Analysis of iTunes Store from an e-Commerce perspective
Introduction
Originally opened as the iTunes Music Store on 28th April 2003 with about 200,000 files available for download, it is an online business run by Apple Inc. It sells media files that are accessed through its iTunes application. Media files include music, video, audiobooks, and iPod games. Most downloaded files come with restrictions on their use, enforced by FairPlay, Apple's version of digital rights management (DRM).
Business model
This is a B2C business model where iTunes Store provides digital media content to consumers via internet download. Here, we will focus on its main product, music. As Apple does not own or control any music itself, it must license the rights to distribute music from others, primarily the “big four” music companies: Universal, Sony BMG, Warner and EMI. These four companies control the distribution of over 70% of the world’s music. When Apple approached these companies to license their music to distribute legally over the Internet, they were extremely cautious and required Apple to protect their music from being illegally copied.
The solution was to create a DRM system, which envelopes each song purchased from the iTunes store in special and secret software so that it cannot be played on unauthorized devices. Songs are encoded in AAC format at 128 KB/sec. AAC is a compression format that Apple has licensed from Dolby that is apparently better sounding and better at compression than the more familiar MP3 format. Plus, AAC works in conjunction with FairPlay.
To start off, users must create an account with Apple. The iTunes Store sure has a way to personalize users by allowing them to create an “Apple ID” based on their personal information. This convenient service saves them time and allows for easier use of Apple web services. Here is how it works: Users create their personal profile; providing their name, phone number, email address, and in some cases their mailing address or a credit card number, and choose a password and password hint (such as the month and day of their birth) for security. The system saves their information and assigns them a personal Apple ID; in many cases simply their email address, because it’s unique and easy to remember. The next time users order from the iTunes Store, all they need to do is enter their Apple ID and password; the system looks up the information it needs to assist them. In addition, if they update the information associated with their Apple ID it will be available for all their transactions with Apple globally.
After the user sets up an account with Apple, there is 1-click purchasing for both albums or songs, meaning buying a song is as easy as clicking a button. Previews, thirty seconds in length, are available free prior to buying a song. Basic versions (128 kbit/s quality) of songs cost US$0.99 while high quality versions of certain songs are additionally available for US$1.29. Albums are priced at a range between US $7.99 and US $12.99 but the vast majority are US $9.99, a price point that Apple encourages for consistency. Along with the music is a Tag which holds information of the song. Information includes the song title, artiste, album, release date, file size, play length and even the cover images.
In order to make purchases through the store, a user must pay with an iTunes gift card or a credit card with a valid billing address in Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Republic of Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, or the United States. iTunes Store also offers other payment methods (like Paypal) which differ from country to country. Residents in other countries can only buy a gift card from a merchant or download free podcasts and previews. If someone buys a gift card, an address in the country of the gift card must also be provided. Without monthly subscription nor sign up charges make iTunes Store even more attractive as compare to its rivals; Rhapsody (US$12.99 per month) and Napster (US$9.95 per month)
Songs purchased are instantly stored in the users’ iTunes music folder found in their computer and appear automatically in the iTunes playlist. Once the files are downloaded, they can make a maximum of seven CD copies of any particular playlist containing songs purchased from the iTunes Store. They also can access their purchased songs on a maximum of five computers. However, there are no restrictions on number of iPods to which a purchased song can be transferred nor the number of times any individual song can be burned to CD. All these are the works of FairPlay DRM something which the “big four” requires iTunes Store to abide.
On security, Apple is a licensee of the TRUSTe Privacy Program. TRUSTe is an independent, non-profit organization whose mission is to build users’ trust and confidence in the Internet by promoting the use of fair information practices. Because Apple wants to demonstrate their commitment to users' privacy, they have agreed to disclose their information privacy practices for compliance review by TRUSTe.
The TRUSTe trust mark reflects Apple's promise to tell users what personal information they collect; the types of companies they may share users' information with; the choices available to users regarding the collection, use, and distribution of the information; the security procedures in place to protect the loss or misuse of information under their control; and how user can correct inaccuracies in the information. The TRUSTe program covers only information that is collected through Apple's website.
Through the end of 2006, customers purchased a total of 90 million iPods and 2 billion songs from the iTunes store. On average, that’s 22 songs purchased from the iTunes store for each iPod ever sold. Today’s most popular iPod holds 1000 songs, and research tells us that the average iPod is nearly full.
This means that only 22 out of 1000 songs, or fewer than 3% of the music on the average iPod, is purchased from the iTunes store and protected with a DRM. The remaining 97% of the music is unprotected and playable on any player that can play the open formats. This means they are either ripped from CDs and transferred into iPods, or illegitimately downloaded for free off file-sharing sites such as Kazaa, LimeWire or eDonkey.
It’s hard to believe that just 3% of the music on the average iPod is enough to lock users into buying only iPods in the future. And since 97% of the music on the average iPod was not purchased from the iTunes store, iPod users are clearly not locked into the iTunes store to acquire their music.
Conclusion
As Steve Jobs had said, "We wanted to build a system that lets honest people stay honest". To date, iTunes Store has sold over 3 billion songs accounting for more than 80% of worldwide online digital music sales. This is possible through the ease of usage that iTunes Store has provided; from the humongous music library, 1-click purchase button, 24/7 availability, huge bandwidth for fast downloads, secure website and payment method to its user-friendly application.
References:
http://www.apple.com/hotnews/thoughtsonmusic/
http://en.wikipedia.org/wiki/ITunes_Store
http://www.macworld.com/news/2003/04/28/musicstore/
http://www.futureofmusic.org/itunes.cfm
http://www.usatoday.com/tech/columnist/kevinmaney/2007-02-13-online-sales-music_x.htm
Analysis of Yahoo Auction from an e-Commerce perspective
Introduction
The online auction business model is one in which participants bid for products and services over the Internet. The functionality of buying and selling in an auction format is made possible through auction software which regulates the various processes involved.
Yahoo! Auctions, one of the world's largest online auction sites, is one of the better known examples. Like most auction companies, Yahoo does not actually sell goods that it owns itself. It merely facilitates the process of listing and displaying goods, bidding on items, and paying for them. It acts as a marketplace for individuals and businesses that use the site to auction off goods and services.
Globalisation and the reach of the internet have allowed the auction business model to extend beyond its traditional realm of the trade in goods into the area of service provision. Outsourcing companies exist, such as guru.com and getafreelancer.com that now provide services such as programming and web design as the result of a competitive bidding auction process. Others, such as earn.co.uk have taken the auction model to the provision of local services.
Business model
This is a C2C Business model whereby consumers communicate and deal with other consumer through the auction system that Yahoo provides. Several types of online auctions are possible. In an English auction the initial price starts low and is bid up by successive bidders. In a Dutch auction, multiple identical items are offered in one auction, with all winning bidders paying the same price. The highest price at which all items will be sold (treasury bills, for example, are auctioned this way). Almost all online auctions use the English auction method.
Some of the criticism of the online auction model is that auction sites are now garnering a reputation as a place for criminals to unload stolen, diverted and counterfeit products. Stolen goods are so rampant that major law enforcement organizations now use such websites to catch criminals and recoup stolen goods.
The process of Bidding and Selling on Yahoo Auction is as follows,
First, the person must register with Yahoo Auctions, followed by a verification using a valid credit card. This is done so to help ensure a safer environment for all Yahoo Auctions users, by verifying all user registration information.
Next, find an auction to bid on. After signing in to Yahoo Auctions, search or browse the various auctions categories. When you find something that you want, enter your desired bid, which is the amount you are willing to pay for the item. For security reasons, you are required to enter your password each time you bid. You can place an automatic or proxy bid or a straight bid. When you have submitted your bid, you'll get one of the following confirmation messages: High bid confirmation, Outbid confirmation, Bid is below reserve price confirmation, Not allowed to bid.
High bid confirmation typically means that you are currently the highest bidder for the particular item. This will be superseded by someone who place a higher bid than yours. This is known as and Outbid confirmation. Another bidder might have placed a bid using automatic bidding, in which case an updated bid was placed on their behalf and you were automatically outbid. If this happens and you want to bid again, return to the auction page and enter a higher amount. The last type of confirmation message that you will receive is Bid is below reserve price confirmation: In some cases, a seller may set a reserve price, which is the lowest price the seller is willing to accept. Any bid less than the reserve price will not win the auction.
After placing a big successfully, the bidder will have to monitor the auction. As the bidder wait for the auction to close, he'll receive notifications via email, Yahoo Messenger, or his mobile device if his been outbid. Alternatively, he can always return to the auction and enter a higher bid.
When the auction closes, the highest bidder will get an email. Included in this email is the seller's email address. From then on, it’s up to the seller and bidder to carry on the transaction. The bidder will have to email the seller to arrange for payment and shipping of the item. Yahoo Auction has a rating system for both the buyer and seller. It is a great way to identify good sellers and buyers, and also weed out those bad ones. Sad enough, this grading system has been abused by people who set up dummy accounts to sell stuff, and bid the same items using their clone accounts. This way, they chalk up high amount of feedbacks and good rating, but are actually shell account, to help boost the reputation of the main account.
As for the seller, it is generally same as the buyer, except that the seller has to find the appropriate category for his item. He has to browse through the auction directory for the category that best matches or has similar items within that category. This is especially important as accurate placement help potential bidders find your item. Another important point about selling is the shipping information. The seller has to state if he is willing to ship internationally, and also the shipping charges accordingly.
Some of the advantages of and online auctions site are as follows:
No time constraints. Bids can be placed at any time. Items are listed for a number of days (usually between 1 and 10, at the discretion of the seller), giving purchasers time to search, decide, and bid. This convenience increases the number of bidders.
No geographical constraints. Sellers and bidders can participate from anywhere that has internet access. This makes them more accessible and reduces the cost of "attending" an auction. This increases the number of listed items (ie.: number of sellers) and the number of bids for each item (ie.: number of bidders). The items do not need to be shipped to a central location, reducing costs, and reducing the seller's minimum acceptable price.
Intensity of social interactions. The social interactions involved in the bidding process are very similar to gambling. The bidders wait in anticipation hoping they will "win" (eBay calls the successful bidder the "winner"). Much like gambling addiction, some bidders may bid primarily to "play the game" rather than to obtain products or services. This creates a highly loyal customer segment for eBay.
Large number of bidders. Because of the potential for a relatively low price, the broad scope of products and services available, the ease of access, and the social benefits of the auction process, there are a large numbers of bidders.
Large number of sellers. Because of the large number of bidders, the potential for a relatively high price, reduced selling costs, and ease of access, there are a large number of sellers.
Network economies. The large number of bidders will encourage more sellers, which, in turn, will encourage more bidders, which will encourage more sellers, etc., in a virtuous circle. The more the circle operates, the larger the system becomes, and the more valuable the business model becomes for all participants.
Conclusion
Globalisation and the reach of the internet have allowed the auction business model to extend beyond its traditional realm of the trade in goods into the area of service provision. Outsourcing companies exist, such as guru.com and getafreelancer.com that now provide services such as programming and web design as the result of a competitive bidding auction process. Others, such as earn.co.uk have taken the auction model to the provision of local services.
References
http://www.csoonline.com/read/080105/auction.html
http://www.networkworld.com/community/node/18955
Yahoo! US Auction sites are retired!
http://help.yahoo.com/l/us/yahoo/auctions/sell/basics/asell-01.html
Comparison of iTunes vs Yahoo! Auctions
Business Model and Transaction
The type business model that iTunes store use is Virtual storefront whereas Yahoo Auction uses an Online Marketplace business model. In iTunes store, the type of transaction is B2C. The transaction took place between Apple co and a customer. A potential customer will go online and search for the music they want and buy the music via download. In the case of Yahoo Auction, the type of transaction involved is C2C. The transaction took place between the user which is a buyer and a seller. Yahoo Auction does not get itself involved in the transaction. It acts as a platform for the potential buyer and seller to meet. When a customer wants to buy an album or song in iTunes store, first they must register an account with it. After that they can just buy with a click. After the transaction went through, they will be able to download the music via the internet. For Yahoo Auction, a consumer can be both a buyer and a seller. When a seller wants to sell an item, they will first register himself with Yahoo Auction. After that, they will list the item they want to sell in Yahoo Auction including the description of the item, start bid price, reserved price, buy now price and shipping information. For the buyer role in Yahoo Auction, they also need to be first register with the Yahoo Auction. After they are registered, they can search the items they want buy using the search function inside the Yahoo Auction. After they found their desired item with a reasonable price, they can either bid for the item or buy the item immediately if there is any buy now price. If they are successful, they will be informed via email by Yahoo Auction.
Payment Scheme
In the case of iTunes store, in order to make purchases through the store, a user must pay with an iTunes gift card or a credit card with a valid billing address in Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Republic of Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, or the United States. iTunes Store also offers other payment methods (like Paypal) which differ from country to country. Residents in other countries can only buy a gift card from a merchant or download free podcasts and previews. If someone buys a gift card, an address in the country of the gift card must also be provided.
For Yahoo Auction, unlike iTunes store, payment method is much more flexible. Buyers and Sellers can discuss about the most desired type of way to make payment. The most common ways are using credit card, Paypal or bank transfer. However, some buyers might prefer to meet up and deal directly. This might be the most preferred way if both buyers and sellers are living in the same country as buyers can check the condition of the item at the same time.
Strength
In iTunes store, consumers can easily found most of the music they want to buy as iTunes store has license the rights to distribute through the “big four” music companies: Universal, Sony BMG, Warner and EMI. These four companies control the distribution of over 70% of the world’s music. Songs are encoded in AAC format at 128 KB/sec. AAC is a compression format that Apple has licensed from Dolby that is apparently better sounding and better at compression than the more familiar MP3 format. With iTunes Store, music will be distributed legally over the Internet; Apple has developed secret software so that it cannot be played on unauthorized devices.
In Yahoo Auction, it provides a platform for buyers and sellers to buy and sell items. The amount of exposure for the sellers is rather extensive as anyone around the world will be able to view his item and buy from him. Sellers will be able to find buyers for their items quickly due to the amount of exposure. Buyers on the other hand will have a higher chance to find the item they desire to buy due to the exposure. Items which cannot be found locally can now be bought from oversea. As items listed in Yahoo Auction will have their name, description and price displayed immediately after a potential buyer do a search, this will make the prices of the items offered by the sellers more competitive. Therefore, buyers might sometimes be able to find good deals in the Yahoo Auction too.
Weakness
Due to the secret software Apple use when selling albums and songs via iTune Store, consumers have complained that they have problems when trying to transfer music from their computers to other mp3 players or devices. They found it rather inconvenience. When a consumer has registered with iTune store, their activities will be tracked. This might caused some unease from the consumers.
In Yahoo Auction, although safety precautions are taken to make sure that the transaction is safe, there are still some issues of fraud. Buyers after transferring their money to the Sellers found that the items are not delivered to them after many months. There are also some issues that after the buyers received the items, the items are not the same as what they bid for or the condition is lousy.
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