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AudioRush – Industry Analysis
Competitors and Substituting Products
|Online Players||Downloadable Music||CD Quality||Piracy protected||Custom CD shipped||Event Info||$11 or less||Push marketing||Electronic focus||Musician resources|
ar.com’s competitive diagram in Appendix 9 on page 38 illustrates which competitors pose the greatest threat as:
- Providers of electronica information (Hyperreal, Raveworld, the womb)
- Providers of electronica variety (Technogenesis, Astralwerks, CDuctive)
- Providers moving towards downloadable content (Technogenesis, GoodNoise, MP3.com).
To compete with these firms, ar.com must successfully bundle these three characteristics – greater source of information, greater variety of innovative electronica, and downloadable content – and build brand equity to be recognized as “THE electronica site”. ar.com will continue to offer online order processing for regular shipping to accommodate electronica fans who have not yet acquired the latest technology. ar.com’s greatest competitors generally offer real-time streaming audio of sample tracks (to listen to directly with RealAudio), or downloads of single tracks, mostly using MP3, and online ordering of conventional CDs. Most are small, independent outfits, formed over the last three years, and appear to be privately owned. Competitors generally price conventional CDs at $9.99-15.99, and downloadable tracks at $0.99 each, plus a base price of $4.9912 – $5.9913 for a custom CD.
The market for online music is already consolidating, as big players merge to create bigger entities with wider revenue bases (e.g. CDNow and N2K), in hopes of protecting themselves from new entrants. Investors’ belief in the explosive potential for online (downloadable) content distribution is reflected in market capitalization of these companies’ shares. This threat of new entrants is very real, as witnessed by the extension of Amazon.com’s retail mix into CD’s for home delivery, and the recent creation of online mega-distributors such as Spree.com and Buycomp.com. The next logical step for such distributors is to offer online downloads. Meanwhile, a variety of small, independent sites are also appearing with alarming frequency. Major record labels such as Warner and Sony Records have recognized the “digital threat” and are moving to develop competitive alternatives. Some have even begun to recognize the potential of the electronica market, and are signing contracts with major artists (e.g. Fatboy Slim and Virgin Records). Some are even developing separate labels to cover electronica – Virgin Records’ Astralwerks is now a significant player in terms of variety offered. They have not given any indication that they plan to offer downloadable music.
The speed with which this industry is moving can cause ar.com’s window of opportunity to close rapidly. Any investment initiative that is to be undertaken in this venture will have to be taken now.
The distinctive competitive advantage that ar.com brings to this market is primarily in knowledge of the target market. The management understands its buying behavior, tastes, values and motivation for consuming this genre of music.
The market is very wary of “big business”. If wants to support the “little guy” – the true artist. It frustrates them that their genre of music is priced at least 20% higher than popular music, but this is the lesser evil than having big record labels take over and turn the electronic music industry into a consumption machine. It is for exactly these reasons that a site that retails electronic music has to be seen as giving more than it is taking. This is also why a site such as CDnow will never become popular with this segment.
ar.com’s strategy for gaining and maintaining first-mover advantage in this niche market is the following. The site will be launched in July 1999. ar.com will be scouting for artists during this initial period, and partnering with some small record labels. Once potential customers are accustomed to using the site as a resource, we will launch the purchasing aspect of the site in October 1999.
Another source of competitive advantage is by being located in Montreal, Canada. Salaries and office space rent are incredibly low. Montreal is the fashion and music capital of Canada, and rivals many American cities. According to a sales representative from a national record distributor who works in Quebec, electronic music represents 15% of market share in this province, whereas it is much smaller in the rest of Canada and the United States. There are enough people in Montreal who are electronic music connoisseurs to hire as customer support staff. In addition, Montreal is an excellent location to start looking for music to form some of the first contents of the site. Indeed, Ninja Tune, one of the world’s most respected electronica labels has its North American office in Montreal.
12 Prices obtained from www.CDuctive.com on April 20,1999.
13 Prices obtained from www.technogenesis.com on April 20, 1999.
|Table of Contents||Appendices|
|1. Executive Summary
2. The Opportunity
4. Marketing Plan
5. Industry Analysis
6. Management Team
audiorush.com web site
|All information herein is confidential and belongs to AudioRush.com|