How has Apple performed in the PC industry? What is your evaluation of its performance in the PC business? The IBM PC was leading the way in the 80s positioning itself as the first mover with Apple Macintosh being the follower. Apple relied heavily on segmentation to strengthen its position. The segmentation they followed was consumer based namely education and Macintosh loyalists. The main differentiation Apple relied on heavily was their “plug and play” setup which their customers valued as well as the superior software that was offered.
The fact that consumers were willing to pay a high premium for the Mac experience suggests that the competition was lacking in qualities which mattered to people and those being the convenience of the Plug and Play feature. IBM being a threat was able to compete on a price basis and which resulted in creating complementers such as new applications to strengthen its position and recapture sales from Macintosh. We again see evidence of Mac’s lack of vision and leadership under Sculley by them deciding to follow the first movers and release a low cost Mac Classic.
When Jobs came along in 1997 he realized that content, being software, is the main complementer to the PC industry. Microsoft office being a prominent technology has become a standard across enterprises. Jobs realized that the current switching costs for users would be very high when lacking access to office and moved to form a strategic alliance with Microsoft to extend support with Office for Mac. His second move was to focus strictly on 4 main segments, desktops for consumers and for professionals, and portables for consumers and for professionals.
Clearly the main weakness that Jobs had to worry about was the lack of innovation but before he could innovate the main concern is to survive in what was mostly a PC dominated industry. To do that, Jobs took what he knew and adjusted it to adapt to the current environment; the traditional Plug and Play was extended to accommodate windows based peripherals and emphasis was placed on design as differentiation. Jobs also made a significant effort by changing the image of Mac and specifically through fashion magazines and positioning Mac as the new hip thing.
Being in a hyper competitive industry creates the disadvantage of having to sustain competitive advantage Jobs shifted Apple’s position in the PC industry from follower to first mover through the “digital hub” strategy. Using Porters five forces would better show the overall performance of Apple in the PC industry Porter’s 5 forces| Their relation to Apple PC market| Apple’s response| Competitive Rivalry | Mature Market: Market is controlled by key players all with Wintel productsPrice based: due to lack of innovation| Apple invested a 12% in R&D to develop its differentiation qualities building on their Plug and Play concept Apple also invested a lot in Marketing to change its image and brand |
Threat of Substitutes| Evolving industry: Highly dynamic market with new features driven by digitized content (pictures, MP3, video, etc.) None PC products: Historically PC’s were the 1 stop shop for games, DVD’s , video chat, internet. Mobilization spawned a new breed of mobile devices.| Instead of competing directly with substitutes Mac positioned itself as the “digital hub” with its new heterogeneously friendly plug and play feature able to accept and consolidate a wide variety of devices and peripherals |
Threat of new entrants| Economies of Scale: large players leverage economies of scale to compete on priceHigh Cost of Entry: Producing PC’s while doable (White Box producers) lack the support factor large companies can offer. | Apple forties its position with differentiation through innovation, R&D and marketing | Bargaining Power (supplier)| Processors: only Intel and AMD make chips (High bargaining power)Components: Hyper competitiveness created many players and dropped prices (Low bargaining power)Content/ Applications:
Microsoft with their Office suite was the dominant player (High bargaining power)| Apple’s switch to Intel reduced the switching cost and gave apple another competitive advantage by demonstrating that Mac can now run windows applicationsApple invested $150 million to make office available on Mac and as a defensive strategy continued to develop the iWork suite| Bargaining Power (buyer)| Prices sensitivity: consumers had to pay a premium to obtain Mac productsSoftware availability: The dominance of Wintel systems drove developers to make more applications available of Wintel systemsSubstitutes:
Wintel systems provided a lower cost alternative with more functionality and support for applications| Apple focused on key consumer decision point such as product design, wireless connectivity and mobility.Apple’s shift to the Intel chip allowed Mac to reduce the switching cost for consumers Apple created a new “blue ocean” market with the concept of the digital hub as a differentiator and positioning the Mac as collection point of people’s digital lives through Mac’s Plug and Play capabilities which supported both Mac and Windows based peripherals. |
Assess Apple’s iPod, iTunes and iPhone and iPad strategies and performance. How would you compare them to its Mac strategy? Regardless of the fact that Apple was seeking to enter an industry with high barriers particularly in the form of carriers, Apple’s iDevice strategy was strong enough to overcome all the barriers and it did so by instituting an encompassed strategy based on innovation, differentiation, complimenters, licensing and going head to head against dominant players. To better analyze this strategy a SWOT analysis would be beneficial to investigate the fit between Apple’s strategy, including its internal capabilities and external possibilities.
Strengths: * Sleek well designed intuitive products, iDevices all shared the same look and feel with innovative designs such as built in high quality camera with a full touch screen display, wifi, and large storage to cater to the digital media consumers want to carry around with them * Platform agnostic supporting both Mac and Windows enabled Apple to increase its market segment to include all computer users with media residing on multiple systems * iTunes while not being a significant revenue generator was a major complementer to the iDevice market providing a large selection of media content to consumers who no longer have access to Napster.
iTunes auto synch feature bridge the gap between desktop and mobile devices making it easier to keep desirable content accessible at all times. * Apple App Store made it easy and accessible to download applications onto mobile devices cheaply * Production control, Apple moved towards upwards integration buy creating their own branded chip A4 providing more differentiation with low-power requirements and faster CPU as well as securing large quantities of flash memory * Owning their own operating system (iOS) enabled Apple to control and grant access to developers to develop Apple apps
Weaknesses * High price point of iPhones meant that consumers would have to pay a very high premium absent the operator provided subsidy. Apple was able to counter act that effect in the early stages by reaching an alliance with AT&T to share revenue from iPhone sales. * High restriction and commitment costs where consumers would be required to bind to a two year contract and operate on locked networks.
* Lack of a keyboard is a major hindrance to high volume email users, but with the iPad becoming more and more of a 1 stop productivity device components such as external Bluetooth keyboards are available to counteract that factor * Short battery life making it necessary to recharge frequently, however Apple’s plug and play, well designed and stream lined devices makes it possible to carry one charger for all iDevices. * Health status of Steve Jobs is a big liability given that most of the prosperity enjoyed by Apple was a direct result of his leadership, strategies and innovative spirit.
Opportunity The fast growing demands of the iDevices by a fast growing customer base a great opportunity for Apple. The fast growing music phone market is great opportunity for Apple , it will continue to add value over time as consumers purchase more and more media and applications through iTunes and the App Store making the switching cost down the line very high. Strategic alliances with manufacturers is a great opportunity to continue adding value to the iDevices. This further extends the Plug and Play concept into other media based systems such as cars, most cars have built in iDevice integration, stereos such as Bose and other devices. Threat
Potential threats are Google’s Andriod, Microsoft Mobile 7 devices and new release with windows 8 devices with full compatibility and access to Apple’s app store. Apple also faced severe competition such as Sony, Samsung, HP and others which provide similar products with cheaper price. Another potential threat is the compete for the RIM market share; Apple’s Achilles heel is its “not corporate friendly” stigma it carries while competitors like Microsoft are lining up to take over the majority of the RIM market share with their productivity Apps. Steve Jobs has been the heart and soul of Apple’s transformation using innovation as one the key success factors for that transformation.
How durable is Apple’s current success and industry position? What would you recommend?
The impact of the digital media has been one of the most important factors that allowed Apple to propel itself forward towards becoming a technology convergence company (Exhibit 1). Apple’s ability to recognize and capitalize on that opportunity was important to its success. In addition the constant mood of anticipation Apple created and its secrecy regarding new products and releases played a key role in hyping up their loyalists for “the new thing”; the key however, is Apple’s unwavering ability to deliver on its promises and wow the masses.
Apple certainly has achieved a good level of durability by putting good distance between them and their competitors. It is very important for Apple to continue adhering to their shifting strategy and adapting it to market and industry. Innovation has been a key element and success factor and much of that is thanks to their investment in research and development.
With the mobile market experiencing another shift caused by the convergence of consumer and business devices Apple should be gearing up to position itself to take full advantage and provide an easy solution. Apple’s iCloud offering is a good example of how content is the driving force behind most mobile devices. We see Google making offering in the cloud as well which indicates that is very well the next battle stage for the race to gain market share.