iTunes in the Network, Knowledge & Attention Economies Examining Apple iTunes Store Methodologies and the Fundamental Economic Basis of Internet Commerce
Apple iTunes Website
iTunes Desktop Application Containing Your Personal Album Collection
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
iTunes Store Content Integrated into Desktop iTunes
Apple Corporation Income & Profit Source data Apple.com
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
iTunes Store Web Sales Source data Apple.com
Rule 4 – The Law of Tipping Point Tipping point Tipping Point – 3 factors
iTunes store – Apr 2003
iTunes for Windows PC – Oct 03
iPod price drop & new models in 2004-5
iPod price drop Add Windows support iTunes Store Opens
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
iTunes Store Downloads & Income Split Area Between the lines is the Commission paid back to the artists
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.
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
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
iPod Touch Attacks the Handheld Gaming Market – iTunes for Games
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 Gamers Personalisation
iPod Sales becoming a smaller part of Apple’s revenue Zaky, A. 2010
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
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
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
Manufacturing Economy vs. Knowledge Economy Flew, T. 2008.
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
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
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.
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.