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.