ITunes Music Store Analysis
ITunes music store is a one-stop online shop for digital contents consist of music, apps, movies and, electronic publications. The store is a division of Apple Inc. business focusing on providing contents for Apple-native devices. Consumers can purchase and download either individual tracks or complete albums from the artists of different genres. Unlike other online distribution shops, iTunes is not a subscription service or a stand-alone website, it is an entire application that is normally integrated in the operating systems and it is downloadable from the Apple store’s website. Albums cost between $7.99 and $12.99 but the majority costs 9.99 while all the single tracks have the price tag of $0.99. This demonstrates that apple encourages consistency and there are no monthly subscription fees or sign up charges imposed other than the price of the individual product. It is apparent that iTunes has assets that have helped it in bankrolling its high quality systems which gives it an advantage over other music sites companies. First, with Apple backing up the best systems that are needed to enable the store’s operations, from one click purchasing capacity, to the right bandwidth capacities, trustworthy payment systems, to gadgets like iPod, iPad computers and software. Their track record makes iTunes a trust worthy company for artist, music labels and the consumers. Today, the global online audience continues to increase rapidly, with the global base of reliable Internet users including wireless and fixed networks, in the range of 2.1 billion as of January 2014. This vast base of Internet users has encouraged traders to innovate with the changing trend in order to offer an evolving array of the online services. Sectors that are growing rapidly in the online business include the sale of entertainment products, travel, apparel, consumer electronic and the event tickets. The powerful online trends include access via wireless devices, cloud based software as a service and the migration of entertainment to the web based platform. The difficult economic times and the recession has made consumers to be more focused than before on finding the lowest rates in the markets. Consequently, iTunes has benefited from their timely policy of offering quality tracks at considerable prices (Lambert, & Davidson, 2013, p.317). The e-commerce has become an important asset to Apple in their distribution of other products such as books, software, tablets, phones, iPods and computers. There are many advantages in online trading compared to the traditional brick and mortar store. In electronic commerce, shopping at iTunes can take place 24/7. In addition, customers can search through iTunes product catalogues with long inventory list and they may pay for their purchase immediately. The major advantage that the Internet offers to iTunes is the ability to sell music directly to consumers, without the infrastructure that is associated with a fixed location or the direct sales operation. Recording companies perceive the Internet as a means of growing their markets both locally and globally while being able to process orders day and night. The Internet also provides the retailer the capacity to display more than their inventory list and organize the products for faster purchase completion. For many years, the music industry has had very little to do with music distribution. It entails unit led production, fast moving, licensing, marketing and distribution functions. The costing of products for different territories, timely restocking, and shipping logistics have been the main focus in the success of the music business. With the Internet being the possible high-speed distribution channel, record houses no longer in control of the distribution chain. Consequently, they are not able to create a demand for the products. When the music is distributed online, only one master copy is required. The artist who creates their own products is able to produce, distribute and market their work without the direct involvement of the record companies. This cutting out of the middle layers of distribution channels has led to the collapse of some of the record business today. The need and implications of retailing over the Internet is growing as the available technologies become more reliable and affordable. As people learn about the potential efficiencies with online trading, more people are jumping to the bandwagon by setting up their own online stores (Lambert, & Davidson, 2013, p.670). The perceived benefits for iTunes in using the Internet as their alternative retail outlet include the possible widening of their markets, better customer convenience and satisfaction, improved business intelligence, instant customer response from the various modes of interactions. The Internet is flooded with digital tracks, but not all websites providing such content are truly industrial. Some are for commercial marketing, and the benefits appear elsewhere. The marketing sites aim to advertise the company’s goods, brands or services. The transactional websites on the other hand may promote special offers or new products, and they may also be able to process payments usually through secure routes, delivering real-time information and pricing to the user. In order for online music distribution to succeed, a set amount of detailed investigation and planning is needed to assess a business’s requirements. The initial investments coupled with the ongoing maintenance cost that the website will require. The site only includes the elements that are useful for business and not just functions and processes for the sake of it. There have been diverse opinions, on how the advent and uptake of e-commerce, affected the brick and mortar’ retailing in the high street and out of town shopping centers. The effect ranges from total erosion of outlets to a limited impact of the current physical situation of retailing today. With iTunes distribution network, the legal selling of digital media online, provides customers lower prices and the music business involved more profits due to the exclusion of the middlemen or retail outlets reducing the overheads by a significant margin. This is true only if downloads are purchased via their legitimate download business websites. Piracy transfers money that is generated from the recording away from the producer to the consumer. This is a short term is useful to the consumer, but in the long term it affects the quality and the quantity of production in general due to the depletion of the revenue received. Downloading of the digital media in the early days was very restrictive due to the bandwidth that is available to consumer, with sites like Napster, promoting free peer-to-peer download services. There has been a proliferation of illegal services such as pirate bay, lime wire and Bit Torrent mainly due to advance in networking technologies. The introduction of iTunes by apple proved that downloading music can be profitable and successful. Digital downloading is transforming the music industry from a product business to a service business. The recent stagnation of global music sales through the traditional modes of distribution makes it unlikely that the music industry, can achieve growth through existing business models that rely on the distribution of the physical music products. The development of the legal business models for the retailing of music 0nline has recently become more feasible as some of the issues associated with copyright have been resolved. The copyright associated with music is categorized as recording rights, performance rights and composition rights. Apart from copyright issues, the music industries are struggling to deal with heightened consumer interest in music that is being distributed as singles, as opposed to album formats. The main music unit of customer interest in the soft format music world is single and not as in the hard copies world, the album. There are many examples of how the iTunes is trying to crack down on piracy, through the introduction of Digital Rights Management (DRM), Watermarking and other technologies. Increased piracy has seen a surge of record labels filing lawsuits against Internet companies, with the reality that this is not the way forward and that record labels need to catch up with current and emerging technologies. Therefore, record labels need to come up with creative ways to accommodate the emerging technologies in their distribution processes and the way their experience with consumers in general. While piracy is a major challenge in this business, some artists are interested in the idea if giving visitors of their sites the ability to remix original works with their consent and even create their own. This gives rise to the relaxing of DRM and the idea of consumer transmutation rights. It is a concept where artist or record labels provide digital music tracks free to consumers with the permission that the consumer can modify and remix the supplied content. This transmutation can increase the general interest in a band or artist and, therefore, increase sales of the merchandise or tickets that associates with them. There is also other cases that suggest; the more the consumers contribute to the site, the successful it will be. On a site that completely engages with this approach is the Finnish company Meteli.net, which has succeeded with their multi service online platform, which sees customers, being more interested in being contributors to the site rather than just downloading original works for their use. Online advertisements have become of great value with the popular use of social media blogs, sites and user driven audio-video sharing platforms such as YouTube and MySpace in the success and customer buying behavior of music. This situation is of importance to the music industry as a whole, but can be involved in small independent retailers e-commerce mix to promote their products and their business as a whole. Electronic word of mouth (eWOM) has also helped many musicians and artists to acquire a degree of stardom that would otherwise have passed them by due to lack of interest from major record labels. In other words, the music listener’s thoughts and opinions are now able to create stars without the intervention of major record labels. Mobile commerce is also of great value to the iTunes store as phone users regularly download music direct to their devices and receive updates on their favorite artists, as well as ticket / festival information. The pricing of physical stock sold online will need some careful consideration as prices for in-shop purchases are cheaper than on-line purchases for popular albums and niche products are cheaper online. ITunes stores are optimized to give the clients the best experience as well as serving the purpose of procuring sales from the visitors. Their site has an e-commerce system that is capable of supporting marketing, order processing, sales, sales forecasting, inventory records and customer relation management which improves the day to day running of their business. Site visitors are encouraged to register their details and give their e-mail address in order to receive news and updates. This registration could also help in any planning for the business, i.e. what different age groups are interested in particular items and what areas of the site are visited most. Online customer surveys may be carried out that would hopefully provide the valuable information in the management of business, i.e. what levels of stock to carry. Since the website is the main platform of the iTunes e-commerce business, its content management is of great value. They have designed content management functionality where the product offerings are easily updated, and the administrators of the site keep review pages current. Web tools for traffic and purchase analysis are included to aid in the overall management and forecasting of the sale of music.
Possibility of sharing music products for sales between similar e-commerce sites is added in order to raise awareness of the site. The increased linkage for other relevant sites increases their site ranking on Google and other search engines. A section of the website is dedicated to new music and artists that want to improve themselves through the Internet via free downloads of their material. Artists using this facility predominately consist of unproven talent with no backing from a record label and would be able to make fans aware of their material and venues they would be performing at, which is most like where self-promoting new artists would gain most of their revenue (Noyes, Allen, & Parise, 2012, p.147). The main issues with every startup e-commerce or Websites are; how to get customers to come to the website in the first place and the standard maintenance of the site. Ways to achieve this could include; self-promotion of the Web Site using collaterals such as posters advertising on receipts and packaging those customers receives during purchase. Getting customers to return to the site time after time will hopefully work via its general design, content, features and attractive promotions. As far as the maintenance and updating of the site is concerned, the businessman could go for a hosted option where all of the technical maintenance is via a third party from a nominal yearly fee. The site could be constructed with content management in mind, giving proprietor the ability to update his sites as and when required. Handling payment for the purchase may be problematic due to the size of business. This could be managed via a third party vendor. Another challenge of a successful e-commerce site is a logistical one, i.e. stock levels and the fulfillment of deliveries. The process of ordering and buying online could also include a collect option at a physical store and a reduction in cost, i.e. no delivery charges added to the online sale. Any commissioned e-commerce site should include areas for saleable product, and music articles / information and have a community feeling to it, in the form of discussion forums, video blogs and reviews. All of these attributes will increase customer satisfaction of the website and generate revenue. Any site commissioned must be at least capable of displaying, searching easily for physical product and performing customer check out facilities, i.e. a third party vendor suggests it. Site needs to include ease of navigation and very clear instructions for online purchases. The site must offer value to customers with a completely enjoyable and community experience which is presently demonstrated within the physical store. Online communities help the website in gaining a definite competitive edge and increasing the number of return customers. Also, customers / users of the site will feel committed due to a sense of belonging and the ability to communicate directly with like-minded people (Waelbroeck, 2013, p.17). The site will open business opportunities and channels of trading for the vinyl stock due to customers not being restricted to the physical store location. The site should also strive to sell other music related products, mobile phone content and potentially concert tickets for venues. Most of the big companies in music retail like iTunes have already asserted their presence, within the e-commerce world with great success, in terms of selling cheaper products through increased efficiencies and substantial cost savings. This put’s far greater pressure on independent retailers to re-think their business processes, and adapt to the changing retail landscape. Just like in the physical world, society cannot escape the criminal element in e-commerce. As the volume of online sales increase, the fraud case increase too, where the eager buyers that are seeking deals that are too good to be true and the anonymous sellers that are out to make a kill. Online trading is a breeding ground for fraud. When the e-commerce started, the idea was that people would police themselves, but those with intent to take advantage of the unsuspecting clients always finds the means to bypass the mild safety nets. The idea of giving feedback and rating for both retailer and customers was put in place in order to retain the honesty in their dealings. However the unscrupulous have devised a way to doctor the ratings that make them appear safe and trusting, but it is not the case. ITunes are among the major companies in the online retailing of music. They have been able to lower their traditional marketing budgets and consequently cut the overheads. They have established customer base, defined the online market trends and online consumer habits which gives them an edge over the new entrants. ITunes takes seriously the concerns about data security and the payment methods. The artists and consumer concerns of Internet fraud are widely believed to be negatively affecting the growth of the e-commerce. Rampant cases of fraud, communication interception and theft of personal data is making many people avoid routine Internet shopping.
In addition to all of those facts, ITunes has been constantly developing itself economically. Recently, the division of ITunes services has done a major growth of sales for the online business platform. It is estimated to rake in $2B/year; the attached graph proves the ongoing success of ITunes (Asymco, 2013).
SALES ANALYSIS:
ITunes sales can also be compared to those of music companies owned by Mobile Phone Firms. It is also safe to assume that ITunes can grow up to 20% in revenue for the next 5 years.
References
Asymco, 2013. Horace Dediu. Gross Itunes Revenue by Media Types. Financial Category. http://www.asymco.com/2013/03/22/so-long-break-even/
Asymco, 2013. Horace Dediu, ITunes and Accessories vs. Phone Industry. Financial Category. http://www.asymco.com/2013/02/11/counting-stool-legs/
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Lambert, S. C., & Davidson, R. A. (2013). Applications of the business model in studies of enterprise success, innovation and classification: an analysis of empirical research from 1996 to 2010. European Management Journal, 31(6), 668-681.
Noyes, E., Allen, I. E., &Parise, S. (2012). Innovation and entrepreneurial behaviour in the Popular Music Industry. Creative Industries Journal, 5(1-2), 139-150.
Ramcharran, H. (2013). E-Commerce Growth and the Changing Structure of the Retail Sales I ndustry. International Journal of E-Business Research (IJEBR), 9(2), 46-60.
Waelbroeck, P. (2013). Digital Music: Economic Perspectives.Handbook of the Digital Creative Economy, Forthcoming.
Zott, C., Amit, R., & Massa, L. (2011).The business model: recent developments and future research.Journal of management, 37(4), 1019-1042.
