iPod vs. Cell Phone: A Mobile Music Revolution?
1. Has the digital music market irreversibly tipped in Apple's favor? With the invention of the mp3 file format in the early 1990s the music revolution begun. After a long time of illegal downloading, a turning point in the history of the digital music market was the shutdown of Napster in 2001. It symbolized the aggressive legal actions against free file sharing. In contrast to that, Apple, as one of the early movers, could offer the frightened customers easy and affordable access to digital music through the iTunes store. But that was only one part of the reason for Apples success in the digital music market. The other part was the iPod, a hip portable music player with an easy user interface and a long battery life. Apple understood to bundle this elements to a solution for people that want to hear digital music at home or on their portable player. With a market share in US between 70% and 80% for digital music and a more than 50% for digital music devices (e.g. the iPod), Apple was by far the market leader in 2006. Apple offered security to the music labels by using a tightly closed digital rights management standard called fairplay. The disunity between the competitors in terms of a common digital rights management standard or common codecs made it difficult to threaten Apple. Another barrier for the competitors to Apple was that the prices in the iTunes store were very low. Thus Apple reached only a break even with iTunes. Nevertheless a margin of about 25% for the iPod compensated this. So it was very difficult to compete with Apple in pricing. The only way to do so was to save royalties (for record labels & publishing) and operational costs like credit card transaction fees by offering subscription services. Subscription services allowed users to stream music for a monthly fee. However, users did not like to rent music because they were used to own music if they pay for it.
In summary the digital...
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