Continio E-Commers

Online CD sales: Among many consumers a consensus seems to have formed that paid music comes with CD and downloaded music is free. I personally like to have something physical to own when I purchase music. For this reason online CD sales are still very popular. CDNOW, Amazon and HMV online are some of the most popular retailers for this in the UK. A CD has the advantage of being a more tangible asset than a download and is therefore better suited to being given as a present, which will make a big difference to sales over the holiday season. It also doesn’t require the same expertise to use as a downloaded track. A CD essentially works like a little metal version of a vinyl. It is self explanatory to every generation how to make a CD player play a CD where as many people, particularly in older generations don’t know how to use a computer. This gives a CD a much wider potential audience. It may be beneficial for us to also consider selling music on physical media. E-Commerce strategy In order to plan our future direction we need to take stock of our current position. We can do this using a SWOT analysis. Strengths: 1) We currently hold 35% of the UK downloaded music market, in business terms this equates to a majority. This is a large base of customers who will hopefully stay with us if we can continue to extend our services to compete with those of our competitors. 2) With the help of this plan we have a number of new revenue streams that we will hopefully implement soon. These will, if implemented properly, lead to an increase in our revenue and customer base. Weaknesses: 1) We have not attempted to compete in the international downloaded music market. It makes no sense for us to only sell to UK customers. Traditional geographic limitations don’t apply on the internet. The complication of extending our system to sell music in many currencies is small compared to the benefit of increasing our potential customer base a hundred fold. 2) We don’t yet have systems in place to deal with things like gift vouchers or coupons that could be used for promotion. Opportunities: 1) We current only allow our customers to purchase one song at a time off us. We could also allow them to purchase whole albums or customised content off us. 2) Although iTunes has secured a much better per song price than we could, they do not currently offer a subscription service. Our second most popular competitor, Napster does offer a subscription service but their customers have to continue paying for the service to continue using the content they’ve downloaded. If we can negotiate a subscription service that doesn’t lock the customer in we will be seen as the superior service. 3) iTunes is never advertised by itself. It’s always ‘iPod + iTunes’. If we can adopt a similar music player, develop our software to work seamlessly with it and negotiate cross promotion we will be doubling our exposure and simplifying the use of our service for the customers. This would also allow us to extend our service in a similar way to ‘Napster To Go’. We could begin to sell our content in high street stores using dedicated terminals or via internet television. This would allow our customer base to grow beyond the computer literate. Threats: 1) File sharing networks offer the same service as us for free. Attempts to close these services down have so far been mostly ineffective. Although the close of Napster in 2001 was highly publicised it was ineffective as by this point many more services with more tenable legal position had emerged. 2) Many people expect to get something tangible like a CD or DVD when they buy music. One of the major tasks that faces the downloaded music industry is convincing people of the value of an intangible asset like a computer file. 3) Our primary competitors, Napster and iTunes continue have a larger international customer base than us. They have more exposure and more assets to extend their service with. We can’t hope to compete by trying to out compete in existing models, we need to develop new methods of selling music. 4) Our primary competitor, iTunes, has negotiated excellent prices with the content providers. Without the same economies of scale on our side it will be difficult to make the same deal. In order to build what we have achieved so far I have compiled the following list of extension to our service that we could implement in the near future: 1) Develop a subscription service – We should develop a subscription service based on flat fee collective licensing that doesn’t trap customers in the same way as Napster’s services. This will be seen as a superior product by our target audience as it allows them to get good value for money from the service. 2) Custom CD service - In order to take advantage of gift buying in the holiday season, we should provide a service where customers select a set of tracks to be put on a CD or DVD, design a cover, and maybe add a personal message. The CD will then be burned and the packaging will be printed and sent to the customer for an additional fee. Basically what I’m proposing is a professionally produced version of a mix tape. This provides an extra income for us on top of the audio track sales and gives the customer something physical to give as a present. This is a service that none of the music-download companies I have found currently offers. 3) Ally ourselves with a popular MP3 player – A big part of iTunes success is its strong links and seamless operation with the iPod. By adopting a similar MP3 player, possibly the iRiver, we could tightly integrate our software with it, negotiate cross promotion and develop special terminals to sell our content in music stores, super markets, airports, train stations or anywhere else people are likely to be in need of quick entertainment. 4) Develop our international presence – We should extend the functionality of our site to allow it to sell music in many currencies. By accepting Euros and dollars we would be extending our potential customer base to twelve European countries, America and a number of smaller countries. This is potentially ten times as many customers. 5) Host a music community – We should allow customers to upload and sell their own content, taking a percentage of the income for administration. We could get a much better percentage of income from independent artists than we could off a major label with bargaining power and experience. Some of the artists we host may well end up becoming the next big thing. This would be great advertising for our company. 6) Incorporate gift vouchers, coupons and special offers – Gift vouchers are a popular Christmas present. Coupons distributed in the music culture magazines or by email like “Buy two tracks, get one free” or “First five tracks free when you sign up” would allow people to try our service before committing to it. 7) We could extend our system to recognise the sort of music a particular customer is likely to want based on past purchases. This would allow us to promote the right content to the right users so long as they’re logged in. Amazon has a similar technology built into their website and it has prompted me to buy books and DVD’s I wouldn’t have otherwise found. People often have very specific music tastes, so once we ascertain which genres of music a customer likes it will be a simple task to predict what they will purchase in the future. Social/legal challenges If we are to start selling internationally how should we approach pricing? The relative value of currencies changes daily. If for instance we were to offer our subscription service for £19.99 GBP per month, at the time of writing this would exchange to $35.00 USD and €30.00 EUR. When the exchange rate changes what should our policy be about updating prices? A policy that results in a rapidly changing price scheme will confuse our customers but a policy where prices can’t change quickly could result in us offering our service for too much or too little financial return. Another option would be for us to offer our service at different prices in different countries. This would allow us to better match the pricing trends in the local music industry. However, if we choose this option there is a possibility that our customers would start signing up in the region that has the lowest prices. In order to implement a subscription service we will first need to negotiate a collective licensing scheme with the content owners. As discussed earlier a collective licensing scheme will likely lead to a reduced profit per track downloaded but an increased uptake of the service. We therefore have to convince the content owners that this model is potentially more profitable than the current model of setting a fixed price per unit or collection of music content. We will need to protect the rights of the content owners by incorporating anti-piracy measures. Preventing piracy is a very difficult task that no one has yet mastered. Every time a new anti-piracy measure is introduced it is usually circumvented within three months (Moser, 2001). Apple currently uses fair play digital rights management and Napster currently uses Windows Media digital rights management. Both of these systems have already been circumvented. Content owners might not want a new service to operate on a security system that’s no longer effective.