The iPod

Transcription

The iPod

UNIVERSITY OF STRATHCLYDE
GRADUATE SCHOOL OF BUSINESS
Master of Business Administration
Assignment for Innovation & New Product Development Elective, 2006-07
Is the iPod a marketing phenomenon?
Authors:
Simon Axon, Student Registration No 200489732
Flexible Learning MBA – Huntly
Date: July 2007
CONTENTS
1.0
ABSTRACT ...................................................................................................................................................5
2.0
INTRODUCTION .........................................................................................................................................5
3.0
APPLE INC....................................................................................................................................................5
3.1
4.0
5.0
THE INDUSTRY & COMPETITION ........................................................................................................7
4.1
THE CONTEXT ....................................................................................................................................7
4.2
THE COMPETITION - MAJOR PLAYERS .................................................................................................7
THE TECHNOLOGY...................................................................................................................................8
5.1
6.0
7.0
8.0
OVERVIEW .........................................................................................................................................8
COMPETITION AND MARKETING STRATEGY ...............................................................................13
6.1
THE APPLICATION OF PORTER’S FIVE FORCES..................................................................................13
6.2
BARGAINING POWER OF SUPPLIERS .................................................................................................13
6.3
BARGAINING POWER OF BUYERS .....................................................................................................14
6.4
THREAT OF NEW ENTRANTS ............................................................................................................14
6.5
THE MARKETING MIX .......................................................................................................................17
COMMENTARY.........................................................................................................................................25
7.1
DIFFUSION OF INNOVATION ..............................................................................................................25
7.2
PRODUCT LIFE CYCLE CURVE ..........................................................................................................26
7.3
PERCEIVED ATTRIBUTES OF INNOVATIONS .......................................................................................27
SUMMARY & CONCLUSION - THE RESULT .....................................................................................29
8.1
9.0
BACKGROUND ....................................................................................................................................5
SUMMARY & CONCLUSION ...............................................................................................................29
REFERENCES ............................................................................................................................................30
IS THE IPOD A MARKETING PHENOMENON?
PAGE 2 OF 49
APPENDIX
A1
A2
APPLE INC..................................................................................................................................................32
A1.1
SWOT .............................................................................................................................................32
A1.2
IPOD HISTORY & TIMELINE ...............................................................................................................33
A1.3
ITUNES HISTORY & TIMELINE ...........................................................................................................34
APPLE COMPETITORS – OTHER MARKETS ....................................................................................34
A2.1
A3
LINUX ..............................................................................................................................................35
MAIN COMPETITORS – BACKGROUND ............................................................................................36
A3.1
ARCHOS (WWW.ARCHOS.COM).........................................................................................................36
A3.2
BANG & OLUFSEN A.S. (HTTP://WWW.BANG-OLUFSEN.COM) ...........................................................37
A3.3
COWON SYSTEMS INC. (WWW.COWONGLOBAL.COM).......................................................................38
A3.4
CREATIVE (WWW.CREATIVE.COM) ...................................................................................................39
A3.5
DATASAFE (WWW.DATASAFE-MEDIA.COM)......................................................................................40
A3.6
DELL INC WWW.DELL.COM ..............................................................................................................40
A3.7
EZ-AV CORPORATION (WWW.EZ-AV.COM) .....................................................................................41
A3.8
GOODMANS (WWW.GOODMANS.CO.UK, WWW.ALBAPLC.COM).........................................................41
A3.9
LG ELECTRONICS (HTTP://UK.LGE.COM/INDEX.DO) .........................................................................43
A3.10
MICROSOFT CORPORATION (WWW.MICROSOFT.COM, HTTP://WWW.ZUNE.NET/EN-US/PRESS) .........43
A3.11
MINISTRY OF SOUND / ALBA (WWW.MINISTRYOFSOUND.COM, WWW.ALBAPLC.COM) .....................44
A3.12
REIGNCOM (IRIVER) (WWW.REIGNCOM.COM, WWW.IRIVER.COM)....................................................46
A3.13
SAMSUNG (WWW.SAMSUNG.COM)....................................................................................................46
A3.14
SONY (WWW.SONY.NET, WWW.SONY.CO.UK) ...................................................................................48
A3.15
TECHNIKA (WWW.TESCO.COM) ........................................................................................................49
PAGE 3 OF 49
Abbreviation
AAC
Alba plc
Apple
Archos
ARM®
B&O
Broadcom
CDMA
CPU
Creative
CRT
Cypress
Datasafe
Dell
DSP
Form Factor
GAAP
GB
Goodmans
IBM
IMS
iriver
5G
LCD
LG Electronics
Linux
Mac
MOS
MP3
PC
PCB
PCIC
PDF
PLC
PortalPlayer
R&D
ReignCom
SACD
Samsung
SDRAM
Sony
TFT
US
WAV
WiFi
Windows
WMA
Wolfson
Zune
Description / Web address
Advanced Audio Coding
www.albaplc.com (Parent Company of MOS)
www.apple.com
www.archos.com
www.arm.com, (Advanced RISC Machines Ltd, est. 1990)
Bang & Olufsen (www.bang-olufsen.com)
Broadcom Corporation (www.broadcom.com) Founded 1991
Code Division Multiple Access
(form of multiplexing & method of multiple access dividing up radio channel)
Central Processor Unit
www.creative.com
Cathode Ray Tube
Cypress Semiconductor Corporation (www.cypress.com). Founded 1982, based in San Jose, California.
www.datasafe-media.com
www.dell.com
Digital Signal Processor
The linear dimensions and configuration of a device
General Accepted Accounting Principles (US)
Gigabytes (used as term for exactly one thousand million (1 billion in US terms) bytes
Electronics brand name owned by Alba plc (www.goodmans.co.uk)
International Business Machines (www.ibm.com, www.ibm.co.uk)
Integrated Multimedia Software (Cowon)
www.iriver.com brand for ReignCom
Fifth Generation iPod (First Generation = 1G, Second Generation= 2G, etc)
Liquid Crystal Display
www.uk.lge.com
Open Source operating system, the kernel for which was initially developed by Linus Torvalds
(formerly Macintosh) brand name covering personal computers designed, developed, and marketed by Apple
Inc http://www.apple.com/dotmac/
Ministry of Sound (www.ministryofsound.com/home/)
MPEG-1 Audio Layer 3 (a popular audio encoding format)
Personal Computer Capability
Printed Circuit Board
Personal Computing Industry Center (www.pcic.merage.uci.edu)
Portal Document Format
Product Life Cycle
Now an NVIDIA company, acquired January 2007 (http://www.nvidia.com/page/home.html)
Research & Development
www.reigncom.com, parent company of iriver brand
Super Audio CD
www.samsung.com (www.samsung.com/uk/)
Synchronous Dynamic Random Access Memory
www.sony.net, www.sony.co.uk
Thin Film Transistor
United States (of America)
WAVeform audio format, is a Microsoft and IBM audio file format standard for storing audio on PCs
Embedded technology of wireless local area networks (WLAN)
Trademark of Microsoft
Windows Media Audio
Wolfson Microelectronics (www.wolfsonmicroelectronics.com, www.wolfson.co.uk) based Edinburgh, UK
www.zune.net, www.zunescene-com
Table of Acronyms
PAGE 4 OF 49
1.0
ABSTRACT
The personal entertainment industry is a fiercely competitive industry in the UK, with companies
relying on innovation, new product development and differentiation to maintain competitive advantage.
The introduction of the Apple iPod presented a seismic shift in the personal entertainment industry.
This report considers the iPod in relation to the theory of innovation and new product development, and
was assembled using research from published material and websites of manufacturers within the
computer and personal entertainment industries as well as from the Apple website and research
organisations.
2.0
INTRODUCTION
Apple Inc. has produced some of the most Iconic designs of the past decade or so, including the iMac,
iBook, and the PowerMac G4. However, for the last five to six years or so, as if the Brand wasn’t
already strong, Apple introduced the iPod which sold over 100 million devices in just over 5½ years,
which when marketed together with iTunes has proved to be product that people have lusted over.
The iPod as been described as an innovation, and because it was only available to Mac users, and not
affordable by the mass consumer market, it retained an air of exclusivity. However, because it became
available to Windows™ users, there are fears that it could become a victim of its own success because
in becoming so popular it has lost the air of exclusivity.
This report discusses external environment in which the iPod was conceived and the marketing strategy
as well as the technology behind the iPod, and whether it really can be classed as a success.
3.0
APPLE INC.
3.1
BACKGROUND
Apple Computer Inc. was incorporated under the state laws of California on 3rd January 1977. The
company designs, manufacturers, and markets personal computers and related software, services,
peripherals, and networking solutions. It also designs, develops and markets a line of portable media
players along with related accessories and solutions.
The Company’s products and services include the Macintosh® line of desktop and personal computers,
the Mac OS® X operating system, the iPod® line of portable digital music players, the iTunes Store®,
a portfolio of peripherals that support and enhance the Macintosh and iPod product lines, a portfolio of
consumer and professional software applications, a variety of other services and support offerings, and
the Xserve® and Xserve RAID server and storage products. The Company sells its products worldwide
through a variety of stores, its retail stores, its direct sales force, and third-party wholesalers, resellers,
PAGE 5 OF 49
and value-added resellers. In addition, the Company sells a variety of third-party Macintosh and iPod
compatible products including application software, printers, storage devices, speakers, headphones and
various other accessories and supplies through its online and retail stores. The Company sells to
education, consumer, creative professional, business, and government customers. The Company’s fiscal
year ends on the last Saturday of September (Apple, Dec 2006).
Turnover ($USm)
Apple Inc. Net Sales / Com pany Turnover US$m
$25,000
$20,000
$15,000
$10,000
$5,000
$0
2002
2003
2004
2005
2006
Year
Figure 3.1.1 – Apple Inc Turnover (1998-2006)
After a period of decreasing turnover, from 2001 the company’s fortunes took a turn for the better, with
turnover increasing steadily since 2001 from $5,363m to $19,315m in 2006 (Figure 3.1.1).
Improvements in Apple’s fortunes appear to coincide with the introduction of the iPod (Figure 3.1.2).
120,000
$25,000
100,000
$20,000
80,000
$15,000
60,000
$10,000
40,000
$5,000
20,000
Q2
Q1, 2007
Q4
Q3
Q2
Q4
Q1, 2006
Q3
Q2
Q1, 2005
Q4
Q3
Q2
Q1, 2004
Q4
Q3
Q2
Q4
Q1, 2003
Q3
Q2
$0
Q1, 2002
0
iPod Revenue ($m)
iPod Unit Sales '000
Cum ulative iPod Unit Sales / iPod Revenue ($m )
Quarter, Year
Figure 3.1.2 - Cumulative iPod Unit Sales & iPod Revenue
Apple is unique in being the only PC Company to control the design and development of the entire
computer from the hardware and operating system through to applications software.
PAGE 6 OF 49
4.0
THE INDUSTRY & COMPETITION
4.1
THE CONTEXT
The personal computer industry and personal entertainment industries are highly competitive, their
being characterised by aggressive pricing practices, downward pressure in gross margins, frequent
introduction of new products, short product life cycles, continual improvement in product / price
performance characteristics, rapid adoption of technological and product advancements by competitors,
consumer price sensitivity, and a large number of competitors. Standards are also constantly evolving
as technology advances. Since this report is mostly concerned with the iPod as an innovative product,
emphasis is placed on Apple’s competition from the digital personal entertainment market. The iPod is
currently spearheading the digital music revolution with its iPod portable music players and iTunes
online music store.
There are a large number of portable media players jostling for position in the digital electronics
consumer market, including MP3 players, personal CD players, personal radios, and personal video
players and gaming machines. As it evolves, the mobile phone market will also have a significant
impact on sales of traditional MP3 players and the two technologies converge.
4.2
THE COMPETITION - MAJOR PLAYERS
The major players in the personal entertainment market appear to be: Alba plc via the Ministry of
Sound and Goodmans brands, Apple, Archos, Bang & Olufsen, Cowon, Creative, Dell, – through
reselling third party products, LG Electronics, Microsoft, ReignCom via iriver, Samsung, Sony, and
perhaps surprisingly, Tesco with its ‘Technika’ brand. The turnover1 of these companies is indicated in
Figure 4.2.1 and Figure 4.2.2, two graphs having been created because of the order of magnitude
difference between the two sets of data.
1
All the native currencies of the companies have been converted to US$ using an annual conversion rate to enable an
indicative comparison only (Antweiler, 2007)
PAGE 7 OF 49
Figure 4.2.1 – Smaller competitor turnover
Figure 4.2.2 – Larger competitor turnover
Apple leads the industry in innovation with its award-winning desktop and notebook computers, OS X
operating system, and iLife and professional applications.
5.0
THE TECHNOLOGY
5.1
OVERVIEW
An iPod is a type of Digital Media Player produced by Apple Inc. It was introduced the iPod in 2001 as
an MP3 player, with storage capacity of 5GB. Five generations of the device later, it plays songs, photo
slideshows and movies, storing up to 80GB of data, and can act as a portable hard-drive. Despite its
faults2 it remains an extremely popular piece of electronic hardware.
2
It reportedly had issues with unreliable batteries, which needed to be returned back to the manufacturer (apple) for repair, and
with the Nano screen where many users complained that it was easily scratched.
PAGE 8 OF 49
Devices in the iPod range are primarily digital audio
players, designed around a central control wheel — with
exception to the iPod Shuffle, which uses buttons because
of its size. As of October 2005, the line-up consists of the
video-capable fifth generation iPod, the smaller iPod
Nano, and the display-less iPod shuffle. In this section,
unless noted otherwise, focus shall be on describing the
Figure 5.1.1 – 1st & 5th Generation iPods
components that make up a fifth generation iPod.
IPOD HARDWARE
In order to keep a technological edge, naturally Apple Inc. doesn’t advertise manufacturers of iPod
components or describe its inner workings, and those that do supply electronic components for the
machine are most likely constrained by disclosure agreements, so they won’t reveal much either. In
conducting their research however, Linden et al (2007) suggest that for many electronic products, lists
of components might be available from industry analysts.
Whatever. Competitors are most
likely to want to know what makes
an iPod, as do enthusiasts, who
have developed websites including
some details of the components of
different
including
generations
Layton
of
iPod,
(2006),
and
Chipmunk (2001). In their ‘value
chain’ research, Linden et al
carried out a fairly comprehensive
assessment
of
inside
a
3rd
Generation iPod and describe nine
components: hard drive, display
module,
video
/
multimedia
processor, CPU, battery pack,
display driver, SDRAM memory,
Figure 5.1.2 – The main components of a 5th Generation iPod
back enclosure and PCB (motherboard). They don’t mention the ‘Click Wheel’ because this didn’t
appear until the next generation of iPod. For the purposes of this exercise, the iPod is summarised as
comprising six principle components (Table 5.1.1).
PAGE 9 OF 49
The holding case
The motherboard & associated components (which
includes audio & video chips and drivers, memory, etc)
The rechargeable battery
The ‘Click Wheel’
The PCD display screen
The hard-drive
Table 5.1.1 – The principle components of the Apple iPod
THE HOLDING CASE
The holding case is made from a very light metal alloy, and is easily scratched.
THE MOTHERBOARD
The motherboard contains all of the chips and memory devices that make an iPod run. The iPod design
is based around a low power high-performance technology licensed by ARM3, a Cambridge UK based
company.
The
principle
components on the
motherboard are the
Microprocessor, the
video chip and the
audio chip. In the
early 5th Generation
iPods, the principle
components on the
motherboard were:
Figure 5.1.3 – Front of 5G iPod Motherboard
• Microprocessor - PortalPlayer4 PP5021C with dual ARM7TDMI cores
• Video chip - Broadcom BCM2722
• Audio chip - Wolfson5 Microelectronics WM8758 codec
3
ARM® is the industry's leading provider of 16/32-bit embedded RISC microprocessor solutions, used in many high-end
performance products and often produced under license by many of the world’s leading electronics companies. It is a company
founded by Apple Computer, Acorn Computer Group and VLSI Technology.
4
According to Quirk (2006), PortalPlayer provides several variants of its PP50XX family, depending on which specific iPod
model. PortalPlayer is now part of the NVIDIA company
5
Wolfson is a technology company which has it’s headquarters in Edinburgh
PAGE 10 OF 49
According to Quirk (2006), Apple has
remained loyal to the same audio
suppliers as with the first-generation
iPod, but with different versions of their
products. The only exception is the iPod
Video, in which Apple has introduced a
new
supplier
functionality.
to
support
According
to
new
James
(2007), more recently the Samsung
ARM-core DSP has substituted the
PortalPlayer media microprocessor used
in earlier iPods. All the ARM-core DSP
Figure 5.1.4 – Back of 5G iPod Motherboard
devices also support peripherals and
control, such as memory, USB, and
hard-disk interfaces. For the audio codec, Wolfson Microelectronics provides multiple versions.
THE BATTERY
iPod's rechargeable lithium-ion battery6 is proprietary and completely built-in. Early versions caused
difficulties for iPod owners
as
well
as
for
Apple.
Originally, the battery could
only
be
expensively
replaced by returning it back
to Apple at a cost of $1007.
A lot of negative publicity
Figure 5.1.5 – The 1st Generation iPod battery (Sony Fukushima)
and legal wrangles resulted
in the battery replacement costs being reduced by about 40%. Apple defends the use of a non-userreplaceable battery because the built-in battery allows for the ultra-slim form factor for which the iPod
is known. In Figure 5.1.5 below (for a 1st Generation iPod), Sony Corporation supplied the battery. A
comparison between the size of this battery and that used for 5th Generation iPods (Figure 5.1.2) shows
how much technology has progressed.
6
This type of battery is lighter than other types and can be made into many different shapes. Its chief advantage is that it has
no memory, and should be charged frequently, rather than be allowed to drain, although they do suffer from self-discharge
which results in permanent loss of capacity.
7
In the US
PAGE 11 OF 49
THE CLICK WHEEL
Early first generation iPods (from October 2001) used a scroll wheel, which moved and comprised four
function buttons located around the edge of the wheel (Figure 5.1.1). Navigation around second and
later generation iPods is via touch-sensitive ‘Click Wheel’ and mechanical buttons. The ‘Click Wheel’
provides a facility to navigate around the iPod file system, menus and controls, and provides two ways
to input commands: by sliding a finger around the wheel and by pressing buttons located under and in
the middle of the wheel. Competition for supply of the ‘Click Wheel’ technology seems to have been
battled out between Cypress Semiconductors and Synaptics8 Inc (Amir, 2006). The ‘Click Wheel’ uses
a "mixed-signal array" chip mounted in the assembly. This has the ability to deal with both analogue
and digital data. The ‘Click Wheel’ controller has to accept analogue data generated by the movement
of a finger over the surface of the wheel and turn it into digital data the microprocessor can understand.
Under the plastic surface of the Click Wheel, there are four mechanical buttons (Menu, back, forward,
play/pause), and there's one button in the centre (select), and you can also adjust the volume of the
music or video being played by sweeping your finger round the ring.
THE LIQUID CRYSTAL DISPLAY SCREEN
The iPod display is a 2.5-inch, 16-bit, TFT LCD. It has a 320x240-pixel resolution and a 0.156 dot
pitch. At 0.125 inches (3.175mm) the screen is incredibly thin. The LCD connects to the back of the
motherboard. Quirk (2006) suggests that the 5G iPod Video uses a product from Toshiba for the LCD
colour panel.
THE HARD DRIVE
In the photograph (Figure 5.1.2) the hard drive shown is a 30-GB Toshiba 1.8-inch hard drive (model
MK3008GAL), featuring 4200 rpm and a USB interface. It weighs 1.7 ounces (48 grams) and fits 30
GB onto a single platter9, squeezing in 93.5 gigabits per square inch. The drive uses smaller and lighter
sliders (which keep the right spacing between the read/write heads and the recording surface) and a
more sensitive thin-film technology on the heads and the platter than in conventional hard drive
technology used in personal computers. The increased sensitivity allows for a greater number of
recorded bits per square inch. According to Day (2006), when the iPod was first conceived, Apple had a
choice of using either a hard-disk drive or flash as a storage medium. The flash had the disadvantages
of smaller capacity but less cost, whereas the hard disk offered the advantage of capacity, but was more
expensive.
8
Synaptics didn't create the original iPod interface - this was done by Apple employees with the help of independent designer
Tony Fadell and others who may never receive due credit for the iPod's success (Day, 2005)
9
A hard disk platter (or disk) is a component of a hard disk drive: it is the circular disk on which the magnetic data are stored.
PAGE 12 OF 49
6.0
COMPETITION AND MARKETING STRATEGY
When analysing the sources of competition, one of the difficulties facing an industry is defining the
boundaries of competition, and similar difficulties will occur when trying to define the market. The
parameters adopted in assessing an industry will frame the outcome (Baker, 2007). Nevertheless, in
theory Porter’s Five Forces provides a robust framework for competitive analysis and industry
forecasting, but one of the major difficulties is the enormous amount of research and data that would be
required for a successful conclusion, while the availability of such data - particularly on the supplier
side, is often wrapped up in disclosure agreements, as seems to be the case for the iPod.
6.1
THE APPLICATION OF PORTER’S FIVE FORCES
In his excellent books, Porter (1980, 1985) provides a structural analysis of the industry that any given
company competes in. It analyses the attractiveness of the industry in terms of competition as
determined by the five forces (Figure 6.1.1). Porter (1980) also gives conditions making suppliers and
buyers more powerful, but for brevity these conditions shall not be repeated here. The next few sections
consider each of the five forces in turn.
Figure 6.1.1 – Porter’s Five Forces
6.2
BARGAINING POWER OF SUPPLIERS
Suppliers can exert bargaining power over companies in the electronics industry by threatening to raise
prices or reduce the quality of purchased goods or services; Power is influenced by a number of factors
including: the importance of volume to supplier - if the electronics industry is only a small fraction of
the supplier turnover it will have little power to exert economic pressure on them. Over the last few
years, the digital personal entertainment industry has been characterised by frame agreements with
suppliers of key components in an attempt to embrace current technologies at competitive prices,
reduce manufacturing costs and maximise the value chain. Responsibility for innovation, development
and liability has often been placed on the primary suppliers, but while this can lead to benefits for the
manufacturers it could also lead to over-reliance. A segment is unattractive when an organization’s
PAGE 13 OF 49
suppliers have the ability to: increase prices without suffering from a decrease in volume, reduce the
quantity supplied, organize in a formal or informal manner, compete in an environment with relatively
few substitutes, provide a product/material that is a critical part of the end product or service, impose
switching costs on their customers when they depart, and integrate downstream by purchasing or
controlling the distribution channels. Invariably obtaining information concerning suppliers is difficult
because it is commercially sensitive.
6.3
BARGAINING POWER OF BUYERS
As discussed in section 4.1 above, the electronic consumer goods market is fiercely competitive, with
buyers and consumer groups competing with the industry by forcing down prices, bargaining for higher
quality products, more differentiated products or substitute products, and by playing competitors
against each other, all at the expense of industry profitability.
The bargaining power of buyers’ increases when they have the ability to: Coordinate with others
providing similar products and services, purchase a product that represents a significant fraction of the
buyer’s costs, buy a product that is undifferentiated, incur low switching costs when they change
vendors, be price sensitive, use other options available, or integrate upstream to purchase the providers
of the goods.
6.4
THREAT OF NEW ENTRANTS
New entrants are entering the consumer electronics market all the time, if not by traditional electronics
companies, then by mass consumer product companies such as Tesco and Alba plc who have the
financial security to do so. Porter (1980) suggests that there are six barriers to entry10, and in this
instance, arguably the most crucial might be the amount of R&D investment which leads to the ability
to produce a sufficiently differentiated personal entertainment product, and the ability to access
appropriate distribution channels (third party retailers, own stores, online shops, etc).
RESEARCH & DEVELOPMENT
In many instances, no information concerning research & development expenditure was available from
a number of competitors, but where information was available it can be seen that Microsoft appears to
dominate R&D expenditure by some margin, both in absolute terms (Figure 6.4.1) and as a proportion
of turnover (Figure 6.4.2). Cooper (2001) suggests that R&D spending going to product development,
measured as a percentage of sales is by far the strongest determinant of the impact of a product
development effort, but has no effect on the profitability of the new product effort. That is, if the
performance goal is to have a high percentage of the business sales from new products, R&D spending
10
1) Economies of scale; 2) Product differentiation; 3) Switching costs; 4) Access to distribution channels; 5) Cost
disadvantages Independent of scale; 6) Government Policy
PAGE 14 OF 49
has a high contribution to make towards this goal. This might go some way to explain why Microsoft is
always able to introduce high-impact products to market.
R&D Expenditure (US$m)
R&D Expenditure (US$m)
$9,000
$8,000
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
Apple
Archos
B&O
Creative
Microsoft
Samsung
1
2
3
4
5
Sony
Year
Figure 6.4.1 – R&D Expenditure (US$m)11
R&D as % of Turnover
R&D Expenditure as % of Turnover
25.0%
Apple
20.0%
Archos
B&O
15.0%
Creative
10.0%
Microsoft
Samsung
5.0%
Sony
0.0%
2002
2003
2004
2005
2006
Year
Figure 6.4.2 – R&D as percentage of turnover
11
If Company is not shown in graph, no figures for R&D expenditure appeared to be available; for some companies (e.g.
Archos & Samsung), only partial data was available
PAGE 15 OF 49
POTENTIAL NEW ENTRANTS
Cash rich companies
Electronic Giants (e.g. Dell, Panasonic, Philips, Sharp, Thomson, Toshiba, Sony)
Supermarkets (J.S.Sainsbury, Marks & Spencer, Asda, Morrisons)
Companies with extensive R&D (creating proprietary learning curve)
Companies from China, India, Far East
Smaller players wanting to be bigger
Capital requirements
Access to distribution
BARGAINING POWER OF SUPPLIERS
Supplier concentration vs. industry
Importance of components to supplier
Switching company costs
Raw material inputs, fuel prices
Availability of substitute inputs
Threat of forward integration
Government Institutions, Legislation
European waste legislation (2002/96/EC)
Suppliers of components
Costs relative to total industry purchases
INDUSTRY COMPETITORS / RIVALRY AMONGST EXISTING FIRMS
Panasonic – has not really competed in mobile personal entertainment market
Sony – sleeping giant, which has historically produced iconic products
Microsoft – always a strong competitor
Acquisition policy (e.g. Microsoft investing in Apple inc.)
Exit barriers
Industry concentration
Fixed costs, perceived value added
Industry growth, overcapacity status
Product differences, switching costs
Brand identity
Diversity of rivals
Corporate stakes
THREAT OF SUBSTITUTES
Other electronic consumer goods
Switching costs
Buyer inclination to find alternatives
Advances in technologies
Price performance
Other manufacturers
Mobile technology improvements
Trade-off between the available substitute products or services
Figure 6.4.3 – Porter’s Five Forces in action – consumer electronics market
12
In relation to iTunes
PAGE 16 OF 49
BARGAINING POWER OF BUYERS
Bargaining leverage
Product magazines & TV programs
Purchase cheaper products / price sensitivity
Finance availability
Brand identity
Product differentiation
Buyer volume
Buyer information
Threat of backward integration
Buyer concentration vs. industry
Substitutes available
Illegal peer to peer file sharing is possible12
Buyer sensitivity
6.5
THE MARKETING MIX
Baker (2006) describes the notion of the marketing mix, which was originally conceptualised as 12
distinct activities before being reduced to four – the 4Ps, labelled Product, Price, Promotion and Place.
Apple appears to follow a differentiated marketing mix strategy as defined by Baker & Hart (2007),
where the product and promotion is different for each market segment, the price is what the market will
bear, and distribution of the product is extensive.
The iPod started life as an audio player for Mac owners, but it quickly developed a life of its own. It’s
ability to play MP3, WAV and Audible books, as well as Apple’s own AAC format, the sleek design
and easy operation have made it the must-have item during its lifetime. A number of aspects might
make it the most popular personal digital media player in the world, including: its versatility (multimedia player, with hard-drive), it can be used on Mac and Windows computers, its form factor (small
size compared to competitors’ units, with much more capacity), it’s Apple ‘Click Wheel’, and it’s
integration with iTunes13. Digital downloads were legitimised with iTunes and competing accessory
hardware from different companies emerged to ride on its success. While manufacturers such as
Creative and iriver brought out impressive offerings, the iPod has still managed to own a majority share
of the digital personal entertainment market.
PRODUCT & PRICE
Apple cleverly spotted the rise of digital music and the lack of a suitable piece of hardware and so
developed a hard drive based MP3 player which was released this in October 2001. Since its
introduction, the iPod has undergone five generations, as indicated in Table A1.2.1 (see Appendix A1),
which gives an overview of the dates on which the different generations of iPod was introduced to
market.
By pricing the initial iPods high – but not too high (Figure 6.5.1), Apple avoided creating a commodity,
and made the product sufficiently rare that ‘everyone’ wanted one, but couldn’t afford one. However,
because of hard-disk14 technology advancements in particular, the cost per Gigabyte of storage space
has been falling considerably so it makes it difficult in real terms to establish what the introductory
price might have been otherwise.
13
iTunes is the integrated jukebox/media-player software that comes with an iPod. It lives on your computer, and you use it for
organising, playing, converting and downloading files from an external source to your computer and from your computer to an
iPod. This is not really all that different from software than comes with any other portable media player, but the big difference
is that it incorporates the iTunes Store, which lets users purchase music, movies, podcasts, audio books and music videos very
easily.
14
Linden et al (2007) suggest hard-disk technology contributes to 51% of the production cost of an iPod.
PAGE 17 OF 49
Figure 6.5.1 – iPod introductory prices vs. hard-disk capacity
The introductory price per GB cost reduction is illustrated more clearly in Figure 6.5.2, but this figure
ignores reductions due to improvements in technology as well as competition between suppliers and
competition for the product in general. However, if we take the average cost of an iPod over a year, it
might be more indicative of how prices are falling as the product moves through its life cycle (Figure
6.5.3).
Figure 6.5.2 – Hard-disk price per GB vs. iPod introductory price
PAGE 18 OF 49
Figure 6.5.3 – Cumulative iPod Unit Sales vs. Average price per iPod (US$)
PRODUCT DIFFERENTIATION
Product differentiation can help protect against competition, but there must be a constant flow of new
design ideas. Greater product differentiation and less time to market are key drivers for success in a
very competitive personal digital entertainment market. Personal entertainment manufacturers
differentiate their products in a number of ways (Table 6.5.1). Horizontal differentiation appears to be
visible and concerns variety such as style and colour, whereas vertical differentiation concerns qualities
such as functionality.
HORIZONTAL DIFFERENTIATION
Colours
Design & shape
Ear phone design
Form factor
Portability
Replacement Shells (outer body)
Screen size
Volume control (incl. Remote)
VERTICAL DIFFERENTIATION
AAC
Personal organiser capability
Alarm clock / clock
Photo viewing capability
Battery life (hours)
Podcast support
Bluetooth capability
PDF viewer
Firewire compatibility
Radio
Gaming
Storage capacity (MB or GB)
Hard–drive capability
USB capability
iTunes compatibility
USB Host capability
In-line recording facility
USB Speed (1.1, 2.0)
Lyrics display
Video viewing capability
Mac compatibility
Video recording capability
MP3
Voice recording capability
PC compatibility
Weight
Photo viewing capability
WiFi capability
WMA
Table 6.5.1 – Differentiation in personal digital entertainment market
As with their computer models, Apple were clever in the way they marketed and designed their
product. When it was introduced, the Apple iPod was given a sleek and sexy look and was marketed at
young, style conscious, music enthusiasts. Apple created a fantastic brand with the all white look, while
the white earphones15 featured prominently in adverts.
15
Even though the earphones aren’t that great and are uncomfortable to wear – many replace them with competitors’ brands
PAGE 19 OF 49
The original Apple iPod could store a fairly significant amount of music on its 5GB hard drive, and
despite initially only being Mac compatible, the iPod was a success from the start. Apple also saw an
increase in sales of Apple Macs due to people wanting to be able to use the iPods.
The real expansion in iPod sales occurred when the 3rd generation iPod was released in 2003. It came
bundled with Apple’s own iTunes software that was compatible on both Macs and Windows PCs. This
has opened up a new market to Microsoft Windows users, but the market was only available to those
Windows PC users with Firewire connectivity, so the availability of the iPod remained limited16.
Apple has also managed to dominate the MP3 player market by releasing several different versions of
the Apple iPod, while at the same time reducing the price. The main iPod is now in its 5th generation
and although the design is largely similar to the original, it has been made more compact and available
with much large storage capacities. The latest models can display colour photos and movies.
Apple also became its own best competitor by breaking the iPod line into a series of differentiated
devices: hard-drive based and in various capacities at the high end; smaller flash-based devices in the
middle; and tiny almost featureless devices at the low-end. This leveraged the iPod brand into new
markets, and allowed Apple to keep prices (and profit margins) high on the larger media players. If
Apple had stuck with only hard-drive based players, the form factor of the players would have been
limited and only storage capacity would have been the primary differentiation between iPod models.
However, it didn’t, and so Nanos available today are at a similar price to the hard drive-based iPods but
with radically different storage capability. The two serve such different market segments that the
overlap is not an issue.
The dominance of the Apple iPod in the MP3 player market is now reflected in other industries. Cars
are now being designed with docking ports to make integrating iPods to the in car system easier.
Clothes manufacturers are making clothes with special pockets to hold iPods, and all kinds of other
iPod accessories are being created by various electronics companies.
Apple now has over a 90% market share of the hard drive based MP3 player market, and 80% share of
the MP3 player market as a whole. There are many other players out there, some of which are a lot
better than iPods with more features and functionality, but they’re not as fashionable. Indeed there may
even be an element of snobbery about owning an iPod rather than any other type of MP3 player.
16
Whether this was a deliberate marketing strategy or whether this was simply because of the practicality of being quicker to
adapt to Windows software than to incorporate USB technology is unclear
PAGE 20 OF 49
PROMOTION
Promotion involves disseminating information about a product, product line, brand, or company. Kotler
et al (2006) suggests that advertising offers a reason to buy, whereas promotion17 offers incentive.
Apple has very successfully – intentionally or otherwise, used product promotion for the iPod via a
variety of media, including:
NEWSPAPER AND MAGAZINE ADVERTISING
TV, cinema and poster campaigns are used to deliver high impact brand communication, but it is
sometimes important to balance a marketing campaign with more rational messages. Magazine and
newspaper advertising can do this effectively, as the reader has time to absorb the message. Perhaps
most influential are the plethora of specialist computer and hi-fi magazines as well as newspapers,
where this type of advertising can reach a targeted audience, as readers of such publications can be
specifically profiled.
TV ADVERTISING
TV commercials are considered to be the most effective mass-market advertising format and are used
by many well-known Brands. The original iPod television commercials and posters featured solid black
silhouettes against a solid bright colour, which usually changed every time the camera angle changed.
Some of the television adverts also depicted highlights on the silhouettes using darkened shades of the
background colour, and shadows on the floor. Since then the TV commercials have still evolved, but
have been retained along similar silhouetted themes.
PRODUCT PLACEMENT
Product placement appears in plays, film, television series, music videos, video games and books, and
occurs as a result of an economic exchange. There are essentially three forms18. It can be a subtle but
effective form of advertising if done well. Apple has been masterful in product placement. Apple
doesn’t pay for product placement (Goo, 2006), but the iPod has received free air-time on a number of
television programs.
POSTERS AND BILLBOARDS
Billboards or posters show large advertisements aimed at passing pedestrians and drivers, being
designed to catch a person's attention by creating a memorable impression very quickly leaving the
17
There are four principle reasons for car manufacturer product promotion: a) to raise product awareness to potential
customers, b) to remind customers about it’s products, c) to persuade customers to switch from rival manufacturers, and d) to
improve and maintain the image of the company.
18
Essentially the three forms are where: 1) it simply happens; 2) the Company owning the Brand pays money to appear in the
media; 3) the Brand owner supplies the product free of charge to appear in the media.
PAGE 21 OF 49
reader to think about the advertisement after
they have gone past it. There are usually only
a few largely printed words together with a
humorous or arresting image in brilliant
colour. In the UK in 2004, Apple placed iPod
adverts in Virgin Megastores, bus shelters, the
London Underground and railway stations
(Jade, 2004). Trudeau (1997) observes that the
mind remembers pictures more than words,
Figure 6.5.4 – iPod poster
which may go some way to understanding
why the words on billboards are so minimal.
THIRD PARTY PROMOTION
This occurs when a company uses a product to entice potential customers to sign up with them on the
basis that they would be given an iPod. For example, Citibank introduced a mini iPod promotion as a
reward for new customers opening and funding a new current account (Payment News, 2005), and
Dukes University handed out free iPods to freshmen on the basis that they would be used for learning
(Brock, 2006).
Apple's decision to keep the iPod player simple and allow third parties to produce accessories also
helped. Such accessories include: cases, speakers, car adapters, docking stations integrated with speaker
systems, battery packs, and more. This created a huge collection of other companies whose success
depended on Apple's iPod being a success: these companies are essentially partners of Apple and
provide free iPod advertising. These third parties also re-enforce the iPod's market domination, because
as more and more accessories and devices are made to supplement the iPod, fewer are made for other
media players.
ONLINE ADVERTISING & EMAIL
Apple has an eye catching, easy to navigate website with high visual impact where potential customers
can view the product and read the specifications. The web pages are
eye catching, dazzling, and easy to navigate. Despite the iPod being so
dominant, there is plenty of competition, so getting people’s attention
can be difficult. Another form of advertising on the Internet is the use
of pop-up windows (Figure 6.5.5), flash or banners, particularly
prominent on websites giving mp3 player reviews. Apple also sends
promotional emails to existing customers.
PAGE 22 OF 49
Figure 6.5.5 – Pop-up image
An email promotion involved sending a single sponsored email featuring a record track from a Virgin
Records Artist and information about an Apple iPod promotional offer. The information was sent to
550,000 mp3.com fans with a competition link to win a 20GB iPod (Precision Marketing, 2002).
COLLABORATION & PARTNERSHIPS
BMW released the first iPod automobile interface, allowing drivers of newer BMW vehicles to control
their iPod using either the built-in steering wheel controls or the radio head-unit buttons. In 2005, Apple
announced that similar systems would be available for other vehicle brands, including Mercedes-Benz,
Volvo, Nissan, Alfa Romeo, Ferrari, Acura, Audi, Honda, Renault and Volkswagen (Wikipedia, 2007).
CONVENTIONS, TRADE SHOWS AND ROAD SHOWS
Conventions, trade shows and road shows allow manufacturers to showcase their latest offerings to the
technology press and general public. These events generally create buzz for hot new products that often
carries over into sales months down the line, and they generate millions of pounds of free press
coverage as well as coverage from major television networks and major technology and business
magazines. In the past, Apple has used trade show appearances such as Macworld to advertise its wares,
although around 2003 its appearances appear to have been cut back while it tried to redefine its
marketing strategy (Chaffin, 2002).
CELEBRITY PROMOTION
A limited edition black & red colour "U2 iPod" was released on October 2004 in 20GB only. It came
with the bands’ signatures engraved on the back of the iPod, along with a voucher that enabled you to
buy the entire back catalogue of U2's music from the iTunes music store. An iPod special edition
‘Harry Potter’ is also available (Apple, June 2007).
PERSONAL SELLING & PERSONAL RECOMMENDATIONS
This method of selling is important as it builds up customer relationships. It is interactive, adaptable
and useful for addressing customer needs. This type of promotion takes in the original sale; but it can
also include long-term technical service and support, giving customer reassurance that they will be
looked after.
A consumer uses choice criteria when evaluating a particular product, and cultural as well as personal
influences affect the buying situation. Buyers will be influenced by their peers, people whose values
and judgements they empathise with. Word of mouth is an influential and effective way for consumers
to give and receive recommendations about purchasing a product. Interestingly, research carried out by
Intelliseek (Digital Trends, 2005) suggested that iPods consumers especially are very heavily
influenced in their tech buying decisions by personal recommendations, which will have contributed to
the rapid increase in iPod sales. That the iPod has an easy name to remember must also count.
PAGE 23 OF 49
ITUNES
iTunes was available before the iPod, but only on the Mac. Now both Windows and Mac users can
install and run iTunes on their computers independently of having an iPod, although for a short
intervening period different software called Musicmatch Jukebox was the Windows equivalent. iTunes
is used to organise music collections on home computer. Apple's iTunes & iPod strategy is to allow
users to download iTunes free and allow them to buy songs via iTunes cheaply in order to get people to
buy the iPods. Mac or Windows users of iTunes software can download their tunes illegally, rip music
off of their CDs, or pay US$1.29 per song ($.099 in 2003) to legally download music from Apple's
Music Store. It’s unlikely that Apple would be making much on the sales of the songs by the time the
record companies have taken their cut, but accelerated sales of the iPods would surely help the bottom
line. Interestingly enough, some research by Jupiter Research suggested that few people stock their
iPod with music from the iTunes shop, and that on average only twenty tracks on an iPod will be from
the iTunes shop (BBC, 2006).
PLACE - DISTRIBUTION
Distribution channels in the iPod world are usually either directly with Apple via its websites or retail
shops, or via third party retailers. Apple did collaborate with HP under license to allow the company to
sell HP iPods (Evans, 2004), but this only lasted less than a year (Block, 2005). Interestingly in 2004,
analysts had predicted that HP’s broad distribution channels would enable the HP iPod to outsell
Apple's own product. How this might have accelerated the sales growth of the iPod, we’ll never know.
PAGE 24 OF 49
7.0
COMMENTARY
Traditionally, Apple’s public relations strategy is to hit the markets running, and the iPod was no
different. At its introduction, it was given an all-white, sleek and sexy look complete with definitive
white earphones, and was marketed at young, style conscious, music enthusiasts. The style was used to
create a differential advantage. The initial market was targeted at Apple Mac users, and it was priced
such that it wasn’t affordable by the masses, although ‘everyone’ wanted one. It had several unique
features: its integration with iTunes, it’s being only compatible with the Apple Mac initially, and that it
could store not tens, but thousands of songs19, and crucially, it was compact and simple to operate
device. In all, a high quality user experience.
7.1
DIFFUSION OF INNOVATION
Using Roger’s (2003) diffusion of innovation theory, a batch of these young, and style conscious music
enthusiasts acted as the innovators, the venturesome, rushing out to buy the product before anyone else.
The clamour was significant, with 125,000 iPods being sold in the first three months of being on the
market (Figure 7.1.2). According to Intelliseek research, iPod consumers are very heavily influenced in
their tech buying decisions by personal recommendations via blog websites, which will have
contributed to the rapid increase in iPod sales (Digital Trends, 2005).
According to the research,
iPod owners are more likely
to
use
web-based
communications than other
mp3 owners, and if they
communicate
about
how
good the iPod is it can only
mean an exponentially more
efficient
Figure 7.1.1 – Rogers Adoption / Innovation Curve (Rogers, 2003)
way
of
communicating the value of
a product rather than just
word-of-mouth. Rogers goes on to say that the early adopters have the highest degree of opinion
leadership, and potential adopters look to the early adopters for advice and innovation about an
innovation. The early adopter is the person to ‘check with’.
19
Depends on format was used for storage. Different formats (AAC, mp3, WMA) have different compression ratios.
PAGE 25 OF 49
The early majority adopt new ideas before the average member of a system, so given the current
popularity of the iPod one might say that the current iPod purchasers are now in the ‘late majority’
category.
Figure 7.1.2 – Apple iPod unit sales per quarter (Apple, 2007)
7.2
PRODUCT LIFE CYCLE CURVE
The quarterly sales figures in Figure 7.1.2 show significant jumps in the three months before the
Christmas period in 2005 and 200620, and these helped to maintain the exponential growth rate in iPod
sales. These periods also coincided with the
introduction of a new generation of iPod or
upgrade. When considering the product life
cycle (Figure 7.2.1) it appears that the iPod is
still very much in its growth phase, although
there are those who would argue that if it wasn’t
for the big increases in sales in the quarter
leading up to Christmas, iPod sales would
actually be in decline. This is missing the point.
What Apple appears good at is that they seem to
Figure 7.2.1 – Product Life Cycle Curve
have is to know when to introduce an upgrade or a total revamp in order to arrest any potential decline
20
An Apple financial year runs from September to September.
PAGE 26 OF 49
in sales, and they have introduced other products such as the Mini and Nano iPods to extend their iPod
product portfolio. That is, the product portfolio is being managed, so that as products go into decline,
others are introduced to take their place. Add into the mix making the iPod available to Windows users
as well as making iTunes more fully integrated - and free, and they’ve made the iPod the most
successful personal digital music player in history by some considerable margin, having clinched since October 2004, over 90% of the market for hard drive-based players and over 70% of the market
for all types of players21. The turning point could be if the Apple iPod becomes a victim of its own
success, whereby consumers become turned off buying the product because ‘everyone’s’ got one and
it’s no longer a rarity. That is, once the basic needs, the articulated needs and exciting needs have all
been satisfied, needs migrate towards the ‘basic’ status (Baker & Hart, 2007). That the iPhone has now
been introduced may also impact sales because of some functional duplication, but it’s certain that
Apple will have thought of this. With all the hype about the iPod, it’s worth remembering that iPod
isn’t Apple’s only product. With the Mac, iPod & iTunes, Apple TV and iPhone, the company has a
four pronged vertically integrated strategy.
It is also worth remembering that there is some very big competition out in the MP3 player market, with
companies such as Creative, Microsoft Samsung and Sony in particular, who historically have all
demonstrated their pedigree for commercialising innovative products Table 7.2.1.
COMPANY
Alba plc
Archos
Bang & Olufsen
Cowon
Creative Technology
Dell
LG Electronics
Microsoft
ReignCom (iriver)
Samsung
Sony
Technika (Tesco)
INNOVATIVE PRODUCT22
Various via household names in the UK, including Alba, Bush, Goodmans & Grundig
First miniature CD-RW drive & CD-ROM drive, first hard-disk mp3 player
Visual & audio products. Perhaps not the best technically, but visually stunning.
Portable Digital Devices (MP3P, PMP), IMS & Multimedia Content Service
Perhaps best known for PC Sound Cards, iPod menu patent technology owner23
Industry leader in direct selling of PCs, Various technology initiatives
Various via Digital Display & Media, Digital Appliance, Telecommunication Equipment & Handset
Windows Operating Systems, Business Office Products. Needs no introduction.
Various; manufacturer of digital audio players and other portable products
CDMA mobile phones, LCD and CRT monitors, DRAM memory chips and microwave ovens
Betamax video recorder, Trinitron CRT, DAT, S/PDIF, SACD, Playstation, Blu-ray Disc
Ingredients & packaging of foodstuffs, Retail Planning Innovator, Advertising, Logistics.
Table 7.2.1 – Companies and innovations
7.3
PERCEIVED ATTRIBUTES OF INNOVATIONS
Diffusion is the process by which an innovation is communicated through channels, over time, among
individuals of a social system, and is discussed in detail by Rogers (2003). We know that the iPod has
21
In the US market
22
This list is not exhaustive. Refer Appendices for more details.
23
Creative Technology won a patent dispute over the navigation menu used in the iPod, claiming that the Apple iPod software
infringed patents on technology used to organize music on its Nomad and Zen music players.
PAGE 27 OF 49
been adopted rapidly – perhaps if we examine the variables which determine the rate of adoption, we
can get a better understanding why.
VARIABLES DETERMINING THE
RATE OF ADOPTION
DESCRIPTION
Perceived Attributes of Innovation
Relative advantage
Degree to which an innovation is
perceived as being better than it is
Compatibility
compatible with existing values,
past experiences and needs of
potential adopters
perceived as relatively difficult to
understand and use
Degree to which an innovation may
be experimented with on a limited
basis
Degree to which the results on an
innovation are visible to others
Complexity
Trialability
Observability
Innovation Decision Process
Communication Channels
Five stages. Knowledge,
Persuasion, Decision,
Implementation, & Confirmation.
Rate at which the innovation
decision process is progressed
A communication channel is the
means by which messages get from
one individual to another.
Nature of the Social System
A social system is defined as a set
of interrelated units that are
engaged in joint problem-solving to
accomplish a common goal.
Extent of Change Agents’
Promotion Efforts
As per variable description
THE IPOD
Brand new concept. Connects people to their
existing digital CD collections. Makes a large
number of songs portable. High relative
advantage.
A digital personal music player connects a user
with their existing digital music collection (CDs)
as well as new music which is downloadable from
a website. High compatibility.
Few new skills are required. Low complexity –
considered easy to understand and easy to use.
A friend’s iPod could be borrowed for trial use.
The innovation could easily be trialled.
The use of iPods in public places emphasises their
conferral of status on potential buyers. A ‘cool’
thing to have.
Target buyers made aware of the innovation, they
are attracted by it, and they decide that they need
it.
Awareness of the iPod can be via a variety of
communications channels, including mass media
and interpersonal communication channels. The
devise lends itself well to mass media as well as
interpersonal communications. iPod name easy to
remember.
iPod is aimed at young and style conscious music
enthusiasts who have greater exposure to mass
media channels of communication, greater
exposure to interpersonal channels of
communication, greater change agent contact, and
greater social participation.
After early mass media advertising efforts, third
party product promotion and product placement
have reduced the required Apple’s promotional
effort
Table 7.3.1 – Perceived attributes of the iPod as an innovation
Therefore, the iPod is a good example of how to successfully commercialise an innovation. When
considering all the factors above, the iPod seems to satisfy all the innovator and early adoption criteria,
and it seems to concur with the ‘diffusion of innovation’ theory put forward by Rogers. It is sufficiently
differentiated that it creates interest, it’s easy to recognise and remember, and it sells itself. Given the
right circumstances, or rather, creating the right circumstances, it would be a good commercialisation
model to follow.
PAGE 28 OF 49
8.0
SUMMARY & CONCLUSION - THE RESULT
8.1
SUMMARY & CONCLUSION
In just over five years, Apple Inc. had sold its 100 millionth iPod; the digital device was the fastest
selling music player in history, appealing to the young and old. It has taken over from the original
portable audio player with headphones - the Sony Walkman, launched by Sony Corp. in 1979. Other
consumer products with over 100 million sales are given in Figure 8.1.1 together with the number of
years.
When the iPod was introduced, it had several unique features. The most valuable of these was its
integration with iTunes although this was largely overlooked while people focused on the most radical
aspect: the iPod contained a 5GB hard drive capable of holding up to 1,000 songs at a time. The idea of
carrying a vast collection of music on such a mobile and portable device was revolutionary, and
immediately there was tremendous interest in this new device. It was instantly fashionable because it
was rare; it wasn’t a commodity, and it was expensive, but only just out of reach in today’s consumer
driven world – expensive enough that only the early adopters and truly committed would be willing to
purchase. Combined with the key unique feature of storing a whole music library, the high price
immediately made the iPod something to want. Few could own one, but everyone wanted one.
Tim e to 100m illion Sales (Years)
28
30
22
25
Years
20
9.5
10
5
15
13
15
5.5
1.25
0
iTunes
iPod
Sony
PlayStation
Sony
Walkm an
Digital
cam eras *
Personal Color TVs *
com puters
*
Figure 8.1.1 –Time to 100million sales (* US figures only)
You could say that for now at least, Apple has won the current digital media player war: they created a
well-designed and simple to operate device, and by packing it well and initially making it exclusive,
they’ve made it the must-have item.
PAGE 29 OF 49
9.0
REFERENCES
Various Annual Reports and Form-10K (for US based companies)24
Alba (2006) “Alba Group of Companies – Annual Report & Accounts 2006” Alba plc
http://miranda.hemscott.com/servlet/HsPublic?context=ir.access.jsp&ir_client_id=1687&ir_option=RNS_HEADLINES&trans
form=ir_home&sidenav=irHomeMenu&footer=2
Antweiler, W. (2007) “Pacific Exchange Rate Service” University of British Columbia, Vancouver BC,
Canada http://fx.sauder.ubc.ca/data.html
Amir, D. et al (2006), “iPod checks – Synaptics”, W.R. Hambrecht & Co 11 April 2006
Apple, (Dec 2006), “Annual Report, Form-10K”, www.apple.com
Apple (June 2007), “Quarterly Report” dated 27 May 2007, www.apple.com
Apple (June 2007) “Identifying iPod models”, http://docs.info.apple.com/article.html?artnum=61688
Archos (2007) “ARCHOS Announces 2006 Sales Revenue”, Press Release 08 Feb 2007
Baker, M. (2006) “Marketing: An Introductory Text” Westburn Publishers Ltd
Baker, M. (2007) “Marketing Strategy & Management” Palgrave Macmillan
Baker, M. & Hart, S. (2007) “Product Strategy and Management” Prentice-Hall
B&O (2006), “Annual Report – 2005/06” CVR-No. 41257911
BBC (2006) “iPod fans shunning iTunes store”, BBC website 26 Sept 2006
Chaffin, B (2002) “Apple Pulls Out Of Macworld Tokyo, IDG Cancels The Entire Show”, Macuser UK
article, 5th December 2002, http://www.macobserver.com/article/2002/12/05.4.shtml
Brock, R. (2005) “HP quits selling iPods, iPod purists party down”, 29 July 2005
http://www.engadget.com/2005/07/29/hp-quits-selling-ipods-ipod-purists-party-down/
Brock, R. (2006) “Duke Stops Giving Students Free iPods but Will Continue Using Them in Classes”
Chronicle of Higher Education, Volume 52; Issue 36, 12 May 2006.
Chipmunk, H. (2001) “An iPod on the inside” www.chipmunk/nl/iPod/
Cooper, R. (2001) “Winning at New Products”, Basic Books
Cowon (2007) “Financial Information” http://eng.cowon.net/ir/ir_finance.php
Creative (2006) “Annual Report for 2006” Downloaded from www.creative.com
Day, J.H. (2005) “Inside iPod”, 20 Jan 2005.
http://www.elecdesign.com/Articles/Index.cfm?AD=1&ArticleID=9500
Digital Trends (2005), “Tech consumers influenced by word of mouth”, 25 Oct 2005
http://news.digitaltrends.com/news/story/8604/printer_friendly/tech_consumers_influenced_by_word_of_mouth
Evans (2004) “HP iPod Announced” Macworld, 27 August 2004
http://www.macworld.co.uk/news/index.cfm?NewsID=9496&Page=1&pagePos=1
Furness, V. (2006) “Top Ten Hardware Vendors” Business Insights, 2006
Geofftech (July 2007), “A history of the Apple iPod, iTunes & the Music Store”
24
For brevity only the latest Company Annual Reports are referenced in the text and Appendix
PAGE 30 OF 49
http://www.geofftech.co.uk/obsessions/ipod/ipod_history.htm
Goo, S.K. (2006) “Apple Gets a Big Slice of Product-Placement Pie”, Washington Post 15 April 2006
Goodmans (July 2007) “Portable Audio – MP3 and CD Players” www.goodmans.co.uk
Jade, K. (2004) “Apple heats up world-wide iPod advertising”, 9 March 2004, Apple Insider
http://www.appleinsider.com/articles/04/03/09/apple_heats_up_world_wide_ipod_advertising.html
James, D. (2007) “Looking inside the iPod: a teardown analysis to the atomic scale”, 6 June 2007,
http://www.connectingindustry.com/story.asp?storycode=180372
Kotler, P. & Keller, K (2006) “Marketing Management 12e“ Pearson Prentice-Hall
LGE (2006) “Consolidated Financial Statements, December 31, 2006 and 2005”. LG Electronics
http://www.lge.com/ir/archive_financial/list/BIR_FIN|MENU_IR|MENU.jhtml
Layton, J. (2006) “How iPods work” www.howstuffworks.com
Linden, G., Kraemer, K.L., Dedrick, J. (2007) “Who Captures Value in a Global Innovation System?
The case of Apple’s iPod”. June 2007. Personal Computing Center (PCIC), The Paul Merage School of
Business, University of California, Irvine.
MS (2006), “Microsoft Annual Report, 2006”
Payment News (2005), “Citibank Mini iPod Promotion”, Payment News, 17 February 2005
http://www.paymentsnews.com/2005/02/citibank_ipod_m.html
Porter M.E. (1980) “Competitive Strategy: Techniques for Analysing Industries and Competitors”, New
York Free Press.
Porter M.E. (1985) “Competitive Advantage: Creating and Sustaining Superior Performance”, New
York Free Press.
Precision Marketing, (2002) “Apple switches online for iPod Euro campaign” Precision Marketing
Journal, 2 December 2002 Centaur Media plc.
Quirk, G.A. (2006) “Find out what’s really inside the iPods, Semiconductor Insights”
http://www.commsdesign.com/showArticle.jhtml?articleID=177105035
Rogers, E. (2003) “Diffusion of Innovations” Fifth Edition. Free Press.
Samsung (2006) “Year End 2006 Figures” Website download Excel spreadsheet www.samsung.com
Sony (2006) “Financial Section, Financial Highlights, R&D” all downloads from www.sony.net
Thompson, M.J. (2007) “Tech trends.(Apple Inc.’s iPod sales)” 27 July 2007 Mac Publishing
Trudeau, K. (1997). ”Mega Memory: How to Release Your Superpower Memory in 30 Minutes or Less
a Day” William Morrow (Paperback)
Wikipedia (July 2007), “iPod” Page last modified 17 July 2007 http://en.wikipedia.org/wiki/IPod
Wikipedia (Dec 2006) “ReignCom” (Page last modified 25 Dec 2006)
http://en.wikipedia.org/wiki/ReignCom
Wikipedia (July 2007) “Tesco plc” (Page last modified 16 July 2007)
http://en.wikipedia.org/wiki/Tesco
PAGE 31 OF 49
A1
APPLE INC.
A1.1
SWOT
STRENGTHS
WEAKNESSES
Very successful company
Oldest hardware manufacturer in the computer industry
Iconic brand
Customer loyalty
Wide customer portfolio - education, consumer creative professional,
business & government customers
High quality & easy to use products
Manufacturing both computers and their operation systems
Large product portfolio
The company has low gearing
Over 80% market share in iPods
Market Leadership through adoption of closed AAC format (iPod)
Difficulties with product control (e.g. Early product releases have
been found faulty - iPod batteries, iPod Nano screens)
iTunes download costs seen as being too cheap by music industry
Swap from IBM to Intel for chip supplies may confuse customers
R&D investment not as high as some of it’s industry peers
High price of products
No partnerships for iTunes to complement their offering
OPPORTUNITIES
THREATS
Innovative company
Opportunity to extend new products to existing loyal customers
Diversity of product portfolio is ever increasing
Continued next generation product development
Link between Apple & Nike to transmit fitness data during exercise
Integration wit other markets – e.g. cars
Apple has changed its chip supplier from IBM to Intel – could
increase compatibility with other products (e.g. Windows based)
High potential music phone market
Release of iPhone could have same impact as iPod
Developing iTunes and music player technology into a mobile phone
format
Very heavy level of competition in IT & personal entertainment
market
Minimal level of debt could make company prone to takeover
Apple has not issued dividends for many years – potentially causing
loss of investor confidence
Apple faces pressure from its competitors such as Dell and HP
Threat of substitution from competitor’s products
Depreciation of dollar a constant threat given 54% of Apple’s
revenue is from overseas
Linux influence growing
Technology life cycle getting shorter
Table A1.1.1 – Apple Inc. SWOT
PAGE 32 OF 49
A1.2
IPOD HISTORY & TIMELINE
GENERATION
iPod
1st Generation (1G)
DATE OF
INTRODUCTION
CAPACITY
5, 10GB
2nd Generation (2G)
23
October
2001
17 July 2002
3rd Generation (3G)
28 April 2003
10, 15, 20,
30, 40GB
4th Generation (4G)
19 July 2004
20, 30, 40,
60GB
5th Generation (5G)
12
2005
30,
60,
80GB
October
10, 20GB
LAUNCH
PRICE
$399
$499
$399
$499
$299
$399
$499
$299
$349
$399
$449
$299
$399
(later
$249
$349)
iPod Mini
First Generation
6 Jan 2004
4GB
$199
Second Generation
22 Feb 2005
4, 6GB
$199
$249
iPod Nano25
First Generation
7 Sept 2005
1, 2, 4GB
$149
$199
$249
Second Generation
12 Sept 2006
2, 4, 8GB
$149
$199
$249
iPod Shuffle26
First Generation
11 Jan 2005
512MB,
1GB
Second Generation
12 Sept 2006
1 GB
$99,
$149
(later
$69,
$99)
$79
MAIN CHANGES INTRODUCED
First model, only works with Mac, with mechanical
scroll wheel. Firewire.
Windows PC compatible models introduced. Touch
sensitive wheel. FireWire port had a cover. Hold switch
revised. Firewire.
Central row of touch-sensitive buttons. Dock Connector
port introduced. New backlit touch-sensitive buttons
introduced. Firewire.
Photo. Buttons integrated to form ‘Click Wheel’. Colour
display with photo viewer introduced in October 2004.
It replaced the monochrome model in June 2005.
Firewire or USB.
Video. Slimmer design, introduced in white and black
variants. Larger screen with video player and lyrics
support. Click Wheel completely flat. Headphone socket
relocated. No AC adapter, Universal Dock, or A/V
cables included. USB.
The September 2006 revision (often called generation
5.5) featured a brighter display, longer video battery life,
and a music search function. The 60GB model was
upgraded to 80 GB.
New model, available in 5 colours. Introduced the ‘Click
Wheel’, later adopted by the fourth generation iPod.
USB or Firewire.
Brighter colour variants with longer battery life. Click
Wheel lettering matched body colour. No AC adapter
and discontinued gold model. USB or Firewire.
New model as a successor to the iPod mini. Slimmer
design with flash memory, colour screen and lyrics
support. Available with white and black variants.
Similar to the 5th generation iPod. USB.
Anodized aluminium case in 6 colours, similar to minis.
Brighter screen, longer battery life and a music search
function. USB.
New model. The iPod without a screen or click wheel.
First iPod to use flash memory instead of hard drive
storage. USB.
Aluminium case with smaller form factor, plus built-in
clip. Multi-coloured models later released. USB via
dock only.
Table A1.2.1 – History of iPod Generations (Wikipedia, Geofftech, 2007)
25
iPod Nano plays digital audio, displays digital photos, and has a smaller form factor than the iPod video
26
iPod Shuffle can only play songs and has no display
PAGE 33 OF 49
A1.3
ITUNES HISTORY & TIMELINE
VERSION
DATE
PLATFORM
NOTES
iTunes 1.0
Jan-01
Mac OS 9
This was pre-iPod! iTunes existed before iPods
did
iTunes 2.0
Oct-01
Mac OS 9
Features added, now syncs with iPods
iTunes 3.0
Jul-02
Mac OS 9 & X
Ratings and play counts added
iTunes 4.0
Apr-03
Mac OS 9 & X
AAC introduced, Music Store online for first
times
iTunes 4.1
Oct-03
Mac and Windows
More Music Store features added
iTunes 4.7
Oct-04
Mac and Windows
New version to support iPod Photo
iTunes 4.8
May-05
Mac and Windows
Video support added. Mac OS 10.1 dropped
iTunes 4.9
Jun-05
Mac and Windows
Podcasting added
iTunes 5.0
Sep-05
Mac and Windows
New refined look
iTunes 6.0
Oct-05
Mac and Windows
'Video' added - supports iPod Video
iTunes 7.0
Sep-06
Mac and Windows
Movies now downloadable in Store. Album
Artwork option added. Gapless playback. Games.
iTunes 7.2
May-07
Mac and Windows
Ability to access DRM free music on the iStore
iTunes 7.3
Jun-07
Updated to support the launch of the new iPhone
Table A1.3.1 – History of iTunes Versions (Geofftech, 2007)
A2
APPLE COMPETITORS – OTHER MARKETS
The personal computer and related peripherals market is particularly intense as competitors who sell
Windows and Linux based personal computers have aggressively been cutting prices and reducing
profit margins for personal computing products.
In the personal computer industry, competition is fierce, with products originating and being sold from
a large number of sources. The information in table (Table A2.1) should be seen as indicative only; on
the basis that this has not been researched exhaustively.
SOFTWARE &
SERVICES
Adobe
Linux
Microsoft products
Novell
ENTERPRISE COMPUTER
MARKET27
Cisco
EMC
IBM
Hewlett Packard
Nortel
Sun Microstations
PERSONAL
COMPUTERS28
Acer
Dell
Fujitsu
Gateway
Hewlett Packard
PERSONAL COMPUTERS
NEC
Sony
Toshiba
Smaller manufacturer’s
Table A2.1.1 – Main Apple competitors – other markets
27
Source: Furness (2006)
28
Including Desktops and Laptops
PAGE 34 OF 49
RETAIL STORES
Various
Online stores
A2.1
LINUX
Figure A2.1.1 – The many variations of Linux Operating Systems
PAGE 35 OF 49
A3
MAIN COMPETITORS – BACKGROUND29
A3.1
ARCHOS (WWW.ARCHOS.COM)
ARCHOS is a global consumer electronics manufacturer and the technology leader in the field of
portable entertainment. Committed to the most innovative technology and inventor of the portable
video player, ARCHOS offers award-winning pocket-sized products that feature audio and video
recording, photo viewing, and other multimedia and productivity applications for the enjoyment of the
most exciting entertainment anywhere, anytime. ARCHOS has offices in the United States, Europe and
Asia. ARCHOS products are distributed in more than 40 countries worldwide. A financial summary is
given in Table A3.1.1, although there was limited R&D expenditure data available.
Figure A3.1.1 – ARCHOS Worldwide Distribution
FINANCIAL DATA SUMMARY
Year (€ m )
Sales
Cost of sales
Gross margin
Operating expenses
Operating profit
Net profit
R&D Expenditure (€ m)
2002
€ 61.60
€ 17.73
€ 19.37
-€ 1.65
-€ 1.27
2003
€ 54.25
€ 37.58
€ 16.67
€ 24.16
-€ 7.49
-€ 4.99
2004
€ 58.30
€ 45.50
€ 12.80
€ 20.00
-€ 7.20
-€ 4.51
2005
€ 103.10
€ 76.20
€ 26.90
€ 23.20
€ 3.70
€ 0.60
2006
€ 124.30
€ 92.20
€ 32.10
€ 27.90
€ 4.20
€ 2.90
N/A
N/A
N/A
N/A
€ 3.34
5.7%
€ 3.09
3.0%
N/A
N/A
Table A3.1.1 – ARCHOS Financial Summary (Archos, 2007)
29
Note: Extensive data was collated on competitors’ personal digital media layers. This information is not included herein.
PAGE 36 OF 49
SELECTED COMPANY MILESTONES
ARCHOS is an innovator in bringing pocket entertainment products to market. The company has
introduced several industry firsts and maintains an inventive approach to product development.
DATE
2007
2006
2005
2005
2005
2005
2005
2004
2003
2003
2003
2003
2002
2001
2000
1999
1998
1997
1992
EVENT
ARCHOS 704-WiFi, the only PMP with a 7-inch touch-screen and full wireless capabilities
1st portable digital TV receiver that combines portable video recorder (PVR) functionalities, two antennas and 2 DTT (Digital
Terrestrial Television) tuners - AV 700 TV
1st MP3 Player with 20 GB and integrated Camera and Camcorder - Gmini 402 Camcorder
1st 7" Wide-Screen Portable Video Player and Recorder - AV 700 Mobile DVR
1st 3 GB Hard-Drive Based Music Player for $169.95 - Gmini XS 100
1st 100-gigabyte Portable Video Player and Recorder - AV4100
1st Portable Video Recorder and Player with Linux OS, Wireless and PDA Features - PMA400
1st Pocket Video Recorder with TV Cradle - AV400
1st Customized MP3 Player with Add-on Modules - Gmini 120
1st 20-gigabyte Portable Storage Device at Less Than Three Ounces - ARCDisk
1st Pocket Video Recorder 3.3 MP camera/camcorder and DVR module - AV300
1st Pocket Video Recorder Available - AV100
1st Handheld MP3/MP4 Player - Jukebox Multimedia
1st Hard Disk-based MP3 Recorder - Jukebox Recorder
1st Hard Disk-based MP3 Player - Jukebox 6000
1st Miniature CD-RW Drive
1st Slimline CD-ROM Drive
1st CD-Rom Drive with Micro Power Management powered by laptop PC
1st PCMCIA Memory Card for Commodore Amiga
Table A3.1.2 – Archos selected company milestones (Archos, 2007)
A3.2
BANG & OLUFSEN A.S. (HTTP://WWW.BANG-OLUFSEN.COM)
Although in global terms Bang & Olufsen’s size is modest, the company has achieved world renown for
its spectacular, idea-based, quality products within the fields of audio/video products and telephony.
Bang & Olufsen’s products are today available around the world, and 82 % of the Group’s turnover
derives from exports. In a number of markets, operations are handled by Bang & Olufsen’s own
subsidiaries, while sales and distribution development in certain markets are organised by business
partners. A financial summary is given in, Table A3.2.1.
GROUP (DKK MILLION)
Turnover
Operating profit
Net financials
Profit before tax
Profit for the year
R&D Expenditure
R&D as % of turnover
2005/06
4,255
439
(8)
431
296
442.9
10.4%
2004/05
3,742
372
8
380
265
393.3
10.5%
2003/04
3,613
334
7
341
264
327.6
9.1%
Table A3.2.1 – B&O Financial Summary (B&O, 2006)
PAGE 37 OF 49
2002/03
3,974
296
(9)
290
190
320.7
8.1%
2001/02
4,212
260
(35)
228
149
333.2
7.9%
BEOSOUND 2
For: Stunning looks, simple PC installation, and great
sound quality
Against: very expensive, no player display, low
capacity (128Mb), confusing user interface
Figure A3.2.1 – The B&O BeoSound 2
A3.3
COWON SYSTEMS INC. (WWW.COWONGLOBAL.COM)
Webpage loads extremely slowly. Established in April 1995, Cowon Systems inc. is based in Korea and
has 180 employees. The Company specialises in Digital Multimedia such as Digital
Audio/Video/Voice, and wireless internet technology, with the content business being based on the
triangular system of hardware, software and content which are Portable Digital Device (MP3P, PMP),
Integrated Multimedia Software and Multimedia Content Service. Table A3.3.1 gives an excerpt of the
financial summary for the Company. No R&D financial data was available.
Year
2001
Sales (million won)
Gross profits on Sales
Operating Profits
Ordinary Profits
Net Profits of This Term
R&D Expenditure
8,455
3,549
2,006
2,076
1,789
N/A
N/A
2002
2003
16,811
5,136
3,167
3,143
3,581
N/A
N/A
26,400
7,547
3,267
3,445
3,040
N/A
N/A
2004
78,521
17,850
7,895
7,235
5,752
N/A
N/A
2005
99,504
19,126
7,289
6,075
4,783
N/A
N/A
Table A3.3.1 – Cowon Systems Inc. Financial Summary (Cowon, 2007)
Cowon iAudio F2 Player
Cowon D2 Player
Cowon U2 Player
Figure A 3.3.1 – Cowon personal digital media players (UK market)
DATE
2007
2006
2006
2006
2006
2006
EVENT
COWON D2, selected among the 'MUST SEE LIST' at CES 2007
COWON Releases Premium MP3P 'COWON D2'
COWON unveils extreme inline hockey game 'Enblic'
COWON Launches car navigation 'COWON N2'
COWON Launches MP3P 'iAUDIO F2' with Iconic Design
COWON Markets Necklace Type Fashion MP3P 'AUDIO T2'
PAGE 38 OF 49
2006
2006
2006
2006
2005
2005
2005
2005
2005
2005
2004
2004
2004
2004
2004
COWON Partners with Prestigious International Online Music Service Providers (soundbuzz, e-music)
COWON Releases 'COWON DM1' - First Terrestrial Broadcast DMB Receiver for PMP in Korea
COWON Releases 'iAUDIO 6', the World's First 085-inch HDD MP3 Player
COWON, Release the latest 085 Inch Ultra Mini HDD MP3P in 2006 International CES in US
Release 12 inch Movie Support Ultra-Mini Mp3p 'U3'
Release Next Generation Wide PMP 'COWON A2'
Release Ultra-slim HDD MP3P 'iAUDIO M5'
Release Sports Car Style MP3P 'iAUDIO F1'
Released iAUDIO X5, an ultra-slim MP3 player with video support
Released a new PMP model in CES 2005 in the US
Released iAUDIO G3, an MP3 player that can play up to 50 hours continuously
Released iAUDIO U2, a compact, fashionable MP3 player
iAUDIO won the Sports Seoul 2004 Korean Consumers Grand Prize of MP3 Player Division
Released iAUDIO M3L, a HDD-type MP3 player that can play up to 35 hours continuously, the longest in the world
Released iAUDIO M3, an ultra-compact, HDD-type MP3 player
Table A3.3.3 – Cowon selected company milestones (Cowon, 2007)
A3.4
CREATIVE (WWW.CREATIVE.COM)
Creative was founded in Singapore in 1981 with the vision that multimedia would revolutionize the
way people interact with their PCs. The company is famous for its Sound Blaster sound cards and for
launching the multimedia revolution, Creative is now driving digital entertainment on the PC platform
with products like its highly acclaimed Zen and MuVo (currently Asian market only) lines of digital
audio players. The company's innovative hardware, proprietary technology, applications and services
leverage the Internet, enabling consumers to experience high-quality digital entertainment - anytime,
anywhere. Table A3.4.1 gives an excerpt of the financial summary for the Company.
Year
Sales net (US$ ‘000)
Cost of goods sold
Gross profit
R&D Expenditure
R&D as % of turnover
2006
$1,127,531
$963,217
$164,314
$77,186
6.85%
2005
$1,224,411
$949,151
$275,260
$82,325
6.72%
2004
$814,853
$533,513
$281,340
$69,504
8.53%
2003
$701,769
$452,952
$248,817
$58,775
8.38%
Table A3.4.1 – Creative Inc. Financial Summary (Creative, 2006)
ZEN Nano Plus
ZEN V
ZEN V Plus
ZEN Vision
ZEN Vision M
ZEN Vision W
Figure A3.4.1 – Creative personal digital media players (UK Market)
PAGE 39 OF 49
2002
$805,905
$543,382
$262,523
$38,248
4.75%
DATE
January
2007
December
2006
October
2006
August 2006
August 2006
June 2006
December
2005
August 2005
October
2002
January
2001
September
2000
April 2000
January
2000
EVENT
Creative announced the Xdock Wireless, the first product under the Made for iPod programme, which docks an iPod and
plays music in Xtreme Fidelity - music beyond CD quality - via X-Fi Wireless Receivers in any room in the home. The Xdock
Wireless connects directly to a powered speaker system or home theater system to play video, photos and music in DTS
surround-sound.
Creative introduced the Wireless Headphones SE2300 featuring a cool lightweight design, user-friendly controls and
advanced Bluetooth technology.
Creative invented the Xmod, the first external device based upon its X-Fi® Xtreme Fidelity™ audio platform that improves
music playback quality for MP3, WMA, iTunes or AAC songs to beyond the original CD quality and works by connecting
between stereo speakers or headphones and either a PC, Mac, iPod, ZEN™ or any MP3 player.
Creative introduced the ZEN Vision W portable video, photo and MP3 player featuring a high resolution, 4.3-inch, 16:9
format, colour widescreen TFT display for viewing up to 240 hours of video and tens of thousands of photos. Winner of
CNET Asia's Editors' Choice award, ZEN Vision W can carry up to 15,000 songs and features a built-in Compact Flash slot
for users to import photos directly from a digital camera without a PC.
Creative introduced the ZEN™ Neeon 2, a sleek MP3 player that lets users have their music, photos, video and FM radio at
their fingertips and allows fashionable MP3 users to express themselves by personalising their players through the application
of a wide range of Creative Stik-On™ skins that reflect their personalities, lifestyle and mood.
Creative introduced the ZEN V Plus MP3, photo and video player with built-in FM radio that is amazingly small, lightweight
and ergonomically designed and it comes with phenomenal sound quality and a beautiful 1.5-inch colour OLED screen to
display stunning digital photos, video and colour menus.
Creative announces the latest addition to its popular ZEN series of portable audio players, the ZEN VISION:M, a music,
photo and video player with a 2.5" large colour screen that displays up to 262,144 colors.
Creative announces that it has been awarded a U.S. patent for its invention of the user interface for portable media players.
The patent, referred to as the "ZEN" Patent, covers the user interface that enables users of portable media players to efficiently
and intuitively navigate among and select tracks on the players.
Launched Nomad® Jukebox Zen™, the powerful and stylish MP3 player that can store up to 8,000 songs, and yet fit into the
pocket. With a gigantic 20 GB capacity hard drive, it can double up as a portable storage device for storing photos, text,
videos and other data files.
Creative shipped the 100,000th unit of the NOMAD Jukebox digital audio player since its initial shipment in late summer.
The full month of PC Data sales reports, from November 2000, reveals that the NOMAD Jukebox was embraced by holiday
shoppers, ranking first in that month for overall revenue generated in the digital audio player category.
Creative showcased the NOMAD® Jukebox amongst the world's latest contemporary and conceptually dynamic designs and
products in the internationally renowned Design Museum in London.
Creative invested in Soundbuzz.com, an online digital download music distributor that offers the sampling, promoting and
purchasing of downloadable music from the Internet in secure MP3 format from Asian and international record labels, as well
as from unsigned artists.
Announced two new additions to its Personal Digital Entertainment (PDE) solutions - the NOMAD® Jukebox and NOMAD®
II MG. Both products include USB support, are programmable and support multi compressed audio formats including MP3
and WMA. With a 6GB storage capacity, Nomad Jukebox can store over 100 hours of digital audio.
Table A3.4.3 – Creative selected company milestones (Creative, 2007)
A3.5
DATASAFE (WWW.DATASAFE-MEDIA.COM)
Datasafe are specialists in the supply of consumables
(optical disks, USB drives) for data storage and
replication worldwide. Datasafe manufacture media,
aiming to make it compatible with as many software,
hardware combinations as possible. The company
produces products such as CDS, DVDs as well as mp3
players, memory cards, USB pen drives, labels and
Figure A3.5.1 – Datasafe Oomi
labelling
kits,
disc
management
systems,
and
aluminium storage cases. No financial data was
available from the Datasafe Website.
A3.6
DELL INC WWW.DELL.COM
Dell Inc. is an American computer-hardware company based in Round Rock, Texas, which develops,
manufactures, sells and supports personal computers, servers, data storage devices, network switches,
PAGE 40 OF 49
personal digital assistants (PDAs), software, televisions, computer peripherals and other technology
related products. As of 2006, Dell employed more than 78,700 people worldwide, capturing a
significant share of the PC and server market. Its main competitor is Hewlett-Packard (HP). Table
A3.6.1 gives a financial summary for the company. No R&D figures were available.
FISCAL-YEAR ENDED
Turnover (US$m)
Cost of sales
GAAP gross margin
Administrative Expenses
GAAP operating income
GAAP tax & interest
GAAP net income
01-FEB-02
$31,168
$25,661
$5,507
$3,718
$1,789
$543
$1,246
31-JAN-03
$35,404
$29,055
$6,349
$3,505
$2,844
$722
$2,122
30-JAN-04
$41,444
$33,892
$7,552
$4,008
$3,544
$899
$2,645
28-JAN-05
$49,205
$40,190
$9,015
$4,761
$4,254
$1,211
$3,043
03-FEB-06
$55,908
$45,958
$9,950
$5,603
$4,347
$775
$3,572
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
R&D Expenditure
Table A3.6.1 – Dell Inc. Financial Summary (Dell, 2006)
The company markets several MP3 players, but only one
under the Dell Brand (www.dell.com/uk), which appears to
be sold under license from Creative; has not been
investigated in detail.
Figure A3.6.1 Creative MuVo V100
A3.7
EZ-AV CORPORATION (WWW.EZ-AV.COM)
EZ-AV appears to be a relatively small Korean company established in Oct. 2002, aiming to a
multimedia leading enterprise specialized in R&D and
manufacturing total solution and products of digital
image & audio field. Main members of EZAV are from
Samsung Electronics Central Research Institute, the 1st
generation of DVR development in Korea, and gained
excellent experiences by directly developing all kinds
of multimedia products. (DVR, DVR+MP3, DVR+FM,
DVR+Camera). At the time of writing the company
Figure A3.7.1 - EMP-500 MP3 player
website was under construction and little more information was available. The EMP-Series MP3
Players appeared to have been discontinued.
A3.8
GOODMANS (WWW.GOODMANS.CO.UK, WWW.ALBAPLC.COM)
The parent company for Goodmans is Alba plc. Refer Appendix A3.11 (Ministry of Sound). The
website hosts a fair selection of MP3 players, all slightly differentiated. One can’t help thinking about
how difficult it is for someone to recommend the product by remembering the product identifier.
PAGE 41 OF 49
GPDR40
GPDR1
GMP3G7DAB
GMP32005
GMP33005
GMP316
GMP5M2K
GMP31G2
GMP31M2
GMP32M2
GMP317
GMP315
GMP313
CDMP3721PLL
CDMP3719PLL
CDMP3527K
CDMP3520W
GCD901RS
GCD716RB
GCD627R
GCD621K
No image
GCD620RS
GCD521RR
GCD518PLL
GCD7128MP3R
Figure A3.8.1 – Goodmans array of personal digital media players (Goodmans, 2007)
PAGE 42 OF 49
A3.9
LG ELECTRONICS (HTTP://UK.LGE.COM/INDEX.DO)
LG Electronics, Inc. (Korea Stock Exchange: 6657.KS) was established in 1958 as the pioneer in the
Korean consumer electronics market. The company is a major global force in electronics and
information and communications products with more than 64,000 employees working in 76 overseas
subsidiaries and marketing units around the world. With annual total revenues of more than US $16.9
billion (non-consolidated), LG Electronics comprises three main business companies: Digital Display &
Media, Digital Appliance, and Telecommunication Equipment & Handset. The company sets its midterm and long-term vision anew to rank among the top 3 electronics, information, and
telecommunication firms in the world by 2010. The Company pursues a strategy of fast innovation,
which involves setting extremely high innovation goals and securing a competitive edge, aiming for a
target of 30% more than what our competitors can do. Table A3.9.1 gives an excerpt of the financial
summary for the Company. No R&D financial data was available in the Consolidated Financial
Statements (LGE, 2006).
Sales
Operating Profit
Net Profit
R&D Expenditure
2003
KRW bn
USD mn
20,177
16,932
1,062
891
663
556
N/A
N/A
N/A
N/A
KRW bn
24,659
1,250
1,546
N/A
N/A
2004
USD mn
21,513
1,090
1,349
N/A
N/A
KRW bn
23,774
915
703
N/A
N/A
2005
USD mn
23,217
893
686
N/A
N/A
KRW bn
23,171
535
213
N/A
N/A
2006
USD mn
24,263
560
223
N/A
N/A
Table A3.9.1 – LG Electronics Financial Summary (LGE, 2007)
The company currently only produces one personal MP3 player for
the UK market – the MF-FM37 (Figure A3.9.1)
Figure A3.9.1 – MF-FM37
A3.10 MICROSOFT CORPORATION (WWW.MICROSOFT.COM, HTTP://WWW.ZUNE.NET/EN-US/PRESS)
Microsoft probably needs no introduction. However, the Company was founded in 1975 and is the
worldwide leader in software, services and solutions. S-DOS, .NET, Office XP, 2007 Office system,
Windows, Windows Server, Windows 3.0, Windows 95, Windows 98, Windows 2000, Windows XP,
and Windows Vista are all registered trademarks of Microsoft Corporation. Table A3.10.1 gives an
excerpt of the financial summary for the Company.
PAGE 43 OF 49
Fiscal Year Ended June 30
Revenue / Turnover ($m)
Operating income ($m)
Net income ($m)
R&D Expenditure
2006
$44,282
$16,472
$12,599
$6,584
14.9%
2005
$39,788
$14,561
$12,254
$6,097
15.3%
2004
$36,835
$9,034
$8,168
$7,735
21.0%
2003
$32,187
$9,545
$7,531
$4,659
14.5%
2002
$28,365
$8,272
$5,355
$4,307
15.2%
Table A3.10.1 - Microsoft Financial Summary (Microsoft, 2006)
Zune is Microsoft's digital audio player, client software, and
online music store.[2] The device plays music and videos,
displays images, receives FM radio, and on a limited basis
shares files wirelessly with other Zunes and via USB with Xbox
360s. This is/was a very highly publicised digital audio player,
Figure A3.10.1 – Zune DA Player
with several websites dedicated to promotion of it. The device
was created while Microsoft was in close cooperation with
Toshiba (http://en.wikipedia.org/wiki/Zune).
DATE
1975
Jan. 1, 1979
June 25, 1981
Aug. 12, 1981
March 13, 1986
Aug. 1, 1989
May 22, 1990
Aug. 24, 1995
June 25, 1998
Feb. 17, 2000
May 31, 2001
Oct. 25, 2001
April 24, 2003
Oct. 21, 2003
June 15, 2006
Jan. 30, 2007
EVENT
Microsoft founded.
Microsoft moves from Albuquerque, New Mexico to Bellevue, Washington
Microsoft incorporates
IBM introduces its personal computer with Microsoft's 16-bit operating system, MS-DOS 1.0
Microsoft stock goes public
Microsoft introduces earliest version of Office suite of productivity applications
Microsoft launches Windows 3.0
Microsoft launches Windows 95
Microsoft launches Office XP
Microsoft launches Windows XP
Microsoft launches Windows Server 2003
Microsoft launches Microsoft Office System
Microsoft announces that Bill Gates will transition out of a day-to-day role in the company in July 2008
Microsoft launches Windows Vista and the 2007 Microsoft Office System to consumers worldwide
Table A3.10.2 – Microsoft selected company milestones (MS, 2006)
A3.11 MINISTRY OF SOUND / ALBA (WWW.MINISTRYOFSOUND.COM, WWW.ALBAPLC.COM)
The Alba Group strategy is to develop and position subsidiary companies and divisions as key suppliers
to the most important retailers in its fields. It does this by offering a comprehensive, extended range of
volume selling, mass-market products, coupled with the best quality of service. This strategy is
powered by organic development combined with targeted strategic acquisitions. This strategy is
matched by comprehensive resource facilities throughout the Group which support both current
operations and encourage expansion.
The Company embraces subsidiaries which are household names in the UK, including Alba, Bush,
Goodmans and Grundig in the consumer electronics division. Under license, Ministry of Sound Audio,
PAGE 44 OF 49
under licence, is responsible for the design, development and distribution of consumer electronic
products under the Ministry of Sound, aiming for the 13 to 35 year old market segment. Other
subsidiaries include Nicky Clarke Electric, Harvard Communications, Roadstar (UK) Limited, Hinari
and Breville, giving the Alba Group of companies a fairly diverse of products. Table A3.11.1 gives an
excerpt of the financial summary for the Company over the last few years. No R&D expenditure
information appeared to be available from the accounts.
Group Revenue
Revenue / Turnover (£m)
Cost of Sales (£m)
Gross profit (£m)
Net operating expenses (£m)
Operating profit (£m)
Net operating profit (£m)30
R&D Expenditure
2006
578.6
(515.5)
63.1
(57.5)
5.6
5.1
N/A
N/A
2005
664.6
(587.4)
77.2
(55.9)
21.3
2.8
N/A
N/A
2004
617.7
(533.3)
84.4
(51.9)
32.5
31.1
N/A
N/A
2003
525.9
(455.3)
72.7
(44.3)
31.0
29.4
N/A
N/A
2002
440.1
(395.4)
44.7
(37.8)
6.9
5.1
N/A
N/A
Table A3.11.1 – Alba plc Financial Summary (Alba plc, 2006)
While a number of MP3 players were found by researching the Internet, disappointingly and
surprisingly, comprehensive product information on personal media players with the Ministry of Sound
Brand was difficult to obtain.
MOS 20GB Jukebox
MOS 512MB Stix MP3 Player
Figure A3.11.1 – MOS Range of Personal Digital Media Players
SELECTED COMPANY MILESTONES FROM 2000
DATE
2000
2001
2002
2003
2004
2006
EVENT
Launch of Bush Internet TV. (Sold 2003)
NTL Licence signed. Purchase of Pulse Home Products Limited incorporating Breville, Nicky Clarke Electrical Appliances,
Dreamland Electric Blankets and Viva.
Shanghai offices moved to larger operations based in Suzhou. Ministry of Sound Licence acquired. Dreamland Electric
Blankets sold.
Carl Lewis Fitness Licence acquired. Elstree offices opened for Bush, Ministry of Sound Audio, Hinari and Group Logistics.
Opening of Cortonwood Distribution Centre.
Acquisition of Grundig AG – joint venture with Beko Elektronik AS.
Grundig Consumer Electronics Limited launched. Restructuring of UK companies into two main commercial divisions,
Consumer Electronics and Leisure Products.
Table A3.11.2 – Alba plc selected company milestones (Alba, 2006)
30
Operating profit less deduction of interest payable and before tax
PAGE 45 OF 49
A3.12 REIGNCOM (IRIVER) (WWW.REIGNCOM.COM, WWW.IRIVER.COM)
ReignCom is an electronics and entertainment company. Headquartered and based in South Korea,
ReignCom is the parent company of mp3 player manufacturer iriver, as well as Yurion and Funcake
Entertainment Services. Seven former Samsung executives created the company in 1999 and made its
IPO on the KOSDAQ, a Korean stock exchange, in 2003. Duk-Jun Yang, a founder, is CEO.
(Wikipedia, Dec 2006). Financial figures were not easy to obtain, although some sales figures were
available from 2002 to 2004 (Table A3.12.1).
Company Revenue (KRW million)
Revenue / Turnover (KRW million)
2004
254,000
2003
226,000
2002
80,000
2001
53,000
Table A3.12.1 – ReignCom Financial Summary (ReignCom, 2006)
iriver (formerly iRiver) is a brand and division of ReignCom, manufacturer of digital audio players and
other portable products. (ReignCom, 2006)
A3.13 SAMSUNG (WWW.SAMSUNG.COM)
Samsung Electronics Co. Ltd has just been named as the number one consumer electronics brand in
the world31 and is an acknowledged leader in the digital convergence revolution. Since its inception in
1969, Samsung has successfully transitioned from an analogue driven product line to a cutting-edge and
award-winning digital innovator that is currently the world's number one manufacturer of CDMA
mobile phones, LCD and CRT monitors, DRAM memory chips and microwave ovens. With worldwide
electronic product sales of $US36.9 billion, over 75,000 employees and a global network in 47
countries, Samsung is a global giant and has been recognised as one of the world's top 100 Brands by
BusinessWeek magazine.
Samsung Electronics (UK) Ltd (SEUK) entered the UK market in 1984 and has since seen explosive
growth and success, especially within the mobile phone market. SEUK’s product portfolio is split into
three main areas – IT Products (Mobile Computing, Fax & Printer, Display & Storage), Consumer
Products (White and Brown Goods) and Mobile. Little R&D expenditure information appears to be
available, except for 2004 and 2005 where it was noted that R&D accounts for approximately 8.3% and
6.2% of turnover respectively (Table A3.13.1).
31
Interbrand Brand Value Ranking by BusinessWeek magazine
PAGE 46 OF 49
YEAR (BILLION KRW, APPROX '000 US$)32
Sales
Cost of Sales
Gross Profit
Operating Profit
Non Operating Income (Expense)
Profit before Tax
Income Tax Expense
Net Income
R&D Expenditure
2006
58,974
-42,360
16,614
6,935
2,283
9,216
1,290
7,926
2005
57,458
-40,158
17,300
8,061
2,389
9,405
1,262
8,143
3,562
6.2%
2004
57,631
-37,279
20,352
12,017
1,744
9,036
1,195
7,841
4,783
8.3%
2003
43,582
-29,519
14,063
7,192
1,614
9,138
1,111
8,027
N/A
N/A
2002
40,511
-26,946
13,565
7,244
1,626
8,871
1,819
7,052
N/A
N/A
Table A3.13.1 – Samsung Financial Summary (Samsung, 2006)
U3 (7)
YP-K3 (1)
YP-T9 (1)
YP-K5 (2)
YP-Z5Z (2)
YP-Z5Q (4)
YP-Z5A (4)
YP-U2 (2)
YP-U1Z (1)
YP-U1X (1)
YP-U1V (1)
YP-U1Q (1)
YP-T8Z (1)
YP-T8X (1)
YP-T8Q (1)
YP-F2 (2)
YP-F1Z (3 shells)
YP-F1X (3 shells)
Figure A3.13.1 – Samsung Personal Media Product Range (UK Market)
32
The numbers are adjusted annually for the latest change in Korean GAAP and thus may be different from those in audited
financial statements. 2004: KRW 1,043.8 2003: KRW 1,197.8 2002: KRW 1,200.4 2001: KRW 1,326.1 2000: KRW 1,259.7
PAGE 47 OF 49
A3.14 SONY (WWW.SONY.NET, WWW.SONY.CO.UK)
Sony is one of the leading manufacturers of electronics, video, communications, video games and
information technology products for the consumer and professional markets. The Sony Group is
primarily focused on the Electronics (such as AV/IT products & components), Games (such as
PlayStation), Entertainment (such as motion pictures and music), and Financial Services (such as
insurance and banking) sectors.
The array of innovative products that Sony have produced is impressive, with the most notable products
including the Trinitron CRT (1968), the Betamax33 video recorder, the Walkman brand of personal
cassette and CD players (1979), DAT or Digital Audio Tape as a new audio tape standard alternative to
CD (1987), the minidisk format (1992), digital interface format (S/PDIF)34 and the high-fidelity audio
system SACD, Sony Playstation (1994), and Blu-ray Disc optical format35. Of the companies
considered in this report, Sony must be considered a sleeping giant, and one must wonder why the
company appeared to have been caught unawares by the introduction of the iPod. Sony itself seems to
have hinted at this in the Annual Report for 2004. A summary of the Sony Corporation finances is
presented in Table A3.14.1.
Yen in millions
Sales & operating revenue
Operating income
Income before income taxes
Income taxes
Equity in net income (loss)
Net profit
R&D Expenditure
2002
2003
2004
2005
2006
¥7,578,258
¥134,631
¥92,775
¥65,211
-¥34,472
¥15,310
¥7,473,633
¥185,440
¥247,621
¥80,831
-¥44,690
¥115,519
¥7,596,391
¥98,902
¥144,067
¥52,774
¥1,714
¥88,511
¥9,159,616
¥113,919
¥157,207
¥16,044
¥29,039
¥163,838
¥7,475,436
¥191,255
¥286,329
¥176,515
¥13,176
¥123,616
US$m '06
$64,278
$1,645
$2,462
$1,518
$113
$1,063
¥433,214
5.7%
¥443,128
5.9%
¥514,483
6.8%
¥502,008
5.5%
¥531,795
7.1%
$4,573
7.1%
Table A3.14.1 – Sony Corporation Financial Summary (Sony, 2006)
The company has produced an extensive range of personal media players as indicated in Table A3.14.2
below.
33
In the videotape format war of the early 1980s, when Sony marketed its Betamax system for video cassette recorders against
the VHS format developed by JVC. VHS gained critical mass in the marketplace and became the worldwide standard for
consumer VCRs and Sony adopted the format. While Betamax is effectively an obsolete format, a professional-oriented
component video format called Betacam that was derived from Betamax is still commonly used today, especially in the film
and television industry.
34
Produced by Sony in collaboration with Phillips
35
Which is in direct competition with Toshiba's HD DVD, but which seems to have the support of all but Universal in the
motion picture industry.
PAGE 48 OF 49
MP3 Walkman
MP3 & Radio Walkman MP3 & Radio Walkman
CD Walkman
Tape Walkman
MD Walkman
Dictation Machines
Table A3.14.2 – Sony Corporation Personal Media Product Range (UK Market)
A3.15 TECHNIKA (WWW.TESCO.COM)
Founded in 1919, Tesco plc is a UK-based international grocery and general merchandising retail chain.
It is the largest British retailer by both global sales and domestic market share; it is the world's thirdlargest grocery retailer, and the fourth-largest retailer behind Wal-Mart of the United States, Carrefour
of France, and The Home Depot of the United States. (Wikipedia, July 2007).
Originally specialising in food, the company has diversified into areas such as discount clothes,
consumer electronics, consumer financial services, selling and renting DVDs, compact discs and music
downloads, internet service consumer telecoms, budget software and most recently garden centres. A
summary of the Tesco Group finances is presented in Table A3.15.1.
Year
Turnover excluding VAT
Cost of sales
Gross profit
Administrative expenses
Operating profit
2002
£23,653
-£21,866
£1,787
-£465
£1,322
2003
£26,337
-£24,340
£1,997
-£513
£1,484
2004
£30,814
-£28,405
£2,409
-£577
£1,735
2005
£33,974
-£31,271
£2,703
-£639
£1,949
2006
£39,454
-£36,426
-£825
-£825
£2,280
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
R&D Expenditure
Table A3.15.1 – Tesco Group Financial Summary
Technika MP-006
Technika MP-506
Technika MP-906
Table A3.15.2 – Technika Range of Personal Media Players (UK Market)
PAGE 49 OF 49
Technika MP-706

The iPod

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