Identification and definition of the global portable media player industry A portable media player (PMP) is an electronic device that allows the owner to store, organize and play audio files as well as to view images and videos. The data is usually stored on a hard drive or a flash memory, enabling the storage of all kinds of files as on a USB flash drive. The PMP can be connected to a computer with a USB or FireWire connector, or via Bluetooth or Wi-Fi link. The worldwide leader on this industry is clearly Apple with the iPod (around 70% of market share in US).
SanDisk is the direct challenger, even though it is far from catching up with Apple with around 17% of market share in US. Then come Creative, Microsoft and Samsung which together own around 10% of the US market. Finally we find a half-dozen of outsiders, as iRiver, Philips, Neonumeric, Archos, Sony, Meizu and Cowon, sharing the remaining 3% of the US market. It is difficult to have precise global figures but the US’ trend is representative of the global market; except in China where Apple is not the leader but second after Samsung.
According to the Standard Industrial Classification, the PMPs belong to the household audio and video equipment industry (SIC 3651). Origin of the industry In the middle of 1998 appeared the first mass-produced Digital Audio Player (DAP: allowing the user to store, organize and play audio files only), the Eiger Labs MPMan. In 1999, Remote Solution sold the first hard drive based DAP, the Personal Jukebox-100. By the end of 2001, Apple commercialized its first iPod that was a DAP with a minimalistic user interface which allowed users to see the name of the band performing the current song as well as the name of the album.
This interface was in black and white. In early July 2002, the first PMP was offered for sale: the Archos Jukebox. By the end of 2004, the first colour-screen was produced: the iPod photo and the iPod color. From this moment, the innovations in PMPs sped up. In early 2005, it was possible to view pictures and in October of the same year, one could watch movies on PMPs. The last innovations (September 2007) were the touch-sensitive screen and the access to the Internet via a Wi-Fi connection.
Location of industry The creators of the DAPs were concentrated in Korea. Apple and Archos, which are at the base of the PMPs creation, are American and French respectively. Today, there still exist three regional clusters in the PMPs market: the Asian group (with Cowon, Creative, iRiver, Meizu, Samsung and Sony), the American group (with Apple, Microsoft and SanDisk) and the European group (with Archos and Neonumeric from France and Philips from the Netherlands).
As there are not a lot of competitors in this industry, it is not necessary for the companies to be close to the customers as the demand exceeds than the offer. This trend is not valid in China because people prefer to purchase local products and that is why Samsung is the leader on this market despite the global predominance of Apple. However, it is important for the manufacturers to be located in high technology centres. That is why most of the competitors are operating from Korea, Japan, Singapore or California.
It is also important to highlight that all these companies basically manufacture computers (e. g. Apple) or mobile phones (e. g. Samsung) and they use the innovations discovered in these areas to improve their PMPs. Players in the Industry Apple, SanDisk, Creative, Microsoft and Samsung represent over 97% of the PMP industry. This is why I will only speak about these five companies as the players in this industry. |
Players in the Portable Media Player Industry | | | |Apple |SanDisk |Creative |Microsoft |Samsung | | | |USA |USA |Singapore |USA |Korea | | |Main business |consumer electronics|flash memory card|computer |software products|electronics | | | |and software |products |multimedia |for computing | | | | |products | |products |devices | | | |Ownership |Public |Public |Public |Public |Public | | |Stock market |NASDAQ (America |NASDAQ (America |SGX (Singapore |NASDAQ (America |KRX (Korea | | | |Stock Exchange) |Stock Exchange) |Exchange) |Stock Exchange) |Exchange) & | | | | | | | |London Stock | | |Stock price in $ |106. 96 |9.
23 |3. 84 |22. 62 |194. 00 | | | | | | | | | |In million $|Revenue |32,479 |2,101 |737 |60,420 |82 | | |Net result |4,834 |-205 |-20 |17,681 |6 | | |Total assets |39,572 |7,013 |750 |72,793 |77 | | |PMPs volume |54% |- |- |- |4% | | |PMPs value |32% |5% |53% |1,35% |7,62% | |In million $|PMPs revenue |10,393 |105 |391 |813 |6 | | |Employees |28,000 |3,000 |5,800 |89,800 |138,000 | This table shows that there is no minimum efficient size in this industry because the companies have workforces ranging from 3,000 to 138,000 persons and their total assets vary from $77 million to $72 billion.
Even if we cannot relate this point to the size, we can underline that these companies are relatively important because they are all quoted on a stock exchange. Finally, except for Creative and Apple, the PMP activity is marginal with less than 10% of the total revenue. The organizational structure of the industry is homogeneous as each player is publicly owned. Other Industry Characteristics: R&D “Entertainment and devices businesses are highly competitive, characterized by rapid product life cycles, frequent introductions of new products, and the development of new technologies” quoted Microsoft.
Companies compete primarily on the basis of product innovation, quality and variety, timing of product releases, and effectiveness of distribution and marketing. As innovation is one of the key success factors, I have decided to introduce the R&D and innovation part. |R&D in the Portable Media Player Industry | | | |Apple |SanDisk |Creative |Microsoft |Samsung | |In million $|Revenue |32,479 |2,101 |737 |60,420 |82 | | |R&D |1,109 |328 |64 |8,164 |8 | | |% of sales |3. 41% |15. 61% |8. 67% |14% |9. 50% |
The data above show the part of the R&D in percentage of total sales for the five major players on the PMP industry. In average, companies spend over 10% of their revenue in R&D. This figure is general because it is not possible to compute the part relative to the PMP activity. Indeed, the innovations in the main business of the companies can be applicable to the PMPs. For instance, when SanDisk improve its flash memory card, it can also enhance the quality of its PMP. The five main players own tens of thousands of patents.
Future Industry Trends|Current Portable Media Player Market Penetration | Apple sales |Apple market share |Overall industry or current demand |Worldwide population |-15 years population |+65 years population |Potential demand in % |Potential demand |Market penetration | |150 millions |70% |214 millions |6. 7 billions |28% |7% |65% |4. 355 billions |4. 91% | | With less than 5% of the worldwide population (between 15 and 65 years) equipped with PMPs, the industry still has massive growth potential. On the other hand, the main limit on future growth comes from the development of the MP3 mobile phones.
Nowadays, mobile phones are more and more sophisticated and can be seen as substitution products of PMPs. Indeed, the 3D generation of mobile phones offer the same functions of the PMPs as well as telephony services. Firstly, phones offer equal sound quality and sometimes even better quality than the PMPs because they are provided with better quality earphones. Regarding the sound, it is important to underline that mobile phones can be audible in a room without using removable speakers unlike the PMPs.
Secondly, in terms of memory, phones have a capacity up to 4GB (either 1,000 songs or 3,500 pictures) and this capacity can be increased using memory cards. Thirdly, the power of the phone is more with up to 24 hours playing music with the Walkman Sony W800 when an iPod will need to be recharged, in average, after 18 hours. Finally, phones have plenty of connection modes. They are almost all provided with USB link; they can use the Bluetooth and Wi-Fi technologies to exchange files or to get connected on the Internet. This substitution risk is mainly the reason why competitors diversify their activities as seen in the major players’ analysis.
On this point, it is important to underline that companies can choose to follow the limits to develop new products (as Apple launching the iPhone) or can consolidate their position on their main business activity. Lastly, the actual economic crisis will also limit the growth of the industry because when the buying power of household decreases, the consumption of high technology products decreases as well. So this crisis is likely to affect the PMP industry. References Industry Overview http://www. ehso. com/siccodes. php, retrieved on 2008-10-26 http://en. wikipedia. org/wiki/Digital_audio_player, retrieved on 2008-10-26 http://en.
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aquadesign. be/news/article-388. php, retrieved on 2008-11-04 http://www. vnunet. fr/fr/vnunet/news/2007/01/19/l-iphone-d-apple-une-menace, retrieved on 2008-11-04 ———————–  Samsung Electronics  Figures from the annual reports 2008, except for Samsung where the figures come from the annual report 2007  Stock price noticed the 11/04/08  Figures from the annual reports 2008, except for Samsung where the figures come from the annual report 2007  Market penetration calculated on the basis of the Apple sales, the Apple market share, the worldwide population and the statistics about its age repartition