Current economy of i tunes
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Current economy of i tunes

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Current economy of i tunes Current economy of i tunes Presentation Transcript

  • The Current iTunes Business Model
    The Current Economy of iTunes
  • The Current iTunes Business Model
    What is the current iTunes
    Business model?
    iTunes is a Bit Vendor – “a merchant that deals strictly in digital products and services and, in its purest form, conducts both sales and distribution over the web”
    With regards to internet business models, Bit Vendors fall into the category of the Merchant Model.
    Companies who use the Merchant Model are wholesalers and retailers, selling goods and services over the internet.
    (Rappa, 2010)
  • The Current iTunes Business Model
    Other categories in the Merchant Model include:
    Virtual Merchant (eg Amazon.com) – an “e-tailer” or retailer or who only exists on the internet.
    CatalogMerchant (eg Landsend.com) – a mail order business with catalogues based online. Orders can be made via telephone, mail or online ordering.
    Clicks and Mortar (eg. BarnesandNoble.com) – a bricks and mortar retail store which also has a web store.
    (Rappa, 2010)
  • The Current iTunes Business Model
    How does iTunes relate to the fundamental
    economic basis of Internet commerce?
    Music
    iTunes relies heavily upon network effects to
    grow economically.
    The more people who use iTunes, the more artists and music labels want to get on the iTunes bandwagon.
    This makes iTunes more attractive to the average consumer.
    Because of growing network effects, iTunes have over 13 million songs, priced at either 69c, 99c, or $1.29. (Apple.com, 2010, Purchasing Music)
  • The Current iTunes Business Model
    Apple makes a profit of roughly 10 cents per song (Savitz, 2007)
    On 25/2/2010 iTunes celebrated 10 billionth song download (Apple.com, 2010, iTunes Store Tops 10 Billion Songs Sold )
    By harnessing the power of network effects iTunes was the market leader in digital sales
    in 2009 in the US (Verhoeven, 2010)
  • The Current iTunes Business Model
    Fig. 1 demonstrates iTunes’ market dominance:
    (Frommer, 2009)
  • The Current iTunes Business Model
    The App Store
    Network effects apply strongly to the iPhone/iPad and the iTunes App Store.
    More downloads in the App Store encourage more developers to create new applications
    This encourages consumers to spend more money on iPhones/iPads and Apps.
    At present, iTunes has Over 200,000 apps made by over 100,000 registered developers (Apple.com, 2010, Apps for iPhone )
    Individual iPhone App developers pay $99 per year for a developer license, enterprises pay $299 per year (Elmer-Dewitt, 2009)
  • The Current iTunes Business Model
    The App Store has achieved market dominance not only by using network effects, but a combination of the attention economy and the free economy (also known as the gift economy.)
    The App Store offers free games/applications to attract new iPhone/iPad users to the store.
    Many free applications have a premium paid version.
    The free economy works
    on the basis that the few
    who pay for premium
    content subsidise the rest
  • The Current iTunes Business Model
    Fig. 2 demonstrates App Store’s market share:
    (Nielsenwire, 2010)
  • The Current iTunes Business Model
    Fig. 3 demonstrates iPhone application popularity:
    (Nielsenwire, 2010)
  • The Current iTunes Business Model
    What are the advantages of the Bit Vendor Business
    Model?
    By dealing in digital products the costs of warehousing and goods handling are removed.
    By distributing digital products over the
    internet postage and packing costs are
    also eliminated. (Hansell, 2008)
    Delivery of purchases is instant using
    broadband technologies
    The means to store a large variety
    of stock gives iTunes long tail aggregator
    status (Anderson, R, 2007)
  • The Current iTunes Business Model
    Being a digital store allows a low cost way for the long tail theory to be applied.
    Digital products can be kept regardless of their age
    Disk space is cheap, and digital products last forever
    Older songs and niche genres attract a wider demographic
    (Anderson, C, 2004)
  • The Current iTunes Business Model
    Fig. 4 demonstrates the long tail business model
    (Anderson, R, 2007)
  • The Current iTunes Business Model
    Conclusion
    iTunes has gained market leadership by using network effects, the attention and free economy.
    In today’s competitive internet commerce world, offering something for nothing is an effective way to get attention.
    Providing a user friendly interface and a vast combination of popular and niche items (applying the long tail theory) is very effective in attracting and retaining a wider range customers.