How The FUSS Did iPod Beat Free
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Hey everyone, and welcome back to The FUSS! Today we're diving deep into the business model of the iPod, the fuss way.
If you've attended one of my business model sessions, you've probably heard me ask: why did the iPod succeed where other music players failed?
The usual suspects pop up, right? "First to market!", "1,000 songs in your pocket!", "Sleek design!", "Innovative tech!". But is that really the full story?
Today, we're going to peel back the layers and uncover the real reasons behind the iPod's phenomenal success. Get ready for some surprising insights because this is a story of more than just a great product, clever marketing, and good timing.
The iPod wasn't first…
It turns out Apple wasn't the first to bring a digital music player to the party. By the time the iPod launched in 2001, there were already around 50 portable MP3 players available in the U.S.! Diamond Media’s Rio, launched in 1998, is often called the first MP3 player, but that's not entirely accurate.? That same year, South Korea’s Saehan Information Systems released the MPMan, the world's first mass-produced portable digital audio player. It sold 50,000 units globally in its first year. However, none of these early digital music players achieved any real dominance.
And that famous "1,000 songs in your pocket" slogan? The hard drive technology that made it possible actually came from Toshiba! Apple cleverly secured the rights, but they didn't invent the core technology itself.
The Napster Problem
Okay, so we've established that the iPod wasn't the first MP3 player on the scene. But there's another crucial piece of the puzzle we need to consider.
Remember Napster? It was the elephant in the room back then. Napster was this revolutionary file-sharing service that let people download music for free. It was a game-changer, but it was also illegal. The music industry was freaking out, suing everyone, and trying desperately to shut it down.
That was the time when the music industry was the wild west. Everyone was downloading pirated songs, and the whole industry was in turmoil. This chaotic environment was actually a huge challenge for Apple. They had to find a way to launch the iPod into a market where people were used to getting music for free.
So, imagine Apple, this computer company, stepping into this mess. They're facing competition from existing MP3 players, a hostile music industry, and this massive piracy problem. Talk about a risky move!
The iPod was a fantastic device, no doubt. It was sleek, user-friendly, and offered a great portable music experience. But on its own, it wouldn't have been enough to save the music industry from the threat of piracy. But here's the thing: Apple saw an opportunity in this chaos. And that's where their brilliant business model came in.
Defining a Business Model
Before we dive deeper into the iPod's success, let's make sure we're on the same page about what a business model actually is.
Simply put, a business model outlines three key things:
Now, the iPod itself wasn't a business model revolution. That came a bit later, in 2003. But the first piece of the puzzle was actually launched way back in January 2001, before the iPod.
I'm talking about iTunes. The combination of iTunes and iPod, which was released later in 2001, provided consumers with a simple, portable way of listening to a large library of music. Sleek and focused on a simplified user experience, iTunes made it easy for users to burn CDs and to manage digital music files.
So, you had iTunes to organize your music, and the iPod to enjoy it on the go. But something was still missing...
Enter the iTunes Store!
Remember the days when you used to buy a CD with twelve to fifteen songs, even though you really wanted to listen only to one or two songs? Traditionally, media companies had combined content, creating value for customers by charging less for the content bundle than if customers had acquired each element separately. These media companies captured value through bundling because in the aggregate, bundling prompted buyers to purchase more content, even if they didn’t wind up consuming the entire bundle.
But Apple disrupted this model. They unbundled music. The iTunes Store let you buy individual songs at just $.99 cents because transaction costs are lower in online channels. The internet enables companies to offer individual products that were previously only (or primarily) sold as part of bundles. This was a game-changer!
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But there was still a hurdle. Apple needed to get the iPod into more people's hands. But back in 2003, Macs weren't exactly mainstream.
The turning point came when Apple made iTunes compatible with Windows. Suddenly, they had access to a massive market. And that's when iPod sales really exploded! They went from selling less than a million iPods in 2003 to over 22 million just two years later. That’s a huge jump!
How Did Apple Compete With Free?
New opportunities come from investigating the process of what people are trying to achieve. Mapping the job, not the buying journey, provides unique insight. Customers value getting a job done better.
Think about it. We have been listening to music for ages now, but the way we listen to music has constantly evolved. We went from live performances to gramophones, vinyl records, cassette tapes, CDs... Each new technology changed the "how," but not the "why."
The "job" has always been the same: to enjoy music, whether it was gathering around a piano in the 1800s or popping in earbuds on the subway today. New technologies simply allowed us to do that job better, more conveniently, and with greater flexibility.
For that, we need to break down the “customer jobs” idea a bit further.
When it comes to listening to music, there's the main job, right? Actually enjoying the music. But there are also all these sub-jobs involved.
Things like:
And each of these sub-jobs comes with its own costs. Not just money, but also time and effort.
Think about the old days. You had to go to a store, browse through CDs, maybe listen to a few samples, then buy the whole album, even if you only liked a couple of songs. That took a lot of time, effort, and money.
So, did Apple really create a better way to get the job done? Did they reduce these costs for the customer?
The Full-Stack Model
Apple didn't just focus on one aspect of the business model. They fired on all cylinders! They revolutionized how value was created, delivered, and captured in the music industry.
The potent combination of hardware, software, and online music store allowed music enthusiasts to streamline how they listened to music. Not only could they listen to music on an iPod, but they could also acquire and manage music with iTunes. And by offering individual songs for purchase, i.e., unbundling, the iTunes Store changed the way people consumed music. It gave customers more control and choice. So, integrating various jobs—acquiring, managing, and listening to music—Apple reduced the various costs for customers, i.e., monetary cost, time cost, and effort. And all of this led to a seamless customer experience that was unmatched. That helped Apple even compete with a free product.
So Apple did it the fuss way, i.e., the full-stack model. A full-stack business model owns the end-to-end of customer jobs, ensuring a seamless experience that delivers the desired outcome.
This is a crucial insight for any business. Don't just focus on the products or the buying process. Dig deeper and understand the core job your customers are hiring your product to do. Then, find innovative ways to help them do it better.
The iPod succeeded because it perfectly fulfilled that core job of enjoying music, and it built an entire ecosystem around it. It's a classic example of how focusing on the “customer jobs” can lead to truly groundbreaking innovation.
And that's a wrap on today's deep dive into the iPod! Thanks so much for reading.
I'm already cooking up some exciting new articles where we'll dissect more fascinating business stories and explore if the FUSS framework is the right fit for your startup or company.
In the meantime, I'd love to hear from you! Got any burning questions about business models? Thoughts on the iPod story? Shoot me an email at [email protected]
Until next time, keep those business brains buzzing, and remember to always… make a FUSS!