Alexandria The future of digital music

South Korea

I. Product description (Sebastian)

II. Market Analysis (Thais)

III. Competition and Barriers to Entry (Sid)

IV. Strategy of Entry (Sid)

V. Economic Risk (Emily)

VI. Legal Risk (Emily)

VII. Political Risk (Charlene)

VIII. Attractiveness of Market (Charlene)

IX. Sourcing & Logistics (Anna)

X. Cost of Operations (Anna)

XI. Finance (Anna)

XII. Conclusion (Sebastian)

Table of Contents

Product description Put simply, this is how Alexandria works

+ =

Take all music Upload it to You have: Alexandria ever produced on common server Worlds greatest online

music library

Product description II Sources of differentiation

(1) Alexandria allows everybody to upload music to the library of music - GrooveShark works this way, however, it is illegal!

(2) By using a streaming model, Alexandria incorporates efficient and transparent payment of artists and intellectual property right holders!

(3) Alexandria allows for social interaction between users, between artists, and between users & artists! For detail, see report.

Product description III

Business model

(1) Low monthly subscription fee: $10 (12,000Won)

(2) All subscription revenue is channeled directly to artists. No intermediary will benefit (excessively) on behalf of muscians!

(3) The source of revenue for Alexandria is customer targeted ads! Same way Facebook makes money.

Product description IV

Implications of the business model

(1) Streaming ensures that intellectual property rights of artists are protected as piracy becomes impossible! Requires internet access

(2) Payment of artists is transparent and efficient! Every user’s streaming history is tracked allowing for efficient payment relative to each users music preferences - E.g. Madonna vs. Justin T

(3) The model gives incentive to both suppliers (artists) and consumers!

Consumers: Peace of mind - the model supports altruismSuppliers: Offer music for free, payment is immediate!

Implications of the business model

(1) Streaming ensures that intellectual property rights of artists are protected as piracy becomes impossible! Requires internet access

(2) Payment of artists is transparent and efficient! Every user’s streaming history is tracked allowing for efficient payment relative to each users music preferences - E.g. Madonna vs. Justin T

(3) The model gives incentive to both suppliers (artists) and consumers!

Consumers: Peace of mind - the model supports altruismSuppliers: Offer music for free, payment is immediate!

Market analysis• The Geert Hofstede’s Cultural Dimensions for International

Business shows that South Korea has a high degree of power distance and uncertainty avoidance, low individualism and masculinity levels.

• The population shows respect for hierarchy and relationships, are persistent, perseverant.

• South Korea is a high tech, industrialized economy with global internet integration. According to OECD the number of households with internet in 2000 was below than 50% by 2008 increased to 95%, 50 % of this is supported by fiber optics which provides a much faster data transfer.

Market analysis

• The main industries in South Korea are consumer electronics and telecommunications, an e.g. is Samsung, LG, Pantech, etc.

• South Korea has a population of 48.64 million citizens approximately, 24.5 million live in Seoul, the capital and the world’s 2nd largest metropolitan area. On an average the literacy rate across genders is 98%. The HDI increased yearly for the last 2 decades reaching 0.937, and the highest level is 1, making an extremely high rate.

• At the moment the country is the 20th largest economy with a real GDP per capita of US$28,000.00 in 2009 with equal distribution, placing the country at the highest income category.

Competition & Barriers to Entry

Porter’s Diamond 1. Factor endowments

2. Demand conditions 3. Relating and supporting industries 4. Firm strategy, structure, and rivalry 95% of people in South Korea have internet services

available to them.

Overall Strategy of Entry

$10 (12,000 Won) monthly subscription fee Word-of-mouth promotion Other promotion initiatives: contest to sign friends. Global standardization strategy Promotion for artists since they don’t have to go through a

record company saving time, money and energy Offer the website in both Korean and English

Economic Risk

Inflation rate 2008: 4.7% 2009:2.8% comparatively stable reduce the cost of living Widened currency Won trading band from

2.25%-10% in Nov 1997 band allowing Won to float on Dec The strong Won represents an advantage for

Alexandria

Legal Risk

Intellectual property rights Piracy Law and policy is relatively complete Government has increased inspections and

developed education Case of piracy have been treated as criminal

case Online report centre

Political Risk

Modern democracy/ republican government type Legal system Crime rate in South Korea is low Corruption is medium Unstable relationship with North Korea Internet music piracy 40-50% Number of reforms

Overall Attractiveness of Market

Potential market GDP of $1.356 trillion ranks 26th

95% broadband Internet access modern music is very popular 57% of South Korea's music sales were digital 97% of South Koreans bought ring tones 26% of South Koreans listened to MP3 songs

Sourcing & Logistics

Sourcing Engineers in India Feedback

Inbound Logistics Transferred to suppliers

Outbound Logistics Automated

Cost of Operations Venture Capital

Funding initial costs by raising 1 million dollars in venture capital by selling 30% of its shares

Costs of Operations: Employees Office Costs Bandwidth Marketing

Cost of Operations

Employees:

Employees 2010 2011 2012Customer service 3 6 10

Marketing 1 2 3

Finance 1 1 1

Manager 1 2 2

Engineers 3 3 3Total Workers: 9 14 20

Cost of Operations

Office: Centralized Serves universal needs Stable exchange rate

Office costs:

Office (In thousands) 2010 2011 2012

Rent space 8.4 8.4 8.4

Utilities 1.8 1.8 1.8

Furniture 0.9 0.5 0.6

Hardware 36 20 24

Total: 47.1 30.7 34.8

Cost of Operations

Marketing & Bandwidth Outsourcing to Akamai

Total costs:

Costs (In thousands) 2010 2011 2012

Bandwidth 108 97.2 87.48

Office 47.1 30.7 32

Marketing 40 40 40

Executives 465 715 965

Total 660.1 882.9 1124.48

Financing

Fixed Costs Revenues:

Costumers x Clicks per year x $ per click

In Thousands 2010 2011 2012

Revenues 4,375 8,750 17,500Costs of Operations 660 883 1,125

Profit 3,715 7,867 16,376

ConclusionSouth Korea offers an attractive market because of:

Stable economy, democratic government and legislation supporting online services.

Large population (<50 mill) with high purchasing power, on average. Consumers are very technology conscientious, and 95% of

households have internet access. Consumers are pioneering in e-commerce, many digital downloads.

All in all a very attractive target economy to launch our service in!