Case Analysis: Apple Inc.

in 2010
By, Meet Buch - 18
PGDM-IB 2011-13

CASE ANALYSIS: APPLE INC. IN 2010

Q1. Update the Case to date? The iPad was launched in the US on April 3rd 2010 and sold more around 500,000 by the end of the first week. In May of the same year, Apple's market cap exceeded that of competitor Microsoft for the first time since 1989. Apple also expanded the product line of iPod and introduced iPod Shuffle with buttons which brought back the buttons of earlier generations. In October 2010, Apple shares hit an all-time high, eclipsing $300. Additionally, on October 20, Apple updated their MacBook Air laptop, iLife suite of applications, and unveiled Mac OS X Lion, the latest instalment in their Mac OS X operating system. On January 6, 2011, the company opened their Mac App Store, a digital software distribution platform. Apple was also featured in the documentary Something Ventured which premiered in 2011. During the start of 2011, Apple became the most valuable consumer-facing brand in the world. Later on, In June, Steve Jobs took the stage and unveiled iCloud, an online storage and syncing service for music, photos, files and software. This was the stage when company operated as monopsony (one buyer, many sellers), in that it can dictate terms to its suppliers. On August 24, Jobs resigned his position as CEO of Apple and was replaced by Tim Cook. On October 5, Apple announced that Jobs had died, marking the end of an era for Apple Inc. Apple officially released the iPhone 4S on October 14. On October 29, Apple purchased C3 Technologies, a mapping company, for $240 million. On December 13, Apple launches iTunes stores in Brazil and Latin America On January 10, 2012, Apple acquired Anobit, an Israeli hardware company that developed and supplies a proprietary memory signal processing technology in a view to improve the performance of flash-memory used in iPhones and iPads for $390 million. On January 13, iPhone 4S arrives in China along with Hong Kong and South Korea. On January 19, Apple's Phil Schiller introduced iBooks Textbooks for iOS and iBook Author for Mac OS X in New York. On Feb 16, Apple releases OS X mountain Lion Developer preview with over 100 new features. On March 5, Apple announced that more than 25 billion apps have been downloaded from its revolutionary App Store by the users of the more than 315 million iPhone, iPad and iPod touch devices worldwide. The 3rd generation iPad was announced on March 7. It includes a Retina display, a new CPU, a five megapixel camera, and 1080p video recording. The New iPad arrived in US with 9 additional countries Q2) How did Apple position itself initially in 1976, 1981 and thereafter? Job sparked a computing revolution by introducing the easy to use computer to market in 1976-78 and Apple quickly became industry leader. Apples positioning changed with the entry of IBM in 1981. IBM gained market share and moved ahead of Apple by introducing DOS operating system which was a relatively open system as compared to Apples OS that solely relied on its proprietary design and refused licensing. Apple with its technical elegance and industrial design launched Macintosh in 1984 to respond to IBM but it failed to gain market share due to Macs slow processor speed and lack of compatibility software. Apple was following product differentiation strategy and went ahead with new market development by entering into new markets of desktop publishing and education. By 1990 Apple was the most profitable PC company after gaining share in new markets, by introducing superior softwares and by providing complete package solutions. Till now Apple devoted 9% of sales to R &D but after 1990 Apple started moving towards low cost producer with mass-market appeal. In 1996 though, Apple returned back to its premium priced differentiation

CASE ANALYSIS: APPLE INC. IN 2010

strategy but it still relied on old Macintosh OS that made Apples sales limited as Microsoft had already launched couple of new Operating systems. Apple turned around again to be a profitable company when it started focusing to position itself as an Innovation company from 1997. This move was supported by moving distribution system from smaller retail outlets to national chains, launching website to set up the direct sales and increased spending on R &D. Did apple have KSF for the P.C. industry when it started? Does apple have it now? Apple didnt have any critical success factors apart from having talented people when it started. Later on Apple started developing critical success factors and these are, Technology related KSFs are expertise in technology and product innovation capability. Capability to use internet for all direct sales Distribution related KSFs are company owned retail outlets, space in national chains. Network with service provider like Verizon Marketing related KSFs are breadth of product line, visual merchandising skills, attractive styling and packaging and clever advertising like Think Different Skills related KSFs are superior workforce having design expertise. Ability to develop innovative products and products improvements Organizational capability with good leaders that responded to the market changes Favourable brand image and reputation with buyers

Apples competitive position: Apple has built a truly sustainable competitive advantage and is definitely worth the current valuation premium. It is harder and harder to beat Apple with its deep integration between apps, OS and devices. Apple is building a fortress around its suite of product/services/experiences and it is almost impossible to break that and it is not in the space of music and devices but Apple is also foraying in other categories of products. Every single Apple product complements every other. Apple recently reached third place in personal computer sales in the U.S., selling more Macs the past few quarters than analysts expected. Also, Apple is the leader in the tablet space with its popular iPad. Many iPad buyers are first-time Apple customers. Just as many of the nearly four million buyers who purchased Mac computers in the most recent quarter are first time Apple customers. The reason for Apple's compounding, growing success is a simple multiplier factor involving customers. Once they buy one product, like an iPad, Apple's other products like the iPhone or a laptop computer become a natural. Apple positioning changed from just a PC company to Apple Inc. covering wide variety of products and then to digital hub with foraying into other innovative product categories.

CASE ANALYSIS: APPLE INC. IN 2010

Q3) Analyse the P.C. industry for its attractiveness based on value net. Consider key dominant features and industry driving forces

Industry attractiveness using Value Net and some other factors: Suppliers: Intel and Microsoft are the two most dominate suppliers in the PC industry. Intels microprocessor chips are used in approximately 80% of personal computers. Microsoft operating systems are used in 90% of computers, giving it substantial bargaining power. Given that Microsoft and Intel control the majority of the PC supplier market of major component parts, the business world has named the two Wintel. Customers: The strength of the PC buyer has basically evolved from the personal computer becoming a commodity-like item. As we can see the prices of new innovative products launched are decreasing. Backward integration is also a factor in the strengthening of the PC buyers bargaining Power because more and more people are building their own computer systems Company: The PC industry is also an industry that resembles follow the leader. Follow the leader occurs when industry leaders are mimicked by competitors; and those competitors that do not follow will fall off by the wayside. The Rivalry among existing firms is very high because of the reason mentioned and also companies are even expanding into other industry with the experience and the innovation from PC industry. Price Wars: Ex. In 1999 the average PC cost $ 1,699. Now the average price of a PC is under a thousand dollars Competitors: The chances of a new PC vendor entering into the market and gaining significant market share is pretty slim. Two of the entry barriers that are making entry into the PC market so tough are cost and distribution. Concentrated: it is estimated by analysts that in the near future the top 5 vendors may control 70% of the global personal computer market. Still the companies in PC industry possess considerable threat from Clone competition Stakeholders: Environmentalists and E-waste are the major stakeholders for the PC industry; the dumping of high-tech trash like computers in landfills. Hewlett-Packard, IBM and Dell have recently started up a computer recycle program, recycling in all computer brands for a small fee Substitute products: Threat of substitute is high as substitute products are available providing certain features of PC, for example handheld devices Complements: The industry is also benefited from vast array of complementary software, contents and hardware available. The complements gave PC added value and increased the appeal of the buyer. These complementors co-created value and also shared some part of the value that was created

CASE ANALYSIS: APPLE INC. IN 2010

Key dominant economic features are as follows: Total Shipments in the 2nd quarter of 2011 were around 400 million units with 3% increase from previous year The competition within the PC industry is extraordinary cutthroat. The players are concentrated with top companies such as Dell, Acer, Lenovo, Apple, HP, Toshiba, Gateway and Sony The stage of the PC industry life cycle can be described as mature. However, the growth of PC sales has not decreased due to the globalization trend taking place within the multinational corporations The customers that buy the computers are diverse and use their machines in a variety of ways. The computer offers an efficient way of running a business, playing a game or managing your calendar. The bottom line is that any person can find a useful attribute for a computer Technologies as well as innovation are advancing every year, therefore making the industry fiercer Product characteristics consists of components such as Motherboard, CPU, Disk controller, hard disk, Video display adapter and modem With most multinational corporations there are two separate economies operating between the actual company and the markets. The separate economies are internal and external. Internal: Tech Economy, Managerial Economy, Financial Economy, Marketing Economy, R&D External: The external aspects of scale economies consist of the distribution centers and retailers. For example; Apple, Sony or HP manufacture computers, while retailers arrange for computer deliveries to the customer. One exception is Dell, which has excelled in custom-built computers delivered straight to a consumers home Learning and experience effects: The computer industry is mature and here to stay. In the US computers are found in most homes with access to the Internet. Students are taught to use computers in school at a young age and competency is only going to increase. However, there are people who struggle with applications and user activities such as installing new drivers or connecting a monitor. One of the largest complaints within the industry is support. Dell, once again is an exception. Dell observes great rewards when consumers give praise in regards to customer service. Since the industry is so mature the complaints are few due to the reliability of the PC The capital required to enter and actually compete with the big names in the computer industry are ridiculous. New components and ideas are always being developed by the large companies, which few can compete. However, if a person is technologically savvy and creates innovation they could sell the idea to the large companies The industry is extremely competitive and profitable

Industry driving forces: The advent of globalization has boosted international business which has allowed global sourcing which is the need of the hour for realizing economies of scale The increasing importance of internet in daily lives is a key driver in the increasing PC sales. Moreover e-commerce has caught up as a sensation and has become an important part of corporate and consumers alike

CASE ANALYSIS: APPLE INC. IN 2010

Changing buyer preferences and the need for differentiated products is the driver for new product development viz. Net book, PDAs etc The increasing product innovation has increased the variety available to consumers and thus consumers can avail better products at lower cost There has been a shift in the profile of users and the way they have been using it. Thus it has been seen how youngsters have been growingly using laptops or net books The growing change in societal attitudes and lifestyles of the consumers has led to the increasing popularity of net books and smart phones

Q4) Explain Apple`s resources and core competencies & how they were developed? Which of the above are Apple`s competitive resources & critical capabilities & why? Core Competencies: Apple's core competency is innovative design, technology and product lifecycle management (PLM). That's the spirit behind its famous "Think Different" ad campaign. Apple introduces products that truly wow the market. Think back to the Macintosh in 1984 -- the first affordable computer with a graphical user interface (GUI). Even the iPhone challenged the definition of a phone, by combining a portable digital media player, Internet client, GPS navigator, camera and a phone. Not only does Apple wow consumers, but it changes the way we think about consumer electronics. Apple developed these core competencies by moving ahead in the market and introducing all together new products line considering the changing environment and preferences. Apple always followed the approach of providing high end products with ease of use features and this was evident in all of their products. Apple combined its hardware and software in beautiful form and design that was something hard to imitate by others. Moreover delivering innovative products and high-tolerance for risk are part of Apples culture and culture is very tough to imitate. Apples own OS provides this functionality and capabilities to stay ahead of the market Key Resources: People with innovative approach, capital required, history of Apple, technology, goodwill, brand, Relationship with suppliers and network providers, Apple stores and Leadership are the important resources of Apple. People They think differently and this achieved through constant focus on innovation since inception. Now thinking differently became the culture of the company. Capital/Assets are the resources very cautiously utilized by Apple; the capability of taking risk and developing products without any market research has made the optimum utilization of assets and products and delivered value to the customers. Apples goodwill and brand image is very much positive in the minds of the customers mainly because of ability to wow the customers by launching new products and complements. The apple stores help the non-Mac users have an Apple experience and are a strategy that was uniquely adopted by apple. Technology forms a backbone of this company and it always promises to deliver the products with latest technology. Apple like other players in the market has maintained a good relationship with the suppliers and the network providers of any particular region. Apple experienced different leaderships in two decades of time but they all focused on sustaining the culture of innovativeness and took necessary actions to meet the challenges faced by Apple. Moreover until recently Steve Jobs as a CEO was one of key resources for the company. He was leader who drove the company through the valley of death when the company wasnt doing too well. Moreover he ensured that there wasnt any slack in the organization and continuously pushed the people to do more. Competitive resources are People and the innovation culture in the company.

CASE ANALYSIS: APPLE INC. IN 2010

Q5) Comment on Apple`s diversification so far (from P.C. to iPod, istore, iphone and ipad) with respect to Ansoff`s matrix & comment on common thread, if any? Apples diversification strategy started off in the early 2000s when it decided to diversify into iPods and later into smart phones and tablet markets. Thus the common thread is the innovation that apple catered to in its quest for higher market share.

When it started off as a PC manufacturing company it brought a new product into a new market and hence went for diversification. Later on in 1980s and 1990s, it primarily focused on product development. Thus it came up with a new product in the existing market and went for product development to address changing consumer needs by introducing handy computers, music players and smart phones. Apple also forayed to new markets later on like China, Hongkong, Europe and other developing nations to gain economies of scale thereby focusing simultaneously on product and market development. The success of iPod, iTunes and iPhone are also important pointers as to how its diversification strategy worked. At the time there was no product in the market that gave you similar ease of use and storage capabilities with superior design and hence it was the critical differentiation factor which led to the success of iPod and other products. Moreover in the smart phones space along with the phone the emergence of apple apps also were the critical differentiating factors which gave the iphone an edge over other smart phones. Q 6) Analyse how is Apple`s competitive advantage sustainable in P.C., MP3, iTunes smart phone and ipad? Apple reduced the threat of holdup and enhanced value sharing with other players by building better relationships with its existing and prospective suppliers and buyers. Its focus on designing from top to bottom including the peripherals allows it to build inimitable resources and in few products gaining the advantage of first mover helped Apple to always sustain their business model and remain at the peak. Thus the threats to imitation are minimised. Design & Innovation oriented approach followed by Apple to bring new customer friendly products to market has given them an edge over its competitors. The product line along with features with plug and play system, R & D based approach, alliance with other partners, acquisitions made, retail sales through online portals and setting up of Apple stores and advent of e-commerce has led to the increasing differentiation of Apple from its consumers and increased the brand image.

CASE ANALYSIS: APPLE INC. IN 2010

Apples creation of the digital hub has given it a differentiated edge among its competitors. The learning curve, innovation has lead Apple to realize the economies of scale which gave it better advantage than the competitors by increasing the barrier to entry. It has adopted a razor blade technology which has enabled it to market its iPod and iTunes favourably and earn higher than average profits. Use of DMR in case of iTunes and elegant design and high storage capacity of iPod helped Apple gain competitive advantage. Availability of downloads at Apple store and relationship with the music Labels proved to be the important factors in gaining customer confidence. Apple gained first mover advantage in case of iPad and this helped Apple to tap markets and gain loyal customers. It has made its products difficult to imitate which has been created due to higher order fit that it has been able to create for its activities by combining product with the complementors. Apple focused on one of its core competency of product lifecycle management and responded quickly to technological changes. It nurtured its core competency carriers like the people which gave it an edge in terms of skilled manpower. Thus this helped Apple have a sustainable competitive advantage in the long run. Q7) Analyze the performance of Apple from 1981 onwards (decade wise). What are the current and emerging challenges? 1981-90 - IBM entered with Microsofts DOS operating system and a microprocessor from Intel. It was a relatively open system that any producer can clone in contrast to Apples own proprietary design. This made IBM gain market share and lead to a significant shift in the economic peaks in the business landscape. Despite of its retaliation Apple lost a huge chunk of its market share leading to the exile of Jobs from Apple in 1985. Sculley, the new CEO of Apple, diversified the business of Apple into Desktop publishing and education. Because of the superior software Adobe PageMaker and peripherals along with the desktop Apple gained market share. This diversification in business brought back stability in Apples business. By 1990 Apple was again the market leader. Apple introduced many innovative consumer friendly products but still going with the proprietary system. Apple always indulged in R&D with maximum of 9% of sales spending on the same. This shows Apple lost sales to IBM because of its OS and proprietary design and then took the route of diversification and taped the untapped markets of education and publishing and again became the leader with its first mover advantage and superior features 1991-2000 - In 1991, Apple partnered with long-time competitor IBM to form the Aim alliance with a motive to create a revolutionary new computing platform, known as PReP, which would use IBM and Motorola hardware and Apple software , leading to the formation of two JVs Taligent and Kaleida. Apple also entered into cooperative project with Novell and Intel to develop its OS to work on Intel chips. Despite all these efforts, Apple because of its non openness in PCs lost market share to IBM. This time Sculley took the blow and expelled out of Apple. Spindler, the new president, pushed for growth in International markets and started licensing of Apple PCs. But by that time Wintel based PCs were in use for its speed and compatibility with other software. At the end of 1995, IBM and Apple broke their JV in Kaleida and Taligent giving a blow to Apples ambition of a revolutionary OS.

CASE ANALYSIS: APPLE INC. IN 2010

Apple appointed Amelio as its new CEO. Amelio brought back Jobs into Apple and developed new OS with Next. Despite all its efforts Apple lost $1.6bn under Amelio leading to his replacement with Steve Jobs in 1997. Steve Jobs stopped licensing of Apple PCs and hired Taiwanese contract assemblers to manufacture low cost Mac products. He invested more in R&D. In 1998 iMac was released with compatibility with Windows based peripherals for the first time. Jobs adopted a differentiation strategy to establish Mac as Greenest line of notebooks. At the 1997 Macworld expo, Steve Jobs announced that Apple would be entering into partnership with Microsoft. Included in this was a five-year commitment from Microsoft to release Microsoft office for Macintosh as well a US$150 million investment in Apple. With this Apple ended its rivalry with Microsoft and stressed on mutual growth. Apple failed to reduce the gap between its mission and vision to produce revolutionary OS mainly the alliance didnt worked for longer time but later on Jobs changed the strategy and business model and distribution to make company profitable 2001-current year - In 2001 Jobs gave his vision of Digital hub, making Apple a complete digital solution provider and forayed into integration, control and value addition to the digital devices worldwide. This is when iPod took birth followed by iTunes in 2003, iPhone in 2007 and iPad in 2010. Apple continued with its R&D and developed many products like Mac OSX, Safari, Leopard etc. In 2006 Apple made a significant move by introducing first Mac computer to run on an Intel chip. After which all Mac lines ran on Intel chips. And till now many variants of iPhone has been introduced. Steve Jobs changed the rules for the company and transformed Apple from a PC manufacturer to a Digital hub Challenges: 1. Technology. Apples iPhone variants are not giving any radical difference to consumers. A bit of add on is what Apples iPhones are providing in comparison to their predecessors both in terms of their physical attributes and technological capabilities. iPhone is facing challenge from other Mobile OS like Android. Company is facing threat of imitation with respect to its product lines and other companies are supposed to release their products in their local markets at low price 2. Leadership Change. The company is in the middle of a leadership transition that casts a cloud of uncertainty over its future. Though the brand image of Apple is what matters but will the new leader take the company forward with same pace as done by Jobs 3. Competition. Apple has faced a serious challenge to two of its blockbuster products, the iPad and the iPhone. On the tablet market, Apple contends with an unlikely challenger: online seller Amazon.com. Last week, the company is expected to announce the release of its new version of the Kindle reader, which analysts expect to be a serious challenge to Apples iPad. On the iPhone side, Apple faces a new challenge from Googles Android phones, especially if Google manages to integrate Motorola Mobility successfully to its organization. There is also a threat of substitute products for iPod 4. Global Slowdown. Slow down in Apples biggest markets like US and Europe is putting pressure on Apples margins

CASE ANALYSIS: APPLE INC. IN 2010

Q8) what are your recommendations regarding these challenges and why? 1. Apple should start focusing on its retail chain and Apple store and strengthen companys network in US and Europe to reach out to its loyal and new customers 2. It should reach out to countries where its share of market is minimal to leverage on International PLCs and reduce the threat it is facing for all its product lines 3. Apple should start acquiring small innovative companies to bring in more talented people and expertise. This will also help to reach out to untapped local markets 4. Apple should relaunch Apple TV integrated with other prominent features of Apple like iTunes, iCloud with innovative ad campaign with affordable pricing strategy 5. Apple should consider diversifying into Hollywood and providing customized digital solutions to the clients and also to the current existing products which can be made easy to use with superior design like projector 6. Superior software and Apps are what Apple need to look in near future. Developing software and applications we never imagined will give Apple an added advantage in the market. Apple should cut number of junk services it is providing currently and create space for value added services at its App Store