Tuesday, October 11, 2011

Lesson From Apple: iTunes

In the late 1990's and early 2000's, the music industry was in complete disarray: album sales were dropping precipitously, piracy was rampant, and the RIAA lost control of their IP. The digital revolution of music had begun and the RIAA was not ready for it and was unwilling to accept the new landscape.

Last spring IS 710 belabored the idea of what a "platform" is and how to create a platform to bring two parties together. Enter Apple, which had no prior expertise or experience in music. They created iTunes which established an innovative method for digital music distribution that allowed the RIAA to control their IP and consumers to purchase digital tracks of music. The genius behind iTunes was that it was inherently simple for the user to manage, purchase, and listen to their digital libraries. However, what I did not realize until last week was that Apple had a stranglehold on the two "new" layers (digital rights management and software) that allowed the company to have a dominant position over the layer between (content). Apple became such a dominant player that the RIAA became enraged by the terms and conditions, such as pricing, as well as the power they lost to Apple over time. iTunes really changed the behavior of consumers by setting a new pricing strategy ($0.99 per track) and allowing them to only purchase songs they wanted, rather than an entire album. iTunes was created with the consumer in mind at the expense of the RIAA, but the RIAA agreed nevertheless. The RIAA was begging for mercy and was willing to do anything to stop the bleeding and Apple was there with a golden ticket. Knowing what has transpired since 2001, do you think the RIAA would have made the same deal?

1 comment:

  1. Paul-- It is a very astute observation. This settings allows us to go beyond the traditional conceptualization of platform at a single layer involving two players to thinking about platform strategies at multiple levels and the emergence of new capabilities (new layers) and the redefinition of value creation points.
    RIAA as a collective body may have responded differently had they known the evolutionary path. Ironically, the same challenge is facing the movie industry with Apple, YouTube, Netflix and Amazon jockeying through non-traditional layers of capabilities.