Childress+J.+Strategy+Report

Childress J.

TO: Proximity music team FROM: Jazmin Childress DATE: February 27, 2010 SUBJECT: iTunes Strategy Analysis

Below is strategy report on Apple's online music store, iTunes, which I've put together for the Proximity music team.

"iTunes is a free application for your Mac or PC. It organizes and plays your digital music and video on your computer. It syncs all your media with your iPod, iPhone, and Apple TV. And it’s a store on your computer, iPod touch, iPhone, and Apple TV that has everything you need to be entertained. Anywhere. Anytime (Apple, 2010)." Introduced only for Mac users, iTunes was first released by Apple 9 years ago on January 9, 2001. iTunes wasn't open to PC users until 2003. The iTunes store has grown to be the largest online music store with over 11 million high quality songs. They also sale movies, television shows, audiobooks, podcast, games, and other applications. Apple reported a revenue of $15.68 billion in the first quarter of their 2010 fiscal year (Apple, 2010). Apple gains most of its money from their hardware such as the iPhone and iPods, opposed to iTunes where they only gain a small profit of about 10% per each song downloaded.
 * Profile**

With iTunes being the largest music store, they always seem to be several steps ahead of their competitors. iTunes is constantly updating, finding efficient ways to keep their fan base happy and improve profits. According to Reuters, "Four out of every five songs purchased on the Internet come from the iTunes store (Pastoor, 2008)." This is because Apple comes out with new and innovative products, such as iPods, iPhones and the soon-to-be iPad, which require iTunes in order to manage the media on these products. Even though some of iTunes prices are slighty more than competitors, the large amount of features on iTunes makes it worth while. Other top online music stores include eMusic, Amazon MP3, Napster, and Rhapsody. However, eMusic, the second largest online music store, is the only online store other than iTunes that sells tracks that can be played on an iPod. Instead of having music from the Big Four music companies, eMusic has music from over 11,000 independent labels. eMusic is alot cheaper than iTunes allowing users to download up to 30 songs for 11.99 a month. This helped them reach 250,000 subscribers. However, there is still a large gap between iTunes and eMusic. Itunes features give users the abilitity to "Organize their music into playlist within one or more libraries, edit file information, record Compact Discs, copy files to a digital audio player, purchase music and videos through its built-in music store, download free podcasts, back up songs onto a CD or DVD, run a visualizer to display graphical effects in time to the music, and encode music into a number of different audio formats. There is also a large selection of free internet radio stations to listen to (Wikipedia, 2010)."
 * Competitive Landscape**

iTune's business strategy is to dominate the market and get a further lead from its competitors. Before 2007, music bought from iTunes had digital rights management (DRM); which mean't users could only download music and either put it on their iPod or rip it onto a CD. In 2007, Apple marketed iTunes Plus which was DRM-free but songs were $.30 more depending on the price the label charged Apple. With this new feature iTunes provides, users can put music purchased on iTunes on any music player. This helped iTunes gain more revenue because now people with any music player can download from iTunes, where as before it was mostly geared to iPod users. This change also gave iPhone users the ability to download music from the iTunes music store via a 3g network instead of only wi-fi as before. Another business strategy is Apple producing cheaper iPhones and Macbook models. With todays economic times, not everyone is able to spend hundreds of dollars on Apple products. So to continue to attract customers, Apple lowers the price of these models so they can continue to profit on that model and iTunes as well.
 * iTune's Strategy**

From social networks to music, Generation Y is constantly involved in the latest technology. Apple continues to appeal to Gen-Y by continuing to produce innovative products with the latest technology. For example, the iPad is one of the most anticipated products amongst generation Y; which is suppose to be released at the end of March. iTunes will continue to be apart of Gen-Y because Apple forces users to to keep iTunes with the products they release. As long as Apple products require iTunes, Gen-Y will always use it. Also, iTunes catalog is full of items that appeal to Generation Y such as iTunes U which provide free educational content such as lectures and language lessons from some of the top universities in the world.
 * Gen-Y implications**

ITunes. (2010, February 25). Wikipedia, The Free Encyclopedia. Retrieved February 27, 2010 from []
 * References**

Apple. Retrieved February 27,2010 from [|www.apple.com]

Pastoor, Devin. (December 5, 2008) Apple Blocking iTunes Competition for iPhone? Hot Hardware. Retrieved February 27, 2010 from []