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CHRISTOPHER W. FERREL
Analysis of Apple iCloud and iTunes Match
Disruptive Innovationswithin the Music Industry
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AbstractAbout this discussion.
Since the mid-noughties, a growing number of consumers
prefer to access their digital content via Cloud Computing
SaaS providers (Renub Research, 2010). The purpose of
this discussion is to apply Clayton Christensen’s principles of
disruptive innovations within the consumer Cloud Computing
SaaS market. The history, current market and potential disrup-
tive innovations of consumer Cloud Computing SaaS market are
explored. In order to succeed in the consumer Cloud Computing
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seamless accessibility of a consumer’s digital content across all
popular consumer devices and 2.) Provide an incentive for copy-
right holders, especially professionals within the entertainment
industry, to invest in Cloud Computing. Based on its innovative
features and the company’s historical success with emerging
technologies, Apple, Inc.’s iCloud and iTunes Match appear to
be the most likely to succeed in the consumer Cloud Computing
SaaS market.
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Contents
Abstract
About this discussion.
Disruptive Innovations within the Music Industry
Analysis of Apple iCloud and iTunes Match.
References
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DISRUPTIVE INNOVATIONS WITHIN THE MUSIC INDUSTRY
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This document was created for academic purposesat St. Edward’s University and is not intended for
commercial use without express permission.
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DISRUPTIVE INNOVATIONS WITHIN THE MUSIC INDUSTRY
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Disruptive Innovationswithin the Music
IndustryAnalysis of Apple iCloud and iTunes Match.
Apple launches iCloud service BY JUSTIN SULLIVAN /GETTY
IMAGES
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Clayton M. Christensen once noted that “disruption is a process, not an event
(Christensen, 2004).” The development of the Cloud Computing industry serves
as an exemplary illustration of Professor Christensen’s critical lessons in disrup-
tive innovations. Since the mid-noughties, industry analysts have suggested that Cloud
Computing has the potential to disrupt the large-scale Information Technology (IT)
industry by fundamentally altering how IT hardware and software applications are
developed, deployed, ran and purchased (Armbrust, 2009; Renub Research, 2010). Cloud
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scalable datacenters. Companies and consumers only pay for their short-term resource
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has never before been available in the IT industry (Armbrust, 2009).
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datacenter hardware and datacenter system software delivered via the Internet or
an Intranet. The architecture of Cloud Computing has existed in internal datacent-
ers of corporations for several years. Commonly referred to as grid computing, these
private Cloud Computing systems gave rise to public Cloud Computing delivered
most commonly by the Software as a Service (SaaS) delivery model (Armbrust, 2009).
Currently the fastest growing segment, SaaS Cloud Computing claims 89% of the Cloud
Computing Market (Renub Research, 2010). Apple, Google, Amazon Web Services, IBM,
Cisco Systems, Microsoft, VMware, Hewlett-Packard, Oracle, Siemens. NEC, Network
Appliance, Salesforce and Facebook are believed to be the most capable SaaS providers
to claim market leadership of the Cloud Computing industry (Armbrust, 2009; Renub
Research, 2010).
“Disruption is a process, not an event.”
Signals of Change
The purpose of this discussion is to apply Clayton Christensen’s principles of disruptive
innovations within the consumer Cloud Computing SaaS market. While several compa-
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will succeed. As previously discussed, Cloud Computing initially gained popularity due
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disrupted Cloud Computing in large-scale business datacenters, the consumer market
has yet to observe the same disruption. According the Christensen’s theory, the con-
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recent 10-K Annual Reports of Western Digital Corporation and Seagate Technology
Public Limited Company. The world leaders in hard-disk drive manufacturing, Western
Digital and Seagate Technology currently serve overshot consumers. For years, data stor-
age has been valued according to the price-per-MB of hard-disk drive’s storage capacity.
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most disruptive innovations, Cloud Computing was not initially cheaper-per-MB than
hard-disk drives. However, Western Digital and Seagate continued to improve upon its
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their needs. The hard-disk drive market primarily relies on an ever-depleting number
of undershot customers, as fewer and fewer customers are willing to pay a premium
for enhancements to hard-disks’ storage capacity.
Meanwhile, a small market of consumers valued the convenience of accessing their digi-
tal content across all their digital devices. Since the mid-noughties, a growing number
of consumers prefer to access their digital content via Cloud Computing SaaS providers
(Renub Research, 2010). Western Digital and Seagate failed to publically acknowledge
Cloud Computing as a disruptive technology until 2009 and 2010, respectively (Seagate,
2008; Seagate, 2009; Seagate, 2010; Seagate, 2011; Western Digital, 2009; Western
Digital, 2010; Western Digital, 2011). Like many companies who focus resources solely
on sustaining technologies, Western Digital and Seagate were not prepared for disruptive
innovations. As described by Christensen, market leaders often fail to identify disruptive
technologies until it is too late to overcome the disruption (Christensen, 2004). Evidence
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WESTERN DIGITAL 2011 10-K ANNUAL REPORT
“CONSUMERS TR AD IT IO NA LLY HAVE STORED TH EI R DATA ON TH EI R PC , OFTEN SUPPLEMENTED WITH
PERSONAL EXTERNAL STORAGE DEVICES. MOST BUSINESSES ALSO INCLUDE SIMILAR LOCAL STORAGE AS
A PRIMARY OR SECONDARY STORAGE LOCATION. THIS STORAGE IS TY PI CAL LY PROVIDED BY HARD DISK
DRIVES. RECENTLY, CLOUD COMPUTING HAS EMERGED WHEREBY APPLICATIONS AND DATA ARE HOSTED,
ACCESSED AN D PROCESSED TH RO UG H A TH IR D-PARTY PROVIDER OVER A BROADBAND INTERNET CON -
NECTION, POTENTIALLY REDUCING OR ELIMINATING THE NEED FOR , AMONG OTHER THI NGS , SIGNIFICANT
STORAGE INSIDE THE ACCESSING COMPUTER. THIS TRE ND COULD CAUSE THE MARKET FOR DISK DRIVES IN
COMPUTERS TO DECLINE OVER TIM E, WHICH COULD HARM OUR BUSINESS TO THE EXTENT THI S DECLINE IS
NOT OFFSET BY THE SALE OF OUR PRODUCTS TO CUSTOMERS WHO PROVIDE CLOUD COMPUTING SERVICES
(WESTERN DIGITAL, ).”
Consumers traditionally have stored their data on their PC, often supplemented with
personal external storage devices. Most businesses also include similar local storage
as a primary or secondary storage location. This storage is typically provided by hard
disk drives. Recently, Cloud Computing has emerged whereby applications and data
are hosted, accessed and processed through a third-party provider over a broadband
Internet connection, potentially reducing or eliminating the need for, among other things,
VLJQLϧFDQWVWRUDJHLQVLGHWKHDFFHVVLQJFRPSXWHU7KLVWUHQGFRXOGFDXVHWKHPDUNHWIRUdisk drives in computers to decline over time, which could harm our business to the
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Cloud Computing services (Western Digital, 2011).
The Annual 10-K Reports from Western Digital and Seagate further support Cloud
Computing as a disruptive innovation. The current state of the hard-disk industry also
suggests that a new market leader will emerge in the data storage industry. Furthermore,
the emergent company will most likely provide consumer Cloud Computing SaaS ser-
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In order to be competitive in the consumer Cloud Computing SaaS market, two
important value criteria must be realized. First, one must provide convenient and
seamless accessibility of a consumer’s digital content across all popular consumer
devices. Including, but not limited to, desktop computers, laptop computers, tablet
computers, mobile phones as well as home and vehicle entertainment systems. Secondly,
one must provide an incentive for copyright holders, especially professionals within
the entertainment industry, to invest in Cloud Computing.
Competitive Battles
Google and Amazon released highly anticipated consumer-focused Cloud Computing
SaaS in 2011 (Albanesius, 2011). Both companies were clearly focused on providing
consumers with convenient and seamless accessibility of their digital content. Google
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to a Cloud Computing datacenter. Beta testers of Google Music are allowed to upload
as many as 20,000 songs while Amazon provides 5GB of free storage and 20GB if cus-
tomers purchase an AmazonMP3 album (Albanesius, 2011; Miller, 2011). While still
largely under development, both Google and Amazon plan to integrate their services
across a wide variety of web-enabled computers and mobile devices running Android
operating system.
Despite a growing interest from consumers, Google and Amazon have been hampered
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and Amazon have failed to secure licensing agreements with the artists, record labels
and publishers within the music industry (Albanesius, 2011). The Director of Music
at Amazon, Craig Pape, told The New York Times, “We don’t need a license to store
music. The Functionality is the same as an external hard drive (Miller, 2011).” Google
agrees with Amazon and argues that they do not need licensing agreements because
users upload content that they already own (Albanesius, 2011).
1. Convenient and seamless accessibility of a
consumer’s digital content across all popular
consumer devices.
Copyright holders believe that Google and Amazon are in violation of licensing agree-
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of said content for which royalties are owed (Albanesius, 2011). Copyright holders
have also expressed concern that Google and Amazon do not provide reliable methods
to prevent pirated content from being stored via their Cloud Computing services. The
Recording Industry Association of America (RIAA) successfully sued MP3.com in 2008
for providing a similar service (Price, 2011). The precedent set in the RIAA vs. MP3.
com case suggests that Google and Amazon will be forced to comply with the copyright
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Unlike Amazon and Google, Apple, Inc. has successfully secured licensing agreements for
their release of iCloud and iTunes Match service. Announced at Apple, Inc.’s Worldwide
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Apple, Inc. has a proven track record of successful development and implementa-
tion of disruptive innovations. The iPod, iTunes, iPhone, App store and the iPad
are all innovative examples that have contributed to Apple’s 58.85% growth in
net income during the past 36 months (Hoover’s Online, 2011). Google, in comparison,
has seen a 26.48% growth in net income during the past 36 months. During the same
time, Apple’s iPhone sales increased by more than 90% and accounted for 39% of the
company’s 2010 revenue (Hoover’s Online, 2011). The growth in consumer-focused
products suggests that Apple is highly in tuned with current consumer needs and that
iCloud will successfully appeal to the consumer Cloud Computing market.
Strategic Choices
Apple’s commitment to innovation has created a value network that deters entrants due
to the high barriers associated with overlapping value networks. Christensen explains
that when an entrant company’s value network overlaps with an incumbent’s supplier or
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greater amount of resources in order to disrupt the industry because they are in direct
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DUHODWLYHO\VPDOODPRXQWRIFRS\ULJKWKROGHUV%HFDXVHDQHQWUDQWϧUPFDQQRWVLPSO\
create new copyright holders, they will be forced to spend more resources in order to
form licensing agreements with artists, labels and publishers. An overlap in customers is
also likely given that iCloud favors Apple’s highly popular proprietary devices. In other
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of resources in order to disrupt the industry
Apple’s commitment to innovation further supports the iCloud and iTunes Match as
disruptive technologies. Due to their previous successes, Apple’s investors trust in their
business processes and methodology and allow Apple freedom to identify and develop
disruptive innovations. It seems likely that iCloud will succeed as the market leader
in consumer Cloud Computing SaaS because of the competitive advantage created by
iTunes Match.
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OF CLOUD COMPUTING. UNIVERSITY OF CALIFORNIA, (UCB/EECS--), -. EECS DEPARTMENT,
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OF INNOVATION TO PREDICT INDUSTRY CHANGE. HARVARD BUSINESS SCHOOL PRESS.
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SPECIAL THANKS TO O TTO COSTER AND SMASHING MAGAZINE FOR PROVIDING THIS BEATIFUL INDESIGN TEMPLATE
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ABOUT THE AUTHOR
Christopher W. Ferrel is a musician and student
currently working towards an MBA in Digital
Media Management at St. Edward’s University in
Austin, Texas. He specializes in artist management
and direct-to-fan marketing campaigns.
www.christopherferrel.com