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The iPod and iPhone

Group 9Li Shuguo Song TandaLiu YazhuoHan Jie

Summary

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Being aware of the need to know the whole market situation particularly in the

competition perspective, we decided to use Porter’s Five Force Model to do the a

nalysis.And based on the analysis, we find out an interesting role of this competition, that isthe mobile operators, which both act as the substitutes and the potential entrants, andeven some of which has been in the market and served as the competitors. They are sostrong depending on their powerful resource of mobile network.

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And then, we sum up with the SWOT. And we concluded that the biggest advantageowned by iTunn is its integration with iPod, and the iPhone in the future, even at thecost of very low margin of iTune. In order to optimize the advantage, iTune should bareits risk with other online stores and still use the fairplay DMR, which is mainly due to itscapability of attracting music label by its effective right protection and substantialintegration with iPod.

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We also found out that the biggest threats of Apple now is the its weakness in the fieldof mobile music field, which would give the chance to the competitors in the market tobeat it. To avoid this, Apple has to seek someone who can offset its weakness. So wecame to the mobile operators at last.

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We make use of The Five Forces Analysis by to study the competitive situation and avalue-creating constellation analysis to facilitate the observation of relationships. Thenby analyzing the relationship between the five forces and the three generic strategies,the choice of strategy is both differentiation and focus, and some implementation is tobuild a platform to encourage users to generate and share content by themselves andopen API interface to third developers.

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To develop the brand, we consider iPod as brand salience and iPhone as branddifferentiation to approach position. iPod position as the market leader, however, wesuggest iPod consider offline issues. iPhone reinvent the phones. We suggest Apple

could think of customers’ special needs and make perfect details to increase brand

loyalty. The consistency of Apple communication makes good brand awareness.Consumer-Brand relationships are very important and more open source will createvalue for consumers.

Looking into the industry environment

With the emerging of the new market space of the digital music market, mobile music,nearly everyone within this relevant market (both the handset maker and the carrier) mightbe eager to both

gain its own growth and shake Apple’s dominant position to some extent.

Based on the position of Apple, we should look into the whole digital music industry by using

Porter’s Five Forces model to do this analysis:

SUPPLIERS:

The suppliers mainly include the music labels. While the online music stores mostlycooperate with the major music label, but neglecting the huge resource of the other form of the suppliers, such as independent music producers. And because the essential role of providing the content to the digital industry, the bargaining power of suppliers is so strongthat they actually take away more than 60% of the revenue,

which get the most profit inthis business.

BUYER:

Although exposed in many selections of online music stores and the low switch cost, thebuyer still have relatively small bargaining power. It is mainly because of the high sellingconcentration of the industry which is mainly contributed by the iTune which integratedwith iPod. It's a innovation way to stickiness with customers. However, some times buyersactually can still obtain what they want by not to pay at all.

SUBSTITUEDS:

Physical music stores and the carriers’ mobile music delivering service. We should pay a

closer attention to the role of the carriers. From the functional perspective, we defined thecarriers who provide the mobile music through cell phone as the substitutes, because theyprovide wireless distribution channel for transfer.

POTENTIAL ENTRANTS:

Seeing the growing opportunity of the industry and the barrier is not too high to enter, lotsof firms are eager and prepare to enter into this industry. And the biggest threat comes fromthe carriers who have an advantage over the operating cost of the mobile music which canoffset the cost of the online music st

ore’s operating cost to some extent. Google might be

another big role who want to get profit in this field, by its strong search engine background.

Darren Aftahi, 'RealNetworks Company Report, 2006'