Wednesday, November 20, 2013

Blue Ocean Strategy: iPod

The music industry of late 1990s was divided primarily in two major areas: the music player segment and music record/songs sales. The industry had multiple players who were making small, flash-drive based inexpensive ($100-$200) music players, which stored songs of 1 CD, or some hard-drive based expensive ($300-$800) music players that stored that had much higher storage capacity. On the other hand, the digital music retailing was crippled by the dawn of internet and person-to-person file sharing systems. The legal copies of music had great quality, but had very limited selectivity and complex pricing. The music player industry had thin margins and multiple competitors, and there was no synergy or partnerships between record label companies and music player manufacturers. Apple, with its design-based product development created a blue-ocean for itself in an otherwise lagging industry. Apple created products that had much higher value for the consumers and therefore enjoyed the surfing the high tides of the blue ocean that it created.

In 2001, Steve Jobs unveiled the iPod, stating that "with iPod, Apple has invented a whole new category of digital music player that lets you put your entire music collection in your pocket and listen to it wherever you go." He predicted, "with iPod, listening to music will never be the same again." Apple designed a music player that was small but had a great storage capacity and was easy to use. Apple also decided to control the music sales. Instead of trading up/down between the subscription-based music service and the free file-sharing network, Apple looked across these two strategic groups. Apple saw untapped demand for legal channels of digital music with a wide selection at a price that appeals to the mass of potential buyers. Apple create partnerships with all major record-label companies and created an “unfair advantage” for itself over the competitors. This allowed Apple to combine iPod with the iTunes- a software service that let users buy individual songs for as low as 99¢. Users can easily buy legal soundtracks and ply them directly on their iPods. All leading music players had absolutely no chance to compete with iPod. Undoubtedly, it was a major hit, and listening to music indeed changed forever.

The iPod was priced at $399 and had a tag line that said “1,000 songs in your pocket”. Apple created an interesting fan-base and created a market demand for its product. Apple introduced the first iPod that was compatible with Macs only. The Windows compatible iPods were released after a long time. Whether this was a technical delay or a strategic delay, it created an enormous demand among users that helped Apple to position iPod in the best possible way. Over the years, Apple launched different models and upgrades of the iPod and eventually placed itself at the center of the new music player industry Apple created for itself. By 2010, Apple has sold more than 297 million iPods and maintained over 70% global market share. More than 10 billion songs, 450 million TV episodes, 100 million movies, and 35 million books were purchased and downloaded from the iTunes Store by over 160 million account holders in 23 countries.

In 2007, Apple repeated its success story with the launch of iPhone and then later with launch of iPads where it created new market spaces in smartphone industry and tablet industry respectively. Apple has very successfully created a new “tribe” for its products. It will be interesting to see that for how long Apple can repeat its success story before competitors like Samsung start to catch up. 

  • Blue Ocean Strategy (Kim and Mauborgne, Harvard Business Review, Oct ‘04)
  • Bringing Science to The Art of Strategy (Lafley, et. al., Harvard Business Review, September 2012)
  • How Apple’s Corporate Strategy Drives High Growth, INSEAD Blue Ocean Strategy Institute 2012
  • Apple's IPod Strategy: Aggressive Prices, Overwhelming Features, Wired Magazine 2007

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