With globalization and the rate of world trade at its highest, accompanied with Apple’s relatively “neutral” face on geopolitical issues, Apple has enjoyed as good a wide and stable political state as there has ever been to burst on the scene and rise to unprecedented success.
The continued bullish market on technology, despite the dotcom and 2008 crisis, which also led to relatively low interest rates, makes for an environment ripe for customers to believe that they “have” to have what Apple is offering; whereas, we were all fine without it for quite some time.
With the emergence of “on-demand” and “online” entertainment made popular through the explosion of so-called reality TV through a virtually limitless amount of media outlets, Jobs’ tireless obsession with aesthetics won over an entire generation with the launch of the iPod.
Since Apple’s incorporation, the world has experienced an exponential rise in technological breakthroughs and innovations. Undoubtedly, Apple would have no chance in any time period prior. As a leader in technology, Apple is squarely positioned in the cross-hairs of nearly all other technology companies for the purposes of everything from elimination to capitalizing on its success.
No one goes anywhere without their phone. Significant amounts will not leave their house for the day without such things as their laptops, tablets, mp3 players etc. In short, facing today’s environment without such products as Apple has to offer is just not done.
Patent wars – everybody sues everybody with each declaring that the other is a thief. Prior to his death, Jobs declared his willingness to spend every last dollar to right this wrong, as far as it concerned his view that everyone was stealing from Apple. Apple’s new CEO, Tim Cook, has a different message, “I would highly prefer to settle versus battle.”
5 – Forces Analysis
Low on the whole – With the rise of the Apple Store, iTunes Store and App Store, Apple has reduced nearly all its buyers to the end user in most cases; however, while these buyers have no power individually, as a whole they do i.e. Apple TV.
Neutral – Even though many of Apple’s suppliers are also its competitors and substitutors, they are also complementors i.e. Microsoft and Samsung. This makes for a fine line between adding value to increase Apple’s market share v. decrease their own. In this way it seems that Microsoft, Samsung and Apple are content to share, but not disrupt the status quo.
Threat of new entrants
High – While barriers to entry can be high, the emergence of a valuable, unique technology has the ability to overcome them. However, given the diversity of Apple’s product offering, the likelihood of one single entrant being able to overcome them all is quite low Substitutes
High – On both the hardware and software sides, Apple is facing attacks from the likes of an ever-evolving wide array of PC, tablet and smartphone manufacturers, mobile OS developers Google and Microsoft, as well as big box electronic retailers, online music and app store providers – and almost all at a reduced cost, virtually the same service and the nearly blind “loyalty” of Apple’s customers as the only thing keeping them from total dominance.
Degree of rivalry
High – At least, that is what it appears to be. In truth, Apple needs its rivals to lend the appearance it yields as a contrarian to mainstream technology. Underneath however, Apple will source any mainstream technology provider required to retain its market share.
For the timeframe covered, six competitive advantages can be seen:
1. Easy to use personal computer
2. Superior software for the markets of desktop publishing and education
3. “plug and play” – a complete desktop solution (hardware, software & peripherals”
4. Branding – “Apple’s customers ‘love’ their Macs”
5. S. Jobs’ Cultural force – streamlining operations & products/differentiating “hip” ad campaign
6. “Some people say, ‘Give the customers what they want,’ but that’s not my approach. Our job is to figure out what they’re going to want before they do.” – Steve Jobs
Dynamics of the PC industry
Over the past 25 years, three driving forces catapulted the PC industry. First, during the 90’s, “Wintel” producers became dominant offering increasing capabilities accompanied with decreasing prices. Second, after the turn of the century volume and revenue growth slowed due to the industry’s inability to severely differentiate and demonstrate the added value of newer models. Third, beginning in 2009 the onslaught of lightweight mini notebooks, ultrabooks and tablets brought about resurgence in growth and manufacturing due to the obvious added value of these new types of products. During this time, three types of distribution dominated: 1) manufacturer direct, 2) big box and web-based electronic retailers and 3) “White box” channel entrepreneurs assembling generic machines for emerging markets.
Four PC manufacturers dominated the market with a 53.6% share. Hewlett Packard led the way with a 17.7% market share. While the suppliers have remained relatively unchanged with Intel and Microsoft dominating the microprocessor and operating system offerings, those producing memory chips, disk drives and keyboards continue to be vast and highly competitive. The real change came with the collapse of ASPs for PC software and the encroachment on the PC market by smartphones and tablets, thus shifting the focus of software development on “apps.”
Dynamics: Favorable or Problematic
During the 90’s, the “Wintel” movement was problematic for Apple in terms of being able to increase market share. However, given the PC market’s inability to adapt to the decrease in volume and revenue growth at the turn of the century, Apple was able to capitalize favorably with its introduction of the iPod. Piggybacking on this driver, Apple innovated further with its introduction of iTunes, the iPhone, the Apple Store, its App Store, iPads and MacBooks which allowed this driver to rocket Apple to on of the most valuable companies in the world. In terms of distribution, Apple was able to regain a significant amount of control through the launch of the Apple Store, iTunes Store and App Store. Early on, Apple was subject to dealing with the same distribution channels as PC’s, which led to them being lumped in the eyes of some as just another computer. Through the Apple Store and others, Apple was able to further differentiate its brand and encourage its existence as a contrarian to the mainstream, even causing the phenomenon of customers’ willingness to wait in line for days to be the first to buy the latest products.
At first glance, PC manufacturers can be seen to be problematic for Apple. Yet, when considering that Apple’s brand depends on the existence of another, the argument can be made for PC manufacturers being actually quite favorable. In this way, without them, Apple would not have anything to differentiate from, consumer loyalty would decrease substantially and margins would be severely reduced. Without the bitter, the sweet isn’t as sweet. Initially, suppliers, substitutes and competitors were problematic. As Apple grew, they became favorable through Apple’s emphasis on establishing its brand outside the mainstream and partnering with them for added-value.
Sustainability of Apple’s Position in PCs and Smartphones
As it stands as presented in the case, Apple’s competitive position in PCs and smartphones capitalizes on its wide branding moat, as well as its “Digital Hub Strategy.” Apple has three tactics to fortify this strategy: 1) an emphasis on maintaining high margins rather than increasing market share, 2) a willingness to transition its competitors to suppliers and 3) controlling distribution. This approach is sustainable for PCs; however, for Apple to maintain its market share in smartphones it must shift its focus from achieving high margins to increasing its market share. Outside the timeframe this case describes, this can be seen to be true as the iPhone became available beyond AT&T to all service providers. With the release of the iPhone 6, subsidies and rebates are being offered unlike any before for an iPhone.
Its initially wildly successful introduction, establishing an entirely new market and a $35 billion business will be hard to match year in and year out. Even so, Apple leads the way by being the first to introduce a tablet. One early indicator of continued success is the transition of initial users viewing it as a device to strictly consume content to one of producing it, as user familiarity and creativity grew over time. This demonstrates the belief users have in it to expand their technology experience and further entrenches them to do so with the product that they began with, the iPad. Furthermore, as the case describes, while Samsung has had some success introducing tablets, others have not. The kindle is rarely if ever mentioned with only the Kindle app remaining. As for Microsoft, the Nook was a disaster. All in all, the prospects are good in the short-term.
But, if the past has taught us anything about technology, its value is in innovation and new product offerings. For Apple to rely on its current offerings would be to totally part from what has worked to drive its climb to the top. Apple is all about continued innovation, anticipating consumer needs and establishing the belief that it is able to do so in spite of the perceived domination of “mainstream technology,” leading to consumers concluding that “Apple is cool.” The ability for Apple to lead its consumers to this conclusion is the essence and bedrock of its value.
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