Customers and technology are the primary driving factors in this arena. Customers want products that satisfy their needs or improve their productivity. Apple, and its direct competitors, look for ways to deliver these benefits at a lower cost, smaller size, and higher speed. An industry with this kind of rapid change presents several challenges for digital music devices, namely production costs, intellectual property owners, and monopolies (Hesseldahl, 2006).
Innovation can be seen as a strength and opportunity which shapes the market and allows companies to obtain a strong market position. Creativity and innovation are the core part of market. Once a new product has proven itself in the marketplace, other companies seeking to benefit from the first-mover's success quickly emulate it. In order to be successful, Apple follows the principles: focus on the user, use standardized technology, or complement existing technologies. The industry of digital music devices is highly competitive, very dynamic, and global one. The main strength of Apple's iPod is that it has 90% of the hard drive market (Appendix Diagram 1, 2). Apple must look for new trends in business development. Accessories for these types of products are the next major market in the electronics industry. More and more consumers want their everyday appliances to be Internet-ready and able to think for themselves. The price escalation is shown in Appendix Graph 1, 2 for Apple iPod color 60GB and Apple iPod shuffle.
Customers' loyalty and brand recognition is a strong point of the market. Positioning strategy is one of the most influential factors in this industry. Positioning strategy is based on brand and product loyalty as an important factor in increasing the costs for customers of switching the products of new competitors. Existing competitors (Zume) are already obtaining substantial economies of scale, this have them an advantage over new competitors who are not able to match their lower unit costs of production. New competitors may find it difficult to gain access to delivering service, which will make it difficult to provide their service to customers or obtain the inputs required or find markets for their outputs. "Apple has sold more than 70 million iPods since its introduction in October 2001, and the iPod now commands more than a 70% share of the U.S. market for MP3 players" (Martell, 2006) (Appendix Graph 3)
Competitive advantage in the industry today is driven more by sales, distribution and customer relationships than by manufacturing or product innovation. The direct sales model (or other near-direct models) has been successful in the U.S., and the industry is moving more in that direction. For more than 5 years, the power of iPod has doubled every 18 to 24 months, and most observers expect that to continue for another 10 years (Lee, 2006).
Constraint innovation and improvements require huge investments in R&D facilities. To remain competitive, market leaders spend billions of dollars on innovations and product developments. Products which are invested with high levels of technology require technical specialists for their sale and servicing. Increasingly, as firms are prompted to improve their innovation and technological developments, they will prefer to internalize activities, both product and channel functions, to protect key