Current economy of iTunes


Published on

1 Like
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Current economy of iTunes

  1. 1. The Current iTunes Business Model<br />The Current Economy of iTunes<br />
  2. 2. The Current iTunes Business Model<br />What is the current iTunes business<br />model? <br />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” <br />With regards to internet business models, Bit Vendors fall into the category of the Merchant Model.<br />Companies who use the Merchant Model are wholesalers and retailers, selling goods and services over the internet. <br />(Rappa, 2010)<br />
  3. 3. The Current iTunes Business Model<br />Other categories in the Merchant Model include:<br />Virtual Merchant (eg – an “e-tailer” or retailer or who only exists on the internet.<br />Catalog Merchant (eg – a mail order business with catalogues based online. Orders can be made via telephone, mail or online ordering.<br />Clicks and Mortar (eg. – a bricks and mortar retail store which also has a web store. <br />(Rappa, 2010)<br />
  4. 4. The Current iTunes Business Model<br />How does iTunes relate to the fundamental <br />economic basis of Internet commerce?<br />Music<br />iTunes relies heavily upon network effects to grow economically. <br />The more people who use iTunes, the more artists and music labels want to get on the iTunes bandwagon. <br />This makes iTunes more attractive to the average consumer.<br />Because of growing network effects, iTunes have over 13 million songs, priced at either 69c, 99c, or $1.29 (, 2010, Purchasing Music)<br />
  5. 5. The Current iTunes Business Model<br />Apple makes a profit of roughly 10 cents per song (Savitz, 2007)<br />On 25/2/2010 iTunes celebrated 10 billionth song download (, 2010, iTunes Store Tops 10 Billion Songs Sold )<br />By harnessing the power of network effects iTunes was the market leader in digital sales in 2009 in the US (Verhoeven, 2010)<br />
  6. 6. The Current iTunes Business Model<br />Fig. 1 demonstrates iTunes’ market dominance:<br />(Frommer, 2009)<br />
  7. 7. The Current iTunes Business Model<br />The App Store<br />Network effects apply strongly to the iPhone/iPad and the iTunes App Store. <br />More downloads in the App Store encourage more developers to create new applications <br />This encourages consumers to spend more money on iPhones/iPads and Apps.<br />At present, iTunes has Over 200,000 apps made by over 100,000 registered developers (, 2010, Apps for iPhone )<br />Individual iPhone App developers pay $99 per year for a developer license, enterprises pay $299 per year (Elmer-Dewitt, 2009)<br />
  8. 8. The Current iTunes Business Model<br />The App has 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.)<br />The App Store offers free games/applications to attract new iPhone/iPad users to the store.<br />Once they have the consumers attention, they can showcase the large number of paid application they have in store.<br />Many free applications have a premium paid version.<br />
  9. 9. The Current iTunes Business Model<br />Fig. 2 demonstrates App Store’s market share:<br />(Nielsenwire, 2010)<br />
  10. 10. The Current iTunes Business Model<br />Fig. 3 demonstrates iPhone application popularity:<br />(Nielsenwire, 2010)<br />
  11. 11. The Current iTunes Business Model<br />What are the advantages of the Bit Vendor Business<br />Model?<br />By dealing in digital products the costs of warehousing and goods handling are wiped out<br />By distributing digital products over the internet postage and packing costs are also eliminated (Hansell, 2008)<br />Delivery of purchases is instant over using broadband technologies<br />The means to store a large variety of stock gives iTunes long tail aggregator status (Anderson, R, 2007)<br />
  12. 12. The Current iTunes Business Model<br />Being a digital store allows a low cost way for the long tail theory to be applied.<br />Digital products can be kept regardless of their age<br />Disk space is cheap, and digital products last forever<br />Older songs and niche genres attract a wider demographic<br />(Anderson, C, 2004) <br />
  13. 13. The Current iTunes Business Model<br />Fig. 4 demonstrates the long tail business model<br />(Anderson, R, 2007)<br />
  14. 14. The Current iTunes Business Model<br />Conclusion<br />iTunes has gained market leadership by using network effects, the attention and free economy.<br />In today’s competitive internet commerce world, offering something for nothing is an effective way to get attention.<br />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.<br />