Prediction Markets Discussion Question

Is it a good idea to encourage ALL employees to trade in these markets? Should insiders and/or highly uninformed people be allowed to trade? Do they help or hurt the market?

Yes, it certainly is important to encourage all employees to trade in prediction markets. Prediction markets are speculative markets created for making predictions. Prediction market is a tool companies are increasingly using to make better decisions by allowing employees to trade in a mock stock market based on information they have about the business. The advantage of having an open prediction trading system gives employees an incentive to share information they have that may be valuable. Several large companies have started using this tool to help make assessments about all kinds of projections including how customer numbers will grow, assess demand for their products, what changes needs to be made and so forth. Therefore, this tool benefits the company in making informed decisions. So, the higher the number of employees that use prediction markets the better it is for the organization.

Although insiders or highly uninformed people may not have all the information to trade, however they will increase the number of participants. As mentioned earlier, the higher the number the better it is for the company to get an aggregate view. Due to the increased number of uninformed traders and insiders the ‘Law of Large Numbers’ come into play resulting in aggregated views and will work to the benefits of the organization. Sometimes, the social and cultural issues which may have prevented an employee from sharing information are also, kept aside, because all trades are anonymous. Therefore, all employees must be allowed to trade in prediction markets because they actually help the company and the market.

Information about Google from additional research
Source: http://www.consensuspoint.com
Google, the search giant, has been using such markets since 2005 to estimate - among other things - traffic volumes, and when its international offices will open. About 1,500 employees will trade at any one time, and each has 10,000 ‘Goobles’ - a mock currency - to play with per quarter. The markets run for anywhere between two weeks and three months. When they close, successful traders are given cash prizes and specially branded T-shirts which end up being a greater incentive than the money.

Threadless Discussion Question

In what other industries or areas would Threadless’ community-driven product development model work well? And not so well?
Threadless’s community driven business model works well due to two main reasons. (1) Firstly, the business model itself is unique and has created a first mover advantage. (2) Being a small company, it has focused on small scale manufacturing which has enabled the members to continue their contribution to Threadless. Threadless’s business model actively involves customers, which is unlike other apparel companies that release monotonous t-shirt designs. At Threadless members actively participate by critiquing designs, blogging and by posting songs and videos. Threadless has also been profitable by selling the designed t-shirts to its members.

Basically, Threadless business model offers customization of products. This community driven product development model will work well in an industry that focuses on limited or specialized number of product lines. In other words, the model will not work out well in large manufacturing industries such as cars, machinery and parts. In large scale manufacturing industries products are usually designed/manufactured in a monotonous manner due to economies of scale and mass distribution. So it will not work well here. On the other hand, Threadless’s model will work well in the following industries and if implemented right it will also enable the company to make huge profits.

• Furniture industries
• Home Building
• Manufacturing Antique products and designs
  

Social Networks Discussion Questions

Online social networks have become ubiquitous in the past few years. What forms of value do users get from these services and who is most likely to sign up on LinkedIn versus other sites?

In the past 5-10 years, Internet has enabled a communication revolution. Most importantly, it has changed the way we work, connect with people and even the way we live. Social networking has become a fundamental part of the global online experience. Social networking is not just growing rapidly; it's evolving both in terms of a broader audience and compelling new functionality to meet the competition and the increasing needs and expectations of an average user. Examples of few famous online social networks are Face book, Friendster, MySpace, LinkedIn.

Value –
1) Social Networking focuses on building online communities of people. People share interests and activities and connect with other people around the globe.
2) Provides different ways to interact with people such as instant messaging, emails, exchange photos, share blogs and stories.
3) Allows people to find friends who are located in different parts of the world. Most importantly, builds a bridge so that friends can reconnect.
4) Allows individuals to promote their own businesses and sometimes helps with raising initial investments from venture capitalists.

LinkedIn – LinkedIn is an interconnected business oriented social networking site mainly used for professional networking. The purpose of the site is to allow registered users to maintain a list of contact details of people they know and trust in business. (http://en.wikipedia.org/wiki/LinkedIn)

Although the social networking tools offers the above value and benefits, the following individuals are most likely to sign up on LinkedIn versus other sites:
Ø Business Professionals who want to be connected with other experts around the globe.
Ø Recruiters, Hiring managers and Head Hunters
Ø Job Seekers
Ø Executives and Senior Officers
Ø Individuals who own or would like to own a small business like to sign up so they can get connected with venture capitalists.

Wiki Discussion Question

How do Wikipedia’s processes for creating and modifying articles ever lead to high-quality results?

Wikipdia is a free content encyclopedia project. It is written collaboratively by individuals all over the world and anyone can edit any content. Visitors do not need special knowledge or need to be a subject matter expert to contribute to wiki. They can add, edit information, cross references however must comply within Wiki’s edit policies and standards.

Wikipedia produces high quality results, because wiki model is different when compared to other tools such as blogging. Wiki gives its users incentive for their writing. If a user writes high quality articles citing apprpriate references and sources of information then chances are that it will stay in the website. However, if a user writes something inaccurate or something that annoys or disputes with people then there is a high chance it will dissappear from the site. All users to the Wiki site have read, write, edit and delete access which makes it easier to remove inapprpriate content that do not add any value and ensure the site delivers only high quality content.(atleast for the most part).

Quick Statistic (Reference Wikepedia Site) – Due to its high-quality content Wikipedia has grown rapidly into one of the largest reference websites attracting atleast 684 million visitors yearly by 2008.

Blogging at DrKW

What are the advantages and disadvantages of implementing internal versus external employee blogs in a corporate setting? Are there certain industries where one of these strategies makes more sense?

Internal Blogs
Internal Blogs are great communication and information sharing tools within the company. Internal Blogs encourages spontaneous information among employees and can be shared at any time and most importantly it removes the pressure because employees are not required to post information within a specific time.

Advantages & Disadvantages – The informal nature of the Internal Blogs allows the employees to express their views more freely when compared to any external communications, which is subject to careful review and edits prior to release. This encourages free flow of information. In some cases, Internal Blogs serves as an alternative for meetings. Especially, when a company has many branches spread across different parts of the country and/or employees are operating at different locations, blog serves as a tool to connect employees for virtual meetings. Internal Blogging serves as a ‘Knowledge Management Tool’ as it increases employee participation and collaboration, promotes dialogues outside the team and enables to find different sets of ideas across divisions. In some cases, solutions/different alternatives to a business problem can be found by encouraging an integration of conversations. Internal Blogging provides ‘unlimited’ space for sharing interpretations and different points of view, which can be used for further debates. It serves as an easy tool to share and serves as a means to understand an integrated view of the organization as a whole. Internal Blogging promotes ‘organizational knowledge’ & ‘builds trust’ by serving as a record of the organization’s thoughts and conversations. Internal Blogging is secure compared to External Blogs, due to the safeguards that are put in place to ensure more control. Although Internal Blogging has many advantages it does not reach the customer and obviously fails to capture the public views of the company or the product. In some instances, information contained in the blog could be biased and one-sided because it is usually posted by an SME within the company or someone that is very close to the issue.

Internal Blogging is suitable for service/tech industries where there is a mass of expert knowledge. Service/Tech industries solely rely on expertise. By sharing their knowledge to specific issues in a blog site, employees could create their own job aid for newer employees and/or for current employees. This could also serve as a ‘free’ training guide.

External Blogs
External Blogs are publicly available sites where internal employees, customers, any other interested party has the ability to share information or read the posts.

Advantages & Disadvantages - One of the biggest advantages of External Blogs is that it includes the customer and incorporates the public information whether good or bad. External Blog serves a ‘communication tool’ where information is being transmitted from customers/public to company or vice versa. It can be used to announce upcoming new products or services, clarify customer concerns and react to public criticism. Given the informal nature of the blog, companies can communicate with the target market at a more customized or personal level when compared to a formal level. This in turn could builds positive relationship with the customer and could improve the marketing and branding activities. Therefore, an External Blog could serve as a ‘Sales & Branding Blog’. Like the Internal Blogs, External Blogs also serve as an organizational learning tool because now they can also learn from the customers. Sometimes customers may have better information/suggestions about the products because they tend to use the competitors products. An External Blog provides an opportunity to learn about the competitor’s information and the customer’s feedback/psychology about the various products. Therefore, it enables companies to harvest more knowledge from the external environment. Although External Blogs present the above advantages, there are some risks associated with it. Given the open nature of the External Blogs, firstly it is not safe and secondly it is prone to inappropriate or negative information posted by customers/public. This is turn could affect the brand name. So, if a company decides to use External Corporate Blog they must analyze these risks and take a calculated well-informed decision.

External Blogging is suitable for companies that are looking to develop a network or a community around themselves. Secondly, it is also suitable for companies that are developing new products or services because customer feedback and input is very essential in the product development process.

iPod vs. iPhone Discussion

Has the digital music market irreversibly tipped in Apple’s favor?

Based on the information presented in the case it does feel like the digital music market has tipped in Apple’s favor atleast for the time being. With over one million songs to choose from and backed by the five major record labels, iTunes presents a tremendous opportunity to understand the digital music landscape. However, given that digital music is in its early stages of development and Apple is the only company that has proven successful within a short period this could eventually change in the long run if another company comes up with a better competing technology. In other words, the case clearly indicates that the competitive landscape for Apple is increasing.

Most importantly a lot of things occurred in 2007 that seems to threaten Apple’s stranglehold on the digital music market. Microsoft launched its new Zune MP3 players, meanwhile Amazon launched a DRM-free MP3 download service at a cheaper rate compared to Apple. However, it will take a long time for these companies to really defeat Apple in the digital music market. The competitors must really succeed in their product offerings in order to weaken Apple’s stranglefold. Apple’s iPod’s and iTunes have created many customers in the market and it has gained a leading position as a result of its early mover advantage and 99 cents per song pricing, (per the case by spring 2006 Apple’s share of the US digital music market ranged between 70% and 80%). Many customers are satisfied with the iTunes and iPod experience and for most of them DRM does not matter. They can buy songs on iTunes and comfortably load them on their iPods. Eventually in the long run, Apple may lose some of its grip and stranglefold on the digital music market when the competitive players take bigger leaps and introduce a better technology than Apple. But with the right business model, technological improvements and increased customer base Apple will continue to be the leader in the digital music market for some more time.

As mentioned earlier digital music is in its early stage with one just Apple being the dominant leader in the market. Additional research suggests that the market for digital music would grow six times in several years and would reach $14.9 billion by 2010. Digital music in 2006 represented 12% of all revenue posted by record labels. Research suggests this will grow to 40% of the overall record label revenue by 2010. With nearly $33 billion in total recorded retail music revenue accumulated in 2005, this is an enormous opportunity for those involved in mobile and broadband distribution across the supply chain.

BrightCove and the Future of Internet Television

What are the strengths and weaknesses of Brightcove’s business model?

Strengths
One of the major strengths of Brightcove’s business model is its core focus on helping the video-rights owners build businesses around the delivery of content via broadband Internet. Their core focus helped construct a new model for media delivery where video publishers essentially controlled their own content. Brightcove’s focus marked a shift from the traditional media businesses where control resided with broadcast networks. Brightcove’s approach marked a significant positive change in the market. Brightcove developed the software technology platform to drive this radical shift. With its publishing platform, Brightcove presented a turnkey solution for creating and maintaining broadband video channels. Brightcove’s unique business model allowed video publishers to gain unprecedented control of the delivery and monetization of their content. Secondly, Brightcove’s model served the “long tail” of video content. The nonlinear nature of online programming created a new opportunity for video content owners to distribute vast libraries of content just like Netflix. Thirdly, the model put Brightcove at the center of a new, multisided television ecosystem. Brightcove was an all-in-all, in other words served many stakeholders. Just like the broadcast network, Brightcove distributed producers’ content both to consumers and affiliates, sold advertising, created a b2b marketplace just like eBay. Through Brightcove’s offerings, website affiliates were also gaining advantage. Fourthly, another strength of Brightcove’s business model is its usage-based fee plans. Although it followed this system, it aimed to shift more and more of its customers to revenue sharing arrangements based on advertising and pay media sales. The model enabled publishers to rent or sell ‘near DVD quality’ video downloads and let publishers keep 70% of the revenue from such transactions.

Weaknesses
Firstly, Brightcove’s goal is to become a multisided media distribution business serving not only content owners but also advertisers, distributors and consumers. The relaunch of the website is a major step toward fulfilling this ambition as this will help attract more content owners. However, other steps are necessary to develop the remaining sides of the multisided business. The development of this business will require lot more resources and most importantly cost and time. Brightcove should understand the existing competition in the market most importantly from giants like Google / You Tube. Brightcove may end up focusing on too many things, which could lead to confusion, customer frustration and at the end of the day it could be a stretch to reach the main goal. Secondly, Brightcove’s platform customers during the early stage fell into two categories of which one group were large media companies that expected “high-touch” service from Brightcove, while insisting that they retain full control over use and branding. Demands for customization work drained crucial engineering and business development resources and made it harder to manage the transition from providing back-end technology services to constructing a media distribution network. Thirdly, Brightcove’s goal is to make a strategic transformation from a platform business to a media distribution business. Google made a successful transition by leveraging its search technology licensing business. Apple and Microsoft had built prominent media businesses after first succeeding as technology platform providers. However, the issue is Brightcove lacks the “deep pockets” and the established user relationships that the other companies possess.

DoCoMo & Google Case Questions

1) Is DoCoMo wise to offer its existing mobile phone rivals access to FeliCa?
It certainly is a wise idea for DoCoMo to offer its existing mobile phone rivals access to FeliCa. DoCoMo has a 38% equity in FeliCa Networks. Firstly, to begin with FeliCa Networks had three sources of revenue: (i) Collect license fees from carriers that purchased mobile FeliCa chips with DoCoMo being exempt. (ii) Provide platform management services. Users downloaded applications into a 5-kilobyte memory area. FeliCa Networks managed the memory area and served encryption keys needed to activate the application. (iii) FeliCa Networks could provide application providers with a range of hosted services such as managing the servers used to download applications or to authenticate users. For most such services, FeliCa Networks would collect transaction fees.

‘DoCoMo’s equity stake in FeliCa Networks was a potential source of both profits and competitive advantage.’

Therefore, the more the number of carriers of FeliCa technology the more revenue for FeliCa Networks. This means Do Como will benefit more from the three sources of revenue.

Secondly, given the rapid replacement rate (as cited in the case) for mobile phones in Japan, FeliCa could become a de facto standard or a preferred platform and could soon be built into 80 million handsets. By making FeliCa a defacto standard DoCoMo could create positive network effects. Although rivals will have access to the FeliCa technology, applications in those handsets must be activated through FeliCa Networks and rivals must license technology from FeliCa Networks. This implies that DoCoMo has considerable power over rivals because of its 38% stake in the company and might become profitable.

Thirdly and most importantly, although it offered rivals access to FeliCa technology DoCoMo differentiated itself from competition through its exclusive upper level services such as loyalty-points program. Initially, when FeliCa mobile phone was launched DoCoMo partnered with Asano SuperMarket and offered a loyalty program, which provided a 5% discount to customers who made cashless payments using FeliCa. Another way it differentiated from rivals was by promoting the user of eMoney on FeliCa phones in different ways. One way was to continue its support for Edy and the installation of Edy-exclusive readers. Payment services appeared to be especially promising for DoCoMo. FeliCa technology was already used for electronic money, that is, digitally stored value that could be used like cash and replenished. With eMoney, it became easy for users to make payments especially in locations where speed was important.

Fourthly, as a major shareholder DoCoMo always has the competitive advantage to learn about new mobile FeliCa applications before its rivals. This provides launch time advantages and a head start in the market. Therefore, by offering the FeliCa technology to rivals DoCoMo has made a smart move. Although it has invited competition in the mobile FeliCa market, it has gained competitive advantage by being the ‘first mover’, differentiating itself through it’s exclusive features and has increased its profit potential by increasing the number of FeliCa carriers. DoCoMo’s decision has worked out to its benefit.

2) Is search a winner-take-all business?
I agree with the statement that understanding whether a new-networked market is likely to be served by a single platform or by rival platforms is crucial when formulating entry strategies. However, I don’t think Search is a winner-take-all (WTA) business. Because in a WTA business, competition is fierce and losers face extinction (as cited in the case). At the end there is a single platform provider. But in today’s world this is not the case yet. Like Google, there are many search engines, such as Yahoo and MSN. Although Google is considered as one of the most frequently used search engines, it is not a WTA because the ‘Homing’ costs are low. In other words, it not expensive for a network user to affiliate with multiple platforms other than Google. However, if it is expensive then they will be inclined to use a single platform provider.

Secondly, ‘Switching’ costs are lower or close to none in most cases. There is absolutely no cost to search neither on Google nor on any other sites. I also think some amount of marketing and brand name / perception plays a role here. For example, if I want to search a recipe or some information the first site I will access will be Google. I may access Yahoo and or MSN as well. I think the vast amount of information on Google attracts many users. But it does not deter them to visit other sites, which clearly validates that Search is not a ‘Winner take all’ business.

Thirdly, Network effects are also another reason why Search is not a winner-take-all business. Google offers several networking capabilities such as Gmail, Picasa Webalbums, and Gtalk. Likewise, Yahoo offers Yahoo mail, messenger and MSN offers Hotmail and messenger services. Therefore, users can continue to use these services even if they switch providers.

In order for Search to be a winner-take-all business it should become a single platform, which is not the case right now.

EA Case

Since the writing of the Electronic Arts Case the Sony Playstation 3 and the Nintendo Wii have been released and both have online gaming capabilities. What’s your assessment of the current online gaming market?

Since the Electronic Arts case there have many positive changes in the online gaming market. It has become the biggest industrial wave. It is the fastest growing form of entertainment and has captured a similar size of customer base as the movie box office. It has transformed the way users find entertainment. Many online games are like reality TV imitating real life scenarios. I think that given the number of people with high-speed Internet access is growing at a fast pace, many free online games are becoming hugely popular due to the ease of access. Furthermore, online games are growing on a global scale and attracting a broader range of demographics than the traditional video game industry. Research indicates that in 2008, the North American video game market reached $21.33 billion and people continued to spend a greater portion of their free time playing them.

PS3 and Nintendo Wii – Performance in the Online Gaming Market
The Sony PlayStation 3 and Nintendo Wii both jumped into the game console market to compete against Microsoft’s Xbox 360. Each has a new feature that makes it stand out from older consoles, the Xbox, and each other. For the PS3, the feature is its Blu-ray DVD player. Nintendo Wii has outsold Sony’s PS3 by a factor of nearly 2 to 1. Research suggests that Nintendo generates a positive gross margin on its consoles as compared to Sony. Wii generated 55% of all console sales in 2008. Although Sony has the largest installed base, it has lagged behind Wii in terms of number of units sold. PS3 sold approximately 1.3 million units as of year-end 2007 whereas Wii sold 2.5 million. To better meet the competition and to further boost sales Sony dropped the price of its PS3 console product.

The sales continued to decline for Sony PS3 in December 2008. US sales of the PS3 fell 19% in December 2008 while sales doubled for the Wii console. Research suggests that part of Sony's strategy hinged on selling the PS3 as a relatively inexpensive Blu-ray player. But prices of Blu-ray players have fallen so sharply recently, new players are available for less than $200, that it's possible to buy a Blu-ray player and an Xbox 360 for less than a PS3.

Netflix Case

Since the publishing of this case, Netflix has entered the video on demand (VOD) market. What is your analysis of how Netflix has attempted to update their business model with VOD?

Introduction - Netflix, Inc.is the world's largest online movie rental service, providing more than five million subscribers access to over 70,000 DVD titles. The company offers a variety of subscription plans, starting at $4.99 a month (current rate). There are no due dates, no late fees and no shipping fees. Netflix can reach more than 90 percent of its subscribers with generally one business-day delivery. Netflix offers personalized movie recommendations to its members and has more than one billion movie ratings. Netflix also allows members to share and recommend movies to one another through its FriendsSM feature.

Netflix Business Model – Netflix was the first in the industry to offer DVD’s. A Subscription service for unlimited mail order DVD rentals with no late fees. Netflix has changed the movie rentals business by eliminating late or extended viewing fees and allowing consumers to watch movies on their schedule. In short, I would call it a ‘Rent by mail business model’. This model has allowed it to thrive in the rental industry amidst big competitor ‘Blockbuster’.

Entry into the VOD Market & Netflix Business Model - On January 16, 2007, Netflix announced that its Video On Demand service was finally available that allowed people to immediately watch movies and television series on their personal computers. As stated in the article, Hastings repeatedly stated that Netflix’s purpose was not to provide DVD rentals through the Internet but rather to allow for the best home video viewing for its customers. Additionally, pursuing this strategy was vital to Netflix’s future, because it realized that as new innovations in technology become popular, the DVD-rental subset of the home movie market will shrink, while the downloading and streaming of movies will eventually come to dominate the majority of this market. Netflix realized this change in the market and entry into VOD was a significant enhancement to its’ service where subscribers still continued to receive DVDs by mail and also had the additional option of instantly watching the movies on their PCs. Through this initiative Netflix hoped to keep itself relevant in the video industry. There was no additional charge for the service, but the number of hours of VOD movies one could watch depended on his / her current service plan. In mid 2007, Netflix launched a new service called ‘Watch now’ that allowed films to be viewed directly on the Internet. Netflix quickly emerged as the leader for web rentals and with the introduction of VOD they continued to capture the instant download market as well. Watch now started with about 1,000 films and TV titles.

Downloading and watching movies online could be a painful process due to the amount of time one has to wait for the downloads. Watch now did not require users to wait until a movie is downloaded, which could take considerable time even on high-speed Internet hookups. Instead, Netflix used a real-time playback technology that allowed users to begin watching the movie within 10 to 15 seconds after downloading begins. This also allowed Netflix to differentiate and position itself in it’s current market. Based on my research few customers have commented that viewing Netflix movies works a lot like viewing standard DVD’s. Clicking on the “play” button on any of the shows in the Netflix library launches the Netflix Movie viewer in an explorer window. The movie will start in less time. And most importantly, all this is available at no additional cost to the users. Therefore, to maintain their current business model of ‘no late fee and allowing viewers to watch on their schedule’ Netflix included the ability to watch movies and TV episodes streamed from Netflix to PC or Mac with all plans.

A basic plan at Netflix costs $4.99(reference www.netflix.com), with this plan a customer could rent 1 DVD at a time and instantly watch up to 2 hours of movies (some new releases) online for free. With other unlimited plans they can watch more but at an increased cost. Therefore, this clearly indicates that Netflix has targeted their existing customer base to leverage the VOD service. Netflix has efficiently used their current business model and has offered the VOD service as a bonus / complementary product to the DVDs and has included it in the membership. This will serve two purposes: 1) Make the existing customers happy 2) Also, will slowly get them used to the ‘Watch Now’ program (will help in transition when Netflix fully migrates to VOD in the future). Although this has impacted the DVD rental business, in most cases the Video on demand service has served to be a complementary unique product and reinforced customers’ satisfaction. Although few customers have complained about connectivity and content issues (which will improve over the coming years with technology enhancements), given its first mover advantage with DVD mail rentals Netflix stands a very good chance to become a dominant player in the VOD market. Netflix’s current position demonstrates the enduring value of being first. Finally, Netflix has made the right choice with the introduction of the Video on demand service with its DVD rentals. It has proved itself to the market that its’ business model works; therefore it is a matter of continuous learning, improvement that will help Netflix to slowly migrate to its VOD service from DVD rentals and further update its business model.

P2P Case

Who will win the competitive battle between P2P file sharing networks and iTunes over the long run and why?

Introduction
P2P vs. iTunes P2P - P2P - P2P file sharing programs became famous with the release of Napster in 1999. Since Napster’s release, a host of other software programs have emerged allowing users to download their favorite music, videos, images and other files. As stated in the article, Napster was a small program and allowed only music files to be shared. However, P2P adoption has grown quickly since the introduction of Napster and several other programs (Fast Track and Gnutella) have emerged allowing users to exchange different types of files. Therefore, p2p technologies emerged and quickly became the dominant mechanism for online music distribution at no cost.

ITunes - IPod the digital music player was released in 2001 when p2p dominated the market. IPod used its own DRM and encrypted the songs thereby protecting musicians’ copywrights. Apple’s iTunes website provided music lovers the opportunity to download songs at $0.99 each in addition to offering iTunes software for free download. ITunes got agreement from all of the “big five” and provided revolutionary rights to music consumers. ITunes has the backing of the media and film industry. Based on the article, iTunes is not about selling songs however it’s about selling more iPods. (iTunes has sold only enough songs to account for about 1.5% of the 30 billion songs).

Who will win & why?
P2P vs. iTunes –
Who will win the battle is a debate. Based on the information presented in the article, it is clear that P2P will win in the short run due to its current strengths and that it has been in the market for a while however if iTunes adopts the right strategies to tap the market then no doubt it will win in the long run as it will have a better leverage. Although P2P networks offer a variety of content with no restrictions on content for free of cost and is constantly improving its technology by adding new features, there is also downside to this. Firstly, P2P is constantly being attacked by the media/film industry. Secondly, although it is free it is not free of “spoof files”. As cited in the article, down loaders encountered “spoof” files 50% of the time when trying to download more popular tracks. This is pretty significant for any average user. As an example, if I want to download a popular track I would rather pay a fee to download it without any ad ware or spy ware that will save my computer from any viruses and most importantly save me time. Thirdly, at times downloading songs from P2P had congestion issues and were unreliable due to slow performance. The article cites that the reliability of Gnutella was not always great and predicted that 50% of requests were never fulfilled because users often connected and disconnected sporadically. Therefore, although it is free it may keep users in the short run but not in the long run as unreliability, performance issues and other issues will end up causing frustration to music lovers. Fourthly, iTunes is legal, receives major support from industry players and is easy to use. Legal consideration is pretty important as the article cites that many p2p users have been sued by music industry. The RIAA had been at the center of the battle against p2p networks. While RIAA ended up losing some of the suits, it was quite successful with a few lawsuits. ITunes also has the support of over 200 music industry technology companies whose main goal was to protect copyrights. Fifthly, it facilitates easy and faster downloads with high reliability as opposed to p2p. Download times in iTunes does not depend on the number of users in the network. So, an average consumer is better off purchasing in iTunes as he will enjoy faster downloads. iTunes works well with iPods, meaning after purchasing the songs the listener can enjoy the songs in iPod or load it in his computer. Finally, although users had to pay a fee of $0.99 in iTunes they did not experience any congestion problems (as any other p2p website). In the long run, this eventually will increase quality and the customer experience.

Based on the above it is clear that although p2p file sharing is free it is not free of any legal, copyright issues and any other costs associated with that. Although an average user will enjoy free downloads he may end up paying dollars if he is sued at any point. In order to be successful in the market and to win in the long run, Apple may consider the following to have a better leverage than p2p and win the battle:

1) In p2p consumers can download for free. So, iTunes must offer something that will make consumers’ pay rather than downloading it for free. It could be in the form of additional discounts, added features to the iTunes website that makes downloading experience even more enjoyable. In other words, an average consumer must think of iTunes if he wants to download his favorite music track. This will require lots of marketing and newer strategies by Apple.

2) Secondly, pricing plays an important role in marketing the iTunes product. Both the music industry and Apple must consider better pricing strategies to attract a p2p user. Given, that both record companies and the rights collection agencies share a major percentage of the profits they must be actively involved in pricing and marketing iTunes. They must consider the competition from p2p very carefully and determine how the price will produce a superior return on invested capital. Perhaps, initially to attract the free users in p2p they may decide to price it low in the beginning and once iTunes proves that is a better product and is ‘value for money’ and they may be in a better position to increase the price.

3) Retaining iTunes customers is another way to win the battle in the long run. Apple may come up with a referral program where the existing customers get new clients and may reward the customers for generating traffic. By this way iTunes can get new traffic in addition to keeping the existing customer base happy.

ezBoard Case Answers to Questions