Apple on Monday announced that its
iTunes Music Store
has seen more than 50 million songs purchased and downloaded since its launch last year. That figure doesn’t include songs redeemed through Pepsi’s iTunes promotion, which runs through the end of this month. Apple has made other deals in the past few months with Target, Hewlett-Packard and AOL to push the service cross-platform. Analysts are optimistic on Apple’s success in the music business, but warn that Sony’s entrance in the market could be Apple’s biggest competition yet.
At the current download rate, Apple calculates their downloads to be 2.5 million songs per week or 130 million songs per year. While the company would not detail the platform split, their goals are quite clear.
“Certainly our Mac base created the momentum and were the first to adopt iTunes, but it’s gone on to become a national cross-platform story — we expect to see iTunes Music Store will reach everyone with a personal computer that is interested in music online,” Chris Bell, director of Product Marketing for iTunes, told MacCentral.
During last October’s special event when Apple rolled out the second generation iTunes Music Store and iTunes for Windows, Apple CEO Steve Jobs told attendees that Apple was “gonna raise the bar again, a quantum leap.”
“We want to sell 100 million songs and we want to do it in the first year,” Jobs said. “Not the first year starting today, but the first year from when we launched iTunes. So we want to sell 100 million songs by April 24, 2004.”
Despite criticism over Apple’s use of AAC and FairPlay as its music codec and digital rights management (DRM) technology and the iPod’s lack of support for Windows Media Audio (WMA), Apple remains dominant in a commercial music download market already crowded by Napster, MusicMatch and other newcomers that seem to join the fracas almost every month.
“Without question, we are in the early stages of a protected content format war between Fairplay-ACC and WMA DRM,” said Joe Wilcox, senior analyst at Jupiter Research. “I believe the Apple-AOL-HP axis will prove to be formidable competition to Microsoft and its partners. Ultimately, either one side must win or they must reach a truce. If Apple chose to license its DRM to content creators or distributors, the company would be in a strong position to create, at the least, room for two protected content formats. Given that AAC is an accepted open standard, such a move could be decisive spurring greater format adoption.”
To date, none of Apple’s competitors have been able to touch the volume of music that the iTunes Music Store has sold, nor have any MP3 players come close to the iPod’s popularity — a point reiterated by Apple CEO Steve Jobs in today’s announcement, although Apple has a long row to hoe before Jobs’ vision of 100 million songs sold by late April is complete.
“Crossing 50 million songs is a major milestone for iTunes and the emerging digital music era. With over 50 million songs already downloaded and an additional 2.5 million songs being downloaded every week, it’s increasingly difficult to imagine others ever catching up with iTunes,” said Jobs.
Apple points to the package users get from Apple as reasons for its success in the online music business. While names like Napster may have brand recognition for downloadable music, Apple offers everything a customer will need for both Mac and Windows.
“It’s really a combination of iTunes, iPod and the ease of use we’re famous for on the Macintosh — we’ve done a great job of bringing that experience over to iTunes for Windows,” said Bell. “There really isn’t any other combination out there that brings the experience we provide.”
Analysts agree that Apple’s strategy of bringing an easy-to-use solution to the market is helping the company stay ahead of the mounting competition.
“Apple has been able to sustain its market lead because it offers the content, the application, and the hardware, and thus an integration that is much superior than the competition,” said Tim Deal, senior analyst with Technology Business Research. “Superior integration means a better user experience and better word-of-mouth marketing as a result. No other competitor currently in the music download business can offer all of the elements of the equation that Apple can, and it makes a huge difference.”
The Deals: HP, Pepsi and Target
Apple has signed several deals in the past few months with some of the biggest marketers in the industry.
First announced in early January, Apple and Hewlett-Packard formed a strategic alliance to deliver HP-branded digital music players based on the iPod and offer PC users access to the iTunes Music Store from their Web site. The HP deal goes directly to Apple’s goal of putting the iPod and iTunes in all music lovers’ hands, regardless of platform.
“HP will put us in front of millions of mainstream Windows users that buy CPUs, use the HP Web site, and respond to other HP marketing materials,” said Apple’s Chris Bell. “This is part of the iTunes story, that iTunes is for everyone.”
Tim Deal sees the Apple/HP deal as being important in a number of ways, but in the long run, all benefiting Apple.
“The HP deal will further validate Apple’s AAC digital music standard in a market soon to be crowded with competing proprietary standards,” said Deal. “HP is running neck and neck with Dell as the number one worldwide PC manufacturer, so an endorsement like this will have a profound impact on iPod shipments and iTunes downloads.”
However, the benefits of the such a deal may not be felt right away, warns Jupiter’s Wilcox. Noting the timing of the Apple/HP agreement, Wilcox feels Apple could be months away from recognizing the real sales benefits.
“Since the HP deal doesn’t kick in until June, the real sales benefits would take another couple quarters, at least,” said Wilcox. “So that means no big benefit for maybe 10 months; look how much the online music biz changed in the last 10 months. That said, the music store already has great momentum. Mixing that momentum with HP’s huge international distribution network could bring a big boost in iPod sales.”
In late January, Apple announced a promotion with Pepsi to iTunes winning codes under the bottle caps of Pepsi, Diet Pepsi and Sierra Mist. Pepsi and Apple said that up to 100 million winning codes will be distributed — buyers will have a 1 in 3 chance of winning.
As Tim Deal points out, the Pepsi promotion put free songs in the hands of people who may have otherwise had no contact with Apple, across a much wider demographic than Apple would normally appeal to.
“Conceptually, the Pepsi promotion is pure genius and a model for competing music stores to adopt,” said Wilcox.
Apple declined to comment on how many winning Pepsi bottle caps had been redeemed for free iTunes songs.
Finally, in mid-February, Apple and Target Stores partnered to offer customers a prepaid iTunes Music Store card and iPod kiosks in its stores allowing people to get some hands on time with the iPod.
The $15.00 prepaid iTunes Music Store cards are available in two areas of the Target stores: the CD section where customers traditionally purchase music and at the new iPod Kiosk. The kiosks will also feature accessories for the iPod.
Apple’s biggest competition yet: Sony
While Apple has been successful in the online music business, Technology Business Research analyst Tim Deal feels that the company’s stiffest competition is yet to come. Although late to the online music business, Sony has brand recognition in the traditional music industry and the portable music players. Sony, much like Apple, is also known for innovation in the markets it competes.
Sony will be able to offer customers the whole solution, much the same way that Apple does, but Deal notes a few advantages that Sony has over Apple.
“Sony occupies a unique position as a content creator and thus possesses greater control over pricing and margins, whereas Apple obtains its content from third party labels,” said Deal. “Sony can offer much more exclusive content than Apple because of its unique position within the music business and Sony is also well established as a global leader in portable music players, and it will promote its ATRAC digital music standard, which is perhaps closest to Apple’s AAC in terms of sound quality.”
Deal feels that despite the growing number of music services coming to market, not everyone will be around in the long-term.
“I believe we will see a shakeout in the market (like the PC industry) where only two to three big players remain, and Sony and Apple will be among them,” said Deal.
The article was updated wtih comments from analysts, further information about Apple’s strategic plans for iTunes and other related content.