CS 453 E-Commerce Technologies

Sweet Spot Case Study

11 September, 2003

Ryan K. Dickey

• Steven Wozniak and Steven Jobs

• Friends from high school

• Both dropped out of college to work in industry

• 1 April, 1976, company founded

Background

Founders of Apple Computer:

• Steve Jobs had worked at an apple farm

• Big fan of the Beatles’ album, “Apple”

• Could not come up with a

better name

Background

The name:

• Fall of Napster

• Lawsuits from the RIAA against individuals

• Huge demand

• There were no legal “800 pound gorillas”

Background

Why iTunes?

• Jeff Robbin, SoundJam developer

• Hired from Casady & Greene

Background

Creator?

• Large database of mp3s

• Download at a low price

• Large selection of music

• Search options

• Organize and play mp3s

Overview

What does iTunes do?

• Hundreds of thousands of mp3s

• Preview songs for free, Download for 99¢ / song

• Virtually every category of music

• Exclusive iTunes tracks

• Personalized play lists

Overview

iTunes advantage:

• Displays album art while playing

• AAC MPEG-4 audio

• iPod sync

• Audio books

Overview

More iTunes advantage:

Overview

• 275,000 downloads in first 18 hours

• Equaled number of legally downloaded songs over a six month period last year

• These results are unprecedented

Success

Opening day:

• Sold more than 10 million songs since launch in April

• One million in first week alone

• Less than 1% of computers nationwide are compatible with iTunes

Success

Surprise:

•Existing competitors:

mp3.com

buymusic.com

listen.com

Success

Competitors:

• Sony plans on releasing an internet music service next spring

• Amazon.com will sell single tracks

• America Online, MSN, RealNetworks and Yahoo are creating plans

Success

Future Competitors:

Financial

Financial

• Traded publicly as AAPL

• Currently trading for approximately $22.18 (as of 9 / 10 / 03)

• Average Volume: 3,763,000

Stock information:

Breakthrough

• Other groups such as eMusic, Liquid Audio and RioPort have failed

• Offered over 200,000 tracks by quality acts with no strings attached

• Painless transaction process

The iTunes difference:

Breakthrough

• Combine ease of use with up to date technology (AAC encoding)

• Apple is already a brand name

• Low / no cost to reproduce merchandise

• Low / no inventory

• Secure payment

More difference:

• Major record labels are resisting, while sales are plummeting (25% this year alone)

• Some bands have not released their music:

Red Hot Chili Peppers, Metallica, Led Zeppelin, the Beatles

Problems

Potential problems for iTunes:

• Price is too high

• Kazaa and other programs still exist

• Apple must depend on the RIAA to push users toward a legal solution

Problems

More problems:

• Major record labels will continue to join

• Database of mp3s will continue to grow

• Price will drop as sales increase

• Opening up to the PC market by the end of the year

Prediction

iTunes will be highly successful:

[1] http://www.apple.com/itunes

a, Source of all graphic images and feature descriptions

b, “Apple Reports Third Quarter Results”

[2] http://www.businessweek.com

“Byte of the Apple” by Charles Haddad

[3] http://www.washingtonpost.com

a, “Sympathy for the File Swapper” by Cynthia L. Webb

b, “Universal Slashing CD Prices”

by Frank Ahrens

[4] http://www.apple-history.com/

References

[5] http://www.wired.com/news

[6] http://www.nytimes.com

a, “Music Download Suits Could Raise Backlash,” AP

b, “Girls? Check. Cristal? Check. iPod? Check” by Neil Strauss

[7] http://www.cnnfn.com

Stock information

[8] http://www.bayarea.com/mld/mercurynews/

[9] mp3.com, listen.com & buymusic.com

Logos

References