Apple Inc.: iPod and iTunes - Assignment Example

Apple Inc.: iPod and iTunes Name Course Tutor’s Name 23rd January 2013 Q1: PESTEL analysis The iPod has been touted as a reflection of Apple’s innovative mastery (Ashcroft 2011, p. 7). Launched into the consumer market in 2001, the iPod had innovative design and functionality ideas never again seen in the market (Ashcroft 2011, p. 7). As a mixed digital multimedia device, the iPod was soon complimented with the release of the iTunes in 2003. In description, iTunes refers to software that enables consumers to enjoy digital media downloaded to their computers and into their iPods. Through the iTunes platform, consumers can buy, organise and playback different media files which could include podcasts, music, videos and photos among others. A PESTEL (Political, Economic, Social, Technological, Environment, and Legal) analysis on the iPod and iTunes would reveal the following: Political: As a US-based firm, whose target consumers are in and outside the US, Apple has had to develop and release different versions of iTunes in an effort to ensure that such versions comply with the territory- or country-specific copyright laws (Herrera 2006, p. 205). Economic: With the US and European countries being its main target markets, Apple’s products have been highly favoured by the well-performing economic environments therein. The relatively cheap price of downloading music ($0.99) on iTunes has made it a popular online retail outlet for consumers (Chapman & Hoskinsson 2008, p. c-16). Social-cultural: The social-cultural environment in Apple’s target market is such that technologically is being received eagerly by different demographics. For example, the iTunes store is increasingly being perceived as a central portal from where consumers from different geographical locations can access their favourite music (Chapman & Hoskinsson 2008, p. c-17). Technology: The targeted markets (especially the youth) are always tech-savvy, and have thus embraced the new development in both the iPod and iTunes. Since its launch, the iPod has undergone many technological enhancement thus its revolution from just a music-listening gadget, to a gadget with which people can watch videos and download music. More recently, iPods are GPS-enabled thus meaning that people can use them in cars to find directions. Environment: Operating in an environment conscious society has affected the manner in which Apple conducts its production processes. Apple stated that it is reducing toxic substances from its product, and is on record for recycling iPods and Macintosh PCs in different countries where it has established its presence (Apple Inc. 2013). Legal: Apple found a way of managing some of the legal issues concerning iTunes by making a deal with record companies that enabled consumers to download music from iTunes without infringing copyright laws in the US (Crossan & Mark 2005, p. 128). It however remains a challenge to handle record labels in other countries because of difference in copyright laws thus meaning that consumers may not access everything they may desire from the iTunes platform. The above analysis relates to porter’s five forces, because firms often have to deal with all market dynamics in the macro-environment and the micro-environment. While the PESTEL analysis is ideal in the macro-environment, Porter’s five forces is a good analytical tool for a firm’s competitive industry. In other words, the two analysis tools need to be used together for purposes of understanding both the micro and competitive environments that a firm is faced with. Q5: Apple’s strategy as it relates to the music industry; the associated economic of the strategy; its attractiveness to Apple. Apple’s strategy to the music industry was arguably a product of the iPod, which after its launch and acceptance in the market, aroused Apple’s sensitivity towards the need for accessible music without infringing copyright laws. As Indicated by Boddie (2005, p. 3), Apple’s iTunes became a pioneer in the online music download sector, and subsequently, it penetrated the consumer market fast because consumers found it as an easy, convenient and cheap way of obtaining music. Yoffie and Slind (2008, p. 8) further indicate that Apple adopted a low-cost strategy whereby, consumers could access music from record labels and independent producers for as little as $0.99. Yet, despite its popularity, iTunes did not appeal as much to the record labels, who were the suppliers of music to the platform. As Indicated by Crossen and Mark (2005, p.128) however, Apple’s CEO at the time Steve Jobs insisted on negotiated deals with the same record labels. Jobs succeeded, and by so doing, convinced the record labels that iTunes was the solution to the illegal music download that had plagued the industry. Apple’s strategy not only provided consumers with affordable downloadable music, but also served to market the iPod (Ireland, Hoskinson & Hitt 2008, p. 28). Economically however, some observers argued that the money Apple earned from iTunes did not make economic sense and was thus not sustainable in the long-term. Ireland et al. (2008, p. 28) for example noted that Apple only made 10 cents for every song downloaded. Viewed alone, Apple’s iTunes may not make much economic sense, but viewed as not only a marketing platform for iPods and a platform where Apple keeps tabs with the needs and preferences of consumers, it can be argued that the strategy does indeed make economic sense. The attractiveness of the music industry to Apple is perhaps better understood through the persistence through which the firm’s former CEO Steve Jobs insisted on signing deals with reluctant record labels at the time. Evidently, the music industry was one of Apple’s key targets through product innovations and software offers. The market acceptance of the iPod and the iTunes could be perceived as a reflection that indeed Apple was not mistaken in targeting the music industry. Specifically, Dolata (2012, p. 14) indicates despite the presence of competitors in online music market, iTunes continue dominating the market, and the sale of iPods continue increasing significantly. Further evidence that the music evidence is attractive to Apple is provided by Yoffie and Kim (2011, p. 8) who observe that by February 2010, Apple had “sold 10 billion songs and featured the world’s largest music catalogue”. Even more evidence of Apple’s interest in the music industry is provided by Sawayda (2011, p.6) who observes that the firm has “reached agreements with record labels to launch iCloud, a service that enables consumers to create and listen to their music collections without having to upload individual songs”. The iCloud idea is of course being position on Apple’s market leading position where it has managed to have comparatively more songs (due to the combined effects of iTunes and agreements with record labels) than its competitors. Q6. Consider the various stakeholders in the industry (recording companies, retailers, online distributors) and elaborate the strategic options. How does one set a strategy in this dynamic industry? With its eyes firmly fixed on the music industry, Apple no doubt had to find ways to bring the different music stakeholders on board. Gauging from the music available on iTunes, it is clear that Apple realised that it had to use several strategies, which included approaching record labels, and approaching individual artists. As indicated in the Crossen and Mark (2005) case study, Steve Jobs used both strategies; he convinced both individual producers and artists and record labels about the viability of iTunes. Strategically, Apple had to follow similar paths to those adopted by its competitors. Specifically, the firm could have chosen to concentrate on either developing the iPod (as a music player) or the iTunes (as a music online store). However, Apple chose to design the player and the online music store this ensuring the consumers could make use of integrated services (West & Mace 2007, p. 12). To ensure that the system would be widely accepted and hence convince stakeholders in the music industry, Apple ensured that the system could also work on the Windows platform, just as it did on the Mac platform. However, Apple adopted a closed design in encrypting music downloads thus meaning that such songs could only be played on Apple players. Speaking to record labels regarding the latter, Jobs (2007) observes that the encryption was meant to protect copyright through Digital Right Management (DRM). He however did not recommend that such encryption continues in the long-run. In his argument, he notes that record labels sell other music mediums (e.g. CDs) without any secret encryption thus making it easy for anyone to copy and share, while requiring iTunes to continue using DRM even though its prone to hacking attacks. The open letter by Steve Jobs dated 2007 is a reflection that Apple was willing to act as strategic negotiator to advance its position in the music industry. On one hand, it appears that Jobs (2007) understood Apple’s legal obligations towards copyright protection in relation to music supplied to iTunes by the record labels, but was also cognizant of the treacherous task of evading hackers in what he described as a “cat and mouse game” (Jobs 2007, para. 6). Setting a strategy in a complex industry such as the music industry would probably require a firm to consider both the macro and micro environments in the industry. For example, Apple appears to have considered the political, economic, socio-cultural, and legal environments in the music industry before making an attempt to enter the music industry. It is probably such considerations that enabled it understand the potential profits that the industry held, and the possible legal and competitive challenges it was likely to face. Understanding the micro-environment by understanding existing and potential competition could also have helped Apple in formulating strategies that gave it a competitive edge over the others. For example, designing a music player and commissioning an online music store was a well formulated strategy, which was probably intended to achieve the same results it achieved (i.e. giving consumers an integrated music system which they can download, save, organise and listen to music on portable music players affordably). References Apple Inc. 2013, ‘The story behind Apple’s environmental footprint’, viewed 23 Jan. 2013, < http://www.apple.com/environment/#recycling>. Ashcroft, J 2011, ‘Apple in the digital age from the iPod to the iPad- Apple Inc. the case study 2000-2010’, pp. 1-25, viewed 23 Jan. 2013, . Boddie, J 2005, ‘Has Apple hit the right disruptive notes?’ Strategy & Innovation, vol. July-August, pp. 3-4. Chapman, R & Hoskisson, R E 2008, ‘Apple computer inc.: Maintaining the music business while introducing the iPhone and Apple TV’, In RD Ireland, RE Hoskisson, & MA Jitt (Eds.), Understanding business strategy: concepts and cases, pp. c-13 – c-28, Cengage Learning, Mason, OH. . Dolata, U 2012, ‘The music industry and the internet- a decade of disruptive and uncontrolled sectoral change’, Research contributions to Organizational Sociology and Innovation studies, viewed 23 Jan. 2013, . Herrera, G L 2006, Technology and international transformation: the railroad, the atom bomb and the politics of technological change’, SUNY Press, New York. Ireland, R D, Hoskisson, R E, & Hitt, M A 2008, Understanding business strategy, Cengage Learning, Mason, OH. Jobs, S 2007, ‘Thoughts on music’, Apple Inc., viewed 23 Jan. 2013, . Crossan, M & Mark, K 2005, ‘Apple Computer, Inc.: iPods and iTunes’, In Crossan, M. M., Bansal, P., Killing, P., White, R.E., & Zietsma, C (Eds), Strategic Management- A case book , Eighth edition pp. 121-136, Pearson Education, Toronto. Sawayda, J 2011, ‘Apple Inc.’s ethical success and challenges’, Daniels Fund Ethics Initiative, University of New Mexico, pp. 1-8, viewed 23 Jan. 2013, . West, J & Mace, M 2007, ‘Entering a mature industry through innovation: Apple’s iPhone strategy’, Paper presented at the DRUID Summer Conference, Copenhagen, Denmark, June18-20, pp. 1-41. Yoffie, D B & Kim, K 2011, ‘Apple Inc. in 2010’, Harvard Business School, pp. 1-25, viewed 23 Jan. 2013, . Read More