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In the past 10 years the internet or e-technology has altered how the industries operate. More affected by the new technology is the music and video industry later the book industry with eBooks. Traditionally consumers have purchased music, video or a book from a store. If it is a music or a video it is bought on CD / DVD and but with the internet came new ways of getting digital content.
Apple has launched ITunes for delivery of digital content directly to the consumer, with no physical presence.
HMV is using a mixed strategy of maintain a physical store as well as having a website for selling the digital content but the delivery is through shipment of CD/ DVDs.
They both operate under the same model B2C. But they have different ways of delivering the goods / services to customer.
HMV is the UK and Ireland’s leading specialist retailer of Music, DVD/Video, Computer Games and Related Products. The company operates around 200 stores in key shopping locations nationwide, equating to over 1million sq. ft. of trading space, as well as a successful online store at www.hmv.co.uk, operated by HMV Guernsey1. HMV sells content in physical from and operates in physical as well as virtual space.
The iTunes Store is a software-based online digital media store operated by Apple Inc. Opening as the iTunes Music Store on April 28, 2003, with over 200,000 items to purchase; it was as of April 2008 the number-one music vendor in the United States. As of January 2009, the store has sold 6 billion songs, accounting for 70% of worldwide online digital music sales and making the service the largest legal music retailer. As of Sep 2009 the sales of ITunes are 8.5 billion songs, 1+ million HD movies and TV episodes, 2 billion apps with a combines revenue of $ 6.7 Billion 2 .
ITunes sells digital content and has virtual presence only.
* Has both online and physical store presence. Customer can access any of the 2 ways to interact with HMV.
* Can sell any item MUSIC/ DVD/ GAMES, no need for any arrangement with HMV.
* Can deliver physical items like gaming consoles, posters/ cards etc.
* Cannot sell individual items in music albums or individual episodes in TV shows.
* Not available all the time (except online, which requires shipping of product)
The opportunity for stores lies in enhancing the customer experience at the stores.
The physical stores are fast losing significance; the rivals like Zavvi, Woolworths have closed most of their physical stores. Becoming obsolete is the threat faced by the stores of HMV.
* Suits the needs of the current generation.
* Content is immediately available for consumption.
* Available anytime and anywhere.
* It is backed by one of the best companies in the tech world, Apple.
* Can sell only the products like music that it has been agreement with companies and is authorized to sell.
* Cannot sell and deliver online physical items like posters/ cards etc.
* Cannot sell items that are huge in size in terms of memory. Games DVDs are usually of a size of 4 Giga Bytes or more and are difficult to download online.
* Not available in all the countries.
The opportunities lie in expanding into other segments of digital content like eBooks. The Ibooks which is a past of iStore is planning to sell eBooks directly to the customer.
The model of ITunes is easily replicable. The threat is from rivals like Amazon and HMV who want to sell digital music to sell directly to customers same way as ITunes does now.
Before creating any business strategy or while evaluating an existing strategy it is extremely important to scan the external environment. SLEPT analysis is an investigation of the Social, Legal, Economic, Political, and Technological influences on a business3.
The changing demography of the people will have an impact on the business. The social changes can be psychological, demographical etc. The psychological change that is witnessed is the need for making things happen fast. People do not want to wait for placing an order and waiting to receive it by post. Most of the music albums have one or two hot songs and today’s consumers are not willing to pay for the entire album. They want to pay only for the songs they like.
Since the advent of new technology the music industry has been losing its revenue. The illegal file sharing has eaten into the revenues of music companies. Music companies have been suing the file sharing sites like Napster and more recently the piratebay. Even the individuals are sued by the industry; Recording Industry Association of America (RIAA) has successfully sued a Minnesota woman for copy right infringement and illegal file sharing4.
Legal battles resulted in buying of digital content by the consumers. The legal issues lead to the online stores like ITunes that sell music legally online.
Legal structure is well in place to support the business of ITunes and HMV.
Economy and business cycles affect the business. We are in the middle of an economic recession. Customers will be counting every penny they spend. The most the costs associated with dealing a company the more the customers shy away from that company.
HMV: The costs associated with purchasing content from HMV are far more compared to buying music from iTunes. Customer needs to visit a store, browse through a variety of catalogues before zeroing on the music / video to buy. This involves time and travel cost.
ITunes: customer can access iTunes by sitting in their homes. Carry the music with them in an iPod. Buying a single song instead of buying an entire album is always cheaper.
Political changes are related to the influence that government has upon the industry.
The political changes usually do not affect much the entertainment industry. In rare cases the governments may feel that some music / video content may be decided to be inappropriate for their country or will hurt the sentiments of the people. They ban the particular content from distribution and delivery.
If there is any singular factor that changed the dynamics of an music industry, it is technology. With the ubiquitous internet, people are able to share digital content freely, which includes music, videos etc. Technology also facilitated the illegal copying and distribution of music and video.
Technology also deintermetized the content delivery. As the music is directly delivered to the consumers there is no need for the manufacturers or suppliers of CDs/ DVDs. Technology made it possible to carry the content with us in our IPods, Laptops, Phone etc.
Digital content everywhere and on any device is the MANTRA of technology.
Companies that fast adapt to this tsunami of technology changes survive while others perish.
Boston Consulting Group (BCG) MATRIX is developed by BRUCE HENDERSON of the BOSTON CONSULTING GROUP IN THE EARLY 1970’s.
According to this technique, businesses or products are classified as low or high performers depending upon their market growth rate and relative market share
Growth: The Itunes is the undisputed star in the BCG matrix . Between 2000 and 2009 the population using internet has become 1.7 billion from 360 million5. High internet users mean high growth potential for the itunes.
Cashflows: Itunes revenues are steadily increasing every year.
Strategy: The strategy to be adopted for stars is to hold or invest for growth. Apple is investing in ITunes store by adding app store, which sells games and applications for mobile and computers. With the launch of Ipad Apple is adding the fastest growing segment , eBooks to iTunes , calling it as iBook store as a part of Itunes.
Growth: The growth of the HMV stores has been moderate and better. The increase in sales also partly due to the demise of its closest rivals like Zavvi , Woolworths6.
Cashflows: The cash flows for the physical stores are steady but not exactly encouraging. The online stores sales are increasing, hmv.com grew by 16% and waterstones.com grew by a phenomenal 60%7.
Strategy: The recommended strategy is to hold or add market share. The company is losing sales as well as sales in the physical stores domain but is growing in the online space. That is why HMV is launching its own delivery of music and other content through direct download from its own website.
The shopping experience is diametrically different for both HMV and itunes
Customer has 2 ways of interacting with HMV. A physical store visit and through online at the website of HMV for purchasing content. its own web site, which operates a sales model of e business. Customer can walk into the HMV stores, touch and feel the products and buy them. This is required especially while buying products like cards and posters. They can seek assistance from the store assistants, whenever they need it. When a customer visits the website www.hmv.com he can buy CDs that are delivered to him by post. When a customer buys any product directly from the store he can use it immediately, but when ordered online using the stores, he needs to wait till he receives the product by post to start using the product.
The payment methods are cash or card for physical store payments and only through cards for online payment.
To be a part of ITunes customers need the following:
1. A computer
2. Access to Internet
3. Download iTunes software
4. Have credit / Debit card
5. Error free internet connection.
Customers are connected virtually. Customers can search the item they are looking for in no time. Customers can buy the item and start using them immediately, no need to wait for any shipment to arrive.
The payment method is only through cards and NO CASH payments.
The pricing of goods is entirely dependent on the content (CD/ DVD) that customer is going to buy. Music is sold through albums and the price is fixed per album. The individual items in a Music album or individual episodes in a TV show are not available for purchase.
The items are sold as bundled products like albums or sold separately as individual items. For example a customer wanting to buy music has an option of buying the complete album or individual songs in the album.
The return policy is dependent on the kind of product purchased. Unwanted, damaged and incorrect or faulty items can be returned to HMV and customer can get a refund or get a damaged item replaced.
When shopping with the iTunes Store, all sales are final. The customer needs to decide what are the items he wishes to buy and add them to the shopping cart. As soon as he clicks the BUY button, the purchases are charged to his account. The money is taken from his debit or credit card account. Once the order is placed there is no way a customer can cancel the order or get a refund.
It is the responsibility of the customer to check for compatibility of the items purchased.
The technology used by the HMV is
* A browser interface for content viewing, no need to for any software (like iTunes). Anyone can view the content with the help of popular browsers like IE, Firefox or Chrome.
* Order acceptance via website. No user account needed for buying items from HMV.com
* Handles acknowledgement of payment and shipment delivery details for the order
The technology used by ITunes is Apple proprietary. Items are not sold through a web browser interface like other ecommerce sites. Anyone wanting to access ITunes need to download the software from APPLE and all the actions are through the software.
The ITunes comprises of:
* An interface for viewing the music/ video catalogs
* An order processing system via iTunes account and credit card/ debit card
* A delivery system via download from iTunes.
ITunes restricts the sale of digital content to those people who are not having iTunes software.
Technology has changed the way the business happens. E-business is any process that a business organization conducts over computer-mediated network channels. Business organizations include any for-profit, governmental, or non-profit entity. Examples of these processes are on-line purchasing, on-line sales, on-line logistics, customer support, employee training and recruiting, and vendor-managed inventory, production design and control 8.
The e business ladder is the ladder that shows where the organization stands with respect to what is possible to achieve in terms of available technology. The ladder shows how effectively the organization is using the advantage of technology and has integrated with business strategy. We will see where HMV and ITunes stand with respect to e -business ladder model of Cisco e-Adoption Ladder (DTI, 2000)
HMV needs to move up the ladder to compete with Itunes. HMV is making moves towards this. HMV is adding another business dimension to its website www.hmv.com. The new delivery channel is by means of downloads directly from the website of HMV. This is currently under construction and will be available soon9. Which means HMV is moving up the ladder from just taking orders online and processing them offline to accepting orders and delivering through internet.
ITunes is at the top of the ladder. It has tie ups with all leading content providers (music production companies, TV studios, movie producers etc). The customers just need to visit iTunes store to buy any content. This is a seamless integration of suppliers and buyers by iTunes acting as a intermediary facilitating B2C transactions.
The emerging technologies that can be used for e-business are
* Cloud computing
* Mobile computing.
ITunes has already made inroads into mobile computing by offering iTunes in its iphone. But iTunes is available only for iPhones. HMV can use the other platforms for mobile computing like Android from Google, Windows Mobile from Microsoft for building applications to sell content on mobiles.
Cloud computing is the area that both iTunes and HMV needs to explore. The current business model is delivering the content to the customer by means of download or physical delivery of CD/DVD.
Apple restricts the number of machines that can play the content that is downloaded from iTunes. We cannot play the content on more than 5 machines and those machines need to be authorized using the user’s iTunes account.
With cloud computing the content is not necessarily delivered but it can be accessed from anywhere when connected to internet. A customer who buys a music album or songs need not download it to his computer but can access from anywhere and from any computer or any device, say , mobile.
Cloud computing is possible only when the connectivity is always established with internet, which is not impossible in near future.
1. Showing growth in the existing websites which is possible by new offerings like making downloads available
2. Introducing new product range like selling e readers and new gaming hardware like DSI
3. Introducing loyalty cards.
4. Strong tie up and product sharing with group company Waterstones for selling books and eBooks.
5. Live & ticketing , HMV wants to sell tickets for events of the artists along with albums.
6. Starting Pay to Play gaming centers as the new gaming fever catches up across all age groups for games like Call of Duty.
1. Make it accessible to more people, via browser interface.
2. Make eBooks available
3. Remove the restrictions on the usage of the content bought from iTunes.
There are valuable lessons to be learnt from the strategy and models adopted by HMV and ITunes. Companies need to be aware of the forces that affect their business including competitors, customers, technology, suppliers, and at times most importantly new entrants into the market. The ITunes has once again proved that, the how ever dominant is the firm in the market it is never safe.
Companies must be aware of the technological circumstances that surround the business in order to be on the cutting edge of new developments in the market. New entrants must also be aware of the technology that can give them the advantage over firms that are already dominating the market. Disintermediation is one important way that firms can use technology to streamline production and increase profits. And most importantly, a firm must never become complacent; they must always be on the lookout for new markets in which to expand.
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