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