Why iPod/iPhone Is Successful?

Wesley Shu

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Is iPhone a Cellular Phone?

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Is iPhone a Product?

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What is an iPod/iPhone?Not only a product, but service & Lifestyle!

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What is an iPod/iPhone?• What’s more, it

is a Platform.

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What is an iPod?

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What is an iPod?

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Managerial Features of iPhone• Design driven innovation• Business model innovation• Platform as a service• Peer to peer sharing/production• Web2

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Reason 1: the Product

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Reason 1: the Product

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Reason 2: iTune• Music Industry• New Wave of Music Distribution• Music Timeline

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Reason 2: iTune• Before iTune: 113K iPod per quarter• After iTune: 733K• Razor-and-blades business model –

that’s it?

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Labels• Intermediaries add costs• Binding artists to long-term contracts• 85 to 90% profit from music salesIn the music industry, a record label is a brand and a trademark associated with the marketing of music recordings and music videos.

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Traditional Music Industry• Creation → Marketing → Distribution• Creation: musician, lyrists, singers …• Marketing: Producers (labels), e.g.

Sony Music, BMG, EMI, Universal, & Warner

• Distribution: – Level 1: distributors, clubs– Level 2: retailers

CONTROLLED BY LABELS!

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New Wave of Music Distribution• Internet: online stores & Streaming audio• Napster

– Peer to peer software– Music industry’s responses only backfired

• Now Spotify - Spotify Video

A peer-to-peer, commonly abbreviated to P2P, is any distributed network architecture composed of participants that make a portion of their resources (such as processing power, disk storage or network bandwidth) directly available to other network participants, without the need for central coordination instances (such as servers or stable hosts).

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Apple iTune Solution• 30-second preview• Pay per song, $0.99• No subscription• Low profit $0.17 per song• Digital Rights Management (DRM)• Guarded both labels’ IP and the

proprietary technology inside the iPod – Win/Win situation

• While iTune’s profit margin is low, iPod is high – 100%

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Apple’s Success• iTune: 80% market

share compared to 3% of Napster in 2001

• iPod: 75%• 39% of Apple total

revenue

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Nike+

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Nike +• VideoIt’s Web 2.0 too.• What's happening now in Nike+• Challenge• Distance Coaching

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Design-Driven Innovation

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Reason 3: Platform• You R Here• Wikitude World Browser• Numerous applications – developers

download its SDK• iPhone Development Center

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Platforms always wins over applications

• Office with Word, PowerPoint, and Excel over WordStar, Harvard Graphics, and Lotus 123

• MS DOS• BASIC• Google over Netscape

– Browsers became commodity, and thus we needed a new platform to reign the web.

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Platforms always wins over applications

• Facebook is also a platform

Microsoft released its SDK for Facebook’s API – Open Stream

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