Apple’s stock market valuation reached $623 billion, making it the most valuable public company of all time. 1 A mere 15 years earlier, Apple would likely have gone bankrupt if archrival Microsoft (which enjoyed the same position with a valuation of $615 billion in December 1999) had not invested $150 million in Apple. How did Apple become so successful? Apple became the world’s most successful company due to a powerful competitive strategy. That strategy, conceptualized by co-founder Steve Jobs, combines innovation in products, services, and business models.
From near-bankruptcy in 1997, Apple’s revitalization really took off in the fall of 2001 when it introduced the iPod, a portable digital music player. Eighteen months later, Apple soared even higher when it opened the online store iTunes, quickly followed by its first retail stores. Apple’s stores now earn the highest sales per square foot of any retail outlets, including luxury stores such as Tiffany & Co. jewellery or LVMH, purveyor of fine handbags and other luxury goods. Apple didn’t stop there. In 2007, the company revolutionized the smartphone market with the introduction of the iPhone.
Just three years later, Apple created the tablet computer industry by introducing the iPad, thus beginning to reshape the publishing and media industries. Further, for each of its iPod, iPhone, and iPad lines of businesses, Apple followed up with incremental product innovations extending each product category. By combining tremendous brain power, intellectual property, and iconic brand value, Apple has enjoyed dramatic increases in revenues. More traditional firms such as Exxon Mobil and GE—each at one time the world’s most valuable company—can now only dream of such results.
In the fall of 2012, investors’ expectations of Apple’s future growth potential in burgeoning industries such as the mobile Internet, TV, and other media propelled its share price to over $700. Some analysts contend that Apple may become the first $1 trillion company on the planet. What will it take to achieve that? To do so, Apple must continue to find new industries to revolutionize, while at the same time increase its global market penetration in emerging economies such as China and India. Analysis THE COMPETITIVE CHALLENGE.
First, consider the diagnosis of the competitive challenge; Apple’s renewal from the year 2001, when it hit upon the product and business-model innovations of the iPod/iTunes combination. Prior to that, Apple was merely a niche player in the desktop computing industry, and struggling financially. Steve Jobs turned the sinking company around by focusing on only two computer models (one laptop and one desktop) in each of two market segments (the professional market and the consumer market) as opposed to dozens of non-differentiated products within each segment.
This streamlining of its product lineup enhanced Apple’s strategic focus. Even so, the outlook for Apple was grim. Jobs believed that Apple, with less than 5 percent market share, could not win in the personal computer industry where desktops and laptops had become commoditized gray boxes. In that world, Microsoft, Intel, and Dell were the star performers. Jobs needed to create the “next big thing. ” A GUIDING POLICY. Next, let’s consider the guiding policy. In this case, Apple shifted its competitive focus away from personal computers to mobile devices.
In doing so, Apple disrupted several industries through its product and business-model innovations. Simply put, a business model explains how the firm intends to make money. Combining hardware (i. e. , the iPod) with a complementary service product (i. e. , the iTunes Store) enabled Apple to devise a new business model. Users could now download individual songs legally(at 99 cents) rather than buying an entire CD or downloading the songs illegally using Torrent and other file-sharing services.
The availability of the iTunes Store drove sales of iPods. Along with rising sales for the new iPod and iTunes products, demand rose for iMacs. The new products helped disrupt the existing personal computer market, because people wanted to manage their music and photos on a computer that worked seamlessly with their mobile devices. The success of the iPod/iTunes business model innovation was then leveraged to develop and launch the iPhone and the iPad. COHERENT ACTIONS. Finally, Apple implemented its guiding policy with a set of coherent actions.
Apple’s coherent actions took a two-pronged approach: First, it streamlined its product lineup through a simple rule -“we will make only one laptop and one desktop model for each of the two markets we serve, professional and consumer. ” Second, it disrupted the industry status quo through a potent combination of product and business model innovations, executed at planned intervals. These actions allowed Apple to create a string of temporary competitive advantages. Taken together, this string of temporary competitive advantages enabled the company to sustain its superior performance over a number of years.