SRM iPhone vs Cellphone

Q1. Has the digital music market irreversibly tipped in Apple's favour? Ans 1. To answer this question, we have analyzed the point which went in favour of Apple and also the points which were not favorable to Apple So first the point which favored Apple were: Napster Shutdown  After invention of mp3 formats in early 1990’s, and then the long period of illegal downloading, the turning point came with the shutdown of Napster in 2001.  Post shutdown, the music industry filed lawsuits against individuals who have been found to have illegally downloaded music.  This made customer frightened and hence left with only legal option to pay for downloading digital music. And the point which were again the favor of Apple were: Competitive Landscape  Although Apple was one of the first mover who could offer frightened customer easy and affordable access to digital music but various other companies like Wal-Mart, Microsoft, Yahoo, AOL, RealNetworks also sensed the potential and came up with competitive products. But there was disunity between the competitors in terms of DRM (Digital Media Rights) or common codecs that could threaten Apple

What Apple did?  But Apple through its innovative product and right marketing strategies, became the leader (99-cents-per-song pricing, iTunes that offered security to music labels and ease to customers and iPod)  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.  As evident from exhibit 4, the Apple’s market share increased from 11.5% to 58% from year 2004 to 2005. Thus we can say that although Napster shutdown was the point for favored Apple but that was not favorable only to Apple. This favored whole digital market and competition did everything possible to beat Apple. But Apple with its own strategies captured the market. So our answer is that digital music market has not irreversibly tipped in Apple's favor

Q2. What should mobile carriers do now, with respect to mobile music? Should they invest heavily, moderately, or not at all in this new market?

Ans 2. Options available The major wireless carriers should continue to develop ways of delivering music to their handsets.

One or more of the major wireless carriers should continue to develop ways of delivering music to their handsets. The future trend is for consumers to have phone, music, a camera and more at their fingertips over their wireless service, not requiring a computer or even the internet necessarily. It is a race for this market share in an otherwise very mature mobile voice market. They should keep this advantage by using alliances with major digital music stores.

To invest in the mobile music market by setting up own music services to attract new customers and rise revenues from existing subscribers. There are some potential advantages – 

Ability to purchase over the air nearly everywhere and thus a huge potential market.

 The carriers could save credit card transaction costs because of their billing infrastructure.( It was assumed that consumers rather take one device then two means that a mobile phone that plays mp3 can cannibalize digital music devices like the iPod.) Disadvantages  The offer of subscription services that allowed to stream music on the mobile, paid in a monthly fee included a high risk.  Another problem is that customers would hesitate to change from iTunes to a new Verizon online shop. (For example, because they could have problems to use their already bought songs).

Ques 3. Cingular Wireless signed a two-year exclusive distribution for the Apple iPhone, which gave Apple extensive control over distribution, pricing, and product definition. Verizon passed on the opportunity. Who made the right decision? Why? Ans. Cingular wireless takes the right decision by signing a two year exclusive distribution for the Apple iPhone. 1. Mobile voice market have shown downward trends in the past few years and since the competition is very high their respective margins have been slashed down and thus it reduces profitability of the companies in voice market. And it becomes a need in order to find new market with high profit margins. 2. As ARPU (Average Revenue per User) have been decreasing in voice market thus with data market Cingular was trying to increase their ARPU as it seems to be the future market. 3. Customers found to be saturated in voice market and in order to steal new customer other carriers’ option need to be tried and tested. 4. Cingular found that they could increase their revenues with more data traffic and data customers and by signing deal with Apple they could actually make that happen. 5. Attractive profit margins in data services. 6. Apple full control over iPhone ensures no incompatibility issues of iTunes services or any hardware/software failure that had happened in the past with Motorola ROKR. 7. iPhone to be a category killer as substitute for iPod and cellphone because of shift in future trends as people were found interested in using multi utility electronic gadget. 8. This action might result in loss of subscription service for Cingular but since they were not profitable in anyway so such action needs to be taken.