Ali Ahmad 006

Ifrah javed 045

M. Habib Ullah 084
Nayab Ameen 115
Sharjeel Arslan 139
Zahid Yousaf 166
Qaisar Abbas 175
Strategic Management

Music on the Internet: “Transformation of

Industry by Sony, Amazon.com, Mp3.com &
Napster”.
Chapter slides
 .

Business Model and Strategies in

the Internet Era
Introduction
Internet:

“Internet is an integrated network of users

connected computers, digital switches and
routers, millions of servers and
telecommunication equipments and lines”.
Users:

400Millions (2001)
700Millions (2003)
Main Companies Involved in
music industry

Sony Corporation
Amazon.com
Mp3.com
Napster
Competitive forces
The impact on competitive rivalry
The impact on barrier to entry
The impact on buyer bargaining power
The impact on supplier bargaining power
The impact on seller-supplier collaboration
 The impact on competitive
rivalry
•There is wide geographic market, so
the rivalry among competitors become
increased.
•Elimination of Geographical protection
of distance.
•Freshly launched E. commerce
strategies among competitors.
The impact on barrier to entry
Low barrier to entry in e. commerce. As
internet is easier source to expand markets.
Easy availability of software for making
websites.
Only barrier is to create awareness and
increase traffic on websites.
The impact on buyer bargaining
power
Info about competing products and brands.
Websites provide 24*7 facility.
Facility to manufacturer. Wholesale, retailer
to buy and approach desirable vendors.
Person who has knowledge of market,
product, quality and who is price conscious
has higher bargaining power.
The impact on supplier bargaining
power.
 Facility to organization to reach the best
supplier by increasing efficiency and
reducing cost.
 Facility to indentify foreign supplier &
then involved him in supply chain.
 Supplier have wide access to buyers in
online business.
 Eliminating difficult process of E-mail
and Fax,
The impact on seller-supplier
collaboration
Effective relationship between supplier and
seller & easy access.
Company will continue buying , if a seller
provides best values.
Collaboration of inbound logistics.
Other strategy-shaping features of
internet technology
 The internet is a force globalizing
competition and expending the
geographic arena in which firms have a
market presence. A company’s Web store
is open to buyers all over the world.
 E-commerce
 Language
 Shipping expense
 Best Suppliers
Other strategy-shaping features of
internet technology
 Internet and PC technology are advancing at
uncertain speeds and in unexpected
directions. A few years ago , Both Intel and
Microsoft were focusing all their energies on
boosting the performance and capabilities of
PCs and expanding the role of PCs as a
multifunctional appliance in both business
and households.
 Iomega’s Zip
 Hard Drives
 Broadband
 Other strategy-shaping features of
internet technology

Reduce Variable Cost:

Labor saving
Lower transactions cost
Other cost
 Other strategy-shaping features of
internet technology

The internet speeds the diffusion of new

technology and business approaches, making
first-mover advantages short lived.
 Other strategy-shaping features of
internet technology

 The internet can be an economical means of

delivering service. The internet providers
innovative opportunities for handling customer
service activities, supplementing or even
replacing on site personnel.
 Other strategy-shaping features of
internet technology

 By handling customer service issues over the

internet , companies need fewer people to send
out to customers’ locations, staff telephone lines
at call center or respond to other customer
communications.
 Example:
 Dell Computer
 Other strategy-shaping features of
internet technology

Internet technology initially created a climate

where venture capitalists were quite willing to
fund start-up enterprises with most any
possible idea and business plan.
The First-Mover
First movers that developed snazzy and
useful websites, generated high and
growing traffic volumes from both repeat
and first time users, built widespread
name recognition and a strong new
economy brand name, and cultivated
websites loyalty with fresh feature and
product offering for first time.
First Mover Advantages

 High switching costs on the part of site user

 Net work effects (where a site’s feature
became more valuables as more people used
them)
 Market leader
Strategic Mistakes Made By Early
Internet Entrepreneurs
 While revolutionary new technology often
give entrepreneurs room to experiments with
fresh strategies and business models, the rise
of the internet to center stage in the economy
during the 1990s resulted in an unusually
large number of new business models and
strategies, some of which violated
fundamental business principles. The
following sections look at a few of the
strategic mistakes made by the early internet
entrepreneurs.
 The Mistake of Ignoring Low
Barriers to Entry

Low entry barriers signal a strong threat of

potential entry and nearly always produce a
net gain in the number of competitors.
E-commerce
. business models and
strategies for the future
How best to make internet
fundamental part of their business
It is thus worthwhile to take a hard look
at what kind of business model and
strategies are attractive in the maturing
internet economy what strategies principle
need to be observed. is the combination
brick and click model likely to be a good
strategic positioning option.
Business model and strategies for
pure dot -com enterprises
 the internet does not make the rules of
competition obsolete nor does it allow
companies to ignore sound business
fundamentals and strategies making
principle just like traditional companies
online companies must carefully analyze
industry and competitive conditions and
craft strategies well matched to these
conditions.
Successful dot -com strategies
A distinctive strategy that delivers unique
value to buyers
Build to order product
Convenience
Superior product information
Attentive online service
Differentiation or lower costs or
better value for the money
Deliberate efforts to engineer a value
chain that enables differentiation lower
costs this mean employing strategies and
value chain approaches that hold potential
for low cost leadership
Clear focus on limited number of
competencies and relatively specialized
number of value chain activities
Strong capabilities in cutting – edge
internet technology
Innovative marketing techniques
Minimal reliance on ancillary revenue
An innovative fresh an entertaining
website
The issue of broad versus narrow
product offerings
Online sellers have to make decisions
about how to position themselves on the
spectrum of broad versus narrow product
offerings a one stop shopping strategy
like that employed by amazon.com have
a wide number of items and a large
customer base
The order fulfillment issue
Another big strategic issue for dot- com
retailers is whether to performs order
fulfillment activities internally or to
outsource them building central ware houses
stocking them with adequate inventories and
and developing a system to pick pack and
ship individual orders but may result in lower
overall unit costs than would paying the fees
of orders fulfillment specialists.
Opportunities for unconventional
business models and strategies
Subscriptionfees
Transaction fees
Pay per use
Brick and click strategies
 Many traditional retailers using the internet
as a substitute for shopping at a local stores
have opened their own online shopping sites.
Toys r us for example has launched a web
site to combat etoys and other online toy
merchants
 Now offers the customers the option of
trading online to discourage commission
sensitive customers from moving their
accounts to cheaper online .
Option of shopping either online or in
stores.
Competition from pure online retailers
especially when customers sometimes
want to see and touch a product before
making a purchase .
In banking system brick and click
strategy
Brick and click strategies have two
big appeals
Expanding a company geographic reach
They give both existing and potential
customer another choice of how to
communicate with the company product
information make purchases or resolve
customers service problems
Internet strategies for traditional
business
The real strategic issues for a traditional
business boil down to two things
What specific internet applications to
implement
How to make the internet a fundamental
part of its strategy
Some companies use internet applications
for improve the following things
Operational effectiveness
Value chain efficiency
Primary distribution channel
As secondary distribution channel
The internet related strategies
Operating a website that provide existing
and potential customers with extensive
product information
Distribution channel partner handle orders
and transations
Sites informs the visitors where nearby
retail stores are located
This is an attractive marketing positioning
option
A manufacturer efforts to try to use its
website to sell around its dealers is certain
to anger distribution channel many of
whom may stock the brand of several
manufacturer may to lose more sales
through its dealers than its gain online
sale efforts
Use online sales as a relatively
minor distribution channel
Achieving incremental sales
Gaining online sales experience
Doing marketing research
Learning more about buyer taste and
preferences
Testing reaction to new products
Employing a brick and click strategy
to sell directly to consumers
Reduces the costs
allowing the customer to download their
software
Bigger profit margins
It help to educate the buyer
Making greater use of build to order
manufacturing
Reduce delivery time
Internet sites permits motor vehicle
shoppers to select the models colors and
optional equipment
Online music already have options
Building systems to pick and pack
products that are shipped
individually
Contracting with order fulfillment
specialist to handle this function order
fulfillment is important for companies that
opt for brick and click strategies
Case Study
Introduction
Internet:

“Internet is an integrated network of users

connected computers, digital switches and
routers, millions of servers and
telecommunication equipments and lines”.
Users:

400Millions (2001)
700Millions (2003)
Main Companies Involved in
music industry

Sony Corporation
Amazon.com
Mp3.com
Napster
Sony Corporation
Founded in 1946 in Japan
It was most comprehensive
entertainment company in the world.
It was leading Manufacturer of Audio,
Video, communication and technology
products for consumer and professional
markets.
It was leading Music industry in united
states.
Music listening was revolutionized by
Sony by introducing a pocket size
Walkman.
The Mp3 Threat to Sony
Mp3 offers no anti-privacy protection.
It compress digital audio information to
portable size.
It was offering free Mp3 music files and
software that can run those files easily.
Sony’s Reaction to Mp3
Sony started distribution of music on
internet before this they were trading in only
CD’s and record labels.
They reduce their prices from $9 to $2.60.
They introduced copyright management
technologies.
Amazon.com
They started their business in 1995 with
internet book selling.
Customer entering in Amazon.com can
order books and other products, purchase
gifts, browse highlighted selections and can
check their order’s status.
It expands its product offerings to music
stores in 1998. In third quarter of 1998
Amazon.com became the number 1 online
seller of online Music.
Now they are holding 20% of market share.
Mp3.com
It was a revolutionary approach to the
promotion and distribution of music.
It uses internet and file formats that makes
the music files smaller.
It is a free source for customer to download
their desired music files.
In January 2000, the major recording
companies sued Mp3.com for violation of
copyrights.
NAPSTER
It is a world’s leading file sharing
community. Its software applications enable
users to locate and share media files.
It allowed anyone to reach out to any other
computer and get files from it.
Users can log on to central directory and
identify the song they wanted.
RIAA claimed that Napster harmed the
industry by slowing CD sales.
Case Study
Question No.1

What competitive forces seem to have the

greatest affect on the industry
attractiveness from the stand point of Music
companies and record labels?
Competitive forces
The impact on competitive rivalry
The impact on barrier to entry
The impact on buyer bargaining power
The impact on supplier bargaining power
The impact on seller-supplier collaboration
 The impact on competitive
rivalry

•There is wide geographic market, so the

rivalry among competitors become
increased.
•Elimination of Geographical protection of
distance. In traditional business local
vendor was the only personnel who was
providing facilities to the entire society.
Now this business has been expand to
world wide.
Contd.
Freshly launched E. commerce strategies
among competitors. Now competitors can
adopt their competitive strategies to attract
more customers. They can improve their
strategies according to their competitors.
The impact on barrier to entry
Low barrier to entry in e. commerce. As
internet is easier source to expand markets.
Easy availability of software for making
websites. Now each and every person can
build and maintain his business website by
himself.
Only barrier is to create awareness and
increase traffic on websites. For awareness
company has to provide all relevant
information about their products and
services.
Contd.
For traffic generation company adopt
promotional strategies on different search
engines. It pays commission to search
engines that their website should be on the
first page when a customer made his
attempt to search.
The impact on buyer bargaining
power
 Information about competing products and
brands. Due to internet facility information
about different competing brands has been
increased. Now customer can compare the
prices, quality, and other competitive attributes
of goods and services and he goes to that
product which provide him higher quality at
lowest cost.
 Websites provide 24*7 facility to access the
company and provide facility to their customer
to place their desired orders at any time.
 Facility to manufacturer. Wholesale, retailer to
buy and approach desirable vendors.
Contd.
Person who has knowledge of market,
product, quality and who is price conscious
has higher bargaining power because the
informative customer can switch to
competitor’s product if he finds that product
according to his needs.
The impact on supplier bargaining
power.
Facility to organization to reach the best
supplier by increasing efficiency and
reducing cost. Due to expansion of market
supplier can target his most appropriate
audience.
Facility to indentify foreign supplier & then
involved him in supply chain.
Supplier have wide access to buyers in
online business.
Eliminating difficult process of E-mail and
Fax.
The impact on seller-supplier
collaboration
Effective relationship between supplier and
seller & easy access.
Company will continue buying , if a seller
provides best values.
Collaboration of inbond logistics.
Question No.2

What are the major underlying causes of

change in the music industry? How might
driving forces change the music industry?
Major underlying forces
Huge size of market.
Access to free music.
Incentive to artists.
Convenient shopping.
Overall cost.
Huge size of market.

Huge size of market make it easy to target

those customers which were not
provisionally being reached. Traditionally
meetings with demand of customers was
not easy and efficient. Now company can
sell its music to local as well as in
international markets. There is wider
segment of customers worldwide.
Access to free music.

use of internet to access free music. There

are several companies which are providing
free access to any type of music to all
customers. There is no need to pay
subscription charges.
Incentive to artists.

Internet has great incentive for artists.

Artists are being paid royalties for their
music by different companies like Sony, and
amazon.com etc.
Greater feedback from customers.
Music concerts in different worldwide areas.
Convenient shopping
Internet is providing Convenient shopping
facility to its customers. Online shopping
provides time saving facility to businesses
and customers.
The only problem in online shopping is lack
of privacy.
cost
Change in cost of purchasing music.
Traditionally Sony was selling its CD’s in
$19 but due to online shopping its cost has
been reduced to $6.
Driving forces

Globalization is major force. Internet has

expand market to worldwide. So music
industry has also expanded its business to
huge market of customers.
Globalization has great affect on
awareness. Due to this customer can get
easy access to all types of information.
Marketing innovation
Marketing innovation is also a major force.
Innovation is the heart of a Business. If a
business wants to be in market than it has
to made continuous innovations in its
products and services as well.
Product innovation and technological
advancement
Product innovation and technological
advancement is a major driving force too.
Examples are Mp3 and Napster.
Online music industry like Sony made
continuous innovations in their product and
they are trying to made it available in all
formats of music.
Free access to internet
Now a days each and every person has
free access to internet.
Customers now want to have customization
in their products.
They want to have free music rather than
pay any subscription.
Culture and attitude
Online music companies are providing
music facilities according to culture and
attitudes of customers. They are targeting
their customers according to their life styles
and social values.
Regulatory influence
Regulatory influence is also included in
major driving forces. Number of artists
made a sue on different music companies
for lack of royalties and copy rights.
Question No.3

What is the appeal of a business model

based on internet distribution of music? How
does a business model based on internet
distribution differ from a traditional business
model in the recorded music industry?
APPEAL OF BUSINESS

2 Types of Appeals
Functional
Emotional
Functional
Allthe functions that a business is
providing to attract its customer

Emotional

Appeal that enhances internal motivation

that is called emotional appeal.
The internet had transformed the rules of the
music industry. New entrants were changing
the rules of the game and forcing traditional
players to reevaluate their strategic options.
 “THE TRADITIONAL BUSINESS
MODEL”
Andrew Atherton said in the report “Music Online
Future”:
The “real world” music stores and the current giants of
the music industry will find themselves in the line of fire
as the internet squeezes out the middleman. Major
labels will concentrate on volume marketing and
promotion of an artist and their core competency. The
role of the internet will be discovering the artists. It is
no secret that the music industry had been diligently
fighting music piracy in the United States and around
the world, but its slow pace in embracing new
technologies and streamlining its own industry was the
reason why the problem became so prevalent.
“SIX MAJOR PLAYERS”

There were six major players: Bertelsmann, EMI-

Capitol, Universal, Polygram, Sony music, and
Warner Music. These companies controlled
distribution and marketing channels, making it an
uneven playing field for smaller labels.
It seemed that the music giants were aware of the
possibilities and technologies, but were hesitant to
embrace a digital system that would endanger the
current retail model. However the internet
demonstrated its power to force change on even
the most entrenched industries. Digital distribution
became inevitable due to the internet.
“THE NEW BUSINESS MODEL”
The internet had made it easier to acquire free
or cheaper music by expanding the connectivity
to a world wide population. Beyond creating an
alternative to the traditional dissemination of
music, the internet offered artists increased
ease of exposure to the music buying public.
The low cost of entry and the possibility to
communicate with an enormous market of
potential consumers meant that there was
increasingly little need for record labels, as
artists themselves could produce and market
their own music.
Contd.
A survey commissioned by the digital music
distribution industry found that nearly 80
percent of respondents would buy more
music if they had immediate information
about the artists and the titles of the songs,
more than 60 percent would purchase more
music if they could buy a song as soon as
they hear it, more than 80 percent wanted
to buy songs individually, and of those who
regularly listened to music on the internet,
one third were more likely to purchase CDs
in stores after hearing the music online.
Music distribution on internet had
taken two forms:

1) Ordering via internet with delivery via

mail and,
2) Direct digital downloading.
HOW DOES A BUSINESS MODEL
BASED ON INTERNET
DISTRIBUTION?
The growth of Internet based businesses,
popularly known as dot coms is anything but
meteoric. It has dwarfed the historical growth
patterns of other sectors of the industry.
Over years, several organizations doing
business through the Internet have come out
with their own set of unique propositions to
succeed in the business. For instance
Amazon.com demonstrated how it is possible to
"disinter mediate" the supply chain and create
new value out of it. Companies such as Hotmail,
and Netscape made business sense out of
providing free products and services.
Contd.
On the other hand companies such as AOL
and Yahoo identified new revenue streams
for their businesses. It is increasingly
becoming clearer that the propositions that
these organizations employed in their
business could collectively form the building
blocks of a business model for an Internet
based business.
HOW DOES A TRADITIONAL BUSINESS
MODEL BASED ON INTERNET
DISTRIBUTION IN THE RECORDED
MUSIC INDUSTRY?

The music industry is a complex system of

many different organizations, firms and
individuals, too complicated to be described
completely here. The music industry has also
undergone dramatic changes in the 21st
century and the current business structure is
in the process of changing.
RECORDED MUSIC

There are three types of property that are

created and sold by the recording industry:
compositions, recordings and media (such
as CDs or MP3s). There may be many
recordings of a single composition and a
single recording will typically be distributed
into many media.
“TRADITIONAL ONLINE BUSINESS
MODEL”
For the time being, the perspectives of the online
digital music market were rather deceiving. According
to an estimate, the legitimate downloads and digital
subscription models yielded less than $1 million in
global revenue in 2001 . But the opportunities could
be huge. According to an estimate, the European
online music market represented € 323 millions in
2000 and was estimated to reach € 2 billions in 2006,
divided by 63% in sales of CDs and 37% through
digital distribution. According to this estimate, it
means that by 2006, the digital distribution music
market should represent € 463 million in subscription
sales and € 321 million in downloads sales.
“DISTRIBUTION MODEL”

The business strategy is based on the

premise that most people investing in online
music want to be selling and far fewer are
interested in distribution. It is an online music
rental service offering to the consumer the
opportunity to stream whole catalogs of
music before selecting the ones they want to
rent for a fixed price as time-limited
downloads.
Question No.4

What does the value chain of recorded music

industry look like? How does internet
distribution of music shorten the industry
value chain? Is an industry value chain that
includes free internet distribution of music
ethically flawed?
Value chain of recorded music
industry
Artists& repertoire development.
Recording
Manufacturing
Marketing
Distribution
Retail
Artists & repertoire development
Record labels advances money to develop
brands, musical repertoire, promotion and
arrangement of concerts and tours.

RECORDING
Own recording studios. Traditionally
companies have their own studios where
they record music of any artist and then
make copies of that music in different
formats e.g. CDs and DVDs.
May outsource this link.
MANUFACTURING

Physical manufacturing of CD’s consists of

10% of total production cost.
High seasonal variability in cost. On
Christmas and Easter the demand for
religious music increases and overall cost
of company decreases due to high
production of music volumes.
MARKETING
Cost for print media, TV advertisement.
Promotional events.
DISTRIBUTION

Distributionconsists of 40% of total

production cost.
Packaging and physical transportation of
CD’s.

RETAILING
Major labels and internet superstores e.g.
Amazon.com is performing this type of
retailing activities.
Short industry value chain due to
internet
Powerful supply chain management. Sony
has its own powerful distribution network
and it has its own outlets. From where
customers can get easy access to any type
of music in short span of time.
Checking material inventory through soft
wares. Different software are made that are
involved in checking the demand and
supply requirements of music.
Contd.
Just in time delivery direct to consumer. On
internet customer can surf its desired music
and can download it within no time.
product performance system. Companies
always collect feedback from customers to
check their performance status. If they
found any deficiency in process then they
can try to overcome that problem.
Ethical background of internet music
Free internet distribution of music is
unethical activity. Because companies have
to pay royalties.
Parent company doesn't get its profit due to
free distribution. Due to free distribution
their sales decreases and sales have
ultimate impact on profit. When company
will pay low margin to artists than they will
shift to other competitors.
Question No.5

How have the industry’s providers of

recorded music positioned themselves? What
does your strategic group Map of the music
industry like? Which strategic group positions
are threatened by the change swirling in the
industry? Where on the map will the future
industry leaders need to be? Do some
companies need to think about changing to a
different strategic group or a different position
on the grid?
Group Positioned

Sony is traditional record label distribution

net work.
Cost of accessing Music is high for
customer.
Amazon.com is superstore and prices are
medium or often available at discounted
rate.
Contd.

MP3 is cheapest for customer because it is

free to be enter here.
Napster and Gnutella are in the peer to
peer file sharing. Cost is low because
customer can share files.
Strategic Group

A strategic group is a concept used in

strategic management that groups
companies within an industry that have
similar business models or similar
combinations of strategies.
Strategic Group Map

I chosen two variables for my strategic group

map.

1 . Distribution Channel

2 . Cost of Accessing to Music

Distribution Channel Cost of accessing to Music

Difference Between Purchase directly

channels of Rivals. effects the success of
industry and artist.

Strategic Group Map

Threatened

Sony have to gain more presence in

industry otherwise it will be existed.

This can be done through developing digital

tech or selling at discounted rate.
Changing in Map
Artistsare not agree with Sony to sell music
on discounted rate.
Amazon.com is good in Map. They showed
continue with current strategy.
MP3 may have to increase cost so that
adequate royalties to artists.
Napster and Gnutella may also have and
pay royalties . But increase price may
cause of loss of customer.
 Leader

Sony should be leader in marketing,

promotion and distribution. Sony
should increase its marketing efforts to
attract more new customers and
artists. They have to minimize its
production cost and discounted prices
should be available for customers.
Question No.6

What music providers seem best positioned to survive

industry changes? What do you think this industry
will look like in 2005-2007? What are your specific
predictions about what the structure of this industry
will be like in 2005-2007? Which music power
providers do you think will end up as industry leaders
in 2007?
Best music provider position

We feel Amazon.com is currently at best

strategic position because they are
capturing customer by selling Music at
discounted prices and are still maintain
their ethical responsibilities by ensuring
return of loyalties to its stakeholders.
2007 Music
Us album sale = 9.7 %
Sales of songs was 45% but lower as
compared to 2006 that was 65%
Album sales was $ 584.9 million unit 2007.
Album sales was $ 646.4 million unit 2006.
There was decline in sales.
Universal Music was having US largest
market share 31.9% in 2007 but in
2006=31.6%
Now Global sales are $ 37 billion.
Industry leader in 2007

Amazon.com will be the leader at the

end of 2007 because it using the
discounted prices strategies to its
customers. The other firms should
move towards this strategy. If I am
being asked to invest then Amazon
would be the best option.
conclusion
• In this case study four companies are
discussed that are dealing in music
distribution and providing facilities to
customers to get their desired music from
their main web pages. They can easily
download music from the available sites.
• According to our perspective the
amazon.com is the best company that is
providing music facilities to its customers.
They have the ability to satisfy the customers
needs and wants.
Contd.

• If other companies want to become

leader in the market than they should
need to change their current strategies.
The END