Razors, Blades, Tunes and Ink
Forrester Research issued a report about iTunes sales last week that was widely misinterpreted. Many reported that iTunes sales had collapsed in 2006. This notion came from a superficial reading of the report by a few, and then the piling-on effect of online reporters who only read derivative reporting. This furor of misinformation even coincided with a 3% drop in the price of Apple stock. Lemmings abound, it seems.
In 1903, Gillette adopted the strategy of "giving away the razors and selling the blades." In the 21st century this strategy was adopted by HP, selling printers for low margins, toner and ink cartridges for high margins. Other printer manufacturers have followed suit. Apple has turned this around. The iPod/iTunes strategy is to make money selling the razors (iPods) and to hook customer in with cheap blades (iTunes songs). What Forrester actually found was that the number of iTunes songs purchased by iPod owners had risen only slightly during 2006, from 20 to 23. At the same time, sales at the iTunes store have plateaued at about $1 billion annually, only a portion of which goes to the music providers. This is not a problem for Apple, whose iPod sales and profits continue to climb. It is a disaster for the music industry, for whom CD sales are collapsing to the tune of billions of dollars annually.
This is why Microsoft and Universal Music Group recently announced an agreement under which Microsoft will pay Universal $1 for every Zune music player sold (see Zune And Universal Make Friends). The content folks have to make money somehow.
As the iPod/Zune Google/YouTube world is showing us, in the digital age content may be king, but the money is made by those who deliver it, not those who produce it.
Copyright © 2006 Philip Bookman
Technorati: Business Strategy
In 1903, Gillette adopted the strategy of "giving away the razors and selling the blades." In the 21st century this strategy was adopted by HP, selling printers for low margins, toner and ink cartridges for high margins. Other printer manufacturers have followed suit. Apple has turned this around. The iPod/iTunes strategy is to make money selling the razors (iPods) and to hook customer in with cheap blades (iTunes songs). What Forrester actually found was that the number of iTunes songs purchased by iPod owners had risen only slightly during 2006, from 20 to 23. At the same time, sales at the iTunes store have plateaued at about $1 billion annually, only a portion of which goes to the music providers. This is not a problem for Apple, whose iPod sales and profits continue to climb. It is a disaster for the music industry, for whom CD sales are collapsing to the tune of billions of dollars annually.
This is why Microsoft and Universal Music Group recently announced an agreement under which Microsoft will pay Universal $1 for every Zune music player sold (see Zune And Universal Make Friends). The content folks have to make money somehow.
As the iPod/Zune Google/YouTube world is showing us, in the digital age content may be king, but the money is made by those who deliver it, not those who produce it.
Copyright © 2006 Philip Bookman
Technorati: Business Strategy
Labels: Business Strategy
posted by Phil Bookman at 10:45 AM
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