Apple s mission statement Apple designs Macs the best personal computers in the world along with OS X iLife iWork and professional software Apple leads the digital music revolution with its iPods and iTunes online store Apple has reinvented the mobile phone with its revolutionary iPhone and App Store and is defining the future of mobile media and computing devices with iPad Questions o Historically what were Apple s major competitive advantages Ease of use Traditional strength in desktop publishing and education Buyer and brand loyalty Proprietary system supports higher margins and creates barriers to entry Proprietary system supports higher margins and creates barriers to entry Brand recognition Plug Play o How have the dynamics of the PC industry changed Are the dynamics favorable or problematic for Apple Clearly Customer sophistication in parts and terminology Before Brand applications reliability service which meant IBM Now Performance and price Now more difficult powerful customers o Based on a Five Forces analysis is the PC industry attractive Who buys it IT or purchasing What volumes Firms replace PCs every 3 4 years A large firm may purchase 5060K PCs per year More knowledgeable consumers Buyer power of customers Consumers are price sensitive knowledgeable and unwilling to pay for customer support Rivalry with the industry Continuous reductions in prices PCs are commodities Veryrapid technology obsolescence Strong buyers with greater sophistication VERY TOUGH INDUSTRY Barriers to entry You can assemble a PC with a screwdriver Standardized components are widely available Distribute over the web Customers who are price sensitive will buy from lowest cost provider Barriers to entry are relatively low LO Subsitutes LOTS Variety of PCs to choose from PDAs getting better Smartphones tablets etc Suppliers Component suppliers i e disk drives no real power The only suppliers that make the money are Intel and Microsoft SUMMARY Spohisticated powerful buyers Vicious rivalry Lots of potential subs low barriers to entry suppliers are appropriating most of the industry s residual profits Where does Apple fit in this picture Apple not directly in the PC business High barrier to imitate the Mac Loyal customer base Not captive to Microsoft OS While Macs are not PCs Macs and PCs are substitutes Declining prices in PC puts pressure on Mac Macs don t have as many third party software providers Billions of PCs versus millions of Macs ISVs write to the huge PC installed base Falling software prices also hurt Mac since less ISVs will make money on Mac version Biggest ISV is MS What platform do you think they ll promote It costs Apple 1 billion to develop an OSX and can reach Break Even in 3 years MS spent 2 5 billion on Win7 and generated 7 Bill in 3 months What did Steve Jobs do to transform Apple from a struggling computer manufacturer to a successful consumer electronics company Sculley Spinder and Emilio tried to focus on o o Results o o o o High volume low price Big hit products Newton IBM JV to target MS and Intel Low price requires cutting unecessary costs Big hit products require R D and marketing costs Joint venture dependent on Microsoft and Intel not responding How did Apple try to solve these issues When Steve Jobs returned he focused on Traditional Mac lovers Use design and marketing to geta premium Retail stores to expand brand and image Shift to Intel CPU HIGH RISK But the basic economics have not changed Despite incredible growth Apple still has 5 7 market share in computers Has Apple found a way to prosper in this difficult industry environment Did the iPod do the trick 70 market share in MP3 players as of 2010 85 market share in legal digital downloads iPod Easy to imitate but hard to compete Steady stream of innovations iPod mini nano touch and so on Price points at all levels not just the premium Torrid pace of innovation Switching costs iPod locked with iTunes Cost leadership Apple has long term contracts for components Music labels are not happy with Apple erosion of CD sales but they are the dominant provider Apple created an ecosystem hardware software and music Threat of substitutes Cell phones and streaming music Smartphones Powerful allies Verizon ATT and Sprint control 75 of the cell phone market Subsidized cost to purchase iPhone App store focus on software rather than hardware 30 of app revenue Are able to make profits on services that they don t manufacture phone plan music apps Economies of scope and scale Mac iPod iPad iPhone share marketing Challenges of iPhone Nokia still has worldwide dominance but waning Google s open Android system embraced by competitors Is iPhone a fad Fads and fashions fickle and unstable Will the iPad be the next big win for Apple Broader lessons from Apple There is a big difference between product advantage and competitive advantage Competitive advantage requires thinking about the entire value system of a company not just making a better product o Companies need to pay attention to market opportunities and market timings o Clearly Apple understood timing and windows of opportunity Highest market capitalization as of 3 6 13 o Apple 400 BILLION compared to MS Google IBM Dell in 2000 bill ish o o