Through its iTunes, iPod, and proprietary music software, Apple dominates the legal music download industry. But with the iPod contributing half of all the firm’s revenues, Apple faces intensifying competition posed by imitators such as the joint venture between Microsoft and MTV, and Samsung’s Helix. In addition to the competitive pressures, iPod also faces legal challenges. In France for example, legal enactments that compel firms with proprietary music management software to open their code to others are about to be passed.
Such a law will also standardize formats across the industry so that songs from one vendor could be played on a digital player from any other system. Apple has also had to stare down the four largest record labels as far as pricing is concerned. While the four largest record labels preferred variable pricing in order to maximize earnings, Apple successfully argued for the flat 99 cents price which is more competitive (Boone and Kurtz, 2008, ch. 4). The success of Apple illustrates how commitment to the marketing orientation philosophy is useful in ensuring organizational success.
Unlike the major record labels which insisted on selling music packaged in CDs, Apple realized that music consumers’ tastes and preferences had shifted in favour of the more convenient digital format, and developed a product around such needs. Through the strategy of product development as identified by the Ansoff Matrix, we see Apple adding on to its product line music videos, popular TV shows, and short movies (Mercer, 1996). Apart from the product, Apple also got other elements of its marketing mix right.
In particular, its adoption of the flat $0. 99 price rather than the variable pricing pushed by major record labels ensures that the product remains competitive. Its ability to bundle together its three products – the iPod, iTunes and proprietary music software – is also a smart marketing gimmick that has enabled it to lock in customers (Boone and Kurtz, 2008, ch. 4). Apple derives its sustainable competitive advantage from its proprietary music software as well as its unique player iPod.
By enacting laws that allow Apple’s rivals access to its code, and by standardizing formats across the industry so that songs from other vendors could play from the iPod and vice versa, the new regulations will in essence be eroding the source of the competitive advantage enjoyed by Apple in the digital music industry. For that reason, should the French legislation succeed, it would be better for Apple to pull iTunes out of the French market (Boone and Kurtz, 2008, ch. 4).