Apple’s Music Streaming Service Future Strategies

Introduction

This paper examines the internal and external strengths and weaknesses which will help determine how the organisation has remained competitive and discusses strategies to help advance the company’s competitive advantage. The first section describes Apple Music’s market power and future strategies using the TOWS matrix. The second section examines the strategies while taking into account the social and environmental impacts. The last section reflects the challenges encountered in the strategy development process and the overall skills and knowledge acquired concerning the music streaming industry.

Analysis of Apples Music’s market power

TOWS Matrix

A TOWS analysis stands for Threats, Opportunities, Weaknesses and Strengths. Unlike a SWOT analysis, TOWS attempts to establish a link between internal and external factors to help develop strategic options that may help a company grow its market share (Kulshrestha & Puri, 2017, p. 148). As depicted in table 1, the matrix allows for the establishment of options or solutions for the future by way of matching external opportunities.

Table 1: Apple Music TOWS

In 2014, Apple purchased Beats Electronics for $3 billion signalling the company’s entry into the music streaming business (Arditi, 2018, p. 305). The acquisition allowed the company to make a quick entry into the market. However, the company has faced backlash from artists for failing to pay them in the course of a three-month trial period.

The prior establishment of iTunes further facilitated Apple’s entry into the segment because users were granted access and stream music in the iTunes music catalogue. The overall shift in the music industry from the traditional CDs and MP4 allowed Apple Music to quickly set up a music streaming service by leveraging on the already existing iTunes platform. The establishment of iTunes coincided with the market’s demand for digitally sold music. According to Datta et al., (2017, p. 16), streaming makes up 75 per cent of US music industry revenues.

Apple Music has further managed to win over customers from other streaming services by facilitating a platform that connects fans with the artiste via Apple Connect. Artists can post videos, images, and posts and the fans following the artiste can respond. Also, Apple Music has appointed celebrities like Taylor Swift and Drake to take up the role of brand ambassadors thus capitalising on the artist’s image which appeals to other artists and users (Reznor et al., 2017, p. 418). Finally, the streaming service has managed to exploit the growing demand for online music by providing Apple users with the option to download and own music, unlike other companies where service is strictly limited to streaming. However, Music piracy poses a threat to streaming and download options because, unlike Apple, these websites offer free content.

Future Strategies based on the TOWS Matrix

According to Silver (2018), 36 per cent of worldwide music streaming subscribers in 2018 belonged to Spotify while Apple Music accounted for 18 per cent. These statistics are a clear depiction of Apple Music’s need for future strategies to help the organisation remain competitive. The future approaches as depicted in table 1 have been developed by exploiting the company’s current strengths and weaknesses in both the internal and external environment to establish strategies that ascertain competitive advantage in the future. This section will examine future strategies while taking into consideration the impact on social and environmental factors.

SO (Maxi-Maxi Strategies)

These sorts of strategies exploit a business’s strengths to maximize its opportunities (Kapoor & Kaur, 2017, 258). Product development allows the company to secure its future status by developing podcasts. Establishing other forms of audio entertainment with unique content will accelerate the company’s quest for growth. The company has to develop entertaining content that will appeal to the large user base and convince others to sign up for the streaming service. Conversely, developing a podcast allows the organisation to live up to its corporate social responsibility by airing content that empowers society. For instance, addressing the problem of racial bias in a podcast would get the millions of Apple Music subscribers involved in the topic. Such topics could pave the way for legal amendments, especially in issues about police brutality.

Apple Music attained a record high of 56 million subscribers in 2018, but the company ended up using a majority of the revenue in royalty payments (Jones, 2018). One solution to maximising profits would involve setting up a major recording label and ending up reducing expenditure. Netflix, for example, saves millions by developing its content and Apple Music could emulate such an approach. With the support of celebrity marketing, Apple can take charge of an entire music distribution circle, reducing expenditure at every turn. A record label owned by Apple Music could promote social change by offering record deals to underprivileged and talented individuals allowing the company to have a positive impact on the uplifting of society whilst making money in the process.

WO (Mini-Maxi Strategies)

Reducing the operating cost would require the adoption of the parity option in the cost leadership approach. The parity option allows companies to reduce cost and also offer quality products and services and price them an equivalent or lesser amount than rivals and generate higher revenues (Lloret, 2016, p. 420). Apple can pursue this approach by discounting its prices while maintaining the quality of its streaming services. For instance, Apple Music offers a family plan for $14.99 per month similar to Spotify which charges the same rate. However, Apple’s user interface is much friendlier because unlike Spotify the artist page is easier to navigate allowing the user to listen to the music much faster. Apple can offer a discount of $12.99 a month on the family plan while still offering the same quality on the user interface. Additionally, Apple can decide to lower prices for certain demographic groups such as students. Hence, such moves will in the future attract more users and further protect users from exploitation when it comes to pricing.

According to Wolfe (2018), Apple Music uses individuals to identify user preference or music that clients frequently stream while Spotify does a better job of proposing to users their favourite music based on their streaming history. Apple supports this strategic position claiming that using people adds a personal touch when connecting users to their preferred choice of music. Unfortunately, Apple has incurred a significant cost as relying on people takes up a lot of time and money. Developing an algorithm to handle the genre selection has proven to be the cheaper and effective option as illustrated in the case of Spotify (Wolfe, 2018). Apple can, therefore, minimise its cost by adopting the algorithm approach. But doing so would have a negative social effect because the company would have to lay off many people and leave the algorithm to make music recommendations to the users.

ST (Maxi-Mini Strategies)

Tackling these internal issues requires a financially stable company to make use of its financial resources and diversify to new markets. Diversification strategy involves increasing the range of markets or products served by a company (Hitt & Xu, 2016, p. 62). International expansion, in this case, would allow Apple Music to geographically expand in areas such as Latin America, Asia, and Africa. The company would, however, encounter demographic challenges especially when it comes to pricing. In the US, both Apple Music and Spotify price their services based on demographic factors such as age and occupation. Apple Music would thereby have to undertake a demographic analysis to determine fair prices for every region. Nonetheless, the organisation would have a positive impact on job creation in the new markets.

A diversification strategy has a significant impact when incorporated in a universal integration approach. For instance, Apple Music can partner with multinational organisations such as Toyota to integrate Apple Music into giant tech products. Companies no longer see the need to develop their music services especially if they endeavour to reduce their overall cost (Byttner, 2018). For example, Spotify recently integrated with Samsung thereby making Spotify the default music option on all Samsung devices (Gartenberg, 2018). Thus, integrating Apple Music in Toyota vehicles allows the company to tap into a new market because it would offer car owners the option to stream the music of their choice while driving.

Entering into long term deals with other tech giants will allow Apple to establish its dominance in other products other than Apple products. However, multinational companies operate in multiple countries and with every nation having its laws and legalities on creative content, Apple may encounter challenges when dealing with government policies. Also, certain conservative societies may reject the content by Apple Music but undertaking a market analysis before integrating with a tech company will facilitate the distribution of content best suited for diverse societies.

WT (Mini-Mini Strategies)

Vertical integration involves investing in activities that allow a company to become its supplier thereby reducing the overall cost (Zhou & Wan, 2017, p. 1138). For example, Amazon recently elevated its vertical integration process by launching Shipping with Amazon, a delivery company that will compete directly with organisations such as FedEx and UPS (Dans, 2018). Experts suggest that the move will help Amazon scale its business and enhance innovation in areas such as drone deliveries and air logistics. In Apple Music’s case, a record label would supply the company with a constant flow of music made by the artiste signed under the label. Subcontracting record labels will assure the company of a constant supply of music rather than having to issue out royalty payments to artists. Vertical integration allows a company to lower its operating costs and subsequently the price of products and services. This approach would, however, hurt independent artists reducing their overall income by a significant margin. In Apple Music’s case, vertical integration would mean that consumers get to enjoy low streaming rates and also render music pirating platforms unproductive.

Reflection

I certainly learned a lot in my effort to develop profitability strategies for Apple Music through the TOWS matrix. I previously held the assumption that music streaming companies achieved scale through global expansion eventually resulting in profitability. However, research reveals that even though Spotify has a higher number of subscribers than Apple Music, the company has not made a profit for some years. Consequently, this study has taught me the errors of my former assumption. I now know Apple’s business model can turn up profit when the company manages to effectively exploit its internal strengths. However, it may be potent to point out that Apple Music doesn’t invest resources in growth because Apple Inc. stands out as the most profitable organisation in the world.

Needless to say, I encountered a few challenges in finding information regarding the music streaming industry largely because the industry only started gaining traction a few years ago and not much research has been done. However, I quickly learned that the overall music streaming ecosystem revolves around Apple Music and Spotify. Closely studying these organisations is essential in identifying strategies for the future. Available evidence suggests that Apple Music is on the right track and adopting the strategies suggested may result in profit.

Conclusion

Even though Apple was late to join the streaming service after Spotify, it has managed to attain success to date. A majority of music artists prefer its paid subscription option. Although Apple Music has increased the number of subscribers, the company remains unprofitable. Pursuing the strategies identified in the TOWS matrix will increase the number of fans and the company could finally break even.

References

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