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  • 1. iTunes in the Network, Knowledge & Attention Economies
    Examining Apple iTunes Store Methodologies and the Fundamental Economic Basis of Internet Commerce
  • 2. Apple iTunes Website
  • 3. iTunes Desktop Application Containing Your Personal Album Collection
  • 4. How do New Rules for the Network Economy Apply to iTunes Store?
    Rule 1 - Law of Connection
    iTunes use the Internet to serve content to millions of computers & attached music players
    iTunes Store website content integrated into the iTunes Desktop application, purchase songs etc, easy to use
    Connects producers of 10 million recordings via the Internet to 125 million iTunes Store customers
    Empowers distributed artists & content producers to
    create songs & applications,
    publish songs and
    generate revenue from each download
    Brings manufacturers and customers together
  • 5. iTunes Store Content Integrated into Desktop iTunes
  • 6. Apple Corporation Income & Profit
    Source data
  • 7. Rules 2 & 3 - Laws of Plenitude & Exponential Value
    Slow to start, but success occurs
    Success breeds success, more songs, more iPods, more downloads, more songs and so it goes.
    Revenues begin to soar
  • 8. iTunes Store Web Sales
    Source data
  • 9. Rule 4 – The Law of Tipping Point
    Tipping point
    Tipping Point – 3 factors
    • iTunes store – Apr 2003
    • 10. iTunes for Windows PC – Oct 03
    • 11. iPod price drop & new models in 2004-5
    iPod price drop
    Add Windows support
    iTunes Store Opens
  • 12. Rule 5 - Law of Increasing Returns
    Apple’s gross margin % has increased over the last 5 years from 29% to 47%
    More Attraction
    More Songs Written
    More iPods Sold
    iTunes Store
    More Commissions Paid
    More Downloads
    More Revenue
  • 13. iTunes Store Downloads & Income Split
    Area Between the lines is the Commission paid back to the artists
  • 14. Rules 6 - The Law of Inverse Pricing
    Moore’s Law: CPUs double in power every 18mths
    Gilder’s Law: Comms Bandwidth triples every 12 mths.
    Metcalfe’s Law: Value of a network increases to the square of the number of nodes.
    iTunes songs are cheap compared to CDs $0.69, $0.99, $1.29 & $2.19 / song vs. $15 - $29 for a CD.
    Price of Knowledge & Creativity Increases.
    Price of H/W drops. iPods got smaller, more features and dropped in price.
    Demand increases, sales increase.
  • 15. Rule 7 – The Law of Generosity
    Free iTunes Desktop Music Catalogue
    Free 30 Sec sample
    Free Pod casts
    Free Song of the week
    Free Samples
    Customers Give iTunes Gift Cards as Christmas Gifts
  • 16. How do New Rules for the Wired Economy Apply to iTunes
    Law of Allegiance
    Passionate Apple devotees
    Apple used ACC (m4a) copy protected music format vs. open mp3 format. A big gamble that paid off.
    Expand to Windows customers
    Law of Displacement
    Increase the digital warehouse
    Add another webserver, hard disk array or switch
    iPods are smaller, hold more songs, play & take videos
    Download more & varied content
    iPod prices dropping, features increasing
    iPod Touch, iPhone & iPad apps
  • 17. iPod Touch Attacks the Handheld Gaming Market – iTunes for Games
  • 18. Rule 9 – The Law of Devotion
    Apple customers are typically arty, fashion & style conscious, and often non-techie where ease of use is important
    Compared to IBM & compatibles, Apple had a small club devotees dedicated to the brand.
    Fan base now covers Windows & Mac customers
    Download customers are devoted:
    Music Fans
    Movie Fans
  • 19. iPod Sales becoming a smaller part of Apple’s revenue
    Zaky, A. 2010
  • 20. Rule 10 - Law of Displacement
    Add another webserver, hard disk array or switch
    iPods are smaller, hold more songs, play & take videos
    iPods run applications, play games & movies
    iPod prices dropping
    iPods are being displaced by iPhones
    Yet iTunes Store continues to grow
    Information is power, digital assets increase in value
  • 21. Rule 11- Law of Churn
    iPods became smaller in size & price
    Now an ever decreasing part of Apple’s revenue stream. iPod wave is crashing. Replaced by iPhone & iPad.
    Whilst iTunes Store continues to grow with expanded range of content, inc.
    Music – all genre
    Podcasts, Talking Books & Education Series
    Movies, TV Shows,
    Applications & iBooks
  • 22. Rule 12 - Law of Inefficiencies
    Apple are releasing new products, iPhone, iPad and soon iTV
    So slow down on building better iPods
    Build new products to compete in other markets
    Develop new market segments that leverage benefits from the iTunes Store.
    Downloadable Applications
    Downloadable iBooks, Movies & Television
  • 23. Manufacturing Economy vs. Knowledge Economy
    Flew, T. 2008.
  • 24. Transition from the Manufacturing Economy to the Knowledge Economy
    Disintermediation of traditional manufacturing and sales processes.
    Knowledge is power.
    Internet distributes information and knowledge flows
    Knowledge is transferred to the customer to make informed choices.
    Removal of wholesalers, distributors and retailers from the sales process.
    Customers deal directly with manufacturers
  • 25. iTunes &the Attention Economy
    World of over saturated media, bombarded by advertising
    Limited spare time to read, relax or research
    Money flows towards attention
    How to get noticed in the Attention Economy
    iTunes & Attention Economy
    6 – 35 year olds love music and video, actively seek it
    Dominant market share, 70% of online music sales
    Artists & record companies provide their own marketing
    Web2.0 end-user feedback, reviews, ratings, social media marketing. Fans selling to fans.
    No lack of attention here
  • 26. Disintermediation Fostering One to one relationships between producers & consumers
    Artists, Record Companies, Movie Cos, App Devs
    See iTunes a friendly & rewarding channel to market.
    A place to build their brand (get Attention)
    70% commission paid to the creator/artist (ensure supply)
    Slows piracy and provides income to the artist
    Happy content providers, produce large amounts of new content, resulting in happy customers & happy artists.
  • 27. Summary
    Network Economy – Connectedness of many
    Knowledge Economy – Creativity of many
    Attention Economy – Multi-Channel Marketing facilitated by distributed marketing,
    Create Fans & get noticed. Wealth flows towards attention.
  • 28. References
    Apple. (2010). Apple Inc. Images & Screenshots. Retrieved July 10, 2010, from
    Apple. (2010). Apple Inc. Financial History: Annual Reports & Financial History. Retrieved July 10, 2010, from
    Brooks, A.(2010). iTunes Continues to Dominate Music Industry. Retrieved July 25, 2010, from
    Flew, T. (2008). The Global Knowledge Economy Oxford University Press Retrieved July, 10, 2010, from
    Goldhaber, M. (1997). The Attention Economy and the Net. First Monday Retrieved July, 19, 2010, from
    Kelly, K. (1997). New Rules for the New Economy. Wired.Com Retrieved July, 10, 2010, from
    Zarky, A. (2010). Special Report: The end of Apple’s iPod era. Appleinsider Retrieved July, 10, 2010, from