ITunes: Business Case

Introduction

iTunes was a service launched in April 28, 2003 by the Apple computers company. It was an online music store which allowed customers to buy digital music at a lower price, giving each customer a space to save these songs. Other features involved customization for the downloaded music files, sharing permission of the music through peer to peer computer networks (only for Macs products), products downloadable to Apple’s iPods and ability to copy music to CDs. Before the launch of iTunes, acquiring music on the internet was possible but at higher costs than the offer brought by Apple. These processes also involved complicated download processes and legal copyright issues. One of the major market players for this sector was Pressplay. After the introduction of the service, other competitors like Roxio (which acquired Pressplay in 2003) and Puretones came in to offer products in a similar line.

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Stakeholder Analysis

Customers

By the year 2003 there were 65 million people within the United States that had downloaded, at least one, audio file from the web. From the surveys it resulted that 59% of those were from 12-24 years of age, 43% were 24-35 years of age and the rest over 35 years old (Julie, 7). From the same source it was also shown that those aged from 12-24 years were the most active on the web and their use of it was increasing rapidly (Julie, 8). But since the industry of online music was not cheap then people were going for illegal online music downloads illegal (Farrell, 1). This was due to the fact that the most active age group of customers on the web was mainly students and people not with stabilized monthly revenues (the group of 12-24 years old). They wanted cheap products and also, “on the move” products. This means they changed preferences rapidly and they did not want to have to pay much for new purchases (Farrell, 2). The second group was composed of young professionals and people who mainly had stable monthly revenues (had a job to rely on) but did not change preferences easy as the first group. And the third was a group of customers which neither was mobile in changing preferences nor with strong desire to purchase often songs at high prices (Farrell, 3). in response to this situation Apple presented iTunes with the following solution:

It offered many songs (almost 2000) for customer needs from various artists and labels together with bonus tracks and overcome complains made to earlier predecessors who offered fee-based services to customers and recording industry who were complaining.

Through iTunes, it was possible to search for songs by artist name, song or album title and genre by use of a console. This meant an easier access to songs for customers through this service with lesser effort. In addition, preview lasting 30 seconds for any library song was possible.

Customers were able to get songs at $0.99 each with no subscription and songs would be owned through downloading, would be organized in the library of files downloaded, and the possibility of customizing the folders.

Addition of the Digital Rights Management (DRM) system ensured transfer of songs only up to three Apple computers, making downloading possible to unlimited number of iPods and burning of compilation music up to 10 CDs.

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Use of data compression tools-Dolby Advanced Audio Coding that made it possible to store more music. iPods were also introduced that could avail no limitation to songs and offered a facility to organize them.

Professional content creators/customers in the line of record labels and musicians enjoyed the offer because it was required no subscription, was legal and stylistic.

Early adopters of the iTunes were mostly the first market segmentation group described above of 12-24 years of age. As described above these are the type consumers who want to use high-end products at low cost. Other innovative services like customization of downloaded music and copying to CDs and iPods, served as attraction for this category. But, as Farrell notices, even the second group of 24-35 years of age became more interested in iTunes (5). This is due to the fact that Apple was offering market incentives to such consumers. These market incentives were the low price and easy-to-use method of purchasing the product. If you combine these two factors, easy-to-use products/services and low price, and leave the quality intact, you have made a strong appeal to the market (Kotler & Keller, 46).

Competitors

One of the main competitors of iTunes in the year 2003 in the online music marketing was BuyMusic.com which was a superior competitor to others because, unlike others, it was employing the same style of allowing customers to download music without subscribing, and making them own it after downloading it in their computers and digital music players. Customers could download individual songs ($0.79 and $1.49) and full albums (from $7.95 and above as retail price) too, no console was required for interface and they were selling portable devices like digital players, memory devices and Compact Disk-R in an extensive store. In addition, it presented a threat to iTunes because it was trying to compete with iTunes on some library offers by offering some selections for lower prices like $0.79 and $0.20 lower. An indication that it was well set for the market battle was the deal it had already struck with five major record labels to offer up to around 300,000 songs after only one week of its launching. Thus it was indicating as it would emerge a high speed competitor to iTunes with time.

Another competitor of the iTunes was Roxio who acquired the earlier on shut Napster. Roxio would enable customers to access a library of more than half a million songs through monthly subscription and enjoy download facility.

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The two competitors of iTunes provided an opportunity to the latter to invent new strategies through possible collaborations and product differentiation from what the competitors were offering. They also purchased Pressplay that offered to customer unlimited music downloads and limited transfers to portable media. Collaboration with Gateway, www.mp3.com and Yahoo among others also made them extend their market.

Puretunes was also a direct competitor to iTunes and offered prices as low as $3.99 for non-limited download service over eight hours. The service was so cheap that an amount worth four iTunes songs would have worth 400 tunes download at Puretunes with a fast internet connection. The company connected to Grokster-a network providing file-sharing services and with more than 10 million users per month.

Company

Apple has reached the position of a “cash cow” in the electronics marketplace thanks to its excellent brand name (Buyukdemirci, 1). It is the most well-known brand from consumers for electronic allowances (Buyukdemirci, 2). The brand recognition response from consumers is high and Apple enjoys a position that few companies do. The interest of Apple investors is to continue having this sort of brand recognition which in turn gives a strong market position. This applies to new products and services that Apple Inc. launches. Investors expect that the company develops services and products that match the quality of the existing. Only this way their profit share will continue to increase.

When iTunes service was launched, it was able to leave a profit of only $0.17 per song after deductions were made for base loyalties to labels ($0.70 per song) and base selling general (SG&A) ($0.12). The recording industry professionals liked it because it was a legal online source for music that protected their intellectual properties. The service fitted Apple’s stylish brand tone which went on with many of the artists’ images, in addition to the latter’s approval of the service as a “hip product offer” by Jobs. The service, due to its legality and that it would be owned by customers than rented, became attractive to the customers.

Community

The success or failure of iTunes could affect other businesses as well. Because the music that iTunes was offering emanated from the record labels and artist through collaboration and purchase, the failure of or deterioration of such industry players would occur if the iTunes strategy did fell or work poorly. The music industry players were enjoying after the launch because the service was not being offered on a fee-based subscription as was the case with previous players. Hardware manufacturers who had begun developing drives that made it easier to burn with CDs and DVDs would benefit by the success of Apples and lose if it failed. It had music from companies like EMI, Sony Music Entertainment, and BMG (Apple.com).

Marketing mix

The iTunes product

iTunes was an online music service solution that allowed customers to access digital music through the internet. The service comprised music from a wide variety of artists and labels that iTunes had collaborated with in this deal. The service was first designed to suit the customers who were using the Apple’s Mac OS X software operating system but soon it was available for Windows users. The launch for Mac OS X software first was considered a “testing period” to see if there would be any technical problems. The product made it possible for free subscription to the music recorders and players, allowed owning of music which was not possible earlier on since customers could not only customize their music but also could record it in Compact Drives (up to 10 songs) and music players. Songs were purchased at $0.99 each without subscription and the service allowed 30 seconds preview of any songs. Users could also shop freely and more easier compared to earlier complicated download processes which were waned down by easy search for music by name of artist, name of the song, album title and genre. The customers who used iPods would enjoy unlimited number of songs download into these gadgets through the arrangement. Apple has continued with the efforts to market this product more and more, but also new competitors have come up. Today, competitors for the selling of online music even to the owners of iPods and iPhones include the Amazon or eMusic. Apple has already in place a complete iLife suite which is directly linked to iTunes (MarketingApple, 2007). Last year, the company had a eight day promotion lasting on January this year from twenty sixth December where it intended to give away free downloads and classic episodes of TV Shows (Apple, 2008).

Cutting competition

In order to have a strong market share you ought to cut down the competition. There are two basic techniques of achieving this: the first, is to prepare the product launch in such a manner to create barriers for the competition, and second is to make step-by-step moves after launching the product (Kotler and Keller, 4). If I was Director of iTunes I would have used a combination of both techniques.

One way that would have helped ensure that the competition was lower or non-existent before the launch of this innovation would have been ensuring that the company acquired the service providers who would possibly launch the service. This was the strategy that was used by a competitor Roxio through acquire of Pressplay who had been player in the internet music industry even before the launch of the iTunes by Apple. Although this would have been reduced by the fact that the success of the service was still not seen because the project was not yet launched, Apple would have capitalized the service by gaining the experience of Pressplay. Another strategy would have been forming business collaboration with players in the music industry especially those that were already in the online music business like Pressplay. Even if it was possible that new competitors would have arisen, stronger associations would have given them a boost by covering larger market for their products and services.

Another strategy would have been to ensure that their innovation was protected by legal copyright which would make them either to earn money through purchase of these copyrights or resist entry by other firms into the industry by mere copying of their services.

Why Apple launched iTunes

Although Apple had a good market position as a computer dealer, it was already experiencing difficulties with computer sales because of the international economic conditions and the financial shock after September 11th, 2001. At the time when the music industry was embattled and losing from customers who were going to download digital music online through illegal means, Apple came up with the solution that would favor both the consumers and company. It was a tactical move to strengthen its market position.

Customers who had computers at home and using Mac OS X, or a Windows version which was said to be available in 2003, would enjoy this service, and because many liked it, it would also boost the sales of Mac OS X which was Apple’s. This was possible because using a console; customers would ensure that they downloaded music through the Mac OS X computers, customize, search and save music they purchased. In addition, in 2001, they had launched the iPods, a portable device that would enable the customers to enjoy music which they could at that time download. Thus the introduction of iTunes’ strategic nature would have been engraved in the fact that while the music industry was suffering, the company required a way in which it would be a major player in digital integration. Customers could stream music from computer to computer (Macs) also without necessarily copying files from computer to another (Apple, 2003).

The launching could also have occurred as a campaign to gain advantages where predecessors had failed. This saw departure from the tradition of fee-based subscription to free subscription launched by iTunes to artists and music recorded. The handles encountered by other ventures like Pressplay.com who had hard-to-understand price models, expensive subscription fee, complicated downloading rules, and not permitting customers to regulate their purchase products, possibly presented an opportunity for the company to be at the edge by offering a solution that they brought latter on through iTunes.

The strategy that was most critical for the success of iTunes was the cheap prices offered for songs without subscription. This is because it covered interests of many customers at that time and was in line with the demands at the market where customers were looking for getting music not at a high cost like purchase from the stores; apparently, the companies offering such services had expensive offers. The subscription issue was a complaint raised by music stakeholders-record labels and the artists (Hennessy).

Positioning of iTunes

Positioning of iTunes

References

Apple. Apple Launches the iTunes Music Store. 2003. Web.

Apple. Apple lines up ’12 Days’ promo for iTunes. 2008. Web.

Hennessy Julie. Apple Computers, Inc.: Think Different, Think Online Music. Kellogg School of Management.

LearnMarketing. Perceptual Mapping/Position Map. 2009. Web.

MarketingApple: What market is Apple in? 2007. Web.

Farrell, N. Apple and iTunes customers. The Inquirer. 2009. Web.

Kotler, P. Keller, K. L. Marketing Management (12th Edition). Prentice Hall: New Jersey. 2006.

Buyukdemirci, K. Apple brand experience. The “Insight Story” case studies. 2009, Web.

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