Apple V/s Sony Strategy

1. INTRODUCTION

If there is one piece of technology that has touched the lives of people all over the world irrespective of age, socio economic classification or geography it has to be the Portable Audio Player (“PAP”). Accordingly, it will be interesting to see how this industry has evolved over the years and the ensuing transformation with the advent of the internet/ e-commerce.

The idea of portable players began in 1963 when PHILIPS NV (“PHILIPS”) introduced the audio cassette. However, it wasn’t until 1979 when SONY Corporation (“SONY’) came along and revolutionized the portable audio industry with its trademark product the “WALKMAN” by providing quality sound through stereo ear phones. Subsequently, SONY and PHILPS Consumer Electronics division set up a joint taskforce to create a new audio format (i.e. Compact Discs) and thereon in 1984, the second wave of PAP’s were born with SONY introducing the “DISCMAN”, a portable CD player.

Further, in the 1990’s with computers becoming truly “personal” and with the wide spread adoption of the internet, music and its consumption too became revolutionized. The revolution was primarily on account of the introduction of a sharable digital audio format called MP 3. To keep pace with this revolutionary change, a portable MP 3 player was launched in 1998. But what gains salience here is the fact that the MP 3 player was neither introduced by SONY nor PHILIPS, the traditional leaders in the PAP industry, but by a little known Korean company with little or no branding.

Subsequently, in 2001, APPLE was quick to adapt to this new technology and launched the “iPod", an elegantly designed, easy to use, music player capable of playing back up to 10 hours of digital music. With some intelligent advertising and strong customer connect the player became a rage in most countries and was slowly became the generic name for all MP 3 players.

However the digitization of music, coupled with the wide adoption of peer to peer (“p2p”) technology’s and web sites (example: Napster, Win MX etc), wrecked havoc in the music industry as music piracy gained salience. In 2003, with fast declining revenues, the music industry reacted by lobbying with governments to close down illegal p2p music sharing web sites. And was then that APPLE launched its iTunes Store (“iTS”) web site to legally retail music and act as a support platform for the iconic I-Pod.

Until this point there had been no market re-action from the once upon a time market leaders of the PAP industry, SONY.

2. RE-CONFIGURED VALUE CHAINS

The overnight success of Skype, the emergence of companies like Amazon and eBay, and the ever increasing popularity of Google only describes how sudden innovation in technology (i.e. the internet) disrupts and transforms established industry structures. This �sudden strike’ of innovation in technology has disrupted the existing traditional industry value chain, and this has been referred to as “deconstruction of the value chain” (Evans).

A similar deconstruction occurred within two industries, namely PAP and the music industry. The increased digitization of music (leading to disintermediation) and the growing adoption of computers helped in creating the early digital music revolution. This revolution changed the way people listen, use and obtain favourite music (albeit illegally). Automatically, this forced the players within each of the respective industries (i.e. PAP and Music) to respond and an outcome of this change was the early digital PAP’s and retailers of on line music.

However, it was APPLE aided by iTS which actually re-configured the value chains of the industries and in effect merged the two (refer Annexure). In 2003, when iTS launched, consumers started buying music directly from iTS (approximately 70 % of all on line sales) instead of buying from physical music stores. Through iTS, consumers were able to download and access huge catalogues of legitimate digital copyright material that could be played for an unlimited period on their computer/ iPod. In addition, and thanks to the disintermediation of content, consumers were freed from the necessity of buying an entire album, music lovers were now able to mix and match songs from the vast catalogue on sale. This in essence, reconfigured the downstream aspect of the value chain of traditional music retailing.

Further, the emergence of iTS also created a new supply network. On the upstream aspect of the value chain, recording companies used to sell their productions in