case 3: apple. inc. - yaqiaoli.weebly.com · case#3: apple. inc. li5 ii. strategic analysis 2.1...

Case 3: Apple. Inc.

YaQiao Li

MGMT-340 Strategy

Professor.R.Ryan Raffety

Friday, November 7, 2014

Case#3: Apple. Inc. Li2

Table of Contents

I.Introduction …………………...…………………………………………………...………3

1.1 The Computer Industry ……………..……………………………………………………...3

1.2 Apple.Inc ….……………………..…………………………………………………………4

II. Strategic Analysis ……………….……..…………………………………………...……4

2.1 SWOT Analysis ……………………..…………..………………………………………....4

2.2.1 External Analysis- Opportunities and Threats …………………………………...5

2.2.2 Internal Analysis - Strengths and Weaknesses …………………………...……....7

2.2 Evaluation of SWOT Analysis …………..…………………………………………………9

2.2.1 Strengths ...…………………..…………………………………………………...9

2.2.2 Weaknesses ……………………..……………………………………………....10

2.2.3 Opportunities ……………………..……………………………………………..10

2.2.4 Threats ……………………..……………………………………………………10

2.2.5 Possible Changes on Managing SWOT ……………………..………………….10

2.3 Business Level Strategies ……………………..………………………...……………...10

2.4 Functional Level Strategies ……………………..………………...……………………11

2.5 Corporate Level Strategies……………………..…................….…………………………13

III. Solutions and Recommendations ..…………………………………….......………..14

IV. Conclusion ……………………..………………………………………………..……...15

V. Appendices ……………………..……………………………………………………..…15


I. Introduction

First I will analyze the overall computer industry, as well as the history and growth of Apple. Second, I will identify the company’s internal strengths and weaknesses, and external opportunities and threats. After that, I will evaluate the SWOT analysis of Apple. I will also explore Apple’s business-level strategies, functional-level strategies and corporate-level strategies. Then, I will conclude by providing recommendations on what Apple can do to to maintain its competitive advantages and to have a further grow on its business. I provide a quick reference that includes information corresponding to your specific questions in Appendix 1.

1.1 The Personal Computer Industry

When Apple first entered the computer industry, IBM was dominating the market with its mainframe computer business. However, many companies, including IBM, were still in the process of developing a personal computer. Even though IBM had a huge and very profitable mainframe computer business, it had failed to develop a personal computer. Besides, most personal computers at that time looked as if they had been assembled by hobbyists at home with visible screws and bolts shown on the case. Thus, Apple decided to develop a personal computer with a clean and unique design. By the end of 1980, the launch of Apple II had made the company the leader in the embryonic personal computer industry. It had also become a standard in American classrooms. In 1981, the industry changed again with the development of IBM PCs. IBM quickly took over the market leader role from Apple. The software business was also dominated by Microsoft, which licensed its operating system to IBM. At the same time, independent software developers started to write program for IBM PCs. IBM’s success also gave birth to its clone manufactures who made “IBM compatible” PCs that also utilized an Intel microprocessor and Microsoft’s MS-DOS operating system. As of 1985, Microsoft developed its own GUI, Windows, which quickly became popular with the PC industry. In the early 1990s, IBM’s sales started to decline, while the Windows operating system and an Intel microprocessor became the dominant standards found on 90% of all personal computers. Throughout the 1990s, the PC industry developed rapidly and quickly. In the early 2000s, the market leaders of the PC industry were Dell, Hewlett Packard, and IBM/Lenovo. In the PC industry, the four major customer groups were business, education, home, and government.

As the PC industry became highly standardized, technology, innovation and differentiation were key successful factors for PC businesses. In order to attract new customers and maintain the current customer base, companies had to continuously innovate the operating system while developing and adopting new technologies. Consumers were also looking for faster and lower power consumption PCs. Reducing manufacturing costs was another key component. In order to make an economic return, many companies started to outsource their production of components in low cost locations, such as China. Also, protecting the copyright of computer programs was crucial for a firm to be profitable in the industry. Since developing a program would cost a significant amount of money, protecting programs from pirates helped businesses to gain more sales on programs, which increased the economic return.

Unlike many PCs that used a Windows system, Apple was protected from pirates. Due to the complexity of its operating system, it was hard to develop piracy for Apple computers.


Apple also outsourced its hardware components from various locations, and manufactured its products in low cost locations. Those two advantages helped Apple maintaining profitability even under its continuous innovation. Looking at the retail side, most businesses relied upon third party retailers or direct sales in the early 2000s, such as the Dell online store. However, things changed by the opening of Apple’s retail stores. Apple’s retail stores added other key success factors to the PC industry: customer service and in-store experience. Moreover, the introduction of the iPod in 2010 was a revolution in the computer industry, which produced some threats to PC businesses.

1.2 Apple Inc.

Steve Jobs and Steve Wozniak founded Apple in 1976. The business started with selling primitive personal computers that was designed by Wozniak. After introducing the first version of Apple PC, the Apple I, the company invited Mike Markkula to join Apple as an investor. Soon, Apple launched an updated version of its PC, the Apple II. Apple II was a huge success and it became a standard in American classrooms where it was valued for its intuitive ease of use. Apple attracted many customers by its easy to use computer to market, industrial design, and technical elegance. However, due to the conflicts among the top managers and overestimating the demand, Apple started to lose its profits. As a result, Steve Jobs left the company in 1985. Sculley took over the managerial role of Apple, and he let the company to enter the desktop publishing market. Apple then dominated the desktop publishing by several driving forces. By licensing PostScript, which enabled the visual display and printing of high quality page layouts loaded with graphics, Apple introduced its LaserWriter printer in 1985. After a short time, another company also introduced a program called Page Maker for the Mac, which used Adobe’s PostScript page language for its output. At the same time, that company introduced a MS-DOS version of Page Maker in 1986. Apple enhanced its desktop publishing by combine this Page Maker with its own Mac GUI. Soon, Apple became the leader of desktop publishing segment. Besides, the release of Adobe Illustrator in 1987 and Adobe Photoshop in 1990 further enhanced the leader role of Apple.

After these golden years of Apple, the sales started to decline in the early 1990s. The company was in trouble. In 1997, Steve Jobs returned to Apple as CEO. Jobs saved the company by several strategies, including the transformation from using Motorola microprocessors to Intel microprocessors, as well as developing its own computer programs. Also, Apple opened its first retail store in 2001, which helped the company generating more profits. In 2012, Apple had over 390 Apple stores worldwide. By early 2013, Apple was the world’s most valuable company with $450 billion in capital. Apple’s success was credited to the launch of the iPod in 2001, the online iTunes store in 2003, the iPhone in 2007 and the iPad in 2010. Apple continuously innovated its products and was seen as the industry leader in PC, smartphone and tablet markets.


II. Strategic Analysis

2.1 SWOT Analysis

2.2.1 External Analysis- Opportunities and Threats

The external environment of the Personal Computer (PC) industry is analyzed by using the Porter’s Five Forces model, which is shown in Exhibit.1.

The first force is the risk of new entrants. Back in 1976, the barrier of entry was moderate to low because the PC market was still in the growing stage. New entrants did not need a significant amount of money to enter the market. However, as of 2013, the risk of entry by potential competitors is low for the PC industry because there are several barriers to entry. The first barrier is the expensive investment costs. Entering the PC market requires a significant investment of resources, because the PC industry is changing and innovating the product. New entrants that lack resources may have a hard time keeping up with the industry’s pace. In addition, the brand awareness and the market share of Apple is another barrier to entry. Potential entrants will find it is difficult to win the market share because Apple has differentiated itself with other companies in the PC industry. New entrants will not be able to copy Apple, as the company keeps innovating. On the other hand, Apple has to make sure the innovation of its product is fast enough to fulfill the customers’ needs, since the industry is changing constantly. In terms of the economies of scale, large corporations, such as Apple and IBM, have a lower cost structure due to the high production output, which puts new small businesses into a significant cost disadvantage position. Thus, the overall risk of entry is low for the PC industry.

In 1976, IBM held a large market share in the PC industry, which resulted in little rivalry. Most companies at that time were still trying to develop better technology and softwares, as well as finding customers’ interests. Then, as the PC industry developed to the maturity stage, the rivalry also increased to a significant high point. However, Apple tried to reduce the rivalry by differentiation and innovation. Since Apple’s product had unique functionalities and a clean design, the company was able to differentiate itself from its competitors, such as IBM and Samsung. As a result, many customers established brand loyalty to Apple, which decreased the intense rivalry from competitors. Moving forward, as long as Apple continuously innovates its products and meets customers’ expectations, the company can limit the rivalry and maintain profitability.

In 1976, the bargaining power of buyers was low because consumers did not have many

choices of PCs and the industry was still developing. In present day, the bargaining power of buyers is moderate in the PC industry because the market is highly competitive and saturated with products. Consumers can choose various brands when they want to purchase a personal computer. Since there are a large number of companies operating in the PC industry, the bargaining power of buyers increases due to the raising number of substitutes. However, the uniqueness of Apple’s product has made the company establish a group of loyal customers, which are less sensitive to price. Thus, Apple is able to reduce the power of its buyers. Since Apple is providing premium product and service, consumers are more willing to pay extra for


Apple’s products, which also decreases their sensitivity to price. As a result, the bargaining power of buyers is moderate.

There are several suppliers in the PC industry, including hardware suppliers and software

suppliers. When Apple entered the PC market in 1976, the bargaining power of suppliers was moderate to high because there were not many companies offering software. The operating system was mainly dominated by Microsoft, which gave Microsoft a high bargaining power. This was the same for hardware suppliers; their power was moderate because there were limited numbers of companies producing hardware for PCs. As the industry kept growing, the bargaining power of hardware suppliers decreased because the hardware industry started to become saturated. Thus, hardware suppliers had to compete with price, which decreased their bargaining power in certain levels. In Apple’s case, all the hardware components had to be of high quality, which increased the supplier costs. However, since the company was purchasing raw material in a large amount, Apple could limit the power of suppliers. Furthermore, Apple used to be in a less favorable position when facing Microsoft because Microsoft was the only supplier for Apple’s software. Apple’s PCs could not be sold without software, which increased the bargaining power of Microsoft. Thus, Apple decided to develop its own operating system, which were the Mac OS X for PCs and iOS for other non-PC products. After the launch of its own Mac OS system, Apple reduced its dependency on Microsoft. Even though Apple still depended on Microsoft for its Windows OS software, the bargaining power of Microsoft was reduced due to the large market share of Apple in the U.S PC market.

Exhibit.1: Porter's Five Forces for Electronic Industry

Before the development of the smartphone and tablet in the 2000s, there were not many substitutes for PCs. Thus, the threat of substitutes was low in the PC industry. The launch of the smartphone and tablet became a threat to the PC industry. However, Apple had positioned itself strongly and effectively against substitutes by launching its iPhone, iPod, and iPad. Since Apple entered the smartphone and tablet market earlier than most of its competitors, Apple was in a


favorable position in the market. The uniqueness of Apple’s products also helped the company gain many loyal customers, which decreased the threat of substitutes from its competitors. While the threat of substitutes currently appears to be low for Apple, the actual threat is moderate because of other competitors, such as Microsoft.

The last force is the power of complement providers. The complements for the PC

industry are PC cases, chargers, mouse, etc. In order to control the power of complement providers, Apple not only sells PC and non-PC devices in its store, but also sells complementary products, such as mouse and cases. Furthermore, Apple’s products are only capable with the company’s own charger, which also limits the power of complement providers. Thus, the power of complements is moderate to low. Overall, Apple’s differentiation strategy has enabled the company to compete against its existing competitors and potential new entrants, as well as reduce the power and threat of suppliers, buyers, substitutes and complement providers.

Besides the Porter’s Five Forces, the technology environment also affected the personal computer industry. Back to the 1990s, technology was not well developed, and there were no specific technical standards in the PC industry. Companies, such as Apple, were trying to develop software that was suitable for its PCs, including the Macintosh. At the same time, Microsoft tried to sell its software to IBM and to pursue Apple licensing its Macintosh to other computer manufacturers. However, Apple rejected Microsoft's suggestion, and Microsoft developed a operating system called Windows, which later became a technical standard for the PC industry. Even though Apple eventually developed its own operating system, the Mac OS, the industry had adopted the Windows as a standard. Over the last three decades, Microsoft had a dominant role in the PCs’ operating system market. Also, the Intel microprocessor was another industry standard for microprocessors following the introduction of the IBM PC in 1981. Eventually, Apple decided to use Intel in 2005.

As the technology continuously developing, the inexpensive portable MP3 players and the peer-to-peer computer networks influenced many PC firms, including Apple. Apple developed iPod and iTunes to fulfill this new market need, which also enhanced the sales of its PCs. Apple’s competitors, such as Microsoft, also entered this market later to gain profit from this raising market. Then, the development of smartphone and tablet affected the PC industry. Apple’s success on iPhone and iPod attracted many competitors entering the market. As multi-function devices, smartphone and tablet met most of customers’ needs, such as the access to Internet and checking emails. The increasing popularity of smartphone and tablet was a threat to the PC industry because less consumers would willing to purchase a PC if tablets could fulfill most of their needs. However, as the market leader in portable devices and mobile devices, Apple could treat this threat as an opportunity. Currently, Apple stands as a leader in innovation and portable technology. Even though the product life cycles had decrease because of the continuously development of technology, Apple could maintain profitable by product innovation.

2.2.2 Internal Analysis - Strengths and Weaknesses

1976 - 1900

From 1976 to 1990, Apple’s competitive advantages were differentiation, consistent innovation and strong brand image. From the beginning, Steve Jobs knew that he wanted


Apple’s products to be differentiated from its competitors. The clean and unique design had been strengths for Apple, which created a strong brand image for the company. Customers could easily identify Apple’s PCs by its look. Another strengths were product innovation. Since the company had been established, Apple consistently innovated its PCs. Apple I, the first version of Apple’s PC, had several limitation, such as no case, keyboard and power supply. It also required several hours of laborious assembly by hand. In order to make a better product, Apple launched Apple II in 1977, which was an integrated machine that had a keyboard, power supply, monitor and the BASIC programming software. However, Apple did not stop its innovation, the company developed an updated version of Apple II, which includes an additional disk drive. The disk drive allowed Apple’s PCs to run programs, such as VisiCals. This feature was not only appeal to students but also to the business segment. Innovation lead the Apple II became a success of the company.

However, Apple failed to build on these advantages to lead the industry. Innovation became a potential weakness for Apple as the company rapidly grew. In order to innovate its products, the company rushed to finish its Apple III, which caused the computer fill with bugs and crash constantly. Furthermore, the initial development of Lisa and Macintosh was a failure because Steve Jobs kept pushing the team to finish projects before the deadline. Jobs also had an unattainable goal for sales. At the same time, several executives leave the company, including Markkula and Mike Scott. Eventually, Jobs leave Apple in 1985. The conflict among operations was a weakness of Apple at that time, and was a reason of Apple’s early failure.

1900 - 2013

After Jobs leave Apple in 1985, Sculley took over the role. By the early 1990s, Apple was the only company to sell machines that utilized a GUI, which lead its differential appeal become a strengths to the company. However, there were several weaknesses of Apple, includes its high cost structure. Also, the launch of Windows 3.1 turned Apple into a niche player. Furthermore, Apple had too many products with lack capability to fully develop each one. Overestimated demand was still a problem to Apple, which resulted in excess inventory. Those weaknesses put the company into a less favorable position in the market and caused the company continuously loss its profit.

In 1998, Steve Jobs returned to Apple. After his return, the company started to grow and to rebuild its competitive advantages. The building blocks of Apple’s competitive advantages were shown in Exhibit 2. In 2001, Apple opened its retail store, which provided premium customer service to its customers. The superior customer services soon became another strength to Apple, and it allowed the company to charge its products at a premium price. Apple’s product also had superior quality and features. For instance, the iMac had a thick shell, which made the product not only look good but also more durable. By having Jobs in the company, innovation became strength for Apple again because he knew the importance of utilizing talents. Apple introduced iPod in 2001, iPhone in 2007, and iPad in 2010. It had been the industry leader on technology and attracted a group of loyal customers by its rapid innovation. On the other hand, in order to ensure the quality and maintain its innovation, Apple had a high-cost structure, which became a weakness.


Looking at Apple’s resources and capability, the company most important resource was Steve Jobs. Jobs saved Apple and lead the company to tremendous success. He was a valuable resource and the driving force of Apple, and his unique vision leaded the company become an industry leader. To Apple, Steve Jobs was a valuable, rare, inimitable, and non-substitutable resource. Apple’s integrated system of hardware and software was another valuable resource. This integrated system combined with Apple’s distinctive design made the company differentiated with its competitors. Apple’s software development teams, hardware engineers and Jonny Ive’s design team were other resources of the company. Their knowledge could be seen as company’s capabilities. The combination of Steve Jobs, the integrated system, and Apple’s employees was valuable to the company; it was rare, and hard to imitate. Apple’s capabilities and resources supported the company to maintain its sustainable competitive advantages.

Exhibit.2: Building Blocks of Competitive Advantages for Apple.Inc since 1990

2.2 Evaluation of SWOT Analysis

2.2.1 Strengths

There were several approaches that Apple used to leverage it strengths. First, Apple’s strong brand image and loyal customer base were its strengths. In order to attract more customers and maintain its existing customers, Apple tried to introduce new products every 6 months. By doing so, Apple could also keep its market leader role by this rapid innovation. Its retail stores also offered in-store experience and premium customer services, which was not provided by most of Apple’s competitors. The “genius bar” in many stores had technical experts to help customers fix problems with their Apple products. Apple also used its retail store to increase its brand awareness by direct contact with customers.


2.2.2 Weaknesses

Before Jobs returned to Apple, having too many product lines was Apple’s weakness. Jobs killed slow selling products, as well as cut down the product lines from 60 to 4. Thus, Apple was able to utilize its assets and resources more efficiently. Another major weakness of Apple was its high-cost structure, which was mainly caused by its Motorola microprocessor. This microprocessor lacked the scale of Intel, which increased Apple’s costs. In order to cut down cost, Apple eventually decided to use Intel microprocessors in 2005. The Intel microprocessors allowed Apple’s computer to run faster with lower power consumption. In late 2006, the transition to Intel based architecture was completed and consumers had positive attitudes toward this change. In this way, Apple closed its pricing differentia. The company also transformed this weakness into strengths by improving computers’ speed and lowering the power consumption. Apple also used outsourcing to reduce its production costs. Apple moved certain process of manufacturing into country with lower labor costs, such as China.

2.2.3 Opportunities

The growth of smartphone and tablet markets was an opportunity to Apple. To pursue this opportunity, Apple put lots of efforts on innovating and updating its iPhone and iPad. Being an early mover in those markets, Apple had advantages over its competitors. To enhance the advantages of iPhone and iPad, Apple introduced the iCloud, which was a cloud storage, computing, and synchronization service. By having this feature, Apple allowed customers to store data on remote servers. At the same time, the demand for cloud-based services was increasing. Since Apple was the first company that developed a successful and popular cloud service, the company took advantages of this opportunity.

2.2.4 Threats

The rapid change in technology posted threat to Apple. In order to limit threat, Apple continuously innovated its product and tried to become the industry leader on new technologies. Then, the pressure from price was another threat. Apple charged its product at a premium price, which was higher than most of its competitors. However, Apple used its high quality and premium in store customer service to create more value for customers. Thus, Apple’s customers would be less sensitive to price. The growing number of competitors in the tablet and smartphone business was a threat to Apple. To reduce the threat for its competitors, Apple tried to innovate its products rapidly, as well as to differentiate its products from competitors.

2.2.5 Possible Changes on Managing SWOT

Above all, Apple did a good job on managing the SWOT. In 2013, Apple was the world’s most valuable company with over $450 billion in capital. However, Apple could reach a broader customer base by expanding its distribution network. Currently, Apple mainly sale its product through its online store and retail stores. Partnership with other retail stores could expand the distribution channel for Apple, and could bring more potential customers to the company.


Also, the company could be benefit by expanding its foreign markets. Even though Apple already entered the global market, Apple still had space to grow in many countries, such as China and Korea. Since Microsoft entered those two countries earlier than Apple, many consumers still prefer using PCs with Windows system. Apple should pay more efforts on educating its foreign market.

2.3 Business Level Strategies

Apple was pursuing a broad differentiation strategy, which indicated the company chose to give up a lot on getting cost reductions. Even though Apple had try to make its costs as low as possible, it was still higher than many competitors. Apple differentiated itself by its innovation, unique design, premium quality and superior customer service. The company targeted broad range of customers, from educational market to business market, as well as consumers with special needs, such as graphic design.

Apples focused a lot on product design to differentiate itself from its competitors. The unique sample design and the ease-of-use feature attracted many loyal customers to Apple. Due to their brand loyalty, those consumers were less sensitive to price, which meant Apple could charge its products at premium prices to cover its high production cost and earn profit. As of 2012, Apple also opened 390 Apple stores worldwide to provide in store experience and personalized customer service to its customers. Apple’s retail stores strongly supported its business strategy by providing additional value to customers, which was the premium personalized customer service. The genius bar in many stores solved customers’ technical problems. At the same time, Apple continuously innovated its product. The introduction of iPod and iTunes not only boost company’s revenue, but also enhanced the sale of Apple’s computer. By identifying emerging market trends, Apple was able to keep its market leader role in many markets, including the PC market, the music player market, the smartphone market, and the tablet market. Besides, having products in various market helped Apple maintain profitable even if one market fail. For instance, if Apple failed in the music player industry, the company could still generate revenue from other markets.

2.4 Functional Level Strategies

1990 - 1997

After Sculley took over Apple, he shut down the Lisa line and utilized resources on improving the Macintosh. Then, Apple entered the new desktop publishing market, which was a huge success to the business. Since Apple made both hardware and software, the company had fully control of all aspects of its computers. In 1990 Apple sales reached $5.6 billion, and its global market share stabilized at 8%. However, Apple rejected to license the Mac operating system to other computer manufacturers, which later put Apple into a disadvantage position in the computer industry. This decision became a initial misstep in leading the industry. After Microsoft developed its Windows system, this system soon became a standard in the PC industry, which causes the decline of Apple. If Apple opened its operating system to other computer manufacturers, Apple’s decline might be able to avoid. Apple’s Mac OS system might become the industry standard, instead of the Windows operating system. Apple failed to take the first mover advantage when the computer industry lacked a standard in operating system.


The fail in licensing Mac OS system and the using of Motorola microprocessors lead Apple to a “glide path to history”. The closed business model boxed Apple into its niche, which eventually resulted a high cost structure. Also, the popularity of Windows and the Intel microprocessor made developers chose to write software for Windows over MS-DOS. In the early 1990s, Windows operating system and Intel microprocessor became the dominant standard found on 90% of all personal computers.

In order to save the company, Sculley firstly appointed himself chief technology officer and the CEO of Apple. Then, he wanted the company to bring out a new low-cost version of the Macintosh to compete with IBM clones. At the same time, Sculley cut down the price for the Mac’s and Apple II’s by 30%. In addition, he cut down the workforce by 10% and reduced salaries of top managers by 15% to lower the costs. Besides, he required the company to bring out hit products every 6 to 12 months. Sculley wanted to use those strategies bringing Apple back to its technological leader role in the PC industry. The company also aligned with IBM in order to compete more efficiently with its competitors, such as Intel, Microsoft and Dell. However, Sculley’s strategies did not stop the loss of company. After Sculley left Apple, Spindler took over his role. Spindler eventually decided to license the Mac OS to manufacturers. However, it was too late for Apple to make this decision because the launch of Windows 95 brough another hit to the industry. After Spindler, Gilbert Amelio was in charge of Apple and he chose to bring Apple back to its differentiation strategy. He also purchased Steve Jobs’ company, NeXt, to develop a system that could possibly run on Apple computer. None of above stopped the decline of Apple until Steve Jobs came back to Apple.

1997 - 2013

After Steve Jobs served as Apple’s CEO again, he brought Apple back to profitable. He acquired the NexT software and developed a more successful version of OS based on it. Jobs also negotiated with Bill Gate and made a deal with Microsoft on producing Office for Mac until at least 2002. Secondly, Jobs stopped the licensing of Mac OS, and acquired a leading Mac clone maker, PowerComputing, to develop softwares for Apple. Then Jobs cut down the product lines from 60 to 4 and stopped selling all slow selling products.

In 1998, Apple launched a new product, the iMac, which attracted many customers by its eggshell design. It also combined the monitor and central processing unit in translucent teal and with curved lines. In terms of suppliers and manufacturers, Apple worked with Asian partners to design sophisticated process that could produce millions of iMacs a year. The initial sale of iMac was successful, and Apple continuously updated iMac with faster processors, more memory, and bigger hard drives. Then, Apple introduced its new operating system OS X, which was faster and more stable than the old Mac OS. Another successful decision of Jobs was working on its own applications. After Apple developed a series of applications, such as iMovie and iLife, the company became less dependent on third party developers.

In 2001, Apple launched its iPod, which was a success to the business. Apple was successful with the iPod business due to its innovation in technology and design, which aligned with its business level strategy. Compared to normal MP3, iPod had a distinctive clean design with large storage. The serial number of the iPod was not on a sticker, and it was


elegancy etched onto the back of the device. This attention to detail and design elegance turned the iPod into a fashion accessory. Besides, iPod could hold over 1,000 songs while most MP3 could only hold few dozen songs each. Those elements resulted in the initial success of iPod. Timing was another reason of iPod’s success. While the music industry shut down the peer-to-peer networks to counter piracy over the Internet, consumers needed an online store to download music. Jobs realized this opportunity, and he persuaded the music companies to make their music available for legal downloads through the online iTunes store. Therefore, Apple became the leader in the music and digital player industry. However, the iPod and the iTunes store only worked with Apple’s computer, which meant customers had to purchase an Apple computer in order to use iPod. Also, the only portable digital player that the files could only be stored and played on was an iPod. In this way, the sales of iPod was enhanced by the iTunes store, while the iPod helped increasing the sales of Apple’s PCs.

From 2003 to 2007, Apple tried to enter new market by expanding its product lines. After Apple introduced the iPod in 2001, the company launched iPhone in 2007. The key elements of Apple’s strategy during this period of time were product innovation, and building complementary relationships between Apple products. Also, Apple started making its devices to be compatible with Windows, which meant Apple wanted to transform itself from a niche player to opening to the mass market.

After the launch of iPhone in 2007, Apple redefined what a smart phone had to look like and do. Beyond the basic features of smart phones, iPhone allowed customers to browse the web, take pictures and function as an iPod digital music player. At the same time, iPhone was elegantly designed and used expensive materials including a body of brushed aluminum and a screen made of tough “gorilla glass”. Those features differentiated iPhone from its competitors and attracted many customers. Apple sold over 250,000 iPhones in the first two days the device was on the market. Then, the launch of App store in 2008 enhanced the sales of iPhone. Apple’s app store was easy to use, to access and allowed customers directly download applications onto their mobile phones. In 2012, Apple made $80.6 billion in revenues from iPhone sales, and it became the most profitable product in the company. The success of iPhone not only changed the mobile industry but also influenced the computer industry. Apple originally only belonged to the computer industry. However, Apple entered different markets by its continuously innovation on technology. Apple showed to the computer industry that a successful computer business should not only limited itself on selling PCs, but also be able to lead the technology in the consumer electronic industry.

Apple did not stop from the development of iPhone. In 2010, the company introduced its iPad. The launch of iPod was a revolution of the computer industry. IPod had a touch screen keyboard, and Wi-Fi and 3G wireless service supports. It ran the same iOS operating system as the iPhone, which allowed customers to run the same applications. At the same time, iPad was able to support full-lengths movies on at high resolution. Besides, the design and the size of iPad was a hit to the computer industry. Unlike PCs or desktops, iPad was light enough to slip into a bag, and it utilized the same expensive materials as the iPhone. 300,000 iPads were sold on the first day of availability. The success of iPad drove many competitors to the market, such as Samsung and Microsoft. IPad changed the old image of how a computer should look like and what computers could do. The increasing demand for tablet also posted


threats to the PC and desktop market. In conclusion, Steve Jobs functional level strategies save Apple from its declining, and lead the business to another success.

2.5 Corporate Level Strategies

Since 1990, Apple’s corporate level strategy gave advantages to the company on many different levels. First, Apple outsources some basic production procedure to third-party manufacturers, where the labor cost was much lower than the U.S. In this way, Apple was able to cut down some costs while reaching its high quality standards. At the same time, Apple controlled all designing part in company’s headquarter. Thus, the company was able to make sure every Apple product had the company’s core value. Furthermore, the similar design techniques of all Apple products saved money for the company. Apple did not have to develop a new system for each product, which significantly lowered the investment and production costs.

In addition, Apple was the first computer company to have retail stores. By selling products through both retail and online channels, Apple could have more interaction with its customers. Since most of Apple products were a revolution to the industry, letting customers to try the new products in store could reduce concerns of consumers. Besides, Apple had many other software and programs to enhance the using experience of its products, such as the iTunes store and the App store. From the iTunes and the App store, customers could directly download music and apps to its Apple devices. This provided convenience and consistency to customers. The high quality of Apple products and the one-on-one customer service Apple provided to customers allowed the company to charge its products at a premium price. Even though the price was higher than the industry average, consumers were still willing to pay extra for Apple’s premium quality products and services.

III. Solutions and Recommendations

Apple should continuously innovate its products and maximize its value. The death of Steve Jobs was a huge loss to the company because he was the visionary and the driving force of Apple. Thus, Apple should develop a better top management team to lead the company instead of by only one person. Even if Tim Cook could manage the company well after Steve Jobs, the company should not fully depend on Cook. A top management team could work together to forecast the technological trend and to advance the interests of Apple. Therefore, the influence of losing CEO would not be that significant.

In addition, Apple should also carefully manage its brand reputation and tried to stay ahead of the industry. After Steve Jobs passed away, the rivalry increased because its competitors wanted to take advantages on Apple’s restructure. As long as Apple could foresee the industrial trends and stay innovative, the company could have first mover advantages over its competitors. The company should also continually invest in developing its hardware and software to improve the performance of Apple products. The design of Apple products should also be consistent so that it could avoid the loss in existing customers. The consistent upgrade unique design could also reduce the threat from new entrants and existing competitors.


While developing new products to fulfill new market needs, Apple should also keep updating its existing products, such as its MacBook and iPhone. Increasing speed of its computers and smartphones would attract more customers from its competitors. Also, adding more features to its products could excite the existing customers and increased brand loyalty. It could also increase the product life cycle.

Expanding Apple’s business internationally was another important way to increase sales and profitability. Apple could pay more efforts on researching customers’ preferences. In this way, Apple might develop a specific marketing plan for different countries depending on customers’ cultural background.

IV. Conclusion

Above all, the overall strategies of Apple have allowed the business to maintain its profitability and its market share. By using broad differentiation strategy, Apple differentiates itself from its competitors and builds up sustainable competitive advantages over time. The unique and consistent design of Apple products provides convenience to customers, as well as helping the company establish a group of loyal customers. Apple’s retail stores also provide premium customer service to its customers, which create more value for Apple products. The death of Steve Jobs was a huge loss to Apple, and brought up threat to the business. However, as long as Apple follows its core value, which is to keep innovation and to change the industry, the company can keep its leader role in various markets. To expand its business internationally, Apple can consider providing customized customer service in different locations to meet various customer needs.

V. Appendices

Appendix.1:

Historically, what were Apple's major competitive advantages?

From 1976 to 1990, Apple’s competitive advantages were differentiation, consistent innovation and strong brand image. From the beginning, Steve Jobs knew that he wanted Apple’s products to be differentiated from its competitors. The clean and unique design had been strengths for Apple, which created a strong brand image for the company. Customers could easily identify Apple’s PCs by its look. Another strengths were product innovation. Since the company had been established, Apple consistently innovated its PCs. The product innovation was an advantage of the company and made Apple become the industry leader.

Why did Apple fail to build on these Apple failed to build on these advantages to


advantages to lead the industry? lead the industry for several reasons. Lacked in operational management caused innovation became a potential weakness for Apple as the company rapidly grew. In order to innovate its products, the company rushed to finish its Apple III, which caused the computer fill with bugs and crash constantly. Furthermore, the initial development of Lisa and Macintosh was a failure because Steve Jobs kept pushing the team to finish projects before the deadline. Jobs also had an unattainable goal for sales. At the same time, several executives leave the company, including Markkula and Mike Scott. Eventually, Jobs leave Apple in 1985. The conflict among operations was a reason of Apple’s early failure.

Was Apple's demise inevitable, or could they have succeeded despite the decision not to license the OS? Explain your answer.

Apple rejected to license the Mac operating system to other computer manufacturers, which later put Apple into a disadvantage position in the computer industry. This decision became a initial misstep in leading the industry. After Microsoft developed its Windows system, this system soon became a standard in the PC industry. If Apple opened its operating system to other computer manufacturers, Apple’s decline might be able to avoid. Apple’s Mac OS system might become the industry standard, instead of the Windows operating system. Apple fail to take the first mover advantage when the computer industry lack a standard in operating system.

How has the structure of the personal computer market changed over the last 30 years? What are the implications for the profitability of personal computer manufacturers?

When Apple first entered the computer industry, IBM was dominating the market with its mainframe computer business. However, many companies, including IBM, were still in the process of developing a personal computer. Thus, Apple decided to develop a personal computer with a clean and unique design. By the end of 1980, the launch of Apple II had made the company the leader in the embryonic personal computer industry. It had also become a standard in American classrooms. In 1981,


the industry changed again with the development of IBM PCs. The software business was also dominated by Microsoft, which licensed its operating system to IBM. At the same time, independent software developers started to write program for IBM PCs. As of 1985, Microsoft developed its own GUI, Windows, which quickly became popular with the PC industry. In the early 1990s, the Windows operating system and an Intel microprocessor became the dominant standards found on 90% of all personal computers. Throughout the 1990s, the PC industry developed rapidly and quickly. In the early 2000s, the market leaders of the PC industry were Dell, Hewlett Packard, and IBM/Lenovo. In the PC industry, the four major customer groups were business, education, home, and government.

As the PC industry became highly standardized, technology, innovation and differentiation were key successful factors for PC businesses. Consumers were also looking for faster and lower power consumption PCs. Reducing manufacturing costs was another key component. In order to make an economic return, many companies started to outsource their production of components in low cost locations. Also, protecting the copyright of computer programs was crucial for a firm to be profitable in the industry. Apple’s retail stores added other key success factors to the PC industry: customer service and in-store experience. Moreover, the introduction of the iPod in 2010 was a revolution in the computer industry, which produced some threats to PC businesses.

Given the analysis of industry dynamics, what must a PC firm do to make an economic return in this industry? Is Apple protected from these competitive forces in any way?

In order to make an economic return, many companies started to outsource their production of components in low cost locations, such as China. Also, protecting the


copyright of computer programs was very crucial for a firm to be profitable in the industry. Since developing a program would cost a significant amount of money, protecting programs from pirates help business to gain more sales on programs, which increased the economic return. Apple was protected from those competitive forces Due to the complex of its operating system, it was hard to developing pirate for Apple computers. Also, Apple outsources its hardware components from various locations, and Apples products were also manufactured in low cost locations.

In the early 1990s, Dan Eilers commented that Apple was on a "glide path to history." What underlay this assessment?

The fail in licensing Mac OS system and the using of Motorola microprocessors lead Apple to a “glide path to history”. The closed business model boxed Apple into its niche, which eventually resulted a high cost structure. Also, the popularity of Windows and the Intel microprocessor made developers chose to write software for Windows over MS-DOS. In the early 1990s, Windows operating system and Intel microprocessor became the dominant standard found on 90% of all personal computers.

How did the company come to dominate desktop publishing?

Apple dominated the desktop publishing by several driving forces. By licensing PostScript, which enabled the visual display and printing of high quality page layouts loaded with graphics, Apple introduced its LaserWriter printer in 1985. After a short time, another company also introduced a program called Page Maker for the Mac, which used Adobe’s PostScript page language for its output. At the same time, that company introduced a MS-DOS version of Page Maker in 1986. Apple enhanced its desktop publishing by combine this Page Maker with its own Mac GUI. Soon, Apple became the leader of desktop publishing segment. Besides, the release of Adobe Illustrator in 1987 and Adobe Photoshop in 1990 further enhanced the leader role of Apple.


Evaluate Apple's strategies from 1990-2013 (focus on Scully and the return of Steve Jobs). How did Scully try to save Apple? How did Jobs?

After Sculley took over Apple, he shut down the Lisa line and utilized resources on improving the Macintosh. Then, Apple entered the new desktop publishing market, which was a huge success to the business. However, Apple rejected to license the Mac operating system to other computer manufacturers, which later put Apple into a disadvantage position in the computer industry. This decision became a initial misstep in leading the industry. The closed business model boxed Apple into its niche, which eventually resulted a high cost structure. Also, the popularity of Windows and the Intel microprocessor made developers chose to write software for Windows over MS-DOS. Sculley wanted the company to bring out a new low-cost version of the Macintosh to compete with IBM clones. He also cut down the price for the Mac’s and Apple II’s by 30%. In addition, he cut down the workforce by 10% and reduced salaries of top managers by 15% to lower the costs. He required the company to bring out hit products every 6 to 12 months. The company also aligned with IBM in order to compete more efficiently with its competitors. However, Sculley’s strategies did not stop the loss of company.

After Steve Jobs served as Apple’s CEO again, he brought Apple back to profitable. He acquired the NexT software and developed a more successful version of OS based on it. Jobs also negotiated with Bill Gate and made a deal with Microsoft on producing Office for Mac until at least 2002. Secondly, Jobs stopped the licensing of Mac OS, and acquired a leading Mac clone maker, PowerComputing, to develop softwares for Apple. Then Jobs cut down the product lines from 60 to 4 and stopped selling all slow selling products. In 1998, Apple launched a new product, the iMac,


which attracted many customers by its eggshell design and its strong features. Apple also introduced its new operating system OS X, which was faster and more stable than the old Mac OS. Also, Apple developed a series of applications, such as iMovie and iLife, so the company became less dependent on third party developers. Jobs lead the team to continuously innovate its products. Apple then introduced iPod in 2001, iPhone in 2007 and iPad in 2010.

Why was Apple so successful with the iPod business? Apple was successful with the iPod

business due to its innovation in technology and design, which aligned with its business level strategy. Compared to normal MP3, iPod had a distinctive clean design with large storage. The attention to detail and design elegance turned the iPod into a fashion accessory. Besides, iPod could hold over 1,000 songs while most MP3 could only hold few dozen songs each.

Timing was another reason of iPod’s success. While the music industry shut down the peer-to-peer networks to counter piracy over the Internet, consumers needed an online store to download music. Thus, Jobs persuaded the music companies to make their music available for legal downloads through the online iTunes store. Also, the iPod and the iTunes store only worked with Apple’s computer, which meant customers had to purchase an Apple computer in order to use iPod. Besides, the only portable digital player that the files could only be stored and played on was an iPod. In this way, the sales of iPod was enhanced by the iTunes store, while the iPod helped increasing the sales of Apple’s PCs.

What were the main elements of Apples strategy from 2003 - 2007. What was Apple

From 2003 to 2007, Apple tried to enter new market by expanding its product lines. After


trying to do here? Apple introduced the iPod in 2001, the company launched iPhone in 2007. The key elements of Apple’s strategy during this period of time were product innovation, and building complementary relationships between Apple products. Also, Apple started making its devices to be compatible with Windows, which means Apple wanted to transform itself from a niche player to the mass market.

How did the iPhone change things? Apple redefined what a smart phone had to look like and do. Beyond the basic features of smart phones, iPhone allowed customers to browse the web, take pictures and function as an iPod digital music player. At the same time, iPhone was elegantly designed and used expensive materials including a body of brushed aluminum and a screen made of tough “gorilla glass”.

What does the iPhone and iPad mean for Apple, and for the computer industry?

The success of iPhone not only changed the mobile industry but also influenced the computer industry. Apple originally only belonged to the computer industry. However, Apple entered different markets by its continuously innovation on technology. Apple showed to the computer industry that a successful computer business should not only limited itself on selling PCs, but also be able to lead the technology in the consumer electronic industry. The launch of iPod was a revolution of the computer industry. IPod had a touch screen keyboard, and Wi-Fi and 3G wireless service supports. At the same time, iPad was able to support full-lengths movies on at high resolution. Besides, the design and the size of iPad was a hit to the computer industry. Unlike PCs or desktops, iPad was light enough to slip into a bag. The success of iPad drove many competitors to the market, such as Samsung and Microsoft. IPad changed the old


image of how a computer should look like and what computers could do. The increasing demand for tablet also posted threats to the PC and desktop market.

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