Wal-Mart, the world's largest retailer, announced Tuesday that Wal-Mart Music will now sell music sans copy-protection, also known as DRM (Digital Rights Management). This is a mimicking move to iTunes, who began selling DRM-free music earlier this year.
Traditionally, iTunes charged $0.99 per song. Their new, DRM-free music has been sold at $1.29 a track. Initial reactions to this move have been positive from nearly every consumer, while labels (still stuck in the past–but that's a different story) continue to fight change.
CD sales have been on a continuous downward slide over the past several years, yet the digital music industry has been booming. iTunes is now the third largest music retailer in the United States, behind Wal-Mart (15.8%), and Best Buy (13.8%) with 9.8% of the market.
iTunes did not enter the music retail category as an also-ran. They created the category of digital music retailer. As Tom Peters once wrote, "They say, 'market share.' I say 'market creation.'"
When a brand enters an established category, they must contend with powerful category leaders. When a brand creates a new category, they have no competition, thus becoming the category leaders. Their task, then, becomes creating the new category, rather than trying to dislodge consumers from already well-established brand leaders.
In 1923, a survey was conducted of the top 25 brands. In 1983, the same survey was executed. 23 of the top 25 brands were the same. 19 of the top 25 brands from 1923 still held their leadership position in their category.
What does this mean? Minds don't change; leader's lead. To enter a well-established category against mature category leaders is maniacal and suicidal. And yet, everyday, thousands of companies across the U.S. do exactly that.
Apple is far more adroit than most brands. They took hold of the emerging digital music trend. In 2001, they launched iTunes, becoming first to the market, and, more importantly, first in the mind. Now, in the digital music retailer category, iTunes owns 70% of the market.
iTunes imposed their new category, digital music retail, on the existing category, music retail. They did as Dell did: change the distribution medium.
Their new category went from a 0% market share in 2001 to 14% in 2007. Not bad, considering that the music retail market runs an annual tab of nearly $4.8 billion in the United States alone.
In 2003, Wal-Mart launched their also-ran Wal-Mart Music. At the time, the retailer held 20% of the music retail industry. Wal-Mart Music, despite costing $0.88 per song (a full $0.11 cheaper), has had almost no impact on iTunes’ numbers.
Now, Wal-Mart will sell their DRM-free offering for $0.94, a whopping $0.33 cheaper than iTunes.
Wal-Mart stands for low-prices retail store, not digital music. Even the power of the Wal-Mart name is not enough to save them in the digital music arena.
"Wal-Mart has been behind on the issue of digital music," said Tim Bajarin, an analyst with Creative Strategies. "Making this move allows them to leapfrog to the front."
But does their price-cutting strategy really give them an edge? No. In the long run, history drastically favors iTunes. Wal-Mart’s move will only serve to call more attention to iTunes’ category leadership and DRM-free sales.
If people bought music were a commodity, such as eggs, then Wal-Mart Music’s price-cutting strategy would have iTunes in a heap of trouble. But music is hardly a commodity.
And therein lies one of the greatest powers of proper positioning: premium pricing. Improperly positioned, a brand faces market rate growth and commodity pricing.
Without a strong brand, iTunes would never have taken such a large share of business away from related categories, and they would certainly never stand strong against the onslaught of me-too competitors such as Real Rhapsody, Napster, and Wal-Mart Music.
And, just for fun (it seems), Amazon has put their hat into digital music ring. It appears that Jeff Bezos is suffering from severe delusions of grandeur, or rather, “delusions of brandeur.”
Jeff once said, "A brand for a company is like a reputation for a person. You earn reputation by trying to do hard things well." No, Jeff, you don't. The quarterback doesn't earn a positive reputation by trying to do math well, he earns a positive reputation by throwing the ball well and scoring touchdowns. Perhaps that is why Amazon sells digital music now, too.
Wal-Mart=low-price retail store
Amazon=online bookstore
iTunes=digital music
Wal-Mart and Amazon making digital music stores makes as much sense as iTunes selling laundry detergent and shipping hardcover copies of Harry Potter. Pretty insane, yes? Yes.
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