Analyse the structure of the personal computer industry over the last 15 years.

How have the dynamics of the PC industry changed? At the beginning of the 1990s the structure of the personal computer industry changed dramatically after several decades of relative stability. IBM dominance of the PC industry and its role as coordinator of the IBM-compatible standard started to erode in the late 1980s. It attempted to regain control of the PC standard by connecting it to IBM-proprietary technology. The strategy failed. By the early 1990s IBM-compatible had been replaced by Wintel as the dominant standard with IBM?s early partners, Microsoft and Intel, taking the helm as coordinators. The new Wintel regime, like its predecessor, was an arena where technical invention was divided amongst vertically disintegrated firms. This market structure, one of divided technical leadership, is a structure in which a number of firms possess the capability to supply interoperable components. Throughout the 1990s and beyond, thousands of manufacturers built PCs around hardware and software components mainly supplied by Microsoft and Intel. There are two distinct types of supplier to the PC industry. The first type supplies components such as disk drives, chassis?, RAM, peripherals etc. Products in this category are available from a wide variety of sources at highly competitive prices. The other type of supplier provides products - most notably CPUs and operating systems- available from just a few sources .i.e. Microsoft and Intel. Most firms outsourced the production of components manufacturing contractors carrying out simple manufacturing operations at high-volume plants in low-cost locations. Eventually, these contractors took on more complex tasks, such as design and testing. By the beginning of this century, large contract manufacturers began to build entire PCs for brand-name companies, designing and assembling basic computers in Asia and shipping them to geographic hubs for production to be completed. These full-line distributors dominate the industry with the broadest customer and product base. Many PC manufacturers aimed to streamline their operations by moving from a build-to-stock to a build-to-order model. Reduced inventory led to reduced costs. The four main types of PC buyer have remained the same since the early 1990s. Namely: business, home, government and education. However, the distribution channels have changed. Business buyers now buy direct from vendors or distributors as opposed to full-service dealers. Consumer markets are serviced by superstores e.g. (In Ireland) Tesco, PC World and web-based retailers can service all types of demand often at steep discounts. The 1990s saw Moores Law holding true and the end of the technological boom has left behind a saturated PC industry with decreasing profit margins. The rate of innovation within the industry has greatly decreased. Highly standardised products, low margins and oversupply characterise todays market. Suppliers of PCs are struggling to find meaningful differentiation with their competitors. Today, the top three suppliers in the world are Dell, Hewlett-Packard (HP) and Lenova. Lenova acquired IBMs PC business in May 2005. As a means to increasing sales and decreasing costs, it is not unusual for industry leaders to share R&D with smaller companies, many of whom opt to merge together with their much larger partners, thus creating increased competition between the industry leaders. The cut-throat environment that exists today will surely lead to more consolidation such as this. Let us entertain you has become the new battle cry of the major players within the PC industry . Previously, companies relied on creating technology that increased consumers productivity and lines of communication, PC makers are now entering the consumer electronics industry as a means to sharpen their competitive edge. Their theory is based on the grounds that they already have sophisticated distribution channels and currently compete in an approximately related industry. Analysis of PC Industry using Porters Five Force Model

Degree of Rivalry The top manufacturers are engaged in intense competition to produce the most efficient machine at the cheapest price. Result is that companies have no room for errors or inefficiencies. There is little differentiation between most products. It is costly to leave the industry (high exit barriers), so manufacturers fight to stay in. Consolidation may seen by manufacturers as a means to stay in e.g. HP-Compaq, Lenova-IBM. Supplier Power Certain suppliers, if they are the only one or one of few e.g. Microsoft, Intel, do have strong position and may dictate terms. Particularly so if there is high switching cost for manufacturers. Manufacturers hold a power over hardware suppliers. Suppliers are in direct competition with each other to obtain exclusive contracts with manufacturers. Buyer Power Consumers have a wide range of similar options, to attract new customers; manufacturers must differentiate themselves to add value. Therefore, consumers have good bargaining power. The recent slowdown in the PC market has given consumers even more power than they had before. Customers are sensitive to price. Switching to another product is not expensive (amongst Wintel machines). Threat of Substitutes Technological development of multiple home entertainment devices such as personal digital assistants (PDAs), DVD players/recorders and advanced game devices. Some game consoles integrate gaming, DVD, CD, online gaming and web browsing. Digital cameras can connect directly with printers. These types of technology might replace the PC in some areas. New Entrants/Barriers to Entry The PC industry is highly competitive with several big players operating with great authority. Their products have been around for years. They have strong brands. They have established distribution channels. However, there is always potential for new competitors to emerge. Greater threat within the PC industry is consolidation. Most successful young firms are bought out. Larger companies engage in acquiring smaller companies to retain their competitive edge. Evaluate Apple's Strategies Since 1990 Firstly, it is necessary to trace Apple's history since 1990 and identify the general strategies the company employed. Then, it will be possible to evaluate them using Porter's Generic Strategies. 1990 saw Apple Computers enter the final decade of the 20th Century under the stewardship of John Sculley, CEO since 1985. Apple was the most profitable PC company in the world with sales of $5.6 billion, a stable 8% worldwide market share, 50% of the education market and had $1 billion in cash. Apple maintained a proprietary strategy, designing its hardware, operating system, and software from scratch. The company epitomized the concepts of complete vertical and horizontal integration. Its products were considered superior to comparable IBM-compatible machines and its proprietary controlled environment offered customers a complete desktop solution with easy integration of hardware, software and peripherals. Contrasting this was

the relative difficulty to integrate IBM-compatible machines with hardware and software. This superiority led to strong customer loyalty and Apple engaged premium pricing strategies. However, the technological boom was about to enter full swing with performance increasing and component price dropping. Wintel performance and price followed suit respectively. John Sculley summed it up perfectly: Our portfolio of Macintoshes were almost exclusively high-end, premium proceed computers . Drastic action was needed to compete with the Wintel manufacturers. Sculley aimed to move Apple into the mainstream by adopting a low-cost strategy, offering products and prices designed to regain market share . Apple forged an alliance with its arch-nemesis IBM in 1991 with the objective of developing a revolutionary new operating system (OS). Also, Apple committed to switching to IBM's PowerPC chip. A secretive effort to rework the Mac OS to run on Intel chips was initiated. These differentiation strategies were designed to leapfrog the Wintel platform. Remember, this was an era when performance breakthroughs were common and could make or break a company. Sculley, with another differentiation strategy, championed the Newton PDA, foretelling the convergence between PCs and consumer electronics. Apple continued its low-cost strategy by driving down costs in order to remain competitive. Headcount was reduced by 10% and manufacturing was sub-contracted out. However, these measures were not enough to sustain Apple's profitability with its gross margin down 14% on its 10-year average. Apple kept losing its market share; as many Wintel manufacturers produced cheaper computers, the market increased dramatically and the Wintel platform became mainstream. 1993 saw Mike Spindler take the reins of Apple. The company had always the lion's share of the education and desk-top publishing markets, holding 60% and 80% respectively. Spindler continued with a niche strategy by seeking to re-invigorate these core markets. Compared to growth of the industry these two areas remained small by comparison, especially compared to the corporate sector where a lack of compatibility and high switching costs kept business customers away. Apple's proprietary strategy was beginning to hurt. In a bid to increase overall market share, Spindler shelved the plans to run Mac OS on Intel chips and instead licensed a handful of companies to make Mac clones. International growth became a key objective and Apple's low-cost strategy continued with a further reduction in headcount and reduced R&D spending. Serious problems remained with Apple's 1996 Q1 $69 million loss. 1996 saw Gilbert Amelio assume the role of CEO. He set out to improve operations by streamlining the product line and further reducing the payroll. Apple would return to its premium-price differentiation strategy. On Amelio's watch Apple lost $1.6 billion and its market share sank to 3%. Steve Jobs had plenty of problems to contend with as he took the stage for the first time since returning to the top of Apple in 1997. He faced a shrinking market for his beloved Mac computers, bloated costs and a severe shortage of cash. Faced with growing isolation, Jobs announced that Apple lives in an ecosystem, and it needs help from other partners . Microsoft had agreed to invest $150 million dollars in Apple and pledged to develop core products for the Mac through 2002. This previously unthinkable alliance with Microsoft heralded Jobs shake up of the company. The Mac licensing program came to an end and some critics say this is the reason for Apple's dismal piece of the overall PC market. Restructuring efforts included: A further reduction in headcount. The closure of two divisions. Outsourcing manufacturing tasks. A revamped distribution system. A website to sell its products directly.

Job's first notable success was the iMac; Apple's differentiation strategy was at play again with a strikingly designed internet ready but low performing PC. However, it also saw a relaxing of Apple's proprietary or vertically integrated strategy as the iMac supported non-Apple peripherals. The iMac sold well but mostly attracted new PC users and existing Apple aficionados. Still, had Jobs turned Apple around and set about a strategy of aggressive innovation. Into the 21rst Century, Apple retained the premium-pricing strategy, for the most part, on the Mac front, offering cutting-edge designs in hardware and in the user experience that was delivered. Apple hit the Sweet Spot in January 2005 with the release of the Mac Mini, a PC that served the mass market. This was Apple's first attempt in over a decade to target price-sensitive customers. On the OS front, Apple launched OS X in 2001 and launched new versions on a roughly yearly basis. Tiger was released in 2005 offering improved interoperability with Windows. The biggest shift was Apple's switch to Intel chips. This shift allowed Apple to enable users, in 2006, to run Windows on Macs (an important insurance policy to Mac newbies) and made it far easier for software developers to adapt their programs for Apple's products. None of this would have come about if Jobs hadn't had his epiphany about relaxing Apple's proprietary strategy and reaching out beyond the insular world of the Mac. If people are going to run Windows, they might as well be doing it on Apple hardware. After all, they're still selling hardware. It removes barriers to entry for buyers. Instead of diving headlong into the Mac world, prospective customers can test the waters. Also existing Mac users can use software available for Windows and not dump their Macs. Apple also engaged differentiation strategies that saw it diversify its business. Efforts focused on positioning Apple products as an integrating platform for a range of digital devices. In 2002 Jobs called this the era of the digital lifestyle . A huge impact was made with Apple's foray into the consumer electronics arena with the launch and subsequent stellar success of the iPod. The iPods ease of use, huge storage capacity and sleek design made it a smash hit. Launched in 2001, by 2005 42 million units had been sold and the range of MP3 players had grown to include the iPod Shuffle. Along with the Mac Mini, the Shuffle has converged two product paths (MP3 players and PCs) with the mass market in mind and all without sacrificing the traditional middle and high-end markets. Although highly profitable in itself, the iPod continues to be the vehicle that drives Apple's ultimate goal: Switching. The iPod's success can be attributed, by a large part, to the introduction of an iPod for Windows, another move contrasting with Apple's proprietary past. Apple also entered the retails business in 2001 opening its first store. By 2005, 135 stores had opened. Many analysts believed the iPod had a halo effect benefiting Apple's core PC business. Retail escapades continued in 2003 with the launch of the iTunes online music store. iPod sales rose and continued to rise. Apple differentiated again with the launch of the iPhone in July 2007 to incredible hype (a testament to the Apple marketing machine) with American satirist Stephen Colbert joking that the iPhone launch is the second most important event in human history, after the birth of Christ. January 2008 saw Apple announcing their latest venture: movie rentals, through the iTunes online store, which can be streamed directly to your TV using Apple's set top box. The era of the digital lifestyle . It seems Steve Jobs had a plan. A week later, at the earnings conference for the financial results for its fiscal 2008 first quarter, an analyst asked Apple CFO Peter Oppenheimer if the goal for iTunes rentals was profitability or incremental Apple TV sales. He responded that Apple hoped to run the iTunes Store a little above even but selling iPods and Macs was the main strategy. Apple announced an increase in revenue, profit and gross margin compared to the year-ago quarter and 44% unit growth for Macs. Steve jobs: Our best quarter ever, with the highest revenue and earnings in Apple's history . Porter's Three Generic Strategies The notion underlying the concept of generic strategies is that competitive advantage is at the heart of any strategy, and achieving that advantage requires a firm to make a choice about the competitive advantage it seeks to attain and the scope within which it will attain it . For the purpose of this evaluation, we will divide the strategies of Apple since 1990 into two eras, pre and post the second coming of Jobs.

Overall Cost Leadership Pre: Sculley aimed to move Apple into the mainstream by adopting a low-cost strategy, offering products and prices designed to regain market share . Apple continued its low-cost strategy by driving down costs in order to remain competitive. Headcount was reduced by 10% and manufacturing was sub-contracted out. Under Spindler, Apple's low-cost strategy continued with a further reduction in headcount and reduced R&D spending. According to Porter Achieving a low overall cost position often requires a high relative market share . Apple kept losing its market share; as many Wintel manufacturers produced cheaper computers, the market increased dramatically and the Wintel platform became mainstream. The low-cost strategies for this period can be deemed to be a failure. Post: Jobs did not seek to become the overall cost leader in the PC industry. He did seek to reduce costs in its target segments and that will be addressed in cost focus. Differentiation Pre: Sculley and Spindler sought to differentiate Apple by developing a new OS that could out- perform Intel based machines thus attaining a competitive advantage. This strategy failed as the OS project was shelved by 2005. Amelio re-introduced Apple's premium-price differentiation strategy. But Apple's uniqueness was not valued enough by consumers and this strategy failed. Post: Jobs sought to differentiate Apple as the producer cool products with a platform that facilitated seamless integration of digital devices. Apple products hold cachet with the digerati and are perceived as unique in the industry along dimensions that are valued by customers. This platform is supplemented and re-enforced by Apple's retail avenues. Apple is rewarded for it's uniqueness with a premium price. These strategies to date can be perceived to be successful. Differentiation Focus Pre: Sculley and co. successfully targeted the core markets of education and publishing. Compared to growth of the industry these two areas remained small by comparison. Cost Focus Post: Jobs strategy, targeting the lower end of the market with the iPod Shuffle and the Mac Mini without sacrificing the middle and upper end of the market can be regarded as being successful. Has Jobs Finally Solved Apple's Long Standing Problems? Is the iPod Different? Apple's fortunes have been steadily rising for the last half decade or so and they only seem to be gaining momentum now. As well as Apple is performing now, Harvard professor Clayton M. Christenson, among others, isn't ready to jump on the Apple bandwagon yet. It is possible that Apple's recent success is built on a strategy that won't last the test of time. Apple is doing a fine job of maintaining huge market shares in digital music players and it is doing it using the same proprietary strategy that is has always employed. It has also doubled the growth of its PC business and diversified further on the strength of the iPod. However, it is still the early days of the MP3 player industry and in the early days of any industry, when the functionality and the reliability of a product isn't yet adequate to customers needs, a proprietary solution is almost always the right one . There is a risk that once the technology matures and suffices, industry standards will emerge, leading to standardisation of interfaces, which lets companies specialise in pieces of the overall system. The product becomes modular. The competitive advantage of Apple, in this case, could

dissipate and the ability to turn a profit migrates to whoever controls the performance- defining subsystem. In the future, what will matter is the software inside that lets users organise their music with minimal effort. Sound familiar? In the modular PC world, that meant Microsoft and Intel. Apple dominated the PC world in the early eighties but by 1987, IBM-compatible companies had taken over. Sculley had remarkably clear vision about where the PC industry was going. He had three priorities. First, he felt the company needed to get its price down to $1,000. The second thing was to open up the architecture, by selling the OS. And the third was that handheld devices were going to be big. He was right on all three, but the culture of Apple was just so strong that Sculley just couldn't change the direction of the ship. Apple blew it then. In order for Apple to not blow it now, they need to open up the architecture and let iTunes become for the MP3 player what Windows is for the PC. Apple can't keep coming up with the next cool thing forever. As for the Mac, despite Apples strong growth in that segment, it might not continue forever. Despite the Mac Mini, Apple is again in danger of becoming a premium-priced supplier to a niche market to people who want more. Most people, particularly the business sector, are satisfied with the performance and functionality of a lower cost Wintel machine. If the iPod and iTunes fall from grace, Apple is in danger of losing cachet with many of todays PC buyers, the image conscience and the digerati. Jobs has been successful to date because he stopped trying to change Apple drastically. He wants the same thing as the people at Apple want; to make cool and functional products based on proprietary system.

SWOT Analysis Apple

Strengths. Apple is a very successful company. Sales of its iPod music player had increased its second quarter profits to $320 (June 2005). The favourable brand perception had also increased sales of Macintosh computers. So iPod gives the company access to a whole new series of segments that buy into other parts of the Apple brand. Sales of its notebooks products is also very strong, and represents a huge contribution to income for Apple. Brand is all-important. Apple is one of the most established and healthy IT brands in the World, and has a very loyal set of enthusiastic customers that advocate the brand. Such a powerful loyalty means that Ample not only recruits new customers, it retains them i.e. they come back for more products and services from Apple, and the company also has the opportunity to extend new products to them, for example the iPod.

Weaknesses. It is reported that the Apple iPod Nano may have a faulty screen. The company has commented that a batch of its product has screens that break under impact, and the company is replacing all faulty items. This is in addition to problems with early iPods that had faulty batteries, whereby the company offered customers free battery cases. There is pressure on Apple to increase the price of its music download file, from the music industry itself. Many of these companies make more money from iTunes (i.e. downloadable music files) than from their original CD sales. Apple has sold about 22 million iPod digital music players and more than 500 million songs

though its iTunes music store. It accounts for 82% of all legally downloaded music in the US. The company is resolute, but if it gives in to the music producers, it may be perceived as a commercial weakness. Early in 2005 Apple announced that it was to end its long-standing relationship with IBM as a chip supplier, and that it was about to switch to Intel. Some industry specialists commented that the swap could confuse Apple's consumers. Opportunities. Apple has the opportunity to develop its iTunes and music player technology into a mobile phone format. The Rokr mobile phone device was developed by Motorola. It has a colour screen, stereo speakers and a advance camera system. A version of Apple's iTunes music store has been developed for the phone so users can manage the tracks they store on it. Downloads are available via a USB cable, ands software on the handset pauses music if a phone call comes in. New technologies and strategic alliances offer opportunities for Apple. Podcasts are downloadable radio shows that can be downloaded from the Internet, and then played back on iPods and other MP3 devices at the convenience of the listener. The listener can subscribe to Podcasts for free, and ultimately revenue could be generated from paid for subscription or through revenue generated from sales of other downloads.

Threats. The biggest threat to IT companies such as Apple is the very high level of competition in the technology markets. Being successful attracts competition, and Apple works very hard on research and development and marketing in order to retain its competitive position. The popularity of iPod and Apple Mac are subject to demand, and will be affected if economies begin to falter and demand falls for their products. There is also a high product substitution effect in the innovative and fast moving IT consumables market. So iPod and MP3 rule today, but only yesterday it was CD, DAT, and Vinyl. Tomorrow's technology might be completely different. Wireless technologies could replace the need for a physical music player

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