Is Apple facing a real Competitive Market?
Apple is a very innovative company. They find countless ways of remodelling and creating new products to satisfy the demand of consumers. With all these technological advancements and huge sales on the world market, I sometimes wonder if Apple is facing a real competition. A competitve market is a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker. Based on this definition from Mankiw, do you think that Apple's products especially iTunes have strong competition?
I was reading a news article today about Apple, its economic profit and total revenue. According to CNN.com, if the current pace of downloads continues (about 100 songs per second), Apple's (AAPL) itunes store will reach the 10 billion song mark sometime Wednesday (today). Apple always says it runs iTunesa at just about break-even; its main purpose afterall, is to sell Apple's hardware.
Since it opened for business in April 2003, however, the store has become America's no. 1 music vendor, generating revenues of $520 million in the last quarter alone, according to Piper Jaffray's Gene Munster.
Here's what the iTunes store has: margins that are better than the best e-commerce companies around, no marketing costa and a built in audience; sales of nearly $3 billion a year from its existing business; and a new $1 billion business on the way. Apple doesn't have as much explicit or implicit costs as other companies: they do not pay shipping fees nor handling fees. Apple does pay for the Internet bandwidth to deliver its applications, music and videos it sells but still its marginal revenue is very high. In addition, Apple iTunes doesn't have to spend any of its profits on marketing because it is already built in the software of its products: iPhones, iPods etc.
Apple's iTunes store and sale of iPods accessories alone had sales of $2.5 billion in 2007, and $1.7 billion in the first half of 2008. To view chart of Apple's Revenue, follow this link: http://fortunebrainstormtech.files.tech.wordpress.com/2010/02/screen-shot-2010-02-24-at-8-13-42-am.png
To celebrate what it is billing as "one huge milestone for music," the company has promised to reward whomever downloads the 10 billionth song, a $10,000 iTunes gift card.
Based on the in information I read, iTunes is the most successful ecommerce business in the world. What are your thoughts on iTunes and its mega-success? Does this seem like a competitive market for Apple iTunes? Do you think that the sale of Apple's products will decrease as they make more (diminishing marginal product? What do you think are some of the possible reasons why iTunes may have such gigantic sums of marginal revenue in comparison to other such corporations?
Wednesday, February 24, 2010
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I think that apple has done so well because it has made itself so marketable to the consumer. Unlike other formats for downloading music, apple makes it easier and easier to navigate their windows. I think that they definitely have an almost monopoly when it comes to the legal downloading market. especially because their devices such as the ipod or iphone are designed to be most compatible with itunes. it is interesting to think about implicit and explicit costs in this industry where it seems as if everything is so intangible. it is a smart business move to sell something that doesn't require packaging. it reminds me of Willy Wonka and the Chocolate Factory and the idea of delivering a chocolate bar or small boy through the t.v. in ways music has achieved that goal.
ReplyDeleteYeah I agree with Hannah and the fact that a lot of Apple's success has to do with the publicity of their products. I also feel that it has to do with the quality of them as well. Macs, i pods, and other Apple products are among the best in the world and consumers praise them. As a user of their products I also find them to be very easy and efficient to use. For example, downloading music on itunes is much easier than actually going out and buying a CD, or signing up for some music service that you may be less familiar with. I think Apple has really just done a great job handling their business. A E
ReplyDeleteI do believe that Apple opperates in a competetive market. Regardless of how well tehy are doing, they still have competition both from legitimate companies and items like mp3's to illegal downloading with programs like limewire.They are more popular though becaus the vast amount of choices tehy offer and their word-of mouth popularity. It is very good for them that they don't need to spend much on marketing becasue that is often a big cost out of profits. Because of this, they are able to keep more of the money they earn.I do believe that the sale of their product would decrease over time if they had tons and tons of product, but the way that they come out with new models and discontinue old ones is smart. This way, peopel with the old models have to buy new ones if theirs break, rather than replacing a part. They end up earning more. (BTW: I REALLY want to win a $10,000 iTunes gift card!!!)
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When it comes to iTunes, it's all about the brand. If someone were to win a $10,000 gift card to a relatively equivalent music downloading site, like Amazon Music or Rhapsody, I think they would feel significantly less excited than if they were to win that same card from iTunes (I know I would). The truth is, when you buy a song on Amazon and when you buy it on iTunes, it's the exact same product. Apple has created an incredible marketing campaign based on elegant design and accessibility that has virtually erased any other competition. Their main competitors (if you could call them that) would be P2P sites like LimeWire.
ReplyDeleteWhile I give Apple a lot of credit for what they've done in the computer technology market and even though I've purchased many of their products, the later repercussions of this monopoly seem kind of daunting to me. When a market is dominated by a sole producer, there's little room for advancement outside of that firm because no one else has the same resources or capital that they do, and (especially in Apple's case) the same steady consumer base. After browsing through Rhapsody and Pandora, they actually do some pretty interesting and innovative programs involving music downloading, but most of America will probably miss out on them because they're content with being loyal iTunes costumers. I think iTunes is great, but I think there are people other than Steve Jobs & Co. who can add technological advancements to the way we listen to and purchase music, and I would hate to loose out on those because of Apple's monopoly.
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Personally, I have never downloaded anything off iTunes, so I am inclined to say that they don't have a complete monopoly. As shocking as it sounds, my MP3 player isn't even an iPod (I have a Creative Zen V). Most of the music I have I got from CD's, although I have downloaded a few songs from Amazon. While I argue that Apple doesn't have a monopoly in the music, or music downloading industry, it does have a lot of market power.
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Although Apple has a lot of pull in the music and computer industry, they still have competition with all of the television industry (especially for big screens), Blockbuster, Netflix, Blackberry, and the other mp3 player businesses. Apple is not for people who are not as technologically inclined (my father) and are used to going outside of their house to shop. E
ReplyDeletethere are certain aspects of Apples business that have aspects of a monopoly, but the fact remains that these are LUXURY items, and do not need to be bought, Ipods are not bread or milk, and there are alternatives that are cheaper. However there are still incentives to pay more in the consumers mind that makes the expenditure worth while.
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Its all about the brand name. Because Apple is so well known for being reliable, and producing elite products, I really don't think many other companies can compete. I mean, the advertising Apple puts out is also superior; with its TV ads and full page displays in various magazines, its kind of hard to compete with that. You don't see Napster or Microsoft Zune ads as much as you do Apple ads. Also, because Apple is known to have reliable products, owners of Apple products are most likely to pass on that information to their friends and family, which will in turn skew their decision making on an Apple product versus, lets say a Microsoft product. Microsoft has also gone through some trouble with their products the past couple years, and I can vouch for that first hand, as my brother went through two Netbooks within a matter of 4 months. So with more advertising and a lot of well-known knowledge from many consumers about the good quality of Apple's products, I really don't see how anyone could say that Apple is in a competitive market as of now. (A, E)
ReplyDeleteWhen I came to college I met more people with Macs than I knew from home who had them. I guess I'd never thought about how much popularity iTunes gets over Apple computers. I do think iTunes got so huge because its so easy to use. I have struggled to understand other programs but iTunes seemed pretty self explanatory from the get go.
ReplyDeleteApple has dominated the market for portable media devices quite successfully, around 70% says a quick Google search. Theoretically, the market is competitive. Little bars any electronics company from introducing a similar product that has the same technical features. However, Creative, Microsoft, and hundreds of others have consistently failed to pose a real threat to the primacy of the iPod. They do so because consumers have the odd propensity to go with the most well-known product, regardless of technically stronger (or at least equal) competitors. The iPod sells on its brand name in much the same way as Facebook. Something clicked with the consumer early on, and the brand has come to be accepted as the only real entry in the field.
ReplyDeleteThough I suppose that the market is competitive enough to challenge some of their practices that were unfriendly to the consumer. For a long time, Apple imposed limits on what one could do with the media purchased. I haven't really kept up with the matter, seeing as I don't believe in MP3 players, but I think that they have since removed restrictions, faced with the fact that they were only encouraging piracy and that their competitors (Amazon MP3) did not engage in such practices.
As probably the only person in the class using Linux for my day to day computing needs, I'm also going to have to argue that Apple's claims to easier, safer computing are horribly unfounded. While Microsoft has got some serious issues with finding new ways to complicate simple things, Windows should be perfectly functional to a computer user that has taken the time to get used to it. Ubuntu is free, stable, and about as simple as MacOS on the surface. But people are scared to learn new things, and Apple has its unearned reputation to attract everyone that gives up Windows.(A, E)
In response to Shaun's comment, while I think that a lot of the appeal that Apple computers have over competitor computers is indeed attributable to the apple brand name, there are real advantages to owning an Apple. Compared with Windows computers, Apple computers have much better built in virus protection. And while a Windows computer's virus problem can be addressed with anti-virus software, most anti-virus software represent a recurring subscription cost, and free anti-virus alternatives can be unreliable. As for computers running on Linux, the way I understand it, they take a reasonable amount of skill with computers to use, and Apple computers have the advantage of being simple and accessible to people less adept with computers. I'm not saying, by any means, that Apple computers are the best choice for everyone. I commonly hear that they are harder for people knowledgeable with computers to control than Windows computers, and if you're able, and linux seems able to offer all of an Apple computer's advantage in virus protection while simultaneously providing even more control than Windows computers(with the added benefit of being free). What I'm getting at is that Apple computers, can, for certain people, offer some real advantages over competitor computer brands, advantages that go beyond Apple's undeniably good brand name.
ReplyDeleteI think Apple just has a flat out better business based on quality, easiness to use, and a great business model. It has made seemingly every device an "it" item while advertising it's brand as well. The Apple brand sells to a very small market when compared to PC's, but in everything else it does such a portable media to itunes, it introduces the product first, and leaves its competitors in the dust. Apple is pure innovation, and that is why it makes such huge profits.
ReplyDeleteYeah I think apple is still in a competitive market. The way I see it, Apple knows how to play the game effectively and efficiently, which puts them on top of the competition. In this case, I say 'don't hate the player, hate the game'.
ReplyDeleteI agree that Apple is a very creative and competitive company. But the market is getting more and more competitive. The most valuable thing of Apple company is their brand name and their ideas about all new designs for the techonology products.
ReplyDeleteAlso the quality of the products lead them standing at the top of the business even though facing a real competitve market.
While apple is doing an incredible job at appealing to consumers, I would still say that they are a part of a competitive market. Yes, MP3's and PC's are steadily becoming a thing of the past but I would say that there are people especially with the high rise in unemployment who just can't afford to purchase an iPod or Mac computer. Apple products are highly reliable and efficient to use yet they are just not for everyone. Do I believe Apple will endure a diminishing marginal product? I guess that would depend on what you are looking at as the input and output in the production function. I guess if our input is Apples technological advancement and output is # of Apple product buyers it could most definitely have a diminishing affect. If there is an increase in software and equipment price and a small increase in the # of Apple product buyers then diminishing marginal product will take place.
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Although advertising is a cause for Apple’s success, it is not the only one. Apple has done a fabulous job selling their products by making them aesthetically pleasing, user friendly, and innovative. I think that they are definitely a significant leader, in their branch of work. I think Bridgett brings up a good point. Apple has done a wonderful job making what they do seem exceptional. In reality, music is music, no matter what the source is. However, due to apple’s history and power, everything they touch seems to turn to gold.
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