Apple Slides

How Apples Corporate Strategy
Drove High Growth

Blue Ocean Strategic Moves
from iPod to iPad
INSEAD Blue Ocean Strategy Institute 2012
1996 the Apple debacle

Market Cap (US $ billion, 06/02/2011)

Walmart
GE
Oracle
IBM
Google
Microso6
Apple
Exxon Mobil
0
50
100
150
200
250
300
350
400
2011 - Apples market cap overtook

MS+Intel
What has Apple done

in the last decade?
Financial Performance
Protability
30.0%
25.0%
Revenue Size
20.0%
15.0%
10.0%
5.0%
0.0%
(5.0%)
(10.0%)
(15.0%)
(20.0%)
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Market cap (US $ million) 281,963.0
Protability
30.0%
25.0%
Revenue Size
20.0%
15.0%
177,766.8
10.0%
143,323.7
5.0%
0.0%
91,827.0
72,900.8
60,342.2
(5.0%)
(10.0%)
(15.0%)
(20.0%)
1995
25,201.0
16,077.9
4,849.3 7,386.2 5,096.2 7,141.3
2,769.6 2,013.4 5,387.4
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Market cap (US $ million) 281,963.0
Protability
30.0%
25.0%
Revenue Size
20.0%
15.0%
177,766.8
10.0%
143,323.7
5.0%
0.0%
91,827.0
72,900.8
60,342.2
(5.0%)
(10.0%)
(15.0%)
(20.0%)
1995
25,201.0
16,077.9
4,849.3 7,386.2 5,096.2 7,141.3
2,769.6 2,013.4 5,387.4
1996
1997
Jobs
returned
1998
1999
iMac
2000
2001
2002
iPod &
iTunes
2003
2004
2005
iTunes
Music Store
2006
2007
iPhone
2008
2009
2010
App Store
2011
2012
iPad
iPOD+ iTUNES SOFTWARE

(2001)
Reconstruction of the Digital Music (mp3) Player Industry
Digital Music (mp3) Players in the late 1990s
Target customers
Technologically literate teens and twentyyear olds, MP3 file traders
Target customers
Flash MP3 Player
Inexpensive ($100-$200)
Small size
Small storage (1 CD songs)
Target customers
Flash MP3 Player
OR
Small size
Target customers
Flash MP3 Player
Hard Drive MP3 Player
OR
Small size
Expensive ($300-$800)
Bulky size
Big storage (up to 5,000 songs)
Poor navigation system
Strategy Canvas of the MP3 Player Industry
Offering Level
High
Low
Price
Player Size
Storage
Capacity
Ease of Use
Ease of
Navigation
Ease of
Music Transfer &
Organization
Offering Level
High
Flash Memory MP3 Players
Low
Price
Player Size
Storage
Capacity
Ease of Use
Ease of
Navigation
Ease of
Music Transfer &
Organization
High
Offering Level
Hard Drive MP3 Players

Low
Price
Player Size
Storage
Capacity
Ease of Use
Ease of
Navigation
Ease of
Music Transfer &
Organization
iPod
Targeted noncustomers: the over 34-year-olds

Great capacity of hard drive players (5GB=1,000 songs)
Portability and ease of use of flash memory
Simplified user interface with one wheel & four buttons
iTunes software application
Simple to use software to transfer music from CD to player
Automatic & fast synchronization with iPod
Automatic battery charge from the computer
Easy to manage digital music collection
Fun to use
Sleek design unlike conventional electronic devices
Priced at $399
1,000 songs in your pocket

Strategy Canvas of iPod + iTunes Software
Offering Level
High
Low
Price
Player Size
Storage
Capacity
Ease of Use
Ease of
Navigation
Fun
Ease of
Music Transfer &
Organization
Fashion
Offering Level
High
Low
Price
Player Size
Storage
Capacity
Ease of Use
Ease of
Navigation
Fun
Ease of
Music Transfer &
Organization
Fashion
High
Offering Level
iPod + iTunes s/w

Low
Price
Player Size
Storage
Capacity
Ease of Use
Ease of
Navigation
Fun
Ease of
Music Transfer &
Organization
Fashion
iTUNES MUSIC STORE (2003)

Reconstruction of the Digital Music Retailing Industry
How digital music was bought
Subscriptionbased music
services
Legal
Good quality
Limited rights
Complex pricing methods
Limited selection
services
P2P network
(File-sharing
network)
Legal
Good quality
Limited rights
Limited selection
Free
Wide selection
Simple & Easy to use
Illegal
Poor quality
services
Trade up/down
P2P network
(File-sharing
network)
Legal
Good quality
Limited rights
Limited selection
OR
Free
Wide selection
Simple & Easy to use
Illegal
Poor quality
Strategy Canvas of the Digital Music Retailing Industry
Offering Level
High
Low
Piracy
Concern
Complex Pricing
Method
Restrictions in
Use
Music
Quality
Music
Selection
Simplicity &
Ease of Use
Offering Level
High
Subscription-based
Music Services
Low
Piracy
Concern
Complex Pricing
Method
Restrictions in
Use
Music
Quality
Music
Selection
Simplicity &
Ease of Use
P2P Networks
Offering Level
High
Subscription-based
Music Services
Low
Piracy
Concern
Complex Pricing
Method
Restrictions in
Use
Music
Quality
Music
Selection
Simplicity &
Ease of Use
iTunes music store

Apples blue ocean strategic thinking:
Instead of trading up/down between the subscription-based music
service and the free file-sharing network, Apple looked across these
two strategic groups.
Apple saw untapped demand for legal channels of digital music with a
wide selection at a price that appeals to the mass of potential buyers.
iTunes music store

Instead of trading up/down between the subscription-based music
service and the free file-sharing network, Apple looked across these
two strategic groups.
Apple saw untapped demand for legal channels of digital music with a
wide selection at a price that appeals to the mass of potential buyers.
Eliminate
Raise
Piracy concern
Complex pricing method
Music quality
Music selection
Simplicity & Ease of use
Reduce
Create
Restrictions in using purchased music
Pay per song

30 seconds free sampling
Automatic sync with iTunes (easy file
management & transfer to a mp3 player)
Strategy Canvas of the iTunes Music Store
Offering Level
High
Low
Piracy
Concern
Restrictions in
Use
Music
Complex
Quality
Pricing
Method
Music
Selection
Simplicity &
Ease of Use
Pay per
Song
Free
Sampling
Automatic
Sync with
iTunes
Offering Level
High
P2P Networks
Subscription-based
Music Services
Low
Piracy
Concern
Restrictions in
Use
Music
Complex
Quality
Pricing
Method
Music
Selection
Simplicity &
Ease of Use
Pay per
Song
Free
Sampling
Automatic
Sync with
iTunes
High
Offering Level
iTunes Music Store

P2P Networks
Subscription-based
Music Services
Low
Piracy
Concern
Restrictions in
Use
Music
Complex
Quality
Pricing
Method
Music
Selection
Simplicity &
Ease of Use
Pay per
Song
Free
Sampling
Automatic
Sync with
iTunes

Eliminate
Reduce
Raise
Create
High
Offering Level
iTunes Music Store

P2P Networks
Subscription-based
Music Services
Low
Piracy
Concern
Restrictions in
Use
Music
Complex
Quality
Pricing
Method
Music
Selection
Simplicity &
Ease of Use
Pay per
Song
Free
Sampling
Automatic
Sync with
iTunes
RESULTS
US $ billion
90
80
70
60
50
40
30
20
10
0
2002
2003
2004
iPod
2005
2006
2007
Other music related products and services
2008
2009
2010
Apple's total revenue
By 2010, Apple has sold more than 297 million iPods and maintained
over 70% global market share.
More than 10 billion songs, 450 million TV episodes, 100 million movies, and
35 million books have been purchased and downloaded from the iTunes
Music Store by over 160 million account holders in 23 countries.
iPHONE (2007) &

APP STORE (2008)
Reconstruction of the Mobile Phone Industry
The Mobile Phone Industry in the Early 2000s
Handset makers
Engaged in R&D arms race to make more technologically innovative, valueadded handsets.
Focused on selling more units of hardware (handsets). The more add-ons were
equipped, the more expensive mobile was.
Two strategic groups: Feature phone OR Smartphone

Carriers
Faced downward pressure on prices, slimmer margins on voice calls.
Dictated to handset makers what to build, how to build, and at what cost.
Market was flooded with me-too handsets and services
Strategy Canvas of the Mobile Phone Industry
Offering Level
High
Low
Price
Variety of
Models
Number of
Physical
Buttons
PC-like
Performance
Business
Applications
Style & Fun

Mobile
Internet
Ease of Use
Offering Level
High
Feature Phones
Low
Price
Variety of
Models
Number of
Physical
Buttons
PC-like
Performance
Business
Applications
Style & Fun

Mobile
Internet
Ease of Use
High
Offering Level
Smartphones
Feature Phones
Low
Price
Variety of
Models
Number of
Physical
Buttons
PC-like
Performance
Business
Applications
Style & Fun

Mobile
Internet
Ease of Use
iPhone
iPhone
Eliminate
Variety of models
iPhone
Eliminate
Raise
Variety of models
Mobile internet
Style & Entertainment
Ease of use & Simplicity
iPhone
Eliminate
Raise
Variety of models
Mobile internet
Reduce
Number of physical buttons
Embedded business
applications
PC-like performance (through
higher operating system)
iPhone
Eliminate
Raise
Variety of models
Mobile internet
Reduce
Create

Embedded business
applications
Freedom to customize
through App Store
(from 2008)
iPhone
Eliminate
Raise
Variety of models
Mobile internet
Reduce
Create

Embedded business
applications
Freedom to customize
through App Store
(from 2008)
The Internet in Your Pocket

Strategy Canvas of iPhone
Offering Level
High
Low
Price
Variety of
Models
PC-like
Style & Fun
Number of
Performance
Physical
Mobile
Business
Buttons Applications
Internet
Ease of
Use
Customization
via App Store
(from 2008)
Offering Level
High
Feature Phones
Low
Smartphones
Price
Variety of
Models
PC-like
Style & Fun
Number of
Performance
Physical
Mobile
Business
Internet
Ease of
Use
Customization
via App Store
(from 2008)
iPhone
Offering Level
High
Feature Phones
Low
Smartphones
Price
Variety of
Models
PC-like
Style & Fun
Number of
Performance
Physical
Mobile
Business
Internet
Ease of
Use
Customization
via App Store
(from 2008)

Eliminate
Reduce
Create
Raise
iPhone
Offering Level
High
Feature Phones
Low
Smartphones
Price
Variety of
Models
PC-like
Style & Fun
Number of
Performance
Physical
Mobile
Business
Internet
Ease of
Use
Customization
via App Store
(from 2008)
App Store (2008)
Customize the iPhone the way the user wants

Application programs developed by Apple and third-party developers.
20 categories ranging from Games & Entertainment to Books & Education.
Easy and convenient to purchase, download, and synchronize with iPhone on
one Apple ID.
Price
Free Apps: 25% of applications were free of charge.
Low price: More than 25% of applications cost $0.99.
The average price of an application was $3.21.
Win-win proposition
Apple got 30% from the sales of apps (70% for developers).
App Store boosted sales of the iPhone by up to 15%. Apple generated
revenues continuously through app sales from the increased iPhone users.
RESULTS
US $ billion
70
60
50
40
30
20
10
0
2007
2008
Total net sales
2009
2010
iPhone and related products and services
By 2010, Apple has 51% of the profits of the global mobile phone
industry, with just 22% share of revenue and only 4% market share (units
sold). By 2011, over 100 millions iPhones were sold worldwide.
App Store hit 10 billion downloads from over 300,000 apps available.
iPAD (2010)
Reconstruction of the Personal Computer Industry
The Personal Computer Industry in the late 2000s
Low PC sales growth

Global competition
Commoditization of PC: R&D arms race & price war
Segmentation strategy
Netbook: Low-end laptop
Threats from substitutes: smartphones
Strategy Canvas of the PC Industry
Offering Level
High
Low
Price
Hardware
Feature
Technical
Specs
Functions
Ease of
Viewing
Portability
Ease of Use &
Non-PC functions
(e.g. Phone & HandIntuitive Navigation
held Gaming)
Offering Level
High
Netbook
Low
Price
Hardware
Feature
Technical
Specs
Functions
Ease of
Viewing
Portability
Ease of Use &
Non-PC functions
held Gaming)
High
Offering Level
Standard PC
Netbook
Low
Price
Hardware
Feature
Technical
Specs
Functions
Ease of
Viewing
Portability
Ease of Use &
Non-PC functions
held Gaming)
Smartphone
High
Offering Level
Standard PC
Netbook
Low
Price
Hardware
Feature
Technical
Specs
Functions
Ease of
Viewing
Portability
Ease of Use &
Non-PC functions
held Gaming)
iPad
Instead of further segmenting within the PC industry, can we
create a third category that is neither PC nor Smartphone?
Instead of offering high-valued laptops or lower-valued
netbooks, can we make a new product that provides
breakthroughs in value for PC users?
iPad
Instead of further segmenting within the PC industry, can we
create a third category that is neither PC nor Smartphone?
Instead of offering high-valued laptops or lower-valued
netbooks, can we make a new product that provides
breakthroughs in value for PC users?
Eliminate
Raise
Hardware features
Ease of viewing
Ease of use, intuitive navigation
Portability
Non-PC functions (e.g. handheld gaming,
e-book reader)
Reduce
Create
Technical specs (e.g. speed, storage
Style & Fun

Hardware add-ons (e.g. SD card reader,
capacity, memory)
Functions (using embedded software

applications)
physical keyboard)
Customization through App store

Strategy Canvas of iPad
Offering Level
High
Low
Price
Hardware
Feature
Technical
Specs
Functions
Ease of
Style & Fun
Portability
Customization
Viewing Ease of Use
Hardware via App Store
Non-PC
& Intuitive
Add-ons
functions (e.g.
Navigation
Phone & Handheld Gaming)
High
Offering Level
Smartphone
Netbook
Low
Standard PC
Price
Hardware
Feature
Technical
Specs
Functions
Ease of
Style & Fun
Portability
Customization
Viewing Ease of Use
Non-PC
& Intuitive
Add-ons
functions (e.g.
Navigation
iPad
High
Offering Level
Smartphone
Netbook
Low
Standard PC
Price
Hardware
Feature
Technical
Specs
Functions
Ease of
Style & Fun
Portability
Customization
Viewing Ease of Use
Non-PC
& Intuitive
Add-ons
functions (e.g.
Navigation

Eliminate
Reduce
Raise
Create
iPad
High
Offering Level
Smartphone
Netbook
Low
Standard PC
Price
Hardware
Feature
Technical
Specs
Functions
Ease of
Style & Fun
Portability
Customization
Viewing Ease of Use
Non-PC
& Intuitive
Add-ons
functions (e.g.
Navigation
iBook Store (2010)
Read e-books through iBooks apps
Own the collection of ebooks in iBooks

Read in color with full audio, video support
Turn pages by tapping the display, adjust brightness, font and its size; bookmark pages; find
vocabulary in the dictionary
A new market space for iTunes
Partner with established book publishers, individual publishers & authors

Easy and convenient to purchase, download, and synchronize with iPad
Compelling buyer value
Easy and simple to browse, purchase, download, and manage ebooks

Free sample before purchasing a book
Free books
Priced the same as in other ebook stores (e.g. Amazon) and paper version
Milestones (as of Feb.2011)
100 million ebooks were downloaded via iTunes iBook store

2500 publishers in its store
Apple had more than 200 million Apple ID accounts
The Reinforcing Blue Oceans of Apple

MP3 player
industry
iPod

Music
industry
MP3 player
industry
TV
movie
iTunes
Music
iPod

Music
industry
MP3 player
industry
TV
movie
iPhone
Mobile phone
industry
iTunes
Music
iPod

Music
industry
MP3 player
industry
iPhone
TV
movie
iTunes
Music
Mobile phone
industry
App
Store
iPod

Music
industry
MP3 player
industry
iPhone
TV
movie
iTunes
Music
Mobile phone
industry
App
Store
iPod
Personal Computer
industry
iPad

Music
industry
MP3 player
industry
iPhone
TV
movie
iTunes
Music
iPod
Personal Computer
industry
Mobile phone
industry
App
Store
iBook
Store
iPad

Music
industry
MP3 player
industry
iPhone
TV
movie
iTunes
Music
iPod
Personal Computer
industry
Mobile phone
industry
App
Store
iBook
Store
iPad

Music
industry
MP3 player
industry
iPhone
TV
movie
iTunes
Music
iPod
Personal Computer
industry
Mobile phone
industry
App
Store
iBook
Store
iPad
Apples Portfolio of Businesses on the PMS Map
Pioneer
iMac
Migrator
Macintosh
Settler
1998
Unnamed circles represent Apples computer peripherals, ancillary hardware, software and services.
Pioneer
iPod
iTunes
Store
iMac
Migrator
Macintosh
Macintosh
Settler
1998
2002

iPhone
Pioneer
iPod
iTunes
Store
App
Store
iTunes
Store
iMac
Migrator
Macintosh
iPod
Macintosh
Macintosh
Settler
1998
2002
2008

iPhone
Pioneer
iPod
iTunes
Store
App
Store
iTunes
Store
App
Store
iPad
iPhone
iTunes
Store
iMac
Migrator
Macintosh
iPod
Macintosh
Macintosh
Macintosh
iPod
Settler
1998
2002
2008
2011

iPhone
Pioneer
iMac
Migrator
iTunes
Store
iPod
Apple
Store
Macintosh
App
Store
iTunes
Store
App
Store
iPad
iPhone
iTunes
Store
Apple
Store
iPod
Apple
Store
Macintosh
Macintosh
Macintosh
iPod
Settler
1998
2002
2008
2011
Apples Historical Net Sales by Product (US$ billion)

120
iPad and related products and

services
100
iPhone and related products

and services
80
Other music related products
and services
iPod
60
SoQware, service, others sales

40
Peripherals and other
hardware
20
Total Macintosh net sales
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

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Apple Slides

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How Apples Corporate Strategy

Drove High Growth

INSEAD Blue Ocean Strategy Institute 2012

1996 the Apple debacle

Market Cap (US $ billion, 06/02/2011)

2011 - Apples market cap overtook

What has Apple done

INSEAD Blue Ocean Strategy Institute 2012

INSEAD Blue Ocean Strategy Institute 2012

INSEAD Blue Ocean Strategy Institute 2012

INSEAD Blue Ocean Strategy Institute 2012

iPOD+ iTUNES SOFTWARE

INSEAD Blue Ocean Strategy Institute 2012

Digital Music (mp3) Players in the late 1990s

INSEAD Blue Ocean Strategy Institute 2012

Digital Music (mp3) Players in the late 1990s

Flash MP3 Player

Digital Music (mp3) Players in the late 1990s

Flash MP3 Player

Digital Music (mp3) Players in the late 1990s

Flash MP3 Player

Hard Drive MP3 Player

Strategy Canvas of the MP3 Player Industry

INSEAD Blue Ocean Strategy Institute 2012

Strategy Canvas of the MP3 Player Industry

Flash Memory MP3 Players

INSEAD Blue Ocean Strategy Institute 2012

Strategy Canvas of the MP3 Player Industry

Hard Drive MP3 Players

INSEAD Blue Ocean Strategy Institute 2012

Targeted noncustomers: the over 34-year-olds

1,000 songs in your pocket

Strategy Canvas of iPod + iTunes Software

INSEAD Blue Ocean Strategy Institute 2012

Strategy Canvas of iPod + iTunes Software

Flash Memory MP3 Players

Hard Drive MP3 Players

INSEAD Blue Ocean Strategy Institute 2012

Strategy Canvas of iPod + iTunes Software

iPod + iTunes s/w

Hard Drive MP3 Players

INSEAD Blue Ocean Strategy Institute 2012

iTUNES MUSIC STORE (2003)

INSEAD Blue Ocean Strategy Institute 2012

How digital music was bought

INSEAD Blue Ocean Strategy Institute 2012

How digital music was bought

INSEAD Blue Ocean Strategy Institute 2012

How digital music was bought

INSEAD Blue Ocean Strategy Institute 2012

How digital music was bought

INSEAD Blue Ocean Strategy Institute 2012

Strategy Canvas of the Digital Music Retailing Industry

INSEAD Blue Ocean Strategy Institute 2012

Strategy Canvas of the Digital Music Retailing Industry

INSEAD Blue Ocean Strategy Institute 2012

Strategy Canvas of the Digital Music Retailing Industry

INSEAD Blue Ocean Strategy Institute 2012

iTunes music store

INSEAD Blue Ocean Strategy Institute 2012

iTunes music store

Restrictions in using purchased music

Pay per song

INSEAD Blue Ocean Strategy Institute 2012