2. iTunes and the Bit Vendor Model iTunes represents the Bit Vendor model - A merchant that deals strictly in digital products and services and, in its purest form, conducts both sales and distribution over the web As far as online business models are concerned, the bit vendor model falls into the category of the Merchant Model Any organisation which uses the Merchant Model is reckoned as wholesalers and retailers of goods and services on the web (Rappa, 2010) 2
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4. How does itunes relate to the fundamental economic basics of internet commerce?
5. iTunes and the Economic Basic of Internet Commerce On February 25, 2010, Apple announced that music fans have purchased and downloaded over 10 billion songs from the iTunes Store (Apple.com, 2010) Moving forward, Apple continues to enhance the network effects– Apple announced that in less than 48 hours since its launch on September 2 this year more than one million users have joined its new music social network site Ping (Apple’s Press Release, domain-b.com, 2010) Network effects is the underlying factor for the economic growth of iTunes Apple quickly locked-in a substantial customer base through clever marketing and strategic deals with several recording companies convincing consumers that iPod was the music player On the other hand, as more people are signing up to iTunes, more artists and music are jumping on the iTunes bandwagon as well to render their albums available Apple's portable music player still accounts for 77% of MP3 player sales in the U.S, according to market research firm NPD (Paul – PC World, 2010) 5
6. How iTunes benefit from the Bit Vendor Model Infinite storage space for music, as music is stored digitally Cost per track of storing music is effectively zero because hard-drive space on huge servers is very cheap Overheads are much smaller in terms of staffing, rent among others Take away the unnecessary costs of the retail channel - CD manufacturing, warehousing, distribution, packing and retail overheads Storing and distributing music digitally allow consumers to find music they like Consumers can preview purchases, thus reducing the risk that they will buy something they don’t like 6 (Anderson, 2007)
8. The App Store iTunes business economics approach can definitely be linked to the advent of the App store in July 2008 Apple broadly targets a wide audience of different users with unique needs. The diversity of iPod/iPads/iPhones users is actually a core strength for Apple More than 200,000 apps made by over 100,000 registered developers (Apple.com, 2010) Individuals pay $99 for a developer license and enterprise memberships cost $299 (Elmer-DeWitt, 2009) 8
9. The App Store (Cont.) The App store keeps at offering free applications to attract new users of iPhone and iPads According to Research Director Stephanie Baghdassarian: Games remain the number one application, and mobile shopping, social networking, utilities and productivity tools continue to grow and attract increasing amounts of money 9
10. App Store Market Share iPhone users downloaded 2.5 billion apps in 2009 alone. The firm Gartner's figures show another 16 million apps that could come from other platform's recently opened app stores, giving Apple at least 99.4% of all mobile apps sold for the year. (Foresman, 2010) 10
12. Conclusion iTunes is the number one music retailer the world as they have capitalised on network effects, the knowledge and attention economy as well as the gift economy iTunes' continued popularity suggests downloads are still the way most users prefer to consume digital music Apple is associated with innovation, design, quality, user-friendliness and for providing niche items; all in all for being different 12 Hence, customers know that they arebuying excellentproducts, this ispsychologically as well as from thebusiness side, a typical business model (Miguel, 2003)
