Has the digital music market irreversibly tipped in Apple’s favor?
Apple has never looked back from when it gained leading market position in the digital music industry in 2004. This lead was due to several factors: early-mover advantage, 99-cents-per-song pricing, iTunes software- which was free to download and offered proprietary DRM technology to ease the concerns of music labels, and the iPod. The iPod was the key to Apple’s dominance in the digital music market. It was the first portable device that combined ease of use, hip styling, and large memory. Coupled with iTunes, the iPod became the industry standard. Digital music formats have overtaken the CD as the format of choice. Digital sales and PC-based downloads have grown spectacularly as well. (PC downloads grew 167% between 2004 and 2005) Apple’s business model is simple and effective. The software is free and works on a Mac or PC. The $0.99 download fee has become the de facto industry standard. The key to the plan is the seamless integration of iTunes and an iPod. ITunes offers a huge selection of songs, but due to the Fairplay DRM, they can only be played on an iPod. Apple used iTunes as a loss leader for selling their iPods. While Apple barely breaks even on the sale of iTunes music, the profit margin for the iPod is around 25%. There was a threat to this dominant position- the evolution of more advanced smart cell phones which had the potential to become the mobile music platform of choice. Apple responded to this threat by preempting the industry yet again, with the introduction of the iPhone. The iPhone was as revolutionary to the cell phone market as the iPod was to the digital music player market. Apple will continue to dominate the digital music market as long as it remains innovative with its new technologies and products. The rest of the industry has been playing catch-up for years, and it does not look like that is going to change any time soon.
Thursday, March 19, 2009
Thursday, March 5, 2009
Brightcove Case
What are the strengths and weaknesses of Brightcove’s business model?
Brightcove’s business model has several strengths. They utilize a multisided business model with focus on content providers, advertisers, and affiliated programmers.
Leveraging a network strategy, the revenue flows stem from affiliates, advertisers, publishers, and consumers. Realizing the importance of network effects- that the services they offer would become more valuable as more and more users entered the network, Brightcove first pursued large publishers. They used an invitation-only introduction to premium customers that were large, established media companies got the ball rolling. This led to two primary customers in their early stages: “long-tail” customers- small niche-based content owners seeking a cheap, all-inclusive internet TV solution and “high-touch” customers- large media companies that wanted fuller control over use and branding.
This business model also has several weaknesses. The complexity of their multisided model leads to uncertainty of how to invest capital funding. Pursue all four options (build out key elements of software platform, invest in efforts to drive traffic to the network, expand internationally, or make acquisitions that would fill gaps in either the platform line of business or that of the network) and spread that capital investment evenly, or, “double down” more promising options? There are also problems with the “premium customers” who were courted early on. These “high-touch” customers had a high demand for customization which was a drain to engineering and business development resources, leading to delays in planned company advances. Another weakness was the Catch-22 of the revenue model. Brightcove needed to bring in both consumers and advertisers. They currently do not have a large audience so therefore, no audience, no advertisers. Similarly, until they attract a large number of advertisers, they will not attract enough high quality content publishers and therefore will have no new consumers. Brightcove also faces competition from many sources. Some are competing in specific segments of Brightcove’s business, like- technology suppliers, aggregators such as Comcast, social networking sites, and broadband media distributors. There is also competition from giants like YouTube and Google, which leverage huge financial resources as well as established user base. YouTube one year after launch: 100 million views per day, 20million unique visitors each month, 60% of all online video watched online and 65,000 uploads a day.
Brightcove’s business model has several strengths. They utilize a multisided business model with focus on content providers, advertisers, and affiliated programmers.
Leveraging a network strategy, the revenue flows stem from affiliates, advertisers, publishers, and consumers. Realizing the importance of network effects- that the services they offer would become more valuable as more and more users entered the network, Brightcove first pursued large publishers. They used an invitation-only introduction to premium customers that were large, established media companies got the ball rolling. This led to two primary customers in their early stages: “long-tail” customers- small niche-based content owners seeking a cheap, all-inclusive internet TV solution and “high-touch” customers- large media companies that wanted fuller control over use and branding.
This business model also has several weaknesses. The complexity of their multisided model leads to uncertainty of how to invest capital funding. Pursue all four options (build out key elements of software platform, invest in efforts to drive traffic to the network, expand internationally, or make acquisitions that would fill gaps in either the platform line of business or that of the network) and spread that capital investment evenly, or, “double down” more promising options? There are also problems with the “premium customers” who were courted early on. These “high-touch” customers had a high demand for customization which was a drain to engineering and business development resources, leading to delays in planned company advances. Another weakness was the Catch-22 of the revenue model. Brightcove needed to bring in both consumers and advertisers. They currently do not have a large audience so therefore, no audience, no advertisers. Similarly, until they attract a large number of advertisers, they will not attract enough high quality content publishers and therefore will have no new consumers. Brightcove also faces competition from many sources. Some are competing in specific segments of Brightcove’s business, like- technology suppliers, aggregators such as Comcast, social networking sites, and broadband media distributors. There is also competition from giants like YouTube and Google, which leverage huge financial resources as well as established user base. YouTube one year after launch: 100 million views per day, 20million unique visitors each month, 60% of all online video watched online and 65,000 uploads a day.
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