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Apple Case   Group 6:
                 Pujit
              Prakash
                Vinod
             Chandan
                 Ajay
Overview
• Apple´s competitive advantage
• Market structure
PC market
Music players
Cell phones
• Does Apple have a competitive
  advantage in those markets?
• Prospects Ipad market
• Apple’s future
Situation < 1997
Mission Apple
• Easy to use computer to market
• Industrial design
• Technical elegance
Scope
Customers: Loyal (Love the Mac)

Products:
• Complete desktop solution
• Industrial design
• Technical elegance

Vertical integration:
• Alliances IBM
• 2 joint ventures

Geograpic: From small (garage)  Low cost mainstream
Steve Jobs > 1997
Strategy Back to core product
Tactics
• No licensing
• From 15 products  4 categories
• Website (direct sales)
• Pared down inventory
• More spending R&D
• All-in one computer
• Egg shell design
What have been the
sources of    Apple’s
competitive
advantage?
Stable sources of competitive advantage?
Year          Source competitive
              advantage                 Year    Source
                                                competitive
1970s         Easy-to-use computers
                                                advantage
                                        1990s   Low costs
1984          Ease-of-use, industrial
              design, technical
              elegance                  1990s   Hit product every
1980s-1990s   Superior software                 6 to 12 months

                                        2000s   Design, plug &
1980s-1990s   High investment R&D               play

1980s-1990s   Complete desktop          2000s   Successful
              solution, hardware,               marketing
              software, peripherals:            campaigns
              plug and play             2000s   Greenest lineup
1980s-1990s   Designing products                of notebooks
              from scratch
Analysis of the
structure &
profitability of the
pc industry?
PC market                    Barriers to
                                entry

                  Low: Easy to make, easy to clone pc’s
                  High: difficult to become big


       Supplier                                            Buyer
                                Rivalry
        power                                              power

Low: Memory              High:                       High: Low price
chips, disk              Lenova, IBM, HP, Del        & standardized
drives, keyboar          l, Acer                      customers
ds                            Substitutes            can buy every
High:                                                pc they want.
Processors                                           Low switching
(Intel) & OS             High & increasing:          costs
(Microsoft)              Smart phones, mini
                         laptops, tablets, old
                         pc’s
Structure PC industry
• Diversified and tough competition due to
  low barriers of entry and low switching
  costs
• Knowledgeable customer due to
  transparency information
• Dominant suppliers of processors and OS
  • Intel and Microsoft leading to high standardization,
    difficult to differentiate
• Many substitutes available
Profitability
Players (2009)        Gross margin        Net income (in millions)
HP                    23.6%               $ 7,660
Dell                  18.0%               $ 1,433
Apple                 40.0%               Not known

Suppliers             Gross margin         Net income (in millions)
Intel                 16.0%                $ 4,369
Microsoft             79.0%                $ 14,569


 The industry is profitable, both when looking at gross margin as
 well as net income. Apple has a higher gross margin of 40%, due
 to the higher price they ask for their PCs. However, Apple had a
 market share of only 4.2% (2009), whereas HP had a market
 share of about 20%.
Dynamics industry
• The dynamics are favorable for apple

 Standardized market




 Own supplier

                          High
 Love Apple               WTP
 Fit with complementary
 products
Does Apple have a
sustainable
competitive
advantage in the
PC market?
Does Apple have a competitive advantage in
               PC market?
 Yes, because Apple offers a differentiated
 product in a heterogenic market. Besides
 that Apple has
  A strong brand name, due to marketing
   A strong customer relationship
   High R&D investments
   A big difference between WTP & Costs
      (40% margin)
  Is this sustainable?
  Yes, because apart from high R&D
  investments the other capabilities are
  inimitable.
Problems of Apple in the PC industry
            (1988-2001)
• IBM dropped prices, MAC appeared
  overpriced by comparison
• Low R&D
• Low Cost
• Licensing  cannibalization own products

Solution 
• Going back to initial strategy
• Cooperation Microsoft – Microsoft Office
• Cooperation Intel – CPU on which
  Windows OS could be installed
Did Jobs make his move from Motorola
   and IBM to Intel at the right time?
• This shift enlarged the customer group of
  Apple by being able to make use of
  Microsoft.
• However Jobs could have made this
  move earlier, in 1997 instead of 2006.
What is the structure of
the Music player market?
Music player               Barriers to
                             entry
                 High: Easy to produce - low
                 Build up supply chain – high
                 Image building - high


      Supplier                                          Buyer
                            Rivalry
       power                                            power

 Medium: Hynix     High: SanDisk                 High:
 Samsung           Samsung                       Many choices
 Toshiba           Creative M’soft Zune (2006)   Low switching costs
 Intel
 Myaon                     Substitutes
 High:
 dependability     High
 Mutual            Smartphones (Spotify, downloads
 depending         songs to phone)
 Flash memory      tablets
Does Apple have a
competitive
advantage in the
music player market?
Apple in the music player market
Competitive advantage        Value   Rareness   Inimitability   Appropriability
Positional advantage
Customer relationship        ++      -          -               ++
Brand name                   ++      +          +               ++
Status                       ++      +          +               ++
Apple stores (distribution   ++      ++         ++              ++
channel)
Capabilities
Design                       ++      +          -               ++
Simple user interface        +       -          -
Large storage on the ipod    +       +          +               ++
Rapid product development    ++      +          -               ++
Digital hub                  +++     +++        +++             +++
Apple’s iTunes store         ++      ++         -               -
Nike+                        ++      ++         --              +
iPod accessories             ++      -          -               ++
Apple does have a competitive advantage
       in the music player market?

• Just as with the other products, Apple
  has a strong brand name, that the
  customers associate with status  hard
  to imitate
• Apple has a strong customer relation,
  due to the digital hub, iTunes and
  Apple stores
Apple does have a competitive advantage
       in the music player market?

• Large storage space  rareness,
  because Apple had contracts with
  suppliers and bought most of the
  memory available on the market
• Digital hub  an entire network of
  compatible products of one brand,
  hard to copy due to resource reasons
  (time and money)
What is the structure
of the cell phone
market?
Cell phone                     Barriers to
                                 entry

                   High: Short product life cycle
                   Contract with carriers
                   High investment

     Supplier                                            Buyer
                                Rivalry
      power                                              power

High: Powerful       High: Nokia, Motorola,         High: Choice
distribution         Samsung 60% market share       based on
carriers (NTT        A lot of competition           attractive
DoCoMo &             Blackberry (RIM), Google       hardware and
Vodafone) &                                         user-friendliness
powerful                       Substitutes
network carriers
(Verizon & AT&T)         High & increasing:
                         “Normal” phone
Android                  Laptop
OS(Google)               Tablet
Does Apple have a
competitive
advantage in
the cell phone
market?
Apple in Cell phone market
Yes competitive advantage
- Strong brand name
- Loyalty customers
- Innovative design
- High research & development investments
- Easy to use OS. (no viruses)
- App’s (store)

Can Apple sustain its iPhone success?
- Competition is rising
- Short product life cycles
- Technology is evolving
- Substitutes (Ipad)

Conclusion: It will be hard for Apple to sustain
it’s success due to high rivalry and high buying power.
They will have to keep differentiating themselves.
What are the
prospects        of the
Ipad?

        IPAD 2
SWOT analysis of the IPAD 2
Strenghts                                          Weaknesses
                  Brand name
                Customer loyalty
                 “love apple”        Idea and
                                   technology is
                  Deliver extra       imitable
                   Add-ons
                   App store



Opportunities                                      Threats

                Your new laptop    Competitors
                    Wireless       Losing Steve
                 rechargeable          Jobs
Prospects for Ipad 2
• Ipad 3

  – Experience your new laptop

  – Wireless rechargeable
Apple’s solution to the chronic problem
Chronic problems of the market
• Technology is not sustainable
• Standardization of the market
• Dropped prices of components
• Short product life cycle

Apple’s problem
• How to continue Apple without Jobs?

Did Jobs solve the market problem? Yes,
• By being innovative
• Apple differentiates itself from competitors
• Jobs maintained high prices
• Keeps investing in R&D

Jobs made himself irreplaceable
Apple’s future
Does Apple have a sustainable advantage
today?
Yes, because of customer loyalty due to a
strong brand name, digital hub.

Alternative strategic options:
• Customer intimacy
• Product leadership
• Operational excellence

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Apple 1

  • 1. Apple Case Group 6: Pujit Prakash Vinod Chandan Ajay
  • 2. Overview • Apple´s competitive advantage • Market structure PC market Music players Cell phones • Does Apple have a competitive advantage in those markets? • Prospects Ipad market • Apple’s future
  • 3. Situation < 1997 Mission Apple • Easy to use computer to market • Industrial design • Technical elegance Scope Customers: Loyal (Love the Mac) Products: • Complete desktop solution • Industrial design • Technical elegance Vertical integration: • Alliances IBM • 2 joint ventures Geograpic: From small (garage)  Low cost mainstream
  • 4. Steve Jobs > 1997 Strategy Back to core product Tactics • No licensing • From 15 products  4 categories • Website (direct sales) • Pared down inventory • More spending R&D • All-in one computer • Egg shell design
  • 5. What have been the sources of Apple’s competitive advantage?
  • 6. Stable sources of competitive advantage? Year Source competitive advantage Year Source competitive 1970s Easy-to-use computers advantage 1990s Low costs 1984 Ease-of-use, industrial design, technical elegance 1990s Hit product every 1980s-1990s Superior software 6 to 12 months 2000s Design, plug & 1980s-1990s High investment R&D play 1980s-1990s Complete desktop 2000s Successful solution, hardware, marketing software, peripherals: campaigns plug and play 2000s Greenest lineup 1980s-1990s Designing products of notebooks from scratch
  • 7. Analysis of the structure & profitability of the pc industry?
  • 8. PC market Barriers to entry Low: Easy to make, easy to clone pc’s High: difficult to become big Supplier Buyer Rivalry power power Low: Memory High: High: Low price chips, disk Lenova, IBM, HP, Del & standardized drives, keyboar l, Acer  customers ds Substitutes can buy every High: pc they want. Processors Low switching (Intel) & OS High & increasing: costs (Microsoft) Smart phones, mini laptops, tablets, old pc’s
  • 9. Structure PC industry • Diversified and tough competition due to low barriers of entry and low switching costs • Knowledgeable customer due to transparency information • Dominant suppliers of processors and OS • Intel and Microsoft leading to high standardization, difficult to differentiate • Many substitutes available
  • 10. Profitability Players (2009) Gross margin Net income (in millions) HP 23.6% $ 7,660 Dell 18.0% $ 1,433 Apple 40.0% Not known Suppliers Gross margin Net income (in millions) Intel 16.0% $ 4,369 Microsoft 79.0% $ 14,569 The industry is profitable, both when looking at gross margin as well as net income. Apple has a higher gross margin of 40%, due to the higher price they ask for their PCs. However, Apple had a market share of only 4.2% (2009), whereas HP had a market share of about 20%.
  • 11. Dynamics industry • The dynamics are favorable for apple Standardized market Own supplier High Love Apple WTP Fit with complementary products
  • 12. Does Apple have a sustainable competitive advantage in the PC market?
  • 13. Does Apple have a competitive advantage in PC market? Yes, because Apple offers a differentiated product in a heterogenic market. Besides that Apple has  A strong brand name, due to marketing  A strong customer relationship  High R&D investments  A big difference between WTP & Costs (40% margin) Is this sustainable? Yes, because apart from high R&D investments the other capabilities are inimitable.
  • 14. Problems of Apple in the PC industry (1988-2001) • IBM dropped prices, MAC appeared overpriced by comparison • Low R&D • Low Cost • Licensing  cannibalization own products Solution  • Going back to initial strategy • Cooperation Microsoft – Microsoft Office • Cooperation Intel – CPU on which Windows OS could be installed
  • 15. Did Jobs make his move from Motorola and IBM to Intel at the right time? • This shift enlarged the customer group of Apple by being able to make use of Microsoft. • However Jobs could have made this move earlier, in 1997 instead of 2006.
  • 16. What is the structure of the Music player market?
  • 17. Music player Barriers to entry High: Easy to produce - low Build up supply chain – high Image building - high Supplier Buyer Rivalry power power Medium: Hynix High: SanDisk High: Samsung Samsung Many choices Toshiba Creative M’soft Zune (2006) Low switching costs Intel Myaon Substitutes High: dependability High Mutual Smartphones (Spotify, downloads depending songs to phone) Flash memory tablets
  • 18. Does Apple have a competitive advantage in the music player market?
  • 19. Apple in the music player market Competitive advantage Value Rareness Inimitability Appropriability Positional advantage Customer relationship ++ - - ++ Brand name ++ + + ++ Status ++ + + ++ Apple stores (distribution ++ ++ ++ ++ channel) Capabilities Design ++ + - ++ Simple user interface + - - Large storage on the ipod + + + ++ Rapid product development ++ + - ++ Digital hub +++ +++ +++ +++ Apple’s iTunes store ++ ++ - - Nike+ ++ ++ -- + iPod accessories ++ - - ++
  • 20. Apple does have a competitive advantage in the music player market? • Just as with the other products, Apple has a strong brand name, that the customers associate with status  hard to imitate • Apple has a strong customer relation, due to the digital hub, iTunes and Apple stores
  • 21. Apple does have a competitive advantage in the music player market? • Large storage space  rareness, because Apple had contracts with suppliers and bought most of the memory available on the market • Digital hub  an entire network of compatible products of one brand, hard to copy due to resource reasons (time and money)
  • 22. What is the structure of the cell phone market?
  • 23. Cell phone Barriers to entry High: Short product life cycle Contract with carriers High investment Supplier Buyer Rivalry power power High: Powerful High: Nokia, Motorola, High: Choice distribution Samsung 60% market share based on carriers (NTT A lot of competition attractive DoCoMo & Blackberry (RIM), Google hardware and Vodafone) & user-friendliness powerful Substitutes network carriers (Verizon & AT&T) High & increasing: “Normal” phone Android Laptop OS(Google) Tablet
  • 24. Does Apple have a competitive advantage in the cell phone market?
  • 25. Apple in Cell phone market Yes competitive advantage - Strong brand name - Loyalty customers - Innovative design - High research & development investments - Easy to use OS. (no viruses) - App’s (store) Can Apple sustain its iPhone success? - Competition is rising - Short product life cycles - Technology is evolving - Substitutes (Ipad) Conclusion: It will be hard for Apple to sustain it’s success due to high rivalry and high buying power. They will have to keep differentiating themselves.
  • 26. What are the prospects of the Ipad? IPAD 2
  • 27. SWOT analysis of the IPAD 2 Strenghts Weaknesses Brand name Customer loyalty “love apple” Idea and technology is Deliver extra imitable Add-ons App store Opportunities Threats Your new laptop Competitors Wireless Losing Steve rechargeable Jobs
  • 28. Prospects for Ipad 2 • Ipad 3 – Experience your new laptop – Wireless rechargeable
  • 29. Apple’s solution to the chronic problem Chronic problems of the market • Technology is not sustainable • Standardization of the market • Dropped prices of components • Short product life cycle Apple’s problem • How to continue Apple without Jobs? Did Jobs solve the market problem? Yes, • By being innovative • Apple differentiates itself from competitors • Jobs maintained high prices • Keeps investing in R&D Jobs made himself irreplaceable
  • 30. Apple’s future Does Apple have a sustainable advantage today? Yes, because of customer loyalty due to a strong brand name, digital hub. Alternative strategic options: • Customer intimacy • Product leadership • Operational excellence