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

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] a, Source of all graphic images and feature descriptions b, “Apple Reports Third Quarter Results” [2] “Byte of the Apple” by Charles Haddad [3] a, “Sympathy for the File Swapper” by Cynthia L. Webb b, “Universal Slashing CD Prices” by Frank Ahrens [4] References

[5] [6] a, “Music Download Suits Could Raise Backlash,” AP b, “Girls? Check. Cristal? Check. iPod? Check” by Neil Strauss [7] Stock information [8] [9] mp3.com, listen.com & buymusic.com Logos References