iPOD 1

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					iPod vs. Cell Phone: A Mobile
    Music revolution?

  A Marketing Management-II Case
 Technology Building Blocks of Mobile
• Digital Risk management DRM
  – Governs: Use, distribution, and sharing of IP
  – Controls: Which device plays which music tracks
    and how often user could share music.
  – Relevance to subscriptions based service-
  – iTune-Tight closed DRM, FairPlay
  – Competing standards-Microsoft’s WMDRM, Open
    Mobile alliance
  Comparison of Leading DRM Systems
Platform        Apple iTunes          WMDRM                       OMA             RealPlayer
Mobile DRM      FairPlay              WMA DRMA                    OMA 2.0         Helix/Harmony
Solution                              (V10)
Proprietary?    Yes                   Yes                         No              Yes
Available for   No                    Yes                         Yes             Yes
Support         No                    Yes                         Yes             Yes
Challenges      Compatible            Processor                   Due to disputes Less Viable
                only with             intensive hard              with WMA,       then other
                iTunes                to use with                 providing       systems
                                      small devices               WMA de facto
                                                                  monopoly as
                             Source: Exhibit 7, Case Study, iPod vs. Cell
                                Phone: A mobile Music revolution?
 Technology Building Blocks of Mobile
• File Formats
  – A codec is a device or program capable of performing
    encoding and decoding on a digital data stream or
  – Every digital music file format came in specific format
    or codec
  – Relationship between DRM std and codec was
  – Some DRM standards were compatible with only
    certain codecs
  – Compression in codec: compensate for capacity and
    faster download over the air, at the cost of quality
              Codec DRM pairings
Codec                                   DRM pairing

MP3                                     None

AAC                                     FairPlay, other proprietary DRM

aacPlus                                 FairPlay, other proprietary DRM

aacPlus(v2)                             FairPlay, other proprietary DRM

WMA                                     WMDRM-10

ATRAC3                                  Sony Proprietary DRM

                 Source: Exhibit 8, Case Study, iPod vs. Cell
                    Phone: A mobile Music revolution?
 Technology Building Blocks of Mobile
• Network Considerations
  – Capacity and data rates a major constraint on carriers
    mobile music strategy.
  – Old Gen N/W: long download times, capacity
  – 3G-Network: faster download time, 900 kilobyte in 60
    sec at cost of 14 sec
  – 3G – High implementation and network migration cost
  – 3G networks are wide area cellular telephone
    networks which evolved to incorporate high-speed
    internet access and video telephony, through
    improved spectral efficiency
 Technology Building Blocks of Mobile
• Handset Issues
  – Music capabilities in handsets – adds significant
  – Subsidized rates of mobiles- to increase subscriber
    retention & marketing of add-on data services
  – Maintaining prices were critical – due to audio
    speakers, head phone, robust screen
  – To compete with large capacity of iPod-
    introduction of removable Memory card
  Business Model and Economics
• Interdependent Factors for Business Model
  1.   Music Delivery Method
  2.   Pricing Model
  3.   Handset Functionality
  4.   Mobile-PC Integration
  5.   Network Interoperability
        1. Music Delivery Method
Full Track Download
• Download Song from the
• Music file resided on users’
                                 User Machine
• Subscription: User rented a
   downloaded track.

         1. Music Delivery Method
• A technique for transferring
   data such that it can be
   processed as a steady and
   continuous stream.
• With streaming, the client
   browser or plug-in can start
   displaying the data before
   the entire file has been
• On demand & Channel
                 2. Pricing Model
‘a la carte’                     Subscription
• selling music track-by-track   • For a basic service user paid
    for a unit price               a monthly subscription
• Dominated the US market          Service
• Share of market went up        • User paid monthly fee ($8 -
    from 66% (2004) to 76%         $10)
                                 • Tiered Pricing
• Can cherry pick specific
    songs                        • Access to a catalog
• Ownership Subject to DRM
       3. Handset Functionality
• Handset -device through which users browsed
  and brought music then transferred to PC
• Handset-Storage/play device, “sideload” from
• Also, Handset- served both a purchase trigger
  and content destination
• Other- Carrier’s choice of media player, DRM,
  codec format and user interface.
       4. Mobile–PC Integration
• Degree of integration with the PC
• Model one-Handset a stand alone device,
  users could purchase, store, and receive
• Model two-Tight integration and
  interoperability between a PC and mobile.
     5. Network Interoperability
• Carrier to decide on,
  – Open Model- Allows customers to download
    music from multiple services.
  – Carrier Made money from Network usage money
    e.g. Japan’s DoCoMo
  – Closed Model- Allowing download from their own
    proprietary service
  – Carrier made money through music retailing e.g.
    Verizon Wireless
Retail Price

               Source: Exhibit 11, Case Study, iPod vs. Cell
                   Phone: A mobile Music revolution?
     The mobile music value chain

• Record labels               • Online music retailer

• Platform vendor             • Handset maker

• White-level music service   • Mobile operators
              Record labels
• Major labels- universal music group, warmer
  music group ,EMI and Sony BMG
• Digital music began to cannibalize traditional
  CD sales.
• Labels were open to exploring new business
  model with mobile operators
• Prime objective for music labels was to
  reduce the illegal downloading
    Mobile music Platform vendors
• Firms like Musiwave (which developed Vodafone’s platform,
  Melodeo (which served Rogers in canada)

• They occupied various intermediate links in the mobile music

• They provided carriers with something all in one music

• They designed and customized the software's that handset
  maker preloaded on their device and provided back-end
  support .
         Online music retailers
• Apple’s i Tunes market leader

• Rest player – AOL ,MSN , YAHOO

• Standalone music store – Napster and
             Handset maker

• NOKIA : N 91

• SAMSUNG : IN 2005 Samsung released a new
  handset model in north America every two
    Mobile operator and handset availability
Carrier (share)   Handset                             Handset   Retail
                  maker                               model      price
Cingular (32%)       Motorola       ROKR E1                      $ 250
                     Motorola       SLVR L7                      $ 200
                     Sony Ericsson  W600 I                       $300
Sprint- Nextel (15%) Samsung        MMA90                         $150
                     Samsung        MM-7500                       $150
                     Sanyo         A900                         $ 200
Verizon wireless     LG            Vx 8100                      $120
(25%)                Samsung       SCH-a950                     $200
                     Audiovox      CDM8945                      $ 13
                    Source: exhibit 13 i pod vs.cell phone :a
                           mobile music revolution
           Potential advantage
• Purchasing convenience

• Device singularity

• Margin opportunities

• Scalability
                Over the Air (OTA)
• Over The Air (OTA) is a
  standard for the transmission
  and reception of application-
  related information in a
  wireless communications
• OTA is commonly used in
  conjunction with the Short
  Messaging Service (SMS), and
  small graphics, such files can
  contain instructions for
  subscription activation,
  banking transactions,
  ringtones, and Wireless Access
  Protocol (WAP) settings.

Mobile Lifestyles: Cell Phone Trends
 Mobile Lifestyles: Cell Phone Trends
• Most respondents indicate the primary reasons
  they shop for a new cell phone are practical
  instead of driven by style or fashion;
• 41% said they only get a new phone when they
  are getting a new cell plan,
• 29% do so to replace a broken or lost phone, and
• 22% said they replace their phone for improved
• Only 8% admit to shopping for a new phone for
  style purposes.

                 Source: Consumer Behaviour Report, April
Mobile Lifestyles: Cell Phone Trends
 Mobile Lifestyles: Cell Phone Trends
• The average price for cell phones consumers shopped
  for in Q1 2006 was $311
• More than half of the top 15 most popular cell phones
  have a price point over $250.
• $605 for the Sony Ericsson W900i Cell Phone ranked #7
  on the top 15 list, consumer interest for high-end cell
  phones is showing robust growth.
• Top 15 most popular list is indicative of the increasing
  interest to shop and research online for high-priced,
  top-of-the-line cell phones, instead of cell phones with
  the lowest price.
                   Source: Consumer Behaviour Report, April
Mobile Lifestyles: MP3 Player Trends
 Mobile Lifestyles: MP3 Player Trends

• 75% - it is the best technical MP3 player, and
• 25% say it was because it was the “in” brand.
• Apple holds 61% share on referred dollars and 49% on
  click thrus to merchants, a 29% increase in market
  share y-o-y over 2005
   – 43% of surveyed say they won’t buy a new iPod until their
     current model is maxed out or no longer working;
   – 35% won’t buy a new version within the first 6 months and
   – 7% say they likely would buy one within the first month of

                    Source: Consumer Behaviour Report, April
       Competitive edge
• th
           After flop of ROKR
• Apple would need to launch its own virtual
  mobile service to fend off the threat from
  mobile operators.
• Apple would be to design, manufacturing and
  market its own market iTunes –compatible
  mobile phone
           Strategies of Apple
• Music downloaded through iTones could only
  be played on the iPod
• ITune-iPod business model was both simple
  and powerful.
   - download any track from iTunes music store
  for 99 cents
• It enjoyed an average margin of 25% on iPod
                 Revenue Contribution
                               2004 Q3               2005 Q1              2005 Q3   2006 Q1
Mac                              62%                   49%                 45%       40%
                     desktop     37%                   31%                 24%       16%
                    notebook     25%                   18%                 21%       24%

Peripherals, Other
    Hardware                     11%                   10%                  8%        5%

Software and Services            10%                    7%                  9%        6%

Total Computers and
    Software                     83%                   66%                 62%       51%
iPod                             13%                   29%                 31%       40%

Other Music Sales                 4%                    5%                  7%        9%

Total Music                      17%                   34%                 38%       49%
               Market capture opportunities

• EDGE's slower data transfer can be sidestepped if local wireless (i.e., WiFi)
  is used, but WiFi is expensive and far from available everywhere

• Apple's strength lies in marketing to end-consumers rather than business
  users, a segment with a much higher penetration into smart phones and
  expensive data plans.

• The iPhone may "cannibalize" some sales of iPods.

• The iPhone completely utilizes touch screen technology. This could be a
  potential problem for the less tech savvy phone user.

• The iPhone does not allow third party software to be used without
  unlocking the phone, an act Apple frowns upon.
         Apple's main competitors

• Sandisk’s Sansa players, one model of which beat the Nano to
  market, with more GB and a lower price point.

• Creative's Zen, which has a strong grounding in flash-based
  players--including the first true widescreen video PMP with
  the Zen Vision

• Microsoft's Zune, currently uninspiring, but with the potential
  for significant growth and the ability to leverage unique file
  transfer technology.
     Comparison of Apple and its main PMP competitors

                        iPod Video        iPod Nano           Sansa e280             Zune          Zen Vision:W
Market Share of
     Company              75.60%            75.60%                9.70%                ---             4.30%
Price (est. end
      2006)              US$ 250           US$ 250              US$ 190             US$ 250          US$ 300

Storage Capacity           30 GB             8 GB                 8 GB               30 GB             30 GB

Storage Type               HDD               Flash                Flash              HDD               HDD

Screen Size (dia.
     inches)                2.5               1.5                  1.8                 3                4.3

Display Resolution          high              low                medium               high           very high

Apprx. Dimensions      4.0 x 2.5 x 0.5   3.5 x 1.5 x 0.5      3.5 x 1.5 x 0.5    4.5 x 2.5 x 0.5   5.5 x 3.0 x 1.0
Weight                      5 oz             1.5 oz               2.5 oz             5.5 oz            9.5 oz
Battery Life (hours,
      music)                 14                24                   20                 12                13

Video Playback              yes                no                  yes                yes               yes

FM Radio Tuner               no                no                  yes                yes                no
Media Download
     Source               iTunes            iTunes           Real Rhapsody      Zune Marketplace   Amazon Unbox

                                                Source: Company Data
• In 2004,company launched its MSN Music
  store which offered full track download for 99
• In 2005, company launched music service
  known as “Urge”
• In 2006, company was developing a line of
  product under “Zune”
• Mean while company and launched the “Play
  for Sure”
• Again in 2006,Microsoft came up with latest
  version of Window Media (version10)
• Microsoft’s position in mobile operation
  system gave another advantage
• Largest operator-market share -32%
• In 2006,began supporting SLVR (device
  designed for use with iTunes & manufactured
  by Motorola)
• Also began supporting Microsoft’s WMA
  format in its mMode Music Store-purchase
  &download songs via PC for 99cents
• Launched MobiRadio-subscription-based
  streaming music service
• Rates-$9.99 pm-limited amount of data &
  $19.99 pm-unlimited
• Barriers to adoption of MobiRadio-
     -high price &
     -only two Nokia handsets were
  compatible with the service
• In 2005-merger between Sprint & Nextel
• Third largest US wireless carrier-15% market
• In Sept. 2005 announced–partnership with
  RealNetworks Rhapsody Radio-$6.95 pm
• But alliance with Sirius Satellite Radio-channel
  based music service-$7 pm-to protect against
• In Oct. 2005-1st US carrier to open Internet-
  based music store that also offered OTA
• For $2.5-received two copies of songs-one
  delivered to phone &other retrieved from
  Sprint Music Store for use in PC
• 1 million downloads in 1st few months-due to
  free promotional downloads
• Faced criticism – high price
                -lack of compatibility with
  non-Sprint devices
• Users paid-$15 - $25 pm subscription fees &
  $2.50 download price
• Offered three compatible phones – Samsung –
  (cost $150- $200)
• Joint venture between Verizon Communications &
• Second largest service provider-25% market share
  (high bandwidth 3G network)
• In Jan 2006-launched V-Cast platform (relied on
  Microsoft’s Windows Media technology)
• Download to PC for 99 cents or via OTA (over the air)
  downloading for $1.99
• Subscription fees-$15 pm & charges for individual
  songs- unlimited data transmission
   Mobile Virtual Network Operators
• Use mobile operators through leasing
• Young subscriber bases
• Virgin Mobile USA (VMU)-targeted young
• Successful in selling ring tones captured-7%
  market while overall subscriber market share
  was only 2%
• Other MVNOs –1.Boost Mobile
• Boost Mobile –focused young segment &
  leased capacity on Sprint’s network
• Positioned itself as entertainment-focused
• Offerings-ring tone sale, Song ID & service to
  buy CDs from
• Helio –joint venture between Earthlink (US-
  ISP) &SK Telecom (Korean mobile operator)
• Strategy-leveraging 3G network capacity &
  partnering with Myspace-social network site
                       Strategies of iPod
Apple remains known for its catchy, clever ads

 • Shows energy
 • Shows the involvement in listening the music

Apple's retail stores remain a unique and effective means of reaching new
users and encouraging both brand visibility

Since 2001 Apple have expanded to 180 stores in 4 countries (US, UK, Japan,

Even though retail chain accounted for 10% of overall sales in 2006, but the
overall impact is in terms of brand presence and building long term customer
                   Strategies of iPod
Apple builds its product portfolio with aggressive vertical integration to
provide seamless compatibility between hardware, software and peripheral

Lauded for its sleek design and simple easy to use user interface

Apple's products traditionally have a shorter trend, and it can only maintain
its unusual but highly profitable system of product pricing

Consistent release of innovative new products
              Strategies of iPod

Apple's has emphasized its unique retail stores through
iconic design for several of its flagship locations. The
company estimates that its retail presence equals about
US$ 60 million's worth of annual traditional advertising.

Studies have shown that Apple stores don't actually boost
sales themselves, but the company has increased its rate
of direct sales (as opposed to sales through third-party
retailers), which have a higher eventual margin for Apple.
         Strategies of iPod

Apple's multi-pronged approach to
product development and its new
focus on consumer electronics
diversifies its markets, significantly
improving its expansion
opportunities for the next few years.
 Targeting iPods in the ‘mass’ Market
It has firm foothold in the US and European market

To have a foothold in the Asian market.
• Target the burgeoning middle class in the Indian & Chinese
• Being popular in youth: Position it as a style statement
• Creating Brand awareness by advertisements and exclusive
  retail shows as done in the US & European markets
• To come up with economic models

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