Farhad Manjoo in his book ‘How to beat the kindle' wrote: “The service matters more than the device itself. Every time I dismiss the Zune, Creative Zen, or some other MP3 player as an also-ran, I get letters from loyalists who insist that their gizmo far outshines the iPod. Sometimes they're right—but what they miss is that the iPod isn't a standalone device. It's part of a music-delivery ecosystem, the most important feature of which is iTunes.” iTunes have changed the peoples way of being. Apple along with Nike has introduced a gear which can sense the speed of the runner and can intelligently play the song on iPod as per speed. The rise in market share of apple hardware has made many companies to manufacture accessories especially for them, from iPod covers to portable speakers etc. ‘Hammacher Schlemmer' had come up with Triode-Tube speakers which were priced at $3,999.95 and were successfully sold. Apple hardware also changed the music experience in car audios. Today big brands like Audi, Nissan and Toyota etc. have integrated their cars with compatible units which can sync with iPod/iPhone.
The companies mutually benefit from the sales of products associated with iTunes. Thus an ecosystem is created where individual entities establish interdependence directly or indirectly, influencing behavior and goals of other entities. Kelvin Kelly said it right 10 years ago that: ‘Because the value of an action in the network economy multiplies exponentially by the number of networks that action flows through, you want to touch as many other networks as you can reach. This is plentitude. You want to maximize the number of relations flowing to and from you, or your service or product'.
IT is an indispensable force which completely changed the way business is done. It plays a major role in forming a network amongst various entities in this ecosystem. Apple, its customers and economic partners all are coupled with IT. The launch of iTunes store can be considered to be a success move towards e-Business model. The potential on internet had been wisely exploited by the music industry and Apple together. Using internet as a platform iTunes not only connects the customer to the company directly without any mediator or distributor, but also creates a feel of authenticity and ownership of any media or application bought from the store.
This new innovative business model did attract many other companies to start their services and enter into business of selling music online. There are many competitors of iTunes, right from the ones in music industry to digital service providers. After the launch of iTunes, MSN also plunged into the music downloading service by the name of MSN Music, a part of MSN web services, with pricing model of 99 cents, in 2004. This service was a failure because of lack of support from Microsoft. Ironically MSN Music store was not compatible with Microsoft's music player ‘Zune'. Sony launched its online music store, Sony Connect struggled to survive in the mature market, users were more willing to opt for a service where they can have music from all the music providers. Its services have been discontinued now. From telecom industries Nokia also has entered into this business. Nokia with various variants like Nokia music player, Comes with Music and Nokia Music Store entered in the market. Nokia Music store, launched in 2007 offered music from the big 5 music giants. It had a streaming service that was priced at 10 Euros per month. Nokia announced a new service by the name ‘Comes with Music', which consisted of a year of free music downloads included in the price of the phone, but the service was not available in all countries as it was dependent on the service providers (http://www.comeswithmusic.com/). Rhapsody, from Real Networks is an online music subscription service and also a store to buy MP3's but it limits to be used in US only. ‘Best buy' music store is also operated by Rhapsody. Wallmart also maintains an online music store for customers to buy digital music downloads where as Amazon's Mp3 download store has raised a price war with iTunes by slashing the prices of many top selling downloads to 29 pence in attempt to grab a bigger slice of legal download market (http://www.guardian.co.uk/music/2009/apr/08/amazon-itunes-music-downlads-mp3). One of the present competitors of iTunes is Spotify, which is in its Beta stage right now. It challenges iTunes in its usability interface and a collection of music from the big 5 and even the smaller players like CD Baby, Merlin and The Orchard. It has a subscription and a free service. Subscription service is priced at £9.99 monthly to listen to ad free music. With Spotify users won't have to carry their music, they can access it from anywhere in the world (http://www.macworld.co.uk/blogs/index.cfm?blogid=2&entryid=605), (http://www.spotify.com/en/products/premium/).
There are many factors which influence the market, out of which ‘technology' plays a significant role. Today technology is strongly coupled with business models. Advancements in technology can disrupt the present market conditions and may give room for creation of new business models. Major battle is between subscription based services and owning of the music. In this price driven market any technology which could reduce costs and overhead with increased benefits will be widely accepted. Media futurist, Gerd Leonhard, introduces the concept of Music 2.0 where he talks about a business model in which he considers ‘Music like Water'. According to him, the service providers could make music freely legally available, with the bundled payment of the internet services. The model could work on openness, collaboration, sharing and trust. Major revenue generation will be from liquid pricing system, involving subscriptions, advertising, flat rates, bundled packages, by multi channel/multi access charges and countless value added services. Leonhard claimed that consumers are running the show and their behavior is evolving from an “ownership” model to an “access” model. Internet holds data on, has grown gigantic and can wisely be used as a publishing platform. With availability of resources from the internet, customers have undergone a change in behavior to possess ‘ownership' and now they are more inclined to access model. The feel of ownership can be created by making the music available for free access anytime. Leonhard foresees the gradual drift from computers to mobile phones and the boom of cloud computing which can be useful in implementing Music 2.0. In coming future customers won't be interested to carry an extra hardware for music when this purpose can be solved by their hand held devices. By using mobile phones and hand held devices customers have access to music anytime, anywhere be it at airport or farmhouse. (http://blogs.zdnet.com/emergingtech/?p=1638) (http://kotisivukone.fi/files/music20.kotisivukone.com/tiedostot/music20book_hires.pdf) http://www.endofcontrol.com/files/end_of_control_book_chapter_4_only_gerd_leonhard.pdf. The 3G network services can further act as a catalyst to this model, with better bandwidth and quality for streaming. Imeem, a social media service introduces the idea of Music on a Cloud. The idea is very similar to cloud computing methodology where people pay for the services they use. With Music on cloud, customers will pay for the music they hear or by subscriptions. Cloud based storage, involves lower costs than flash memory, this can be a major driver to this kind of model.
It has changed the way of being, from music industry to telecommunication
Competitors- Wallmart/ Amazon (cost driven market) - green paper page 11
Ecosystem - http://blogs.zdnet.com/BTL/?p=10354 YouTube teams with iTunes, Amazon to offer e-commerce feature
Google Vs iTunes (http://www.eweek.com/c/a/Search-Engines/Google-May-Launch-Music-Service-to-Challenge-Apple-iTunes-297544/, http://pulse2.com/2009/10/21/google-taking-on-itunes-by-striking-music-deal-with-four-major-labels/)
Sony new model
LIMEWIRE-PIRACY : because different policies of different countries