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.