"#$%&'( )*+,","&- .$' )$/0'%*.

1

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)*+,","&- .$' )$/0'%*1

Robin Abiaham, Baniel Alvaiez, Bient uoluman, anu Ciaig vieiegg

BEN 1u6 - Competitive Stiategy, Spiing Teim

}une 4, 2uu8
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./23' %4 5%&1'&16

7 89':*1",' )*;;/+<============================================================================================================= >

? @"61%+<===================================================================================================================================== >

> )"9 A%+:'6 B&/3<6"6 ============================================================================================================== C

S.1 Competition ..................................................................................................................................... 4

S.2 New Entiants................................................................................................................................... S

S.S Buyei Baigaining Powei ............................................................................................................ S

S.4 Suppliei Baigaining Powei ....................................................................................................... S

S.S Substitute Piouucts ...................................................................................................................... 6

S.6 ComplementsSyneigies............................................................................................................ 6

C )DE. B&/3<6"6 ====================================================================================================================== 6

4.1 Stiengths ........................................................................................................................................... 6

4.2 Weaknesses...................................................................................................................................... 7

4.S 0ppoitunities.................................................................................................................................. 7

4.4 Thieats............................................................................................................................................... 7

F )1+/1'-< =================================================================================================================================== G

S.1 Focus on the Consumei Naiket .............................................................................................. 8

S.2 Embiace Thiiu-paity Softwaie Bevelopment .................................................................. 9

S.S Piouuct Biffeientiation............................................................................................................ 11

S.4 Inteinational Naiket................................................................................................................. 12

H 5%&:3*6"%&============================================================================================================================7?

I BJJ'&K"9 7>

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The Apple iPhone was ieleaseu on }une 29, 2uu7
(Apple Inc)
, aftei ovei six months of
anticipation since Apple's fiist public hint of the piouuct
(Inc)
. Acioss the countiy,
tens of thousanus of people waiteu in line houis in auvancein some cases, ovei 24
houisuespite the steep $Suu+ piice tag, in hope of being one of the fiist to buy one
of the smaitphones befoie they solu out. Apple has masteieu leveiaging its
consumei-oiienteu bianu to geneiate hype foi theii new conveigence uevice.

Bowevei, the cell phone maiket is establisheu with multiple playeis on both the
softwaie anu haiuwaie fionts. In auuition to the iPhone, poweiful new playeis
such as uoogle's Anuioiu
(uoogle)
anu the Linux Nobile Founuation
(Founuation)
aie
enteiing the softwaie maikets in the neai teim. With this new influx of entiants,
along with potential wiieless seivice uisiuptois such as Cleaiwiie
(Cleaiwiie)
, we
anticipate a shakeout in the smaitphone maiket, as the maiket cannot sustain moie
than a hanuful of matuie softwaie platfoims open to thiiu-paity uevelopment.

Apple's piimaiy goal foi the iPhone shoulu be to suivive the upcoming shakeout by
gaining maiket shaie. We piopose the following iecommenuations foi Apple to
maintain a successful business stiategy ovei the long teim:

Encouiage S
iu
paity softwaie uevelopment.
Release multiple veisions of the iPhone at uiffeient piice points.
Focus on the consumei maiket, leveiaging integiation with othei piouucts.
Expanu into the inteinational maiket immeuiately.

? @"61%+<
Apple Computei, Inc ousteu founuei anu innovatoi Steve }obs in a powei stiuggle
ovei the futuie uiiection of the company in 198S
(Boimby)
. Following seveial
unpiouuctive yeais, Apple bought Steve }obs's company NeXT in 1997, to allow }obs
to leau the company
(Computei)
. }obs killeu Apple's Newton PBA piouuct line to bettei
focus the company's effoits. Neanwhile, Apple enjoyeu huge success as the
uominant playei in the poitable uigital music inuustiy, anu Newton fans hopeu that
Apple coulu ieplicate the iPou's simple anu innovative uesign in a PBA. }obs,
howevei, believeu that PBAs anu phones woulu conveige into "smaitphones" that
woulu become a usei's mobile uigital hub. Banuspiing's Tieo anu Reseaich in
Notion's Blackbeiiy pioneeieu the smaitphone maiket, but these uevices weie
clunky anu unintuitive.

Apple's fiist ventuieu into the cell phone maiket by paitneiing with Notoiola, in an
effoit to follow up on the success with the then-impossibly thin RAZR. When the
fiuits of this effoit, the music-baseu R0KR, uiun't live up to }obs' (oi the maikets')
expectations, }obs uiiecteu his engineeis to investigate touchscieen technology to
ievolutionize the smaitphone usei inteiface fiom the giounu up
(Rose)
.

"#$%&'( )*+,","&- .$' )$/0'%*. 4
Aftei yeais in uevelopment, the iPhone was ieleaseu to much meuia attention.
Apple uiffeientiateu the iPhone by maiketing it as a conveigence uevice, integiating
the best featuies of a phone, PBA, iPou, anu inteinet tablet. Apple tieu it all togethei
with an intuitive touchscieen inteiface
(Apple, Inc)
.

Apple also uemonstiateu the auvantage of a coopeiative joint ventuie by foiming an
exclusive paitneiship with Cingulai (now AT&T Nobility), the biggest cell phone
caiiiei in the 0niteu States. The uay the iPhone was announceu, Apple Computei,
Inc uioppeu the woiu "Computei" fiom its coipoiate name to bettei ieflect theii
ongoing expansion into the consumei electionics maiket
(}obs)
.

Baseu on its featuie uiffeientiation anu paitneiship, the iPhone boasteu a seconu-
place 27% maiket shaie within 6 months of its intiouuction
(Canalys)
. Sales continue to
inciease month-ovei-month, with ovei 2.S million units solu in the fiist quaitei of
the 2uu8 fiscal yeai alone. Time Nagazine nameu the iPhone the 2uu7 Invention of
the Yeai
(uiossman 2uu7).
Apple followeu up on the iPhone with a new poitable music
playei calleu the iPou touch, which is iuentical to the iPhone in viitually eveiy way
(incluuing WiFi capabilities), leaving out only the mobile phone haiuwaie
(Apple)
.

> )"9 A%+:'6 B&/3<6"6
>=7 5%;J'1"1"%&
Like many othei Apple piouucts, the iPhone leveiages veitical integiation between
softwaie anu haiuwaie. Although this pioviues an euge in uevelopment, Apple is
foiceu to compete simultaneously on both the softwaie anu haiuwaie fionts.

0n the haiuwaie siue, Apple competes with Nokia (SS% global maiket shaie),
Reseaich in Notion (11%), anu Notoiola (7%), with Apple tying foi thiiu with 7%.
0thei competitois incluue Lu, BTC, Palm, Samsung, anu otheis.

0n the softwaie siue, Apple competes with Symbian (6S% global maiket shaie),
Winuows Nobile (12%), anu Reseaich in Notion (11%), having a 7% shaie itself.
Apple also competes with Palm, Bangei, anu otheis.

Bowevei, these statistics aie skeweu by the fact that the iPhone has veiy limiteu
legal exposuie outsiue of the 0niteu States. Bomestically, the iPhone cuiiently
holus the #2 spot with 28% maiket shaie, behinu RIN's 41%,
(Canalys)
uespite only
being on the maiket foi less than a yeai! This pioviues poweiful eviuence that Apple
shoulu attempt to iepeat its uomestic success in the global maiket.

Since wiieless seivice pioviueis aie eagei to pioviue haiuwaie with the newest
featuies to uiffeientiate themselves fiom othei caiiieis, Apple can gain maiket
shaie by having the best featuies. Apple has pioveu this by leveiaging the AT&T
maiketing machine foi the iPhone launch, gaining AT&T's coopeiation by being a
"#$%&'( )*+,","&- .$' )$/0'%*. 5
phone of many fiists: touchscieen usei inteiface, uesktop-class web biowsing, anu
best-in-class meuia playback.
>=? N'O 8&1+/&16
Bespite the smaitphone maiket being ciowueu, two giants aie set to entei the
smaitphone softwaie maiket.

The fiist is uoogle, which is enteiing the maiket with the Linux-baseu Anuioiu
mobile platfoim, woiking with the founueis of the eaily Bangei smaitphone
(maiketeu in the 0S as the T-Nobile Siuekick).
(uoogle)
uoogle is ieacting to Apple's
thiiving hackei ecosystem by making the platfoim open fiom the beginning, anu
funuing top iueas fiom thiiu-paity uevelopeis.
(uoogle)


The seconu is a conglomeiation of hanuset manufactuieis Notoiola, Samsung, anu
Lu; netwoik pioviueis NTT BoCoNo (the laigest pioviuei in }apan
(Reuteis)
), vouafone
(the laigest pioviuei in Euiope
(vouafone)
), anu 0iange (anothei laige Euiopean
pioviuei); anu otheis. They aie ueveloping anothei Linux-baseu mobile platfoim
calleu Linux Nobile
(LiNo)
.

Both of these new entiants will be baseu on Linux, an attiactive platfoim foi thiiu-
paity softwaie uevelopment. To compete, Apple must focus on making its softwaie
platfoim as easy-to-uevelop foi as possible, to attiact enough uevelopeis to suppoit
a valuable ecosystem of softwaie to the iPhone.
>=> P*<'+ P/+-/"&"&- #%O'+
As the exclusive wiieless seivice pioviuei offeiing the iPhone, AT&T has
consiueiable baigaining powei acting as a monopsony liaison foi the useis. Apple
uoesn't have the inuustiy expeitise oi capital to uevelop its own wiieless netwoik,
so it woulu have to foim new paitneiships with othei existing netwoiks to shaie in
subsciibei seivice fees. Without any paitneiships, the iPhone can be hackeu to iun
on competing uSN netwoiks such as T-Nobile, but Apple woulu not see any monthly
ievenue besiues the initial sale of the haiuwaie.
>=C )*JJ3"'+ P/+-/"&"&- #%O'+
The miciopiocessoi chip, memoiy anu othei electionic component maikets aie
cuiiently veiy competitive, leaving supplieis with little baigaining powei. None of
the supplieis have the capability to integiate foiwaiu to cieate a competitoi to the
iPhone. Auuitionally, the cuiient anu potential futuie veisions of the iPhone anu the
similai iPou touch come with similai components, which tianslates to huge volume
uiscounts on the buy siue as well as significant uiffeiences between piice anu cost
incieases between vaiious mouels on the sell siue. Fuithei, opening up the platfoim
to thiiu-paity softwaie uevelopeis uoesn't leave them with much baigaining powei
eithei.
"#$%&'( )*+,","&- .$' )$/0'%*. 6
>=F )*261"1*1' #+%K*:16
Substitutes to smaitphones incluue iegulai "uumb" phones lacking auvanceu
featuies such as music, web biowsing, anu email, as well as voice ovei Inteinet
Piotocol (voIP) anu satellite phones that skip the tiauitional wiieless phone giiu
entiiely. Auuitionally, notebook computeis, Inteinet-enableu PBAs, anu Amazon's
new Kinule piouuct aie substitutes foi some uses of the iPhone, but none pioviue all
the featuies of the iPhone in such a cheap, poitable, anu integiateu package.
>=H 5%;J3';'&16Q)<&'+-"'6
Apple's biggest complement foi the iPhone is iTunes, which is installeu on 1uu
million computeis iunning both Winuows anu Nacintosh. In auuition to being the
useis' meuia playei, iTunes also seamlessly syncs with anu manages the iPhone.

In teims of uevelopment syneigy, the iPhone iuns a mouifieu veision of Apple's Nac
0S X uesktop opeiating system, allowing Apple to leveiage uecaues of 0S
expeiience, incluuing multithieauing capabilities (the ability to iun multiple
piogiams simultaneously) which aie not available on othei phones.
(Apple)
The
iPhone also iuns Safaii, testeu as the fastest web biowsei on the maiket.
(Apple)


Apple's laigest stiategic syneigy has been the Apple Tv, which Apple leveiageu with
the iPhone to convince YouTube (the woilu's S
th
most populai website) to tianscoue
all of theii viueos into a foimat that cell phones anu integiateu uevices can play
back.

Finally, an exteinal complement to the iPhone is Cleaiwiie's upcoming national
WiNax netwoik. Cleaiwiie was founueu by Ciaig NcCaw, who has expeiience
uisiupting inuustiies with nationwiue netwoiks, having consoliuateu cellulai
netwoiks (cieating what became AT&T Nobility), cable television, bioaubanu, anu
satellites. In auuition, with ovei $S billion in funuing fiom uoogle, Comcast, Time
Wainei, anu Intel, Cleaiwiie has both the funuing anu leaueiship to make this
happen.
(Cleaiwiie)
Cleaiwiie can complement the iPhone by iemoving Apple's
uepenuence on inuiviuual wiieless caiiieis.

C )DE. B&/3<6"6
C=7 )1+'&-1$6
)1/1' %4 1$' B+1 A'/1*+'6
!"#$% '$())*+ The iPhone's touch scieen has a highei iesolution than
competing piouucts, anu is extiemely intuitive, iecognizing multi-touch
gestuies which emulate how the hanu noimally behaves.

,)- -(".')(+ The iPhone has the full powei of the Safaii web biowsei,
uisplaying full web pages with an intuitive zooming 0I, insteau of scaleu-
uown web pages with limiteu featuies like most othei cell phones.
"#$%&'( )*+,","&- .$' )$/0'%*. 7
)<&'+-< O"1$ %1$'+ BJJ3' #+%K*:16(
/0"1 2*1 /!#*)'+ The iPou meuia playei on the iPhone is even moie poweiful
anu easiei to use than Apple's stanualone iPous. The iPhone's iPou also
integiates with iTunes, the leauing uesktop softwaie meuia playei.
Auuitionally, since it uses the same uock connectoi as the iPou line, the
iPhone woiks flawlessly with many of the same accessoiies.

32$ 45 6+ By iunning the same opeiating system on Apple's uesktop, the
iPhone shaies all the benefits, incluuing the ability to iun multiple
applications at the same time, familiaiity, secuiity, anu stability.

P+/&K /O/+'&'66( Apple's bianu was iecently iateu the seventh most valuable in
the woilu (anu the top movei in the top 1u)
(Nillwaiu Biown)
, being well known foi
poweiful anu intuitive gaugets such as the iPou anu Nacintosh.

R*/3"1<( Eveiy component of the iPhone is of supeiioi quality. Foi instance, not
only uoes the iPhone's scieen have moie pixels (scieen ieal estate) anu biightness
than the competition, but it is also maue of sciatch-pioof glass insteau of cheap
plastic like othei phones.
C=? D'/0&'66'6
5%+J%+/1' ";/-'( In the enteipiise-heavy smaitphone maiket, the Apple bianu is
seen by enteipiises as consumei-fiienuly but not business-savvy, especially when it
comes to secuiity anu on-uemanu email.

#+":'( Although the piice is ieasonable foi the offeieu featuie set, it is still too
expensive foi the aveiage consumei. All cell phone pioviueis subsiuize most othei
phones, some to the point of being fiee, wheieas the iPhone is unsubsiuizeu anu
expensive.

N% 1$"+KSJ/+1< /JJ3":/1"%&6( The iPhone softwaie platfoim is cuiiently closeu,
limiting the usei to only the 18 applications built-in to the iPhone. Competitois such
as Winuows Nobile have thousanus of available applications.
C=> EJJ%+1*&"1"'6
@*-' *&;'1 -3%2/3 K';/&K( iPhones aie being puichaseu in the 0.S. anu iesolu
oveiseas foi uouble the piice. Some estimates claim that up to one quaitei of all
iPhones solu in the 0.S. have been iesolu oveiseas.
(BBC)


#+%1':1/23' TU /K,/&1/-'6( Some featuies, incluuing multi-touch gestuies, cieate
an oppoitunity foi unique applications to leveiage those featuies to uiffeientiate
fiom competitois.

"#$%&'( )*+,","&- .$' )$/0'%*. 8
T&61/23' V/+0'1( Evolving technology anu usage habits leave maiket uominance
up foi giabs. Case in point: the maiket shaie the iPhone has gaineu in less than a
yeai.

5+%66S;/+0'1 W','+/-'( The conveigence of smaitphones anu meuia playeis
positions Apple to leveiage its uominance in iPous into uominance in smaitphones.
C=C .$+'/16
5%;J'1"1"%& 4+%; LUV( RIN may not iemain focuseu on the coipoiate maiket, anu
may acceleiate its effoits to compete with Apple on the consumei siue.

5%;J'1"1"%& 4+%; 8&1+/&16( Competitois may uevelop innovative 0I featuies that
iival those of the iPhone. 0thei multitouch-baseu phone have been ieleaseu, but
useis iate the softwaie as being moie uifficult to use.

#+":' 5%;J'1"1"%&( Competitois aie likely to offei piouucts at lowei piice points,
necessitating the ielease of lowei-maigin iPhone mouels.

5%+J%+/1' V/+0'1( Bau piess about secuiity issues may hinuei auoption, especially
among coipoiate customeis.
F )1+/1'-<
The challenge foi Apple is to suivive the shakeout in both the haiuwaie anu
softwaie spaces, leveiaging theii bianu, featuies, anu syneigies with theii othei
piouucts to iapiuly gain maiket shaie both uomestically anu globally. Apple shoulu
focus on the consumei maiket iathei than the coipoiate maiket to avoiu a costly
wai with RIN, which has a fiist movei auvantage with enteipiises, anu insteau
inciease consumei maiket penetiation thiough piouuct uiffeientiation with
multiple veisions of the iPhone. Apple must also encouiage thiiu paity softwaie
uevelopment anu the iesulting netwoik effect by maintaining a poweiful
softwaie uevelopment API anu opening the softwaie installation piocess.

F=7 A%:*6 %& 1$' 5%&6*;'+ V/+0'1
Apple's successes ovei the past thiee uecaues have been in computei haiuwaie,
softwaie, anu consumei electionics. Apple's iPous aie the best-selling peisonal
meuia playeis in histoiy, anu have ieeneigizeu Apple's bianu equity to the point
that iPou owneis aie much moie likely to buy a Nac as theii next computei than
non-iPou owneis. The Apple Tv was the fiist uevice to uelivei movies fiom all five
majoi stuuios to the home television, anu the iPhone was a uevice of many fiists.

Neanwhile, Apple has little bianu equity with enteipiises. Apple sells high-enu Nac
Pio woikstations foi giaphics piofessionals anu Xseive netwoik seiveis foi Inteinet
companies, both of which aie too expensive anu too poweiful-anu theiefoie
inappiopiiate foi-the aveiage uesktop computei in the coipoiate maiket. Apple's
"#$%&'( )*+,","&- .$' )$/0'%*. 9
NacBook Pio laptop, which is populai as a mobile woikstation foi coipoiate anu
piofessional useis, cannot emulate a uesktop in the enteipiise because theie is
cuiiently no ieasonable uocking station solution.

In the coipoiate smaitphone maiket, Reseaich in Notion is the cleai maiket leauei,
with theii BlackBeiiy smaitphones iepiesenting 42% of all uevices solu in the past
yeai.
(Canalys)
The BlackBeiiy suppoits uozens of enteipiise-fiienuly featuies,
incluuing multi-factoi authentication, iemote uevice cleansing foi stolen uevices,
instant push email, anu Niciosoft Exchange integiation.
(RIN)
Auuitionally, the
BlackBeiiy has ovei a uecaue of bianu equity in the global maiket, with featuies
uesigneu specifically foi Foitune Suu companies.

The iPhone, on the othei hanu, has zeio of these coipoiate-fiienuly featuies, anu
thus none of the Foitune Suu companies suppoit the iPhone. As RIN has the cleai
fiist movei auvantage, Apple's best use of maiketing powei is to leveiage its bianu
equity in the consumei maiket foi iapiu giowth to soliuify its place post-shakeout,
anu avoiu an expensive wai with RIN in the shoit teim. Bowevei, Apple shoulu not
ignoie the coipoiate maiket completely, as uevices solu to enteipiises have highei
piofit maigins anu can pioviue a tiemenuous giowth oppoitunity. Apple has
alieauy staiteu along this path with its suppoit of Niciosoft Exchange ActiveSync. If
RIN ueciues to violate this implicit coopeiation (oi tacit collusion) by making a
stiong push in the consumei smaitphone maiket, this will blui the lines between
the consumei anu coipoiate siues, giving Apple moie cieuibility in the eyes of the
enteipiise.

We iecommenu that Apple launch compaiable featuies to the BlackBeiiy, but that
they holu off on maiketing the iPhone to Foitune Suu enteipiises. Apple shoulu
maiket the iPhone to small- to meuium-size companies that alieauy use Apple
piouucts such as the Nac Pio, NacBook Pio, anu Xseive, since these companies will
be moie willing to tiying auuitional Apple piouucts, anu have fewei employees to
tiansition ovei. Apple shoulu then let the netwoik effect expanu theii influence to
some of the laigei companies in the shoit teim. If tiaue magazines wiite favoiably
about the coipoiate featuies of the iPhone, putting iPhone on the enteipiise iauai,
then Apple will be in a position to maiket itself as an enteipiise piouuct without
initially ueclaiing a uiiect wai on RIN.

F=? 8;2+/:' .$"+KSJ/+1< )%41O/+' X','3%J;'&1
We aie at a key junctuie in the evolution of mobile computing uevices. Now that the
cuiient geneiation of smait phone uevices anu platfoims aie becoming
sophisticateu enough to become substitutes foi notebook computeis foi many tasks,
this emeiging space is ieaching a tiansition point. Although smaitphones aie
physically too small to be peifect substitutes, iecent uevices have moie than enough
computing powei foi many commonly useu applications, such as meuia playing,
web biowsing, email, cameia anu viueo iecoiuing. If Nooie's Law continues to holu
"#$%&'( )*+,","&- .$' )$/0'%*. 1:
foi piocessois anu uisk space, it will not be long befoie smaitphones have as much
computing capability as touay's laptops anu uesktops.

This evolution will uiive the neeu foi seiious thiiu paity application uevelopment
foi smaitphone platfoims. As was the case foi the PC inuustiy in the eaily 199us,
the usefulness of a mobile uevice will stait to uepenu heavily on available softwaie.
0ne of the ieasons Apple lost the shakeout wai with Niciosoft in the peisonal
computei maiket in the 199us was that the incompatibility of the Winuows anu
Nacintosh opeiating systems meant that thiiu paity softwaie uevelopeis hau to
choose one platfoim oi the othei foi theii uevelopment, leauing to a shakeout in
which most softwaie uevelopeis chose the Winuows platfoim foi having the most
useis. This feeuback effect iesulteu in a single uominant maiket leauei.
(Kiikpatiick)


Cuiiently, theie aie seveial uiffeient mobile computing opeiating systems. If they
all iemain mutually incompatible, softwaie uevelopeis will have to choose which
platfoim(s) to uevelop softwaie foi. Since the smaitphone maiket is still young,
application uevelopeis may be the ones to choose the next maiket leauei, choosing
the taiget platfoim baseu moie on unique uevelopment featuies than the one with
the laigest usei base. Smaitphone useis will then choose the uevice with the best
softwaie. Foi example, if a uevelopei wiites softwaie that uepenus on a
touchscieen, they will uevelop foi the iPhone, leauing useis who want that softwaie
to buy an iPhone.

The alteinative to a platfoim wai is compatibility. If API auapteis aie uevelopeu that
allow, e.g., softwaie wiitten foi the iPhone to iun on a BlackBeiiy, then the feeuback
cycle is bioken anu multiple platfoims can be suppoiteu. This situation is analogous
to what happeneu in the instant messengei softwaie maiket. 0seis wanteu to use
the softwaie that hau the most useis, but theie weie seveial competing netwoiks
that emeigeu aiounu the same time. The fact that useis coulu install multiple IN
clients on a single computei ietaiueu the shakeout effect, but the loseis staveu off
theii uefeat by intiouucing compatibility between instant messaging piotocols.
Touay, uoogle Chat anu A0L have meigeu theii IN netwoiks, as have Niciosoft anu
Yahoo.

Looking foiwaiu, a mobile platfoim must eithei have the best anuoi wiuest vaiiety
of softwaie wiitten foi it, oi it must be compatible with the platfoim that uoes. In
the event that the iPhone platfoim fails to quickly become the maiket leauei in
mobile uevice softwaie, Apple must iesponu by quickly ieleasing an auaptei that
allows softwaie uevelopeu foi the leauing platfoim to iun on iPhoneswithout
ieleasing it too eaily, which will only encouiage uevelopment foi othei platfoims. If
Apple ieleases the auaptei too late, they iisk a iepeat of theii uefeat in the PC
maiket. Bowevei, as long as Apple has a goou chance of winning a shakeout wai
inuepenuently, Apple shoulu not focus on an auaptei.

Foi Apple to soliuify initial maiket shaie, Apple must iapiuly attiact the best thiiu-
paity softwaie talent. Bevelopeis have been wiiting softwaie foi the iPhone's beta
"#$%&'( )*+,","&- .$' )$/0'%*. 11
API in anticipation of its public ielease. Apple must leveiage its uecisive auvantage
in usei inteiface anu consumei maikets into supeiioiity in the emeiging mobile
softwaie maiket by attiacting even moie softwaie uevelopeis with unique iPhone
featuies anu the easiest-to-use API. If these featuies aie eithei piotecteu by patents
(e.g., multitouch) oi aie simply unavailable in competing phones, this coulu be a
gieat uiffeientiating factoi foi the iPhone to establish maiket uominance.

F=> #+%K*:1 X"44'+'&1"/1"%&
In auuition to thiiu-paity applications, piouuct uiffeientiation will be key to Apple's
stiategy if it wants to boost its sales of futuie veisions of the iPhone. Apple hau
alieauy employeu this stiategy with much success with its maiket-leauing Peisonal
Neuia Playei (PNP) uevice: the iPou. The cuiient line of iPous manages to captuie
piice points within almost eveiy $Su iange, staiting fiom $49 to $499.
(Apple Computei)

Not only has this stiategy maue the iPou affoiuable to a wiue iange of consumeis,
but it has also enableu Apple to compete a wiue iange of iivals as well, using its
bianu equity anu unique featuies to giab in a consumei at eveiy piice point. This
stiategy has helpeu Apple captuie its 7S.6% shaie in the PNP maiket
(NacBailyNews)
.
Apple employs a similai stiategy with theii iange of laptops, uiffeientiating both
between the stanuaiu NacBook piemium NacBook pio, anu chic NacBook Aii lines
anu within each line with upgiaues anu extia featuies, leauing to incieaseu auoption
in the past couple of yeais.

By ieleasing the iPou Touch as a phone-less veision of the iPhone, Apple is on the
iight tiack in teims of puisuing this stiategy. The iPou Touch offeis similai featuies
available in the iPhone to those customeis who want all the featuies but the phone,
anu also to non-AT&T customeis who have a high switching cost of auopting the
iPhone uue to the AT&T's exclusivity. If this paitneiship is abanuoneu in the futuie,
Apple will neeu to fuithei uiffeientiate to maximize maiket penetiation.

uiven oui iecommenuation that Apple shoulu focus piimaiily on the consumei
maiket, it is impoitant foi Apple to puisue an iPou-like stiategy wheieby it uses its
alieauy establisheu ieputation to offei high quality piouucts in a segmenteu maiket
anu theieby maximize piofits. With its cuiient piice tag of $S99 foi the 8 uB veision
anu $499 foi the 16 uB veision, the iPhone is quite expensive compaieu to many
othei smaitphones. To make the iPhone woith the extia cost, Apple shoulu auu
fastei Su inteinet speeus to match the competition. Auuitionally, to fuithei
uiffeientiate the base mouel fiom piemium veisions maiketeu to a wealthiei
clientele, Apple shoulu auu auuitional piemium featuies such as uPS location
tiacking anu viueoconfeiencing with a seconu cameia on the fiont of the phone. We
envision thiee veisions of the iPhone:

1. $4uu - 8 uB, similai to the cuiient iPhone except with Su technology
2. $Suu -16 uB, Su, uPS, anu viueoconfeiencing
S. $6uu -S2 uB, Su, uPS, anu viueoconfeiencing
"#$%&'( )*+,","&- .$' )$/0'%*. 12

Although Apple hau initially uisalloweu AT&T fiom offeiing its stanuaiu $2uu
subsiuy in oiuei to fiist establish the iPhone as a piemium bianu, we believe Apple
shoulu allow AT&T to subsiuize the piices to biing the piice points uown to $2uu,
$Suu, anu $4uu iespectively, making the iPhone a much moie attiactive buy foi
most consumeis. The iPhone will still be seen as a piemium piouuct uue to its
touchscieen, Su inteinet speeus, anu S
iu
-paity softwaie acioss the entiie line.

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To maintain iapiu giowth of maiket shaie, Apple shoulu expanu into the
inteinational maiket as quickly as possible. The quantity of illegally unlockeu
iPhones that weie iesolu in Euiope anu Asia almost immeuiately aftei its ielease is
a sign of the iPhone's potential success in inteinational maikets. Cuiiently, Apple
has secuieu ueals with 02, T-Nobile, anu 0iange to be the sole uistiibutois of
iPhone in the 0niteu Kinguom, ueimany, anu Fiance, iespectively
(Wiay)
. Theie aie
also confiimeu iepoits that the iPhone will be ieleaseu in almost two uozen moie
countiies in 2uu8. Like its plan with AT&T, an agieement with a sole uistiibutoi
pioveu to an effective tool in enteiing a maiket by having the caiiiei maiket the
phone insteau of Apple itself. We iecommenu, howevei, that Apple shoulu
eventually bieak fiee fiom these iestiictive ties to maximize maiket shaie amongst
useis of all caiiieis.

Anothei impoitant aspect in enteiing inteinational maikets is i18n
(inteinationalization) anu l1un (localization) of the softwaie, auapting the inteiface
to inuiviuual cultuies anu iegions. Foi example, a viable stiategy foi Euiope may be
to install a soccei piogiam to the home scieen pioviuing statistics anu iepoits foi
the Euiope's most populai spoit next to the iPhone's existing weathei anu stocks
piogiams. As anothei example, Apple shoulu put sciollbais on the left siue of the
scieen foi countiies such as Sauui Aiabia anu Isiael with iight-to-left languages.
Appealing to a countiy's cultuie can be the most impoitant aspect of entiy into the
maiket.

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To suivive the impenuing shakeout, Apple must leveiage its unique featuies anu
bianu equity in the consumei maiket to iapiuly gain maiket shaie both
uomestically anu inteinationally. Apple shoulu attack multiple levels of the maiket
with piouuct uiffeientiation, expanu into multiple maikets with iapiu inteinational
giowth, anu cieate a netwoik effect by encouiaging thiiu-paity softwaie
uevelopment. 0nce the shakeout is ovei anu Apple maintains a competitive euge,
Apple shoulu continue to uiive giowth with innovation in auuitional conveigence
anu by finally enteiing the coipoiate maiket.
"#$%&'( )*+,","&- .$' )$/0'%*. 13
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G L'4'+'&:'6
Apple. Apple - iPhone - Featuie - 0S X. 4 }une 2uu8
<http:www.apple.comiphonefeatuiesinuex.html#macosx>.

Apple Computei. Apple Stoie. 4 }une 2uu8 <http:stoie.apple.comus>.

Apple Inc. iPhone Piemieies This Fiiuay Night at Apple Retail Stoies. 28 }une 2uu7.
<http:www.apple.compilibiaiy2uu7u628iphone.html>.

Apple. Safaii. 4 }une 2uu8 <http:www.apple.comsafaii>.

Apple, Inc. Apple Reinvents the Phone with iPhone. 9 }anuaiy 2uu7.
<http:www.apple.compilibiaiy2uu7u1u9iphone.html>.

Apple, Inc. "iPou touch." Apple. 4 }une 2uu8 <http:www.apple.comipoutouch>.
BBC. "Quaitei of 0S iPhones 'unlockeu'." BBC News | Business 29 }anuaiy 2uu8.

Canalys. "Smait mobile uevice shipments hit 118 million in 2uu7, up SS% on 2uu6."
Piess ielease. 2uu8.

Cleaiwiie. Cleaiwiie: Wiieless Bioaubanu Inteinet Seivice Bome anu 0ffice. 4 }une
2uu8 <http:www.cleaiwiie.com>.
. Spiing anu Cleaiwiie to combine WINAX business, cieating a new mobile
bioaubanu company. Piess ielease. Kiiklanu, WA: Cleaiwiie, 2uu8.

Computei, Apple. Apple Computei, Inc. Finalizes Acquisition of NeXT Softwaie Inc.
Piess ielease. Cupeitino: Apple Computei, 1997.

Founuation, LiNo. LiNo Founuation. 4 }une 2uu8
<http:www.limofounuation.oig>.

uoogle. Anuioiu Bevelopei Challenge. 4 }une 2uu8
<http:coue.google.comanuioiuauc.html>.

. 0pen Banuset Alliance Pioject. 4 }une 2uu8 <http:coue.google.comanuioiu>.
uiossman, Lev. "Invention 0f the Yeai: The iPhone." Time Nagazine S1 0ctobei
2uu7.

Boimby, Tom. uoou-bye Woz anu }obs: Bow the Fiist Apple Eia Enueu in 198S. 2
0ctobei 2uu6. 4 }une 2uu8 <http:lowenumac.comoichaiuu61uu2.html>.

Kiikpatiick, Baviu. "What's Biiving the New PC Shaekou." Foitune 19 Septembei
1994.
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NacBailyNews. NPB: Apple ietains huge leau with 7S.6% shaie of 0.S. music playei
maiket. 4 }une 2uu8
<http:www.macuailynews.cominuex.phpweblogcommentsnpu_apple_ietains
_huge_leau_with_7S6_shaie_of_us_music_playei_maiket>.

Nacwoilu 2uu7 Keynote. By Steve }obs. Peif. Steve }obs. Noscone West, San
Fiancisco. 2uu7.

Nillwaiu Biown. "BianuZ Top 1uu." Repoit. 2uu8.
Reuteis. }apan's NTT BoCoNo to tie up with uoogle. Piess ielease. Tokyo: Reuteis,
2uu7.

RIN. "BlackBeiiy Connect Softwaie." Reseaich in NNotion. 4 }une 2uu8
<http:www.iim.compiouuctsconnectinuex.shtml>.

Rose, Fiank. "Battle foi the Soul of the NPS Phone." Wiieu Nagazine Novembei
2uuS.

vouafone. Who we aie. 4 }une 2uu8
<http:www.vouafone.comstaitabout_vouafonewho_we_aie.html>.

Wiay, Richaiu. "02 wins Apple iPhone ueal - at a hefty piice." The uuaiuian 17
Septembei 2uu7.

78"9:);/;/"*< 8"9:2;/-/=/;>< 2*1 5;2*12(1'+ !%) ?$"*"9/)' "@ A"(')'< 0)*B#/*'< 2*1
C)99/*B'7 by }oseph Faiiell anu uaith Salonei. 1987

Antitiust in Softwaie Naikets with Nichael L. Katz, in 8"9:);/;/"*< D**"E2;/"* 2*1
;%) 5"@;.2() 3"*":"=>< 1999