iTunes and the Bit Vendor model


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iTunes and the Bit Vendor model

  1. 1. Introducing itunes predominant business model: the bit vendor model<br />1<br />
  2. 2. iTunes and the Bit Vendor Model<br />iTunes represents the Bit Vendor model - A merchant that deals strictly in digital products and services and, in its purest form, conducts both sales and distribution over the web<br />As far as online business models are concerned, the bit vendor model falls into the category of the Merchant Model<br />Any organisation which uses the Merchant Model is reckoned as wholesalers and retailers of goods and services on the web<br />(Rappa, 2010)<br />2<br />
  3. 3. Other Categories of the Merchant Model<br /><ul><li>Virtual Merchant:</li></ul> An e-tailer, that is, a retail merchant that operates solely over the web. (E.g.<br /><ul><li>Catalog Merchant:</li></ul>A mail-order business with a web-based catalog. Combines mail, telephone and online ordering. <br />(E.g. Lands' End)<br /><ul><li>Click and Mortar:</li></ul> Traditional brick-and-mortar retail establishment with web storefront. (E.g. Barnes & Noble)<br />(Rappa, 2010)<br />3<br />
  4. 4. How does itunes relate to the fundamental economic basics of internet commerce?<br />
  5. 5. iTunes and the Economic Basic of Internet Commerce<br />On February 25, 2010, Apple announced that music fans have purchased and downloaded over 10 billion songs from the iTunes Store (, 2010)<br />Moving forward, Apple continues to enhance the network effects– Apple announced that in less than 48 hours since its launch on September 2 this year more than one million users have joined its new music social network site Ping (Apple’s Press Release,, 2010)<br />Network effects is the underlying factor for the economic growth of iTunes<br />Apple quickly locked-in a substantial customer base through clever marketing and strategic deals with several recording companies convincing consumers that iPod was the music player<br />On the other hand, as more people are signing up to iTunes, more artists and music are jumping on the iTunes bandwagon as well to render their albums available<br />Apple's portable music player still accounts for 77% of MP3 player sales in the U.S, according to market research firm NPD (Paul – PC World, 2010)<br />5<br />
  6. 6. How iTunes benefit from the Bit Vendor Model<br />Infinite storage space for music, as music is stored digitally<br />Cost per track of storing music is effectively zero because hard-drive space on huge servers is very cheap<br />Overheads are much smaller in terms of staffing, rent among others<br />Take away the unnecessary costs of the retail channel - CD manufacturing, warehousing, distribution, packing and retail overheads<br />Storing and distributing music digitally allow consumers to find music they like<br />Consumers can preview purchases, thus reducing the risk that they will buy something they don’t like<br />6<br />(Anderson, 2007)<br />
  7. 7. iTunes Market Dominance <br />(Frommer, 2010)<br />7<br />
  8. 8. The App Store<br />iTunes business economics approach can definitely be linked to the advent of the App store in July 2008<br />Apple broadly targets a wide audience of different users with unique needs. The diversity of iPod/iPads/iPhones users is actually a core strength for Apple<br />More than 200,000 apps made by over 100,000 registered developers (, 2010)<br />Individuals pay $99 for a developer license and enterprise memberships cost $299 (Elmer-DeWitt, 2009)<br />8<br />
  9. 9. The App Store (Cont.)<br />The App store keeps at offering free applications to attract new users of iPhone and iPads<br />According to Research Director Stephanie Baghdassarian:<br />Games remain the number one application, and mobile shopping, social networking, utilities and productivity tools continue to grow and attract increasing amounts of money<br />9<br />
  10. 10. App Store Market Share<br />iPhone users downloaded 2.5 billion apps in 2009 alone.<br />The firm Gartner's figures show another 16 million apps that could come from other platform's recently opened app stores, giving Apple at least 99.4% of all mobile apps sold for the year. <br />(Foresman, 2010)<br />10<br />
  11. 11. iPhone Application Popularity<br />(Nielsenwire, 2010)<br />11<br />
  12. 12. Conclusion<br />iTunes is the number one music retailer <br /> the world as they have capitalised on network effects, the knowledge and attention economy as well as the gift economy<br />iTunes' continued popularity suggests downloads are still the way most users prefer to consume digital music<br />Apple is associated with innovation, design, quality, user-friendliness and for providing niche items; all in all for being different<br />12<br />Hence, customers know that they arebuying excellentproducts, this ispsychologically as well as from thebusiness side, a typical business model (Miguel, 2003)<br />