| Apple Computer was one of the pioneers of the | | | | to increase at their current pace and Apple |
| PC industry and remains so today. It is one | | | | can increase the number of songs downloaded |
| of the largest computer companies in the | | | | per session, which would leverage the fixed |
| world, with sales of $6.2 billion in fiscal | | | | credit check costs the company incurs per |
| 2003. Apple designs, manufactures, and | | | | order. However, industry experts believe it |
| distributes a host of computer and related | | | | will add only a few pennies to the bottom |
| products, including desktop computers, | | | | line as Apple continues to reinvest in the |
| notebooks, servers, and storage arrays, along | | | | business. The main value iTunes brings to |
| with its own proprietary operating system and | | | | Apple's business is increased awareness of |
| applications. In the past few years, Apple | | | | Apple's products and Web site traffic, which |
| entered the music marketplace with its | | | | Apple can use to cross-sell its other |
| popular iPod music player and iTunes Music | | | | products, especially iPod. |
| Store, which sells legally downloadable | | | | |
| songs. Apple currently dominates the markets | | | | Understandably, Apple wants to avoid selling |
| for both of these products. iPod Forum | | | | PCs at a loss, but unfortunately the growth |
| | | | prospects for $1,000-plus PCs are limited. |
| Furthermore, Apple is scheduled to come to | | | | This presents a conundrum for Apple longer |
| market over the next few months with several | | | | term, but for now it maintains its current |
| new products that should garner significant | | | | strategy. Incidentally, Apple's revenue share |
| attention and drive incremental business. | | | | has held much better, and while this is not |
| Apple also chose to control a greater | | | | an often-discussed topic, revenue share is |
| percentage of its product distribution due to | | | | probably more important than unit share. With |
| the differentiated nature of its products, a | | | | regard to the compatibility of Windows and |
| strategy that has been successful to date and | | | | Mac OS X, even though Apple made a concerted |
| may have played a key role in the company's | | | | effort to educate consumers about the ease |
| ability to hold PC market share in two of the | | | | with which these two products work together, |
| past three quarters after consistently losing | | | | it has fallen on deaf ears for the most part. |
| share in the marketplace for each of the past | | | | Apple made some progress through its retail |
| four years. | | | | stores, where it estimates half of Mac |
| | | | purchases are from first-time buyers, but for |
| Our analysis indicates iTunes has the | | | | Apple's stock to work over the long term, the |
| potential to be somewhat accretive to the | | | | company needs to maintain share against |
| overall business model if downloads continue | | | | Windows, at a minimum. |