FINAL+REPORT

d.) iTunes was debuted by Apple Inc. at the Macworld Expo, and released exclusively for the Macintosh computer and its users. The program itself was downloadable from Apple Inc.’s website at no charge to users, allowing them to compile and edit their music libraries with ease [Apple, 2001]. This effectively made Apple the main distributor and main marketer of its product, allowing it flexibility and control in these areas, therefore making it the most important influence in iTunes’ development and growth.  iTunes’ predecessor, the Soundjam MP program was developed by two software engineers, Jeffrey Robbin (the current lead software designer at Apple Inc.) and Bill Kincaid. Robbin, the head developer of Soundjam, was hired to rework Soundjam into an Apple application, providing an improved experience to its users. Eventually, Robbin was promoted to manage the entire iTunes development team, and plays a key role in developing the iPod mp3 player, the hardware component to be involved in Apple’s digital media project [Temporal Loop]. Tony Fadell (an outside engineer) was in charge of the strategy to drive Apple’s hopeful dominance of digital media. The strategy involved combining an affordable mp3 player and an accessible music service. The strategy additionally involved the creation of an online music store, which would make media affordable and simply obtained for users, which can be transferred to the mp3 player easily [Temporal Loop]. e.) As a media service program, iTunes is not without competition. There exist several software programs which possess iTunes’ ability to aggregate and edit media, such as Microsoft’s own Windows Media Player, iTunes’ predecessor Soundjam and the freeware program, Winamp. Numerous companies have begun to launch online music stores to compete with that of iTunes, noting the great success achieved by Apple with the music store. Samsung, Tesco Digital and Buy.com are just among the few to delve into digital music downloads. Windows Media Player and programs such as Real Incs., Rhapsody also offers extensive libraries of media available for download with a subscription or fee per download. Generally, however, due to iTunes’ overwhelming dominance, most music store launches are not driven by the desire to directly compete, but rather to make some form of revenue with relatively low cost, as Tesco’s spokesman elucidated when describing the company’s motive [MacNN]. iTunes’ success as a digital provider of media may be what has fuelled the competition in the first place, as retail sales have plunged drastically since legal music downloads have been made available to the public. The process of purchasing a physical copy of a compact disc from a retail outlet occurs far less often today, and as a result record stores are suffering greatly from this. Physical music sale revenue has fallen from $13 billion in 1999 to $10.6 billion in 2004, reflecting the shift the way consumers’ acquire music [CNNMoney]. By the middle of 2007, physical CD sales had fallen approximately 17 percent, with digital downloads surging 53 percent over the same period the previous year [MSNBC]. By this data iTunes (and to a lesser extent its competing digital media services) is effectively displacing the physical purchase of CDs (and possibly DVDs) as the primary source of media for consumers. f.) iTunes markets itself with a slick, accessible and comprehensive interface, which can be easily used by the vast majority of the public. Users are able to search for favorite artists, tracks and albums, among other categories, and can pay a uniform price of 99 cents in order to obtain individual songs (or a higher, similarly uniform price for entire albums). Recently, Apple have altered their pricing scheme, changing to a three-tiered system to encourage more downloads, in the wake of slowing downloading growth statistics, and to obtain greater revenue from the newly released hit music [Wall Street Journal]. Recently, in order to preserve its leading status in digital music downloading, Apple entered talks with music companies to allow consumers complete access to the entire iTunes store at the cost of a regular subscription fee, following the lead of competing music services such as Rhapsody. Such a deal was intended by Apple to drive new demand for Apple hardware [Financial Times]. Apple is seen to have as its overall strategy tying as many consumers completely to the iTunes service as possible. Its recent hardware releases, such as the Apple TV and iPod Touch, and their important link with iTunes, are seen as proof of this strategy [Jay]. Apple has indeed been accused previously of trapping consumers in a walled eco-system, with iTunes as its vital link, somewhat lending weight to the assumptions of Apple’s overall strategy. Generally, users also may use iTunes as an Internet radio service, or obtain the newest audiovisual media (such as television shows). iTunes and iPod can only sync with each other, which allows Apple to proliferate iTunes with the vast sales of the iPod (and possibly vice-versa.) Apple’s release of iTunes for the Windows allowed iTunes’ audience to be vastly increased, boosting its overall success. According to research on Digital Media Strategies, Apple places great focus on consumer paid-for media (such as music and video downloads). This focus has allowed Apple the ability to insulate itself from the 2008 financial crisis somewhat, relative to other digital media companies. Its Music Related Products and Services segment, which includes iTunes, grew 32.7 percent in 2008, as compared to Yahoo’s growth of 3.4 percent in the same period, the difference in growth being attributed to Yahoo’s focus on online advertising [Strategy Analytics].


 * Strengths **

iTunes currently dominates the market of digital music sales industry, holding 57% of the market (Joyce, 2008). No other competitor is within reach of iTunes’ market share with the second and third largest market share going to Amazon.com and Napster at 9% and 8% respectively (Joyce, 2008). Since the demise of album sales, record labels have been looking for new ways to distribute their artists’ music. Apple’s dominance in the digital music sales market have established a strong and loyal customer base which allows them to appeal to record labels looking to distribute their music digitally. Also with its established customer base, the power of word of mouth plays a big part in luring even more customers, thus further solidifying iTunes as the powerhouse in comparison to its competitors. The interface of iTunes is also very user-friendly. All functionality and features are clearly labelled and located strategically for the highest efficiency. The ease of use of iTunes is very high and most casual computer users would have no problem with the software. Ease of use is a very important factor as consumers want to be able to master the software in a short amount of time to actually use it to the fullest extent. Not only is iTunes an online digital media store, it doubles off as a multimedia player. Consumers can buy the media and immediately use it in the same software instead of requiring an additional software to play the purchased media. iTunes currently holds the largest music library in the industry, with more than 8 million titles and growing each day (TopTen Reviews, 2008). But music is only a portion of what iTunes has to offers; it also sells movies, TV shows, games, audiobooks, podcasts, music videos, applications for the iPod Touch and iPhone and more. With its extensive range of media, there is no surprise that iTunes leads the industry. Consumers are looking for an extensive multimedia library for a wide selection and the converging of media makes it a one-stop location for the purchase of all sorts of different media. Another strength that iTunes possesses is the preview option in the iTunes Store. // Previewing gives the consumers an idea of what they are actually purchasing. Additionally, iTunes Store also provides customer reviews which could assist in the purchase of the media. // Media from the iTunes store can be bought instantly at the click of a mouse along with a valid credit card and an iTunes account. For consumers without a credit card, Apple has iTunes gift cards which are readily available for purchase in many retailers all over the country. Just to name a few, the list of retailers include: Wal-Mart, Best Buy, Future Shop, and Apple retail stores (Apple, 2009). Being able to buy music and other sorts of media through the internet eliminates the need to physically visit a retail store, saving consumers a lot of time. Apple has released iTunes on both the Mac and Windows platforms capitalizing on both the Mac and PC market. Combined, the Mac and PC market takes up the majority of operating systems (approx. 96%) that computers run on (MarketShare, 2009). iTunes is also regularly updated, which at the moment is running at version 8. With its innovative nature, Apple constantly adds new features and modifies existing features to cater to the users’ needs and to stay competitive. Regular updates ensures that iTunes stays on par with the latest technology. In iTunes 8, Apple introduces a new feature called the genius playlist; it basically allows iTunes to recommend songs from analyzing your existing music library (Mcnulty, 2008). Most consumers may find it very useful as they are constantly looking for new music to listen to but do not have the time for manually search for music; for others this might come off as threat of invasion of privacy. Apple realizes this privacy issue and therefore made the genius playlist is an optional feature that can be enabled or disabled by a single click on the on/off option in the genius sidebar. All these strengths that iTunes possess provide it with an edge over all its other competitors; with its innovative state of mind, iTunes will remain dominant in the digital music industry with many years to come. A company’s weaknesses are important to outline as they are often reviewed and used as models of future improvements. It is extremely important for a company of any kind to re-evaluate their objectives and improve the service they currently offer. iTunes’ main weakness is its incompatibility with other MP3 models. The iTunes service only supports the apple iPod which is connected via the USB port on the computer. Certain MP3 models do not connect with the iTunes software thus not allowing the transfer of purchased music to the hardware. The iTunes software does not recognize the connected hardware if it is not an Apple iPod. This incompatibility greatly harms iTunes and Apple Inc., as it limits the choices of consumers, or even defers these consumers to other methods of acquiring music. A second major weakness that iTunes faces are the incompatibility of the music files. Each music file from iTunes is only in an Advanced Audio Coding format (AAC). Apple states that the AAC format is replacing the widely popular MP3 format as it delivers a better sound that rivals the crispness of an uncompressed audio compact disc (Apple, 2003). The AAC format is not compatible with many other portable music hardware’s-creating an inconvenience for consumers who own non iPods (Apple, 2003). Consumers with incompatible MP3 players may choose to buy music from competitors or even illegally download their music; this will damage iTunes as perspective sales are lost due to hardware incompatibility. Improving these weaknesses would greatly aid iTunes and broaden its market. By making this software compatible with various MP3 players, it would encourage more users to use the iTunes software to organize their media files. Also by making other hardware compatible with iTunes, it may encourage these users to purchase music using the iTunes store. The AAC format is a major compatibility issue for Apple and iTunes; however, this format is taking precedence over the current MP3 format. iTunes’ use of Digital rights management (DRM) is an obvious weakness as many competitors are going the DRM-free route while selling their media files. Four of the world’s largest music labels, ( Warner Music Group, Universal Music Group, EMI Music, and Sony BMG) have distanced themselves with DRM, stating that consumers do not want it (Kravets, 2008). These four companies realize that the market is calling for a change and are advocating for one (Kravets, 2008). iTunes, however has not removed the DRM from the software and continues to use it despite market demand. iTunes’ DRM songs and media files prohibit the transfer onto none apple hardware-creating a roadblock within the availabilities of the market. Analysts believe that Apple’s decision to keep DRM as a part of their iTunes software is a weakness that may harm its success in the future as non-DRM files are becoming readily available within the competitors like RealPlayer and Microsoft’s Zune (Kravets, 2008). Apple’s iTunes’ strengths and opportunities outweigh its weaknesses and threats as it constantly upgrades its service and accommodates a wide range of clientele. Some opportunities that iTunes has are its global availabilities. The iTunes software is available in over 60 countries and functions in various languages to accommodate its wide range of users (Apple, 2003). Music is universal and iTunes availability to function in an international market is an opportunity to break borders and reach millions of people around the world. With its popularization through the iPod generations, iTunes has the opportunity to be ported into a mobile platform which manages the media on cellular phones. This is a very big market as cell phones are slowly becoming a necessity. Since iTunes has established a loyal customer base, it would be appealing to mobile phone companies that want to attract potential customers by adding the iTunes software support. Also, with its established market and customer base, iTunes is appealing to new music artists who need publicity and exposure to a huge crowd. This gives iTunes an edge over other competitors for business opportunities. iTunes benefits from this opportunity because it is the dominant media E-Commerce software and is recognized around the world as such. This large market share also appeals to international distributors. Music companies around the world make their clients music available via iTunes for a cost, aware that iTunes will make the music available, online around the world.
 * Weakness **
 * Opportunities **

 iTunes’ biggest threat remains to be Peer-to Peer (P2P) programs like LimeWire, BitTorrent, etc. Since downloading music via P2P programs are free, the iTunes is no match for this juggernaut. Even though iTunes is the largest market share holder in the digital music sales industry, it hardly reaches the number of songs downloaded via P2P programs. Even though iTunes has a greater selection of music, downloading music via P2P program remains to be a better economic choice to attain music.
 * Threats **

iTunes’ dominance in the digital music sales industry makes it an easy target for new competitors to enter the market. As for existing competitors, they are constantly looking for ways to gain a higher market share by offering something that iTunes does not. Existing competitors could also resort to partnership with another competitor to combat against the industry powerhouse, iTunes. Exisiting competitors consist of Amazon, Napster, RealNetwork Inc.'s Rhapsody, Yahoo! Music, MySpace, WalMart, and many others (Joyce, 2008). iTunes  As stated as one of the weakness, iTunes has most of its music in DRM format. Many of its competitors have offered their music in DRM-free formats which allows the users to play the downloaded music on any hardware that they desire. The market demand is currently slowly shifting into the DRM-free formats since the DRM format files that iTunes offers can only be played on the iPod, also a product of Apple (Kravets, 2008).

Amazon MP3, launched last September, which features DRM-free music, now holds the second largest market share in the industry (Glazowski, 2008). Even though it is still a far way from iTunes’ market share, the growth since the birth of the service has been exponential (Glazowski, 2008). Other competitors like RealNetwork Inc’s Rhapsody, which holds the fourth largest market share in the industry has also taken the shift to DRM-free music (Yoskowitz, 2008).

The four biggest labels in the music industry, namely Warner Music Group, Universal Music Group, EMI Music, and Sony BMG have all moved to support DRM-free music (Kravets, 2008).

The DRM-free music might not appear to be a big threat to iTunes at the moment but it could develop into a bigger threat and potentially hurt iTunes’ existing market share in the near future.

The recent recession could also play a vital part in the sales of iTunes. Since the economy is currently on a downfall, it is predicted that there would be less sales made. At an economic time like this, music would likely decrease the demand in the purchasing of music, encouraging music listeners to seek alternatives like downloading songs illegally via P2P programs. This action could potentially become a big threat and hurt iTunes’ market share in the industry.

iTunes’ constant updating and enhancing makes it one of the top leaders in digital music sales. Some further improvements iTunes can make in the future could include the removal of the AAC/DRM software, ability to recognize non apple MP3 players, increase compatibility with mobile phones and (Angelo insert the final recommendation) Currently, iTunes uses DRM which as previously stated, is only compatible with other Apple products, such as the iPhone or iPod. This technology limits potential buyers’ options and may even deter them to conduct business with the competition. Having this DRM technology protects music from being transferred to other MP3 players, this technology deters music buyers who own another MP3 player brand. Four of iTunes largest competitors have already distanced themselves from DRM because “consumers do not want it” ( Kravets, 2008). The removal of the DRM from the media files will generate more consumers as the files would be compatible on various hardware and plattforms. The removal of DRM would also retreive iTunes sales that have been lost to softwares that no longer use DRM within media files. Apple Inc., may want to consider making MP3 players other than the iPod compatible with their iTunes software. Removing the DRM software from the digital downloads is half the battle but making the program itself compatible with other MP3 players may give iTunes a further step to maket monopolization. iTunes’ currently uses an Advanced Audio Coding format (AAC) which protects iTunes files from being transferred on non Apple hardwares. This AAC protection, like the use of DRM limits a consumers choices and may deter possible customers to conduct business elsewhere. Removing this strict protection format from the digital files will encourage a new range of customers to buy music at the popular iTunes store rather than illegally download or cunduct business with competitors such as the //Zune// store or the //RealPlayer// store. The removal of the AAC format will increase sales as more people can buy digital files from the iTunes store Goals: The iTunes’ case impacts my life on a daily basis. As an avid music fan I no longer find myself illegally downloading music like I have in the past. Today, I find it much more convienient in having my music sotred, organized and accessible within the same program that allows me to purchase the digital files. Programs such as iTunes have become so innovative and consumer based that they have really reaffirmed the fact that the consumer is the centre of any business. Programs such as iTunes have adressed so many consumer wants in one place that it becomes popular due to the easy accessibilty. In my future career I hope to take the ideas that Apple Inc., has used within the iTunes technology and adapt these many consumer wants and needs in one place, fully adressing public demand. iTunes found a gap between music sales and potential consumers and adressed it and as a Digital Enterprise Management student I hope that in a future career I can adress the publics’ demand by providing an innovative and useful product or service with the availble technolgy.
 * //__ Reccomendations __//**

REFERENCES

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