Online Music Company - Coursework Example

Running Head: Online Music Company Online Music Company [Institute’s Table of Contents Table of Contents 2 Company Background 3History and Recent News 3 Music Context 4 Porter’s Five Forces Analysis 6 Power of Buyer 6 Power of Supplier 7 Rivalry Competition 7 Threat of New Entrants 8 Threat of Substitutes 8 SWOT Analysis 9 Strengths 9 Weaknesses 9 Opportunities 10 Threats 10 Promotional Strategies 11 Financial Success 12 Conclusion 12 References 13 Company Background For many decades, companies around the world have been putting efforts to bring innovation and rule the corporate world; however, one company that has enjoyed the status of being the most innovative firm is focus of this paper. Although the company started as a computer-manufacturing firm but as years passed, the company expanded and brought revolution in whatever field it went. This is none else but Apple Company (2015) that has played a significant role in bringing digital music revolution, with its online music business of iTunes Store. In year 2003, the iTunes Music Store (Apple, 2015) came out as an online business baby by Apple Inc., which later on was named as the iTunes Store that has until now broken numerous sales records when it comes to online music business, as well as, has gave fierce competition to physical music stores globally. One may understand the level of iTunes’ success by its status as the largest online music supplier in the USA since 2008 and similar status in the world since 2010 that shows the dominance of Apple iTunes Store as one of the most successful online music businesses in the world music history. In this regard, this report will include critical analysis of Apple’s iTunes Store as an online music business company to identify its strengths and weaknesses followed by few conclusion of the report. History and Recent News Historically, and even presently, Apple’s iTunes Store (Apple, 2015) never created any music itself and thus, from its inception until today, the company has been depending on major record companies to offer their music on Apple’s software platform. Historical analysis shows that this began back in 2003 as Apple made successful agreements with major record companies, such as BMG, Warner Bros, Sony Music, Universal Music, and EMI (Gilbert, 2012) to launch its online music business, and since then, the online music world changed radically. Also, the company did not depend only on the record labels but also signed deals with independent label companies to expand its music base, which helped it to reach to maximum demand of consumers worldwide. As of today, the iTunes Store (Apple, 2015) is offering more than forty-three million songs to consumers in approximately 145 countries that indicate the magnitude of this online music business. As mentioned earlier, historically, the Apple’s iTunes Store was successful in breaking numerous records. For instance, within a year of its inception, the iTunes Store had sold more than a hundred million songs by July 2014, which doubled within the next six months and reached to two hundred million songs (Apple, 2015). Within two years, this gigantic online music business was successful in selling a shocking billion songs by early 2006, and by 2013, this figure had reached twenty-five billion songs, which shows the revolution that Apple’s iTunes Store brought in the online music industry (Apple, 2013). Although started from the United States in 2003, the Apple’s iTunes Store expanded very fast to other regions in the world, such as the United Kingdom, France, Germany, Canada in 2004, followed by Australia, New Zealand, and a few European countries of Norway, Sweden, and Switzerland in 2005. This process of expansion has continued and still in continuance as more companies are being offered with this online music service by Apple’s iTunes Store resulting in expansion of its global consumer base. Music Context From a broad perspective, it is not only about online music sales, but also about the Apple iTunes Store’s contribution as an online music business company that has changed the face of music industry globally. The company did not remain limited to audio music only but it has been offering music videos as well to its consumers, which glamorized the music industry to a great extent and encouraged more music artists to create music videos and launch them online that usually used to happen on television. Moreover, another major contribution of Apple’s iTunes Store to the music industry is its launch of portable podcasts in the form of iPods that are capable of video podcasting, which provided an opportunity to global consumers to take their music wherever they want (Apple, 2015). Although portable music players were available before that in the form of mp3 players and walkman in the earlier 80s, however, iPods completely changed the game by linking internet and iTunes Store with these portable music players (Apple, 2015). After the launch of iPods, the consumers were now able to play their favorite music and playlists saved on the internet without the hassle of copying pasting songs every time on an mp3 player. This innovation of Apple was very contributive in expanding the online music industry and helped the company in dominating the online music market for many years until today. From music context, the iTunes Store has not focused on any one type of music but almost all the genres of music globally. One can come across numerous sections in the iTunes Store where consumers can select and purchase their favorite songs from the online database, which is updated on daily basis, and has various music genres, such as Jazz, Classical, Rock, World, Hindi, Hip Hop, Latino, Hispanic, etc) (Apple, 2015). In addition, another innovation that Apple’s iTunes has brought in the music industry is personalization of music, which was not happening before the inception of this online music business company. For instance, iTunes offers one of the tools named ‘Genius’ (Apple, 2015) that automatically sorts out the purchased music according to genres and create automatic playlists based on user’s collection. Besides Genius, ‘Shazam in Siri’ (Apple, 2015) is another innovation of iTunes that allows users to identify a song playing anywhere on the television or in a shop just within few clicks that seems a normal option but if analysed from a broad perspective, it integrated and brought together physical and online music industries in front of the users. In addition to Shazam facility, another contribution of iTunes to personalize music industry is its option of ‘family sharing’ (Apple, 2015) that allows family members to share their purchased songs with one another that has been a great innovation in bringing online music industry to homes. Porter’s Five Forces Analysis In 1985, Michael Porter proposed this analysis to identify factors that affect an organisation at micro level. In this regard, this report will now analyse Apple’s iTunes store as an online music business to recognise factors that are in play. Power of Buyer As discussed earlier, one of the major contributions of Apple’s iTunes store in the online music industry is the notion of innovation that comes in-built for every iTunes consumer. As a result, every Apple consumer whether buying an iPod or purchasing a song gets a feeling of buying something signatory and personal, which puts away the price issue to some extent (Bean & Tyne, 2011). This results in lesser bargaining power of buyer since it becomes difficult for the consumers to find a similar innovative product from anywhere else. Moreover, Apple iTunes Store offers its own software and hardware to purchase, store, and listen to the songs, and this further lessens down the bargaining power of buyer, as consumers always have to rely on Apple’s store for its update and/or replacements due to inapplicability of third-party software and applications in iTunes store. Power of Supplier From the abovementioned discussion, Apple’s iTunes Store enjoys huge bargaining power of supplier since it is mostly vice versa. Besides, analysis indicates that Apple iTunes Store has its own designers and committed workforce that are 24/7 working on new updates, glitches, and consumer demands on the internet, which enhances its bargaining power. Furthermore, the company has an extensive range of suppliers for its hardware and therefore, it is not reliant on a single supplier (Binder et al, 2011), which gives Apple a huge bargaining power of supplier. Rivalry Competition Although Apple’s iTunes store dominates the online music market with 88% of market share in legal music industry, however, still, it always witness attempts of other online music companies that try to lower down its market share in the global music market. Particularly, some of the competitors of Apple’s iTunes Store are YouTube, Spotify, and SoundCloud (Dedrick, Kraemer, & Linden, 2009). Although there is a huge difference in the magnitude of Apple’s sales and consumer base, still, these rivals are always giving competition and a source of motivation to Apple to continue bringing innovation in the online music market. Besides abovementioned competitors, Rdio is one of the very new competitors of iTunes as it came in the UK market in 2012 and offers music streams on monthly basis in comparison to iTunes strategy of selling songs. In addition to Rdio, Deezer is another upcoming online music company that also offers services on monthly basis and has been a competitor of Apple’s iTunes store in the global music market. Some of the other online music stores that act as competitors for iTunes store are Napster, and eMusic. Threat of New Entrants Online music companies cannot run without computers as Carlton said, “There are large economies of scale in the personal computer market” (2008, p. 111), which indicates huge restrictions for new entrants in this industry. Opening a physical music store is easy to set up with limited resources; however, launching an online music store requires huge amount of capital, 24/7 running servers that may provide high bandwidth, and cloud databases that may allow storage of millions of songs. All of this is not possible for every geek around that wants to create a name in the online music industry. As a result, Apple iTunes Store faces low threat of new entrants in the market. Besides financial limitations, another major factor that restricts new companies to enter into the online music market is copyrights issue. For instance, Apple’s iTunes Store has already signed contracts with numerous record labels to sell their music online on its store. Although new companies can get hold of independent labels and artists, however, still it will be very difficult to penetrate into the global market relying on independent artists only, and thus, iTunes does not have any threat of new entrants unless someone comes up with a completely new and innovative technology better than that of iTunes. Threat of Substitutes When it comes to substitutes, various rivals have come up with the strategy of offering streaming as a substitute to single songs and/or albums. As a result, music streaming market has become one of the most popular markets in the online music industry. In this regard, Apple iTunes faces various substitutes in the market; however, during all these years since 2003, the company has been successful in creating its exclusive brand image and thus, “proprietary nature of Apple’s products” (Apple Computer Inc, 1994, p. 83) sets itself apart from its competitors. Still, some of the major substitute of online music market is CD/DVD market that has often declined in the recent years but still act as substitutes to online music industry. In addition to CDs, vinyl album sales are also another substitute to online digital music that has interestingly not declined and have continued to remain in the music industry, thus, cannot be ignored. SWOT Analysis Strengths One of the major strengths of iTunes online music business store is its exceptional and personalized look that keeps it apart from its competitors. As discussed earlier, Apple iTunes Store (Apple, 2015) offers various facilities to its consumers, such as Genius, Family sharing, Cloud sharing, etc that have become its strengths in reaching to millions of consumers globally. One of the other strengths of iTunes is infrastructure support from Apple’s computer base and brand advantage from Apple’s iPhone and iMac market, which gave a huge push to iTunes from the very start that would have required huge amount of capital in advertising and brand imaging for any other company. Weaknesses Every product has few strengths and at the same time, a few weaknesses, and Apple’s iTunes business is no exception. One of the major weaknesses that has been criticised greatly and became the reason of one of the legal disputes is applicability of iTunes software on only iPhone, iPod, and iMac, and not other third party applications and hardware (Apple, 2015). This weakness is still keeping Apple iTunes away from a number of consumers but at the same time, this has allowed the company to maintain its exclusiveness in the market. Another weakness of iTunes Store is its pricing as it sells single songs at £0.95 in the UK and $0.99 in the US and global market (Apple, 2015). Whereas many of its competitors offer monthly streaming at £4.99 that has often been taken as a weakness of iTunes Store since it has not been able to contribute in the online music industry when it comes to music streaming. A major weakness that gives competitive advantage to iTunes’ rivals is the factor of synchronicity that is a weak factor when it comes to iTunes. Particularly, iTunes Store does not allow consumers to listen to the content where they left it on the connected devices on iCloud, which is offered by rivals of Apple iTunes Store due to their focus on streaming rather than selling downloadable songs. Opportunities As discussed earlier, music streaming looks as a room for expansion and opportunity for iTunes. Moreover, this online business can also make use of music-related events, such as award ceremonies and music concerts as opportunities to enhance its rating in the global music industry. Besides, iTunes can also take social media sites as an opportunity to integrate the store with it that will be an efficient way to take the Store to the newer level. Although iTunes have pages on social media sites, such as Facebook, Twitter, etc but integrating the store in terms of consumer participation and involvement seems a good opportunity. Threats Some of the major threats to Apple iTunes online business is from its rivals, such as YouTube, SoundCloud, Spotify, etc that continue to give competition to iTunes Store. Besides competition, Apple has continued to face legal tensions from its collaborating partners as well as other agencies that are always a threat to the company. For instance, in July 2007, Universal Music shared that it will not renew its contract with iTunes Store that was a threat to the company (Linden, 2009). On the other instance, iTunes had a legal dispute with Beatles on the matter of ‘Apple’ name, which was later settled out of the court and Beatles’ songs were added to the iTunes Store in 2010 indicates the nature of threats that Apple iTunes Store continue to face in the online music industry (Gilbert, 2010). Promotional Strategies A very important aspect of every business is advertising and promotion that enables the company to achieve success and competitive advantage in the market. Particularly, Apple iTunes Store made use of various promotional strategies to market its online business store, which later on became the reason of company’s major revenues. In this regard, this section will include some of the promotional strategies of Apple iTunes Store. A year after its inception in April 2003, iTunes Store began an advertising campaign during Super Bowl where it partnered with Pepsi Company to gift free songs inside Pepsi bottle caps. In 2004, iTunes gave away a hundred million songs followed by double the songs during the next year with addition of free iPod gifts as well. Besides partnering with Pepsi Company, the Apple iTunes Store has used its sales milestones to use as a tool of promotion (Cruikshank, 2005). For instance, in July 2004, iTunes Store celebrated its ninety-five million to a hundred million song-sales by giving away fifty iPods and grand prize to the lucky buyer of hundred millionth song. This promotional campaign helped the company in boosting its sales extensively, as the iTunes Store was able to reach its targeted milestone of a hundred million sales in less than two weeks. The lucky buyer and grand prize winner of this promotional campaign received this news from the then CEO of Apple Company Steve Jobs that was no less than a grand prize for the lucky consumer, and subsequently, iTunes revenues continued to grow rapidly (Cruikshank, 2005). After the success of first campaign, Apple iTunes Store has been repeating this promotional campaign since then and has made it a signatory style to celebrate its sales milestones by giving away iPods, iMacs, and gift cards worth thousands of pounds. For instance, iTunes Store celebrated its half a billion sales in 2005 by giving away various iPods, world tour tickets, and various gift cards. Similar promotional campaigns were carried out by the Apple iTunes store in 2006, as well as in 2009 when it celebrated its billionth app download by giving away an iMac, an iPod, and gift card worth thousands of pounds (Binder et al, 2011). In this way, Apple iTunes Store has been relying on its sales milestones to carry out promotion of its online business, which until now has seemed successful and caused great increment in its revenues. Financial Success Since its inception in 2003, Apple iTunes Store has enjoyed exceptional financial success in the online music industry. The earlier section indicated the sales milestones that the online store surpassed during its different years that show the reception that the company acquired from its global consumer base from more than 145 countries globally. According to a 2013 report (AppleInsider, 2013), Apple iTunes dominated 75% of the online music world market with a valuation of almost five billion pounds, which indicates the extent of financial success that this online music business company has achieved since 2003. Conclusion Conclusively, this report included critical analysis of Apple’s iTunes Store as an online music business company that has been enjoying dominant success in the online music industry since 2003. The report identified various aspects of this online business, especially its strengths and weaknesses, and strategies that the company used to promote its strengths. It is anticipation that this report will be beneficial for students and readers in comprehensive understanding of the role of Apple iTunes Store in bringing digital revolution in the online music industry. References Apple Computer Inc. 1994. Inside Macintosh: Sound. London: Addison-Wesley. Apple. 2013. iTunes Store Sets New Record with 25 Billion Songs Sold. Retrieved on April 15, 2015: https://www.apple.com/pr/library/2013/02/06iTunes-Store-Sets-New-Record-with-25-Billion-Songs-Sold.html Apple. 2015. Official Page of iTunes Music. Retrieved on April 15, 2015: https://www.apple.com/itunes/music/ AppleInsider. 2013. Apples iTunes accounts for 75% of global digital music market, worth $6.9B a year. AppleInsider. Retrieved on April 15, 2015: http://appleinsider.com/articles/13/06/20/apples-itunes-accounts-for-75-of-global-digital-music-market-worth-69b-a-year Bean, G., and Tyne, S. W. 2011. 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