Case Analysis 3:
Apple Inc., 1976-2013
Gina Han
Professor Ryan Raffety
MGMT 340-01
December 7, 2014
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TABLE OF CONTENTS
I.
INTRODUCTION ……………………………………………………. p. 3
II.
STRATEGIC ANALYSIS …………………………………………… p. 3
a. INTERNAL ANALYSIS ………………………………………… p. 4
i. STRENGTH ……………………………………………… p. 4
ii. WEAKNESS ……………………………………………… p. 6
b. EXTERNAL ANALYSIS ………………………………………... p. 7
i. OPPORTUNITIES ……………………………………….. p. 7
ii. THREATS ………………………………………………… p. 7
iii. PORTER’S FIVE FORCES ……………………………... p. 7
c. BUSINESS LEVEL STRATEGY ……………………………….. p. 9
d. FUNCTIONAL LEVEL STRATEGY ………………………….. p. 10
III.
RECOMMENDATIONS AND SOLUTIONS ……………………… p. 10
IV.
CONCLUSION ………………………………………………………. p. 10
V.
APPENDIXES ……………………………………………………...… p. 11
a. APPENDIX A (Case Questions) ………………………………… p. 11
b. APPENDIX B (Timeline) ………………………………………... p. 14
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I.
INTRODUCTION
Apple is one of the most valuable companies today and an obvious leader in the
electronic equipment industry. Since Steve Jobs and Steve Wozniak founded the
company in 1976, originally as Apple Computers, dramatic transformations changed both
the company itself as well as the lifestyle of consumers worldwide. When Apple was first
founded, it intended to sell desktop computers that are “not just a toy for geeks.” It
differentiated its products, which was especially apparent in the Apple II line, by creating
a visually appealing integrated computer inclusive of a power supply, monitor, keyboard,
Motorola microprocessor, and BASIC programming software. With the addition of more
features like graphical user interface (GUI) and the disk drive, Apple computers began to
become a leader in the personal computer industry. Unlike IBM computers that had more
appeal to the corporate world, Apple computers targeted customers who needed a
computer for personal use, such as students and businesspeople, with its “intuitive ease of
use,” and programs such as VisiCalc spreadsheet and Easy Writer word processor.
However, for a period of time, Apple was forced to become a niche player among graphic
designers since the introduction of the IBM PC in 1981.
Today, Apple has a wider range of products. Its retail stores carry the iMac,
Macintosh lines, the iPhone, iPad, and iPod; all of its products carry prominent Apple
software programs, including the iCloud synchronization service. From Apple
Computers, the company transformed into a more extensive Apple, serving all types of
electronics users worldwide. Its differentiation through product innovation, the presence
of retail stores with quality customer service, and elegant design make Apple products
both a valuable electronic and a trendy fashion accessory.
However, the company’s path to its current position as industry leader was not
smooth. With the Apple II line, the Macintosh line, and desktop publishing technology,
Apple enjoyed its golden years from 1986 and 1991. It’s differentiation through product
innovation and design elegance allowed it to charge premium prices. Before long,
though, IBM entered the personal computer industry, and its open architecture created
many competitors, including Dell and Hewitt-Packard. Furthermore, software
programmers preferred to write programs compatible with the IBM PC. To make matters
worse, Microsoft introduced its own GUI 1990 called Windows 3.1, and Apple could no
longer justify its premium pricing. Due to decreasing stock prices and global market
share, Apple’s leadership changed often, and each leader had different strategic
approaches. This resulted in large financial losses.
In this report, I will first analyze the internal strengths and weaknesses of the
company. Then, I will provide an external analysis of opportunities and threats in the
industry. I will follow with a Porter’s 5 Forces analysis of the industry. Lastly, I will
provide recommendations and solutions. Please refer to Appendix A for answers to
specific case questions. For an overview of company history, please refer to Appendix B.
II.
STRATEGIC ANALYSIS
In this section, I will first analyze the company strengths. For practicality purposes, I will
analyze company strengths according to two separate time periods: one, from 1976-1990,
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and two, from 1990-2013. Then, I will analyze the company weaknesses also according
to the same time periods. I will include a discussion of the company’s competitive
advantages, initial missteps, and positioning over time.
a. INTERNAL ANALYSIS
i. STRENGTH
Apple’s strengths from 1976 to 1990:
 Steve Jobs is an intangible resource and a definite competitive advantage because
he is valuable, inimitable, rare, and organized for success. His charismatic
leadership, vision, and creativity are the driving factors of Apple’s success.
Furthermore, his passion for Apple and conviction that Apple is creating history
and not just equipment are great motivators for all Apple employees. Jobs was the
one to push for an integrated machine when developing Apple II and to
consistently emphasize elegance in design in all products.
 Design elegance is a differentiator of Apple products. This is mainly a result of
Steve Jobs’ determination. The first Apple II did not have visible screws or bolts,
but an attractive case instead, and stylistic design was also stressed when the
Macintosh was being created. The ability of Apple products to be distinguished
from the bulky and unappealing exterior of other computers is an example of
quality as excellence.
 The Apple II line is a strong-selling line responsible for Apple’s growth in the
personal computer industry, especially in the education market. It generated a
large portion of total sales until the Macintosh began to gain popularity. The main
success factor behind the Apple II line was product innovation. The line had an
“intuitive ease of use”; moreover, its disk drive allowed users to load useful
software programs such as Easy Writer and VisiCalc.
 Another example of product innovation is the incorporation of the graphical user
interface (GUI) technology and Adobe’s technology. The GUI allowed the
Macintosh to have software programs that are tangible through screen icons and a
computer mouse to click and drag the icons. Adobe’s technology allowed the high
quality printing of graphics. Combined, these two technologies increased the sales
of Apple products, and the introduction of Adobe Illustrator in 1987 and Adobe
Photoshop in 1990 further helped Apple to dominate the desktop publishing
market.
 The ability of Apple to offer a “complete desktop solution” by making both
hardware and software is also a strength. This, combined with the factors above,
enabled Apple to adopt a premium pricing strategy, and the gross margin was as
high as 55%.
Apple’s strengths from 1990 to 2013:
 Jonathan Ive and his team create design elegance that significantly contributes to
Apple’s quality as excellence. In the case of the first iMac in 1998, the design of
the machine, which “combined the monitor and central processing unit in
translucent team and with curved lines,” was its greatest differentiator, attracting a
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large number of first time buyers. Ive and his team is an intangible resource that is
valuable, rare, inimitable, and organized for success. Because the strength of the
team comes from the individuals, the combination of their talents, and the team
culture, competitors cannot copy their creativity and innovation. However,
competitors may imitate their specific product designs.
Apple’s comparatively larger investments in R&D are a strength and foundation
for continual product innovation. In the case of the iMac, Apple spends $64 to
produce one machine, whereas competitors spend an average of $20 to produce
one PC. Furthermore, the company also spends significant amounts developing
and improving its operating system. For instance, the company spent 3 years
developing the OS X, a project that cost approximately $1 billion. But with its
superior stability and faster speed, the ability to run multiple programs at once,
and the ability to support multiple users, the OS X contributed to strengthening
Apple’s market share. Moreover, a part of R&D is invested in creating design
elegance, which contributes to product innovation and quality as excellence. For
instance, when the iPhone was introduced in 2007, it was a phone as well as a
fashion accessory, with the adoption of the gorilla glass and brushed aluminum.
Apple has a strong presence in the retail market after vertically integrating in
2001. This increased global sales of Apple products, each square foot of retail
space producing $6,050 in 2012. The strategic shift also allowed the company to
communicate more effectively with its customers. The stores had a “genius bar”
where customers could get assistance from technical experts. Moreover, the store
employees were trained to interact with customers at a level expected of upscale
retailers. Overall, these factors improved customer responsiveness. The global
presence of Apple retail stores is a valuable tangible resource organized for
success. However, with financial capacity, competitors may imitate it.
Apple’s process innovation via transition to Intel-based architecture in 2005
lowered its cost structure, closing the difference in prices between Apple and
Windows based PCs. While maintaining the quality and design differentiator,
Apple products were selling at a discount in 2006, according to one analysis.
Apple has the technical capacity to make its own applications; thus, the company
is less dependent on external software developers. After Adobe refused to develop
a Mac-compatible video-editing program in 1998, Apple developed the iLife
bundle, which includes iMovie, iPhoto, and iTunes. Apple also developed Final
Cut Pro. Apple’s technical capability is a valuable resource, though not rare or
inimitable.
Apple’s iTunes and the company’s contractual relationship with the world’s top
recording companies is a valuable intangible resource. This helped Apple to
account for 29% of total music sold within the U.S. in 2012. However, it is an
imitable resource, and there are competitors like Google and Amazon that have
the financial resources and technical capacity to match iTunes in the near future.
The App Store was generating a lot of revenue, making $4.9 billion in 2012. The
number of applications and downloads from the App Store by far outruns its
competitors including Google Play, suggesting that “Apple’s customers are more
valuable to third party application developers.” The large market share of the App
Store and value of Apple customers to external application developers are both
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valuable, intangible resources. However, they are not sustainable competitive
advantages, because competitive companies are constantly undergoing progress
and innovation.
ii. WEAKNESS
Apple’s weaknesses from 1976 to 1990:
 Steve Jobs is also weakness of Apple. His style of leadership lacks sociability and
is often exhaustingly demanding. Furthermore, his passion and vision may
sometimes blind him from perceiving realistic obstacles. Consequently, Jobs has a
history of being released from the Lisa team and pushing for the Macintosh team
to follow an unattainable schedule.
 Apple does not have the ability to sell to Corporate America like its competitor,
IBM. This resulted in IBM replacing Apple as market leader after the introduction
of the IBM PC in 1981.
 Some may argue that Apple’s closed architecture is a weakness as it is responsible
for turning the company into a niche player. Apple’s largest competitor, IBM,
adopted an open architecture, using Intel’s 16 bit microprocessor and Microsoft’s
MS-DOS operating system. These became the industry standard, producing many
clones, and software developers were more inclined to write programs that work
on the industry standard. Apple products remained appealing only to graphic
designers for their GUI.
 Apple has a high cost structure due to larger investments in research and
development compared to competitors. For instance, in 1990, the company
invested 8% of sales in R&D, a significantly lesser amount compared to Compaq,
which invested 4% of sales. Another reason for Apple’s high cost structure is the
difference in quality between the Motorola microprocessors used by Apple and
the Intel microprocessors used by competitors. Because the Motorola
microprocessors were less powerful, Apple incurred more costs. These factors,
along with the fact that Apple had a small market share as a niche player, stalled
the recovery of its $500 million investments in operating systems.
Apple’s weaknesses from 1990 to 2013:
 Apple’s operating system has a small market share compared to Microsoft’s
Windows, which is used by 90% of the world’s PC’s.
 Frequent changes in the leadership position lead the company in diverging
directions and resulted in financial losses. When Sculley was CEO, Apple entered
into an alliance with IBM. When Splinder replaces Sculley, he ends the IBMApple alliance, costing the company $500 million, and permits the licensing of
Mac OS. When Jobs returns, he ends these licensing deals and spends more than
$100 million to repurchase the rights from Power Computing.
 Jobs passes away in 2011. Because Jobs was the driving force for creativity and
the embodiment of Apple’s vision, many consumers suspect that Apple will have
difficulties maintaining its current position as innovative leader in the industry.
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b. EXTERNAL ANALYSIS
i. OPPORTUNITIES
The rising tablet market is an opportunity for Apple to increase profitability.
Customers will increasingly need a computer with greater portability and connectivity
than the average notebook today. Consequently, Apple may increase its investments in
R&D for the iPad.
Moreover, Apple may invest in developing a technology for wireless chargers.
Because there are increasing numbers of people who carry their electronic equipment
while traveling, a portable and light-weight wireless charger will differentiate Apple
products and provide a competitive advantage.
Additionally, Apple may enter international markets that yet have an established
ground for technological progress. Examples may include parts of rural China, rural
India, and African countries. Releasing cheaper, easy-to-use versions of Apple products
in these markets and attracting first-time users may increase revenue and profitability
over time.
ii. THREATS
Apple has very strong competitors with high rivalry in the technological
environment. Because the technological world is constantly changing at a fast pace,
Apple’s current position as world leader does not guarantee perpetual popularity. Google
competes with Apple’s OS with its Android operating system. It also released a powerful
synchronization network, Google Drive, as well as its own application store called
Google Play. Microsoft is also providing strong competitive products with its SkyDrive
and Surface tablets. Many of Apple’s competitive advantages and resources, with the
obvious exception of Steve Jobs, are imitable and have been imitated. If Apple does not
protect its brand image as an innovator, it will lose its greatest differentiator.
iii. PORTER’S FIVE FORCES
Here, I will analyze the competitiveness within the industry using Porter’s 5
Forces. Although I categorized Apple to be in the electronic equipment industry, my
analysis will be specific to the Personal Computer (PC) industry for practicality purposes.
The term PC includes all forms of desktop and notebook, but not the tablet.
Risk of entry: High
 There are powerful competitors with an already established brand image, loyal
customers, and popular software programs. Among these are Apple, Google,
IBM, Dell, and Microsoft.
 There is high economies of scale in the PC industry. Large investments are
required to develop a functional hardware, efficient software programs, and to
license standard components, such as the Intel microprocessor.
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There is high brand loyalty among customers; for instance, many notebook users
claim to be either ‘Mac fans’ or ‘Samsung fans.’
There may be significant switching costs for consumers who already own
functioning electronics, such as a notebook.
Rivalry among established companies: High
 The industry has a fragmented competitive structure, as a PC is a commodity in
today’s world. The dominant players include Apple, Samsung, and Dell.
Competitors such as IBM and Microsoft are predicted to grow as well.
 There is high industry demand for PC. The consumers’ age ranges from middle
school students to seniors. With globalization, the PC is a necessary tool for both
corporations and the average consumer.
 There are high fixed costs necessary for differentiating hardware and software and
purchasing licensing rights to significant programs, such as Adobe Photoshop.
There is also high costs associated with marketing and advertising in an industry
with already established competitors.
 There may be high exit barriers for a company with no particular differentiation.
Its hardware may be sold to competitors, but the competitors are unlikely to be
willing to pay for its technology.
Bargaining power of buyers: Medium
Factors strengthening buyer power:
 The industry is not a monopoly and buyers have many options as to who to buy
from.
 Certain buyers, such as businesses, may purchase products in large quantities. For
instance, an accounting firm may purchase a large number of desktop computers
at once.
 The supply industry depends on buyers for all of total orders.
Factors weakening buyer power:
 Switching costs may be high for buyers, because PC’s are relatively expensive.
Furthermore, if buyers are already using a particular synchronization service that
connects two or more of their devices, they may be disinclined to use a product
outside of the synchronization network.
 Most buyers do not have the economic or technical ability to purchase inputs from
several companies, nor can they threaten to enter the industry and independently
produce product.
Bargaining power of suppliers: Medium
Factors strengthening supplier power:
 Companies in the industry would experience significant switching costs for
certain inputs, such as processors and operating systems. For instance, when
Apple switched from IBM’s PowerPC chip line to Intel microprocessors in 2005,
it had to spend significant amounts rewriting its operating system and
applications, marketing the new development, and assisting customers through the
transition.
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Suppliers may threaten to enter the industry and produce competing products.
This was the case when Microsoft, originally a programming company, began to
produce hardware products.
 Certain inputs, especially software inputs, do not have many substitutes with
equal global usage, popularity, and functionality.
Factors weakening supplier power:
 Because most hardware and software companies design their programs and
components to meet the specific needs of the PC industry, the profitability of
suppliers will be significantly affected if the industry refuses to continue
purchase.
 Existing companies may threaten to enter the suppliers industry with their
technology and resources.
Threat of substitutes: High
 The most powerful substitute to the PC is the tablet. Examples include Apple’s
iPad, Samsung’s Galaxy Tab, and Microsoft’s Surface. Although some may argue
tablets to be a form of PC, many will say that they are separate due to the large
differences in software. Tablets are a powerful substitute with its power,
portability, and ease of use.
 Another substitute is the smartphone. Although smartphones are an incomplete
substitute to the PC in its usages, they have the ability to connect users to the
Internet, to each other, and to the user’s other devices.
 Because the technological world is progressing at the fastest pace today, the PC
industry should expect more forms of substitutes to the PC to develop.
Power of complementors: Medium to high
 Software and application developers are a significant complementor to the PC. As
in the case of Apple’s App Store and Apple’s third party developers, a company
may appeal to customers with the number and quality of its programs.
c. BUSINESS LEVEL STRATEGY
Apple was initially a focused differentiator. Its differentiation by design elegance
and product innovation incorporating the GUI made the company a leader in the desktop
publishing industry. However, when Apple transitioned to Intel-based architecture in
2005, the transition closed the difference in prices between Apple and Windows based
PCs. Furthermore, after Jobs returned to the company in 1997, he pushed Apple to
expand into new markets. Apple entered the smartphone market, the tablet market, and
retail market as a result. This changed the company’s positioning in the industry from a
focused differentiator to a broad differentiator.
d. FUNCTIONAL LEVEL STRATEGY
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Apple used appropriate functional level strategies to maximize efficiency, quality,
innovation, and customer responsiveness. An example of Apple’s functional level
strategy to increase efficiency is the horizontal organizational structure regarding Ive and
his design team. They were given “an unprecedented say in the development project.”
Having the power and freedom unique to a self-managing team, they were able to build
Apple as a stylish electronics brand. Furthermore, to increase efficiency, Apple also
worked to build brand loyalty among customers. The synchronization service through
iCloud connects all Apple devices, making the transfer of information between multiple
personal devices easier. Thus, an iPhone user is more likely to own a Mac than a PC due
to the benefits from connectivity. Apple also maximized its commitment to quality as the
leader, Steve Jobs, was highly dedicated to the company and its success. Moreover, it
makes significant investments in R&D compared to its competitors; this allows it to
continually develop new products and processes. Lastly, Apple commits to customer
responsiveness by training its employees at the retail stores to be technically fluent and
provide a pleasant environment for customers.
III.
RECOMMENDATIONS AND SOLUTIONS
Apple should pursue the opportunities listed under External Analysis. Many experts
predict that the tablet market will expand to outrun the PC market in the near future.
Thus, Apple should first make product innovation of the iPad a priority. Second, Apple
should invest in developing a technology for wireless chargers to meet the growing need
for a portable, wireless computer device. Third, Apple should plan its expansion into
international markets in which technological progress is not yet achieved. The firm
should also invest in educating consumers in these markets in how to utilize Apple
products. Furthermore, I recommend that Apple reduce its iPod line to only a small
number of versions. Music players are no longer relevant, as all smart phones have music
applications pre-installed. The “Net Sales by Operating Segment and Net Sales and Unit
Sales by Product, 2012” table in the case supports this; iPod sales decreased by 25%
between 2011 and 2012. The reduction in line will help the company cut costs. Lastly, I
recommend that Apple continue its practice of releasing a new product every 12 months
or 18 months. This will help maintain its brand image as an innovator.
IV.
CONCLUSION
Despite the death of Steve Jobs, Apple is still a strong player in the electronic
equipment industry. Because it has already established relationships with third party
players in the industry, significant technological capacity, and high brand loyalty among
customers, it can protect its position as industry leader if it continues to strive for
innovation. I advise that Apple follows the recommendations provided and conserve a
company environment that embodies Jobs’ vision and passion.
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V.
APPENDIXES
a. APPENDIX A
1. Historically, what were Apple's major competitive advantages?
Apple’s major competitive advantages historically were its strength in the desktop
publishing industry and design elegance with no visible screws or bolts. Also, the
desk drive allowed software programmers to write applications such as VisiCalc,
increasing Apple’s appeal to professionals and students.
2. Why did Apple fail to build on these advantages to lead the industry?
Apple failed to build on these advantages to lead the industry because Microsoft
developed its own GUI through Windows 3.1, and the incorporation of a GUI was no
longer a differentiator. Furthermore, IBM grew strong with the introduction of the PC
and an open architecture. IBM’s open architecture made Intel processors the industry
standard, demotivating third party software developers to write OS-compatible
programs. As a result, Apple became a niche player in the desktop publishing market,
losing market share to IBM and its clones.
3. Was Apple's demise inevitable, or could they have succeeded despite the decision
not to license the OS? Explain your answer.
I believe that Apple’s demise was not inevitable and that the company could have
succeeded despite the decision not to license the OS. If the company started to develop
its own software programs and applications earlier than 1998, it would have been less
dependent on external software developers. Furthermore, if people in the leadership
roles communicated with each other more effectively, there may have been less clashes
and confusion for the company overall.
4. 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?
In its embryonic stage, the personal computer market was composed of products with
limited technical capabilities. Furthermore, most products were used for educational or
business-related purposes. Today, however, all types of people, from elementary
students to seniors, use computers in their every day life. It is an essential part of life in
a world transforming through globalization. This means that there is higher potential
for profitability of personal computer manufacturers. However, it also implies that
there are high costs required and high competition among companies.
5. 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?
A PC firm must prioritize innovation of both product and process to make an economic
return in this industry. This is the case of Microsoft. After disappointing years, the
company is attempting to increase its profitability again by introducing the tablet,
Surface. With product innovation, a company can increase its market share; with
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process innovation, a company can lower its cost structure to increase its profit margin,
accumulating cash for research and development.
6. In the early 1990s, Dan Eilers commented that Apple was on a "glide pat to
history." What underlay this assessment?
Dan Eilers made that comment, because Apple was losing its market share after IBM
introduced the PC and decided to use open architecture. Software developers were
more inclined to write programs compatible with the PC, and with a greater number of
programs, the PC was attracting more customers than the Mac. Apple was becoming a
niche player significant only in the publishing market.
7. How did the company come to dominate desktop publishing?
The company came to dominate desktop publishing when Jobs incorporated the GUI
into Apple products after adopting the technology from PARC. This, in addition to the
introduction of Adobe Photoshop and Illustrator, strengthened Apple’s position in the
market.
8. Evaluate Apple's strategies from 1990-2003 (focus on Scully and the return of
Steve Jobs). How did Scully try to save Apple? How did Jobs?
Sculley tried to save Apple by providing solutions for the problem of high cost
structure. Sculley’s 6-facet plan included cutting prices for the Macintosh line and
Apple II line by 30%. This resulted in an increase of 60% in sales volume; however,
gross margins also declined. Sculley also introduced a cheaper version of the
Macintosh to compete with IBM clones. Furthermore, Sculley began to work with
Japan subcontractors to manufacture Apple’s products and entered into an alliance
with IBM. The alliance included the agreement to adopt IBM’s Power PC
microprocessor architecture. On the other hand, Jobs followed a different direction
upon returning to Apple. He killed slow-selling products and instead focused on
product innovation to release new products, mainly the iPod, iPhone, and iPad. He did
not follow Sculley’s low-cost plan, but instead opted for premium pricing.
9. Why was Apple so successful with the iPod business?
Apple was so successful with the iPod business because it initiated the portable music
market as well as the legal digital download market through the development of
iTunes. It was able to capture a dominant portion of the market share by being the
initiator. Also, it made it difficult for music files to be transferred illegally by
permitting the files to play only on iTunes.
10. What were the main elements of Apples strategy from 2003 - 2007. What was
Apple trying to do here?
Apple’s strategy from 2003 – 2007 mainly focused on adopting Intel architecture and
making Apple components compatible with competitors’ products. Apple was trying to
expand from being a niche player to a broad differentiator.
11. How did the iPhone change things?
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The iPhone revolutionized the smart phone market by introducing a touch screen
interface and elegant design with large screens unlike that of the Blackberry. The
iPhone also led to the introduction of the App Store. The iPhone also made the iPod
irrelevant with its pre-installed iTunes.
12. What does the iPhone and iPad mean for Apple, and for the computer industry?
The iPhone and iPad are markets that are predicted to potentially outgrow the PC
market in the near future. As smartphones and tablets are innovated, less consumers
will demand the PC.
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b. APPENDIX B
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