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BOS Moves

iTunes

iTunes Blue Ocean Strategy Strategic Move

Apple’s iTunes has unlocked a blue ocean in digital music, with the added advantage of increasing the attractiveness of its highly successful iPod player.

Apple observed the flood of illegal music file sharing that began in the late 1990s, enabled by file sharing programs such as Napster, Kazaa, and LimeWire. By 2003 more than two billion illegal music files were being traded every month. While the recording industry fought to stop the cannibalization of physical CDs, illegal digital music downloading continued to grow.

With the technology out there for anyone to digitally download music free, the trend toward digital music was clear. This trend was underscored by the fast growing demand for MP3 players that played mobile digital music, such as Apple’s hit iPod. Apple capitalized on this decisive trend with a clear trajectory by launching the iTunes online music store in 2003.

In agreement with five major music companies—BMG, EMI Group, Sony, Universal Music Group, and Warner Brothers Records—iTunes offered legal, easy-to-use, and flexible à la carte song downloads and allowed buyers to freely browse two hundred thousand songs, listen to thirty-second samples, and download an individual song for 99 cents or an entire album for $9.99. By allowing people to buy individual songs and strategically pricing them far more reasonably, iTunes broke a key customer annoyance factor: the need to purchase an entire CD when they wanted only one or two songs on it.

Customers have been flocking to iTunes, and recording companies and artists are also winning. Under iTunes they receive 65 percent of the purchase price of digitally downloaded songs, at last financially benefiting from the digital downloading craze. In addition, Apple further protected recording companies by devising copyright protection that would not inconvenience users—who had grown accustomed to the freedom of digital music in the post-Napster world—but would satisfy the music industry.

Today the iTunes Music Store offers more than 8 million songs. iTunes is the largest music retailer in the US with sales exceeding 5 billion songs.