Apple Inc. Information Systems Overall Term Paper

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Operational implications iPod and iTunes downloads iPod must be an internet-based application. When the customer is online, the iTunes software is automatically tied to the iTunes store in such a way as to ensure that the user is up-to-date. The cover page of the iTunes site is the "store," which assures that any special promotions are immediately visible to the user.

From an operational standpoint, that means that iTunes and Apple need back-end intelligent customer recognition software -- similar to that pioneered by Amazon.com (Moser 2007). The customer's choices, demographics and other elements are gathered and used in order to help suggest additional purchases that the customer will enjoy.

A iPod purchase

Steve Jobs insists that the entire customer experience be stylish, easy and transparent. This extends to the packaging used by iPod: simple, elegant, and ready to use. While there is an instruction manual, everything is done on the iPod itself -- with only a "quick start" one-page item to get the true novices off and downloading music:

Simplicity of the iPod packaging

From an operational standpoint, that means that every item on the iPod needs to pass the consumer usability test, and the functioning of the iPod must be hidden within three elements:

The software of the iPod automatically shakes hands with the iTunes software in the PC or Mac.

The software automatically updates without the need for customer interaction.

The iTunes software automatically updates the iPod in a way that is transparent to the user.

DRM handling

Record industry managers would not have agreed to the iTunes/iPod strategy without solid assurances that Apple would control all elements of the consumer purchase and download processes. Apple notifies the digital rights issuer every time a transaction takes place, in addition to providing statements on a regular basis. The architecture to do this is illustrated below:

Apple DRM with consumer and issuer (Toth 2004)

While this architecture is more cumbersome than sending monthly statements and a royalties check, it appeals to the recording industry, which has always been concerned about prompt payment for use of its copyrighted material.

Manufacturing Operations: Source of Profit

Apple makes little or no money from the sale of downloaded materials. It makes all its profit from the sale of devices. In a competitive market, where prices must compete with MP3 players from others, Apple therefore must rely on a long logistics chain reaching to China, Malaysia and Japan in order to assure that its products are made on time, and that requirements against copying are enforced (Warrene 2004) (Malone 2006).

No Buttons Simplicity -- difficult to implement

Steve Jobs hates buttons. He even wears button-less shirts. His famous lack of patience for buttons was in evidence at the introduction of the Apple II, which had no "up, down, right, left" buttons in order to force users to rely on the then-novel mouse (Wingfield 2007). This is easy for the consumer, but difficult to put in practice. The iPod's single control "wheel" combines a number of functions which become intuitive.

If you're a wonk and you want lots of controls and features, Microsoft is right for you," Mr. Kay says. "If you want a simple experience and you're not tech-savvy, then you'll probably do better with Apple. (Wingfield 2007)"

ICT and e-Commerce Strategies Employed

ICT Strategies

Server Farm, Internet Connection

Apple hosts its own server farms, which are located in several places around the world. These server farms are interconnected in such a way that the failure or problems with one server farm can be picked up by others. With over 3 billion downloaded songs in the past 4 years, the Apple server farm network has dealt with 12 petabytes of material (average 4 MB), or 8.2 TB per day over the past 4 years. All of Apple's downloads could, theoretically, be handled by 3.5 T3 connections in order to preserve response time, Apple works with local caching services, in order to improve response times.

Although the historic download data sizes are relatively small, current and future usage should climb significantly with the adoption of greater bandwidth to the retail customer, and the increasing popularity of video downloads. The key components of download speed include the following:

Proximity to the downloader

Speed of the data storage, which is composed of the following:

Bus speed, or the speed at the "gateway" between the server farm and the internet

Internet speed in the "core"

Disc speed: both individual disc access speeds, as well as speed gains due to RAID-5 solutions (which can increase speeds up to 4X)

Cache: speed and location of cache, as well as total capacity, make a dramatic impact on download speeds.

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How downloaded: from one source (the Apple solution) or from a "cloud," which is the solution offered by BitTorrent and others. Since tight control is difficult with "cloud" solutions, Apple maintains a one-source (plus cache) solution.

Security

Apple maintains its proprietary end-to-end software VPN in order to assure that end users cannot break into the network.

E-Commerce Operations

Pre-approval

Apple uses a pre-approval architecture for purchases, which eases the process considerably as compared to a check-as-you-buy system. The risk is that Apple loses on one purchase, while checking on credit updates in the background. This means that Apple runs the risk of the revenue from one download being lost due to refusal from the credit card service, balanced against the ease-of-use for the majority of its customers.

A search of sources did not indicate whether Apple uses a third-party credit card verification company. Given the low price of each transaction, and the relatively limited downside risk with existing customers, it seems logical that Apple would do its own processing, relying on direct connections with credit card issuers after the fact.

Log-in

Log-in is automatic for customers (with a one-time check box option for automatic consumer recognition).

How Apple's it strategies have assured competitive advantage

Apple's it and e-commerce strategies are tightly entwined with their hardware solutions. The ability to exercise such control makes it easier for the company to assure end-to-end security, and assure the download suppliers that their music and videos will not find their way to general distribution through this system.

Much as with a hardware VPN vs. A software VPN, control of the hardware side of the solution makes it possible to build in hardware controls which make the use of the system more transparent to the user.

Apple's proprietary server farm and e-commerce system are justified, given the high volume, relatively low revenue per transaction, and repeat customer experience that they have. Apple will be forced to increase its server farm, cache and internet infrastructure as the volume of data downloaded per transaction increases due to heavier video content and customers' obtaining higher download speeds through faster broadband connections.

Apple's download and e-commerce infrastructure gives the company an advantage over other firms which seek to duplicate its success. Even major retailers, such as Wal-Mart and Microsoft, have been forced to invest in high-cost, lower-volume delivery solutions in order to attempt to match iTunes/iPod's ease of use and fast delivery.

Apple's success in creating digital rights management software which is easy to use may become less important in the future, as major recording studios and movie studios consider their options. Steve Jobs called for abolition of DRM in 2007 (Reuters 2007). This makes sense for Apple, which makes little or no profit on downloads, but instead makes it through its hardware (including cross-selling of its other hardware, such as iMac's). Despite the general resistance of the old-line media industry, EMI broke ranks and agreed to the DRM-free system. In the longer term, with 80% market share in "legal" music downloads, Jobs can afford to keep on the pressure and win over other majors to this business model.

There has, so far, been no strategic benefit to Apple's TV initiative: AppleTV. This product has run into tougher resistance from the old-media TV networks. Apple has lost some industry adherents, as NBC took its offerings away from iTunes in 2007. It is not clear whether Apple will be able to bring its offerings to the television in the same way that it has to the computer and the portable music player.

Conclusion

Apple's story is not yet complete. By building out an e-commerce and ICT infrastructure, Apple is well-positioned from a technical viewpoint to take advantage of global consumers' increasing demand for downloaded media. The biggest impediment -- the stance of the old-line media content providers -- may prove weak over the long-term, as it strength and consumer brand image will make it difficult for content providers to avoid this new interpretation of their media......

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