Saturday, May 5, 2012

iTunes Blue Ocean Strategy

This week’s article on “Blue Ocean Strategy” discusses the need to create uncontested market places instead of competing in “Red Oceans”. An interesting article1 discusses how Apple created a completely new market with iTunes to sell existing digital content and overcame the issue of piracy.

The problem
Online piracy of digital content is a major concern today, not just for artists, but also for major content providers and distributors like BMG, EMI, Sony, Warner Brothers, etc. The ability to share content without being restricted by territorial borders means that people can easily share content across geographies irrespective of the distribution laws and policies of a particular country. This resulted in losses of over $12.5 Billion2 in the US alone.

Apple’s strategy
Apple first created a significant dependency on hardware by creating addictive products like the iPhone, the MacBook Pro/Air and the iPad. It made sure that people could only add content to these devices through the iTunes program. Overtime, by signing contracts with content providers, Apple provided the consumers access to high quality audio content as well as useful features like search, browse and providing recommendations. The search functionality and pricing were critical factors in Apple’s success. Search for illegal content online is a pain and Apple solved that by pricing the digital content at lower prices to entice users (and share sales revenue with the content providers) and making searching for content in iTunes easy by striking deals with BMG, Sony, Warner Brothers Records, etc. to add enough content to cater to every need of the user.

With over 315 Million devices worldwide, inventory of over 20 Million songs3 and over 15 Billion songs4 downloaded so far, iTunes has been able to successfully create and sustain a niche market in the online digital music space.

So, iTunes has been successful in enticing users to buy music online so far. But when it comes to online piracy, the next big wave of free content sharing is just around the corner. Will iTunes be able to withstand this next revolution?

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