Dear Students, Here it is the learning notes (Apple, page 1 to 7, and Jet Blue, Page 8 to 17). Please, read them carefully and focus on the inherent logics of strategic thinking. See you on next Friday! Appreciatively, Damon
Apple’s iTunes: Changing the Face of Online Music Retailing
Apple has scored a big hit in online music retailing with iTunes and then a follow up with the iPod. Can Applesustain its advantage against all of the current and future competitors that are likely to contend for this market? This is a flexible case in that it can be used to examine the external environment or evaluate internal capabilities. This case is in some ways about two very complementary industry segments: music downloads and portably music devices. Apple dominates the paid portion of the firstand has 90 percent market share in the second, so the case is really about understanding how they achieved such dominance and assessing the possible threats to that dominance. The critical choice is whether to do the two industries sequentially are in parallel. I prefer to do them in parallel. I start with a discussion of industry structure with an emphasis on how and why it has changed in musicdownloads. Next, discussing the relative advantages and disadvantages of P2P and subscription-based services prepares you to address whether iTunes is a likely long-term solution to the problem of piracy. I then turn attention to an assessment of Apple’s competitive position with a particular emphasis on sustainability.
Objectives 1. Review industry structure concepts in a rapidly changingindustry. The case is a clear example of how technological change can alter an industry’s structure and the threats and opportunities in that industry. 2. Evaluate sustainable competitive advantage in a dynamic industry. This case strongly suggests that Apple cannot stand still and keep its lead, so it challenges students to think about sources of sustainability.
Industry Structure What is thestructure of online music distribution? What is the structure of portable music devices? Threat of Entry – There are several players in subscription and pay-per-song services. Most are relatively new to online music distribution. The biggest barrier to becoming a pay service is likely gaining access to content to distribute. For example, Napster offers 700,000 tracks. The case does not have muchspecific information on what the requirements for entry are to enter online music distribution. Wal-Mart’s entry into this segment suggests that it is likely that firms like Microsoft, Dell, and even bricks-andmortar companies would have the necessary resources and that the record labels would find it advantageous to have more players in distribution. Entry has also continued in P2P (e.g. Limewire hasemerged as a significant alternative for music downloads). Entry into the iPod-dominated segment is also an issue. The case mentions Medion, a low-cost alternative to the iPod. Students will be aware of Microsoft’s entry into this market. Most consumer electronic companies have introduced small portable devices for storing and playing music, but none have caught on in a big way. Apple has innovatedat a rapid enough rate to stay ahead of their competitors. Threat of Rivalry –There is some variation in licensing and pricing in the industry. This reflects the experimentation stage that is typical early in an industry’s life cycle. Once a licensing or pricing model proves successful, however, it is likely that the industry will rapidly converge around the successful model. The most strikingdifference between the different competitors is in the number of tracks available. The P2P networks have an enormous advantage in this area and their music is free. In contrast, the subscription and pay-per-song competitors are much more limited. There are also differences in interfaces and software. The essential question here is, Is online music a commodity? Or, will it become a commodity? What...
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