Individual Assignment: Apple’s iTunes Music Store
Using Porter’s competitive forces model, and competitive strategies, analyze why Apple’s iTunes became the dominant service in downloadable music. Answer the following questions about the Apple Company and iTunes to help frame your report. The industry in this case is the “downloadable music industry”:
How did Apple dominate the market when it was not the first mover in the industry? [Who were the first movers? Give a couple of examples]. Refer to all the forces in the industry in writing your answer to this question and answer the questions below as part of your answer:
Apple was not the first mover to the digital music industry. Prior to Apple, a number of companies …show more content…
This exclusive tight control and proprietorship is the driving force behind the lock in. Apple used its brilliant marketing strategy to sell iPod to consumers and iTunes to music labels. As the iTunes and iPod started gaining momentum and user base, a network effect was developed which led to an increased overall user base for both customers and music labels providing apple with a foundation to develop its proprietary DRM which locked in both customers and suppliers. As Apple’s popularity increased, its iTunes library also increased at an affordable cost. This resulted in an increased user base of iTunes accessed through iPod leading to an overall growth in iPod sales. Apple later integrated its iPod and cellular phone to create iPhone and its subsequent products in the lineup with similar lock in characteristics. The success of iPhones contributed exponentially to iTunes user base making iTunes and Apple the dominant player in music …show more content…
Today, the music industry is gearing into another technology shift. Streaming music rather than owning it seems to be the current trend. The recent years has seen the growth of companies that stream music such as Youtube, Spotify, Amazon Prime Music, Google Play, Pandora, Rdio etc. has been gaining momentum. A Porter’s Five Forces analysis may shed light on how streaming will affect Apple and its most successful offering, iTunes and their market share.
1) Bargaining power of Suppliers
Suppliers constantly seek to lock in customers in order to ensure a constant revenue stream and installed base. Due to a large switching cost to overcome locking, customer gets trapped with their current vendor or supplier. High switching costs usually reduces competition and increases profits. The core of Apple’s lock in strategy was iTunes. It was only compatible with Apple products such as iPods, iTunes, Mac and desktop and vice versa. Due to these reasons, the music labels and artists who are the suppliers to Apple have low bargaining power. Apple enjoys almost 70% market share in digital music which gives it leverage to set terms and conditions. By not ensuring their presence on iTunes, music labels tend to lose a huge amount of revenue and user