Cooperstown Inc.

Apple, Inc.:

Creating and Sustaining a Competitive Advantage

By:
Brian Lubeck
John Nitz
Jeff Danforth
Josh Brannon
 EXECUTIVE SUMMARY

The mobile devices industry is a competitive market dominated by key firms like
Nokia Corporation, Samsung Electronics Company, and Motorola, Inc. These companies,
which have extensive product lines, capture a large portion of consumers in the mobile
devices industry. However, the release of Apple, Inc.’s iPhone, in June of 2007,
positioned the company as a direct competitor in the industry as the iPhone offered a
variety of unparalleled features. Although the product has confronted various problems
since the unveiling, Apple has done well to identify key internal and external threats that
challenge the success of the iPhone.
Conceptual frameworks, such as Porter’s fives forces model and VRIO analysis
(Value, Rarity, Imitability, Organization) establish Apple’s resources and capabilities and
identify the organization’s positioning within the market. The analysis also provides an
understanding of Apple’s current competitive advantage and provides information
necessary for strategic planning.
From these studies, it is apparent that the iPhone has had tremendous success per
volume of sales. However, with Apple’s severely limited product line, little product
diversification capabilities, and the recent release of similar alternatives, such as the T-
Mobile G1 by Google and the Dare by LG, the iPhone’s competitive advantage seems
fleeting. New strategy and direction is pertinent to the continued success of Apple’s
iPhone.
Upon review, it is Cooperstown, Inc.’s position that Apple adopt one of two
strategic solutions: an open market service provider strategy or an iPhone customization
and diversification strategy. The former solution would allow iPhone to pair with any
particular provider upon end user discretion. Currently, AT&T has contractual rights to
the distribution and sale of the iPhone in the United States as the mobile device is only
compatible with AT&T service plans. Allowing consumers to choose service providers
eliminates contractual buyer bargaining power and attracts more customers who are using
different providers.
The latter solution provides consumer specific customization and hardware
packaging which would increase Apple’s product diversification and eliminate the threat
of competitive alternatives. Meeting consumer wants is crucial for the continued success
of Apple’s iPhone.
Although these two strategies would solidify Apple’s competitive advantage in
the mobile devices industry, the implementation of an open market service provider
strategy is a stronger solution that provides long-term revenue benefits and attracts a
larger consumer base. Although the initial cost of exiting the contract with AT&T might
be detrimental, increasing competition in the telecommunications industry will favor
Apple’s future success. This increase in competition will lower the cost of service plans
for the consumer, attracting more end users to the iPhone. As alternative products, such
as the new LG Dare, have also teamed up with exclusive providers, Apple will be able to
exploit its new open market provider strategy to maximize full potential benefits.

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 Table of Contents

EXECUTIVE SUMMARY..............................................................................................................................2

TABLE OF CONTENTS...............................................................................................................................3

1. STRATEGY IDENTIFICATION.............................................................................................................4
1.1. MISSION STATEMENT...................................................................................................................4
1.2. KEY ISSUES WITH THE IPHONE 3G..........................................................................................4
1.3 PROBLEM STATEMENT................................................................................................................6

2. INDUSTRY AND COMPANY ANALYSIS............................................................................................6

2.1 EXTERNAL-PORTERS 5 FORCES................................................................................................6
2.1.1 POSITIONING GRID...................................................................................................................8
2.2 INTERNAL-VRIO..............................................................................................................................9

3. STRATEGIC OPTION DEVELOPMENT...........................................................................................11

3.1 SWOT STRATEGY..........................................................................................................................11
3.2 STRATEGIC OPTION ONE...........................................................................................................13
3.3 STRATEGIC OPTION TWO..........................................................................................................13

4. STRATEGIC OPTION EVALUATION................................................................................................13

4.1 OPEN MARKET SERVICE PROVIDERS....................................................................................13
4.2 IPHONE DIFFERENTIATION.......................................................................................................14

5. STRATEGY SELECTION.................................................................................................................14
5.1. RECOMMENDATIONS:................................................................................................................14

6. STRATEGY IMPLEMENTATION.......................................................................................................15
6.1. STRATEGY IMPLEMENTATION...............................................................................................15

7. APPLE’S COMPETITIVE ADVANTAGE...........................................................................................15

7.1 STRATEGIC IMPLICATIONS......................................................................................................15

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 1. Strategy Identification

1.1 Mission Statement

In 1976, Apple Computer, Inc. was established and was incorporated in 1977.
Apple’s first product was the Apple I which began the personal computer revolution. In
2007, Apple Computer, Inc. changed their name to Apple, Inc. They made this change
because they shifted their focus from only producing computers to producing other
products for industries such as entertainment and mobile telecommunications. The
current mission statement for Apple is as follows:

Apple ignited the personal computer revolution in the 1970s with the
Apple II and reinvented the personal computer in the 1980s with the
Macintosh. Today, Apple continues to lead the industry in innovation with
its award-winning computers, OS X operating system and iLife and
professional applications. Apple is also spearheading the digital media
revolution with its iPod portable music and video players and iTunes
online store, and has entered the mobile phone market with its
revolutionary iPhone. (Investor Relations, 2008)

This case analysis is going to focus on last part of the mission statement: the
iPhone industry of Apple.

1.2 Key Issues with the iPhone 3G

Back on June 29, 2007, Apple officially entered the mobile devices and
telecommunications industries with the release of the first iPhone. This last summer, the
second edition was released, the iPhone 3G. Since the release date of the iPhone, Apple
has faced several issues and problems with its product. Some of the issues that the Apple
is facing are the cost, battery life, 3G connectivity and the service provided by AT&T.

Cost
When the original iPhone was released, the sales price for the phone was $399.
The biggest portion of Apple’s marketing campaign for the release of the second
generation iPhone was that the phone was going to be half the size as the original phone
and also half the price. Only the former came true according to researchers. These
researchers found that the iPhone 3G did cost half the price as marketed, $199, but there
was a catch. With the lowered price, AT&T increased the data package cost by 150%, or
from $20 to $30 per month. In addition, he new iPhone service did not include an SMS,
or text messaging, plan. The first generation iPhone package came with 200
complementary text messages per month. To make up the difference between the old and
new SMS packages, it will cost you $5 per month. As these extra costs do not seem like a
large issue, the data plan for the second generation iPhone costs $160 more over the
necessary two-year contract with AT&T. The table on the next page shows the price

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difference between the original iPhone, the iPhone 3G and their closest competitors
(Chen, 2008).

(Chen, 2008)

As can be seen from the table, the iPhone 3G would cost $1,975 after two years as
compared to the $1,815 with the original iPhone. This change in the coverage AT&T has
inflicted has made a liar out of Apple’s advertising campaign, as the new iPhone is
actually more expensive then the original iPhone.

Battery Life
Another issue which relates to most Apple products and also relates to the iPhone
is the battery life and replacement options. In most cell phones, like Blackberries and
PDAs, the battery can be replaced by the consumer. With the iPhone, when the battery
eventually wears out, the consumer has to send the phone in to Apple’s headquarters to
have the battery replaced. The charge for this service is $79 plus shipping and handling
which costs $6.95 (Battery Replacement, 2008). According to the Verizon Wireless
website, the cost to replace a battery for any model of the BlackBerry costs $39.99, a
difference of $45.96 (Standard Battery, 2008). This is another hidden cost which the end
user will have to deal with after 400 charges of his/her battery.
With the new slick and slim look of the iPhone, they have lost valuable space for
a more powerful, long-lasting battery. When using the high-tech services such as 3G
connectivity and other functions, the amount of battery time decreases significantly. If the
user of the iPhone has their 3G function turned on, the phone only has 5 hours of talk-
time or 5 hours of internet use before the phone will need to be charged. If the iPhone is
in standby, the battery will last up to 300 hours but if a businessman or woman is
traveling and needs to access email and other information from his or her phone, they will
need to bring a charger with them even on a day trip (Battery Replacement, 2008).

3G Connectivity and Service

The iPhone 3G has been having issues with its ability to connect to the AT&T
network towers in the U.S. According to iPhone Atlas, “The root cause for the phone’s
reception issue has not been exactly identified, but many are saying that the problem is
with the relatively new Infineon Technologies chip set used in the iPhone 3G” (iPhone
3G Connectivity Failure: Roundup, 2008). Apple tried to resolve these issues with
releasing the iPhone OS 2.0.2 and 2.1 updates but the problems continued. On
September 23, 2008, the chief technology officer of AT&T, John Donovan, admitted that
some of the issues with the connectivity of the iPhone 3G had to due with the AT&T 3G
service as it was “unprepared for the US success of the iPhone 3G” (iPhone 3G
Connectivity Failure: Roundup, 2008).

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AT&T’s Monopoly over the iPhone
In the United States, AT&T has a monopolistic advantage over all other mobile
telecommunication companies as Apple and AT&T have signed a contract which made
AT&T the exclusive carrier of the iPhone. In the beginning of August, Apple and AT&T
extended their allegiance through 2010 (Dannen, 2008). There has been much speculation
as to why Apple would choose to make an exclusive allegiance with AT&T. Many
possible customers who are interested in investing in an iPhone are unwilling to give up
their service with other providers whose service they value more, such as Verizon
wireless. As a result, Apple’s sales of the iPhone have failed to reach the levels Apple has
hoped for. According to the latest estimates as stated by the website Seeking Alpha, the
market for ‘unlocked’ iPhones will cost Apple over $1 billion in lost revenue over the
next 3 years (Sullivan, 2008). With AT&T’s monopolistic control over the iPhone
market, they have complete control over the voice and data package costs as were
mentioned earlier, causing the price of owning an iPhone to increase significantly.

1.3 Problem Statement

The previously identified problems outline the challenges that Apple is facing as
it enters into a new competitive industry. To solve these issues, an in-depth look at the
external threats of the industry and an internal analysis of Apple’s resources and
capabilities will be necessary to produce sound solutions which confront current issues
and create prohibitive barriers against entry.

2.1 Porter’s Environmental Threat Analysis

Apple competes as a manufacturer in the mobile devices industry, which consists

of all analog and digital handsets used in mobile telecommunications. In an industry
report conducted by Data Monitor in January 2008, the United States mobile phone
industry accounted for $21.4 billion in revenue in 2006. The industry is expected to grow
at seven percent annually until 2011, when it is projected that annual revenues will reach
$30 billion. However, forecasted U.S. revenues dwindle in comparison to 2011 European
and Asian-Pacific market revenues, suggested to be $34.6 billion and $84.8 billion
respectively.
Currently, European and Asian-Pacific mobile phone industries continue to
generate more revenue. In fact, the United States only accounts for 20.6% of the
international mobile phone market’s value (Data Monitor 2008; 7).

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 However, being a substantial contributor in each major market, Apple has found
domestic and international success. Apple has integrated core competencies, such as
touch screen capabilities, with successful commercialization strategies to introduce a new
generation of phone. A five forces analysis will provide an overview of the industry and
help define Apple’s positioning within the mobile phone market.

Threat of Buyers
Network operators and independent retailers are the most frequent buyers of
mobile devices in the industry. For these entities, it is necessary to carry the latest
fashions in mobile device technology so as to create the most value for end users (Data
Monitor 2008; 12). Although network operators sometimes limit the performance of
firms through contracts, their bargaining power is limited as success is closely linked to
the popular mobile device products. Vertically integrated manufactures that sell directly
to the end user, such as Motorola, eliminate buyers from the supply chain and further
reduce buyers bargaining power in the mobile devices industry.

Threat of Suppliers
Suppliers in the mobile phone industry provide the raw materials necessary to
manufacture phones. Since the hardware and software components are highly specialized,
mobile phone manufactures are dependent upon suppliers for quality materials (Data
Monitor 2008; 12). Thus, suppliers can inhibit the performance of manufactures by
raising the price or lowering the quality of the raw materials provided.
Continually, the revenue generated by servicing the mobile phone industry is a
small percentage of total revenue for suppliers because suppliers provide materials for
various industries (Data Monitor 2008; 13). Suppliers are able to influence supply
contracts, as the mobile phone industry is not a significant figure in their total revenues.

Threat of New Entrants

The threat of new entrants into the mobile devices market is relatively low with
the exception of companies that already operate in the electronics industry. For
companies interested in competing as new entities, the cost of capital is extremely
prohibitive as large amounts of capital would be required to establish research,
development and production facilities (Data Monitor 2008; 13). Apple is, however, an

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example of an electronics company that has expanded its product lines into the mobile
devices industry with the introduction of the iPhone (Data Monitor 2008; 13). Apple’s
success is attributed to its ability to manufacture an innovative product at a reasonable
cost, which could not be attained by a startup company.

Threat of Substitutes
Substitutes to mobile devices include fixed line telephones and voice-over-
internet options. However, mobile devices incorporate a multitude of services, which
deter users from switching to alternatives (Data Monitor 2008; 13). The threat from
substitutes in the mobile devices industry is low, as companies have established barriers
of entry for competing products.

Summary of Position
Overall, rivalry in the mobile devices industry is relatively intense because of the
increased penetration in domestic and international markets. The rivalry, however, brings
new technology to market. Apple, for example, entered the mobile devices market with
an innovative product that other firms have come to imitate. Although the iPhone has
recently attracted the attention of a large percentage of consumers, Apple is at a
disadvantage because of its lack of product diversification. Larger firms with various
products appeal to many consumers, rather than targeting a particular segment. But
because buyers of mobile devices, both end users and network operators, crave the latest
accessories, the iPhone will be in high demand until a better, more advanced product is
introduced.
2.1.1 Position Grid

Consumer Price

Expensive

Product Design

Technical Basic

Cheap

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 2.2 Internal – VRIO Analysis

To gain competitive advantage over its competitors, Apple will have to look into
its internal advantages as well as its external advantages. There are three main internal
advantages that Apple has focused on in its design for the iPhone. These three
advantages are the Apple brand name, the simplicity of it user interface, and the advanced
technology incorporated into its design.

Resources and Competitive

Value Rarity Imitability Organization
Competencies Advantage

Brand Name Yes Yes Yes Yes Sustained

Simplicity Yes No No Yes Parity

Hardware Yes No Yes Yes Temporary

Software Yes No No No Parity

Value
The target of the iPhone is to combine the communications ability of a phone with
the Internet, data storage, and dissemination capabilities of a computer and the compact
and quick access features of a PDA. In addition, they wanted to make it fast and easy to
use. Since the introduction, they have added the features of their other products such as
the music playback and photo viewing of the iPod. The biggest value here is that the
iPhone combines so many things people had to carry with them into one portable device.

Rarity
There are many products competing with the iPhone that are much cheaper.
Apple has been using their reputation of providing quality, glitch-free products and the
hype of owning Apple products as being a status symbol among young adults to make
their product worth the extra money. Unfortunately, they have been failing to provide the
former recently as glitches have begun to surface. They have been releasing updates to
fix these glitches but just recently, a design flaw was discovered. The iPhone has been
experiencing call dropping problems and slow Internet connection speeds and until last
week, they had been pointing the finger at the service provider, AT&T. However, the
real problem was discovered to be the chip that managed the devices operations
(McLean, 2008). This could cause Apple’s reputation to suffer and they could lose some
of their market share for a while but since the operations chip is replaceable, this design
flaw can be easily repaired in future models. In the meantime, it is likely that the hype of
owning Apple products and the simplicity of the phone functions will continue to keep
their sales high.

Imitability
There are very few other products on the market capable of providing the features
of the iPhone. The new LG Dare is most likely going to be the iPhones biggest

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competitor (Zeman, 2008). It will be especially tough competition since not only does it
have the closest reproduction of the touch screen feature out of the iPhones imitators, but
it also has more advanced multimedia capabilities in its camera and video recording
equipment. Since the iPhone was designed to do a large number of things well, its
competitors are able to incorporate the basics of the iPhone while focusing on improving
one aspect and pushing sales on that feature.
Now, Google has released a phone of its own named the T-Mobile G1 (Quittner,
2008). It is expected to give the iPhone quite the run for its money. Though it is a new
product and no one can tell how well it will do so early on, it has two features that the
iPhone doesn’t have. The first is an open platform for customization. Though Apple has
relied on third-party applications for the iPhone, they have to be approved by Apple,
which gives consumers fewer options. On the other hand, it also means that the programs
Apple releases should be safe to install on your iPhone but they have already lost some of
that appeal, as they have had to recall some of the applications they approved due to
malfunctions.
The other bonus that the G1 holds over the iPhone is a cut-and-paste function
which may not seem like much but to a market that has voiced an interest in it; it can tip
the scales out of Apple’s favor. This shows that Google has done a better job of listening
to the market.
Regardless of how much it costs to imitate the iPhone, the market demand is so
huge that people are willing look at competitive alternatives. In addition, all of the
companies attempting to imitate the iPhone have gotten the chance to see Apple’s initial
mistakes and can, therefore, avoid them.

Organization
Apple has done an excellent job of exploiting its Brand Name which is its biggest
competitive advantage. In addition, it has kept in line with the ideals of its brand name
which includes simplistic user interfaces and long lasting, glitch-free hardware, despite
the one piece of malfunctioning hardware that is easily replaced in future models.
However, Apple is trying to exploit the applications market by forcing their customers to
only buy programs that it provides. This is the same tactic Apple used with iTunes and
the iPod, only in that case, iTunes was the best and easiest music library application
available. In addition, it was free. This same tactic will not work with the iPhone.

Conclusion
The iPhone is highly valued among the cell phone market. New models are
highly anticipated to eliminate any problems while keeping the overall design and
function simple. Any substitutes that attempt to take away from their market share are
generally too complicated and include large numbers of superfluous features. This means
that even if other companies add features like a cut-and-paste function, they are not
actually adding to the value of their product. However, even though they are struggling
to compete with Apple, there is such a huge market for the next generation cell phone
that, regardless of the cost to develop imitations, the other big cell phone manufacturers
will have to continue to compete for their share of a market that could very well make a
good deal of their current cheap, basic cell phones obsolete.

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 3. Strategic Option Development

3.1 SWOT Strategy

Strengths Weakness
 Strong brand image  Limited product selection
 Advanced Smartphone technology  New entrant stage
 Application/update availability  International markets
 Selective providers  Insufficient network/system
Opportunities Threats
 Niche market  Product diversification
 Online capability/options  Immense competition
 App Store  Superior technology
 Overall pricing control  Dependence on third party suppliers

To successfully compete within a variety of alternative markets, such as the

wireless telecommunications market, a company must stick to their core values and
strengths in order to generate any sort of financial growth. As Apple continues to expand
into the mobile phone industry it must continue to build upon its niche market through its
unique iPhone product(s) along with the support of its strong brand image. According to
MarketWatch the “iPhone looks likely to be the next step in the convergence of mobile
telephone, portable media playback and mobile internet technologies; the device is
attractively designed, while also having market leading functionality and
usability”(MarketWatch: Global). By linking its MP3 technology with a quality mobile
service provider (AT&T), Apple was able to bring a large number of its current
customers into its new business venture. The niche market that Apple is striving for
involves less product differentiation; unlike its competitors who produce a handful of
varied products each year to meet consumer demand. Furthermore, Apple has placed
more focus on the creation of a single dynamic, updatable and reliable Smartphone
without sacrificing its reputation of creating simplistic user interfaces.
On the other hand by searching for a niche market that requires less product
differentiation, Apple has created a possible weakness towards meeting consumer
demand. Despite the fact that the creation of a single, dependable device may meet the
needs of most consumers, Apple could potentially strike out within the enterprise market.
The enterprise market pertains to firms who allow employees to check and send emails,
as well as exchange important internal company information to one another via their
mobile phones. A common trend of this market has been the “allocation of mobile
devices, such as Blackberry, to employees to enable them to check their email and be
responsive when they are away from the office” (MarketWatch: Global). The problem
inherent with this freedom stems from the enterprise’s need for mobile phone monitoring
to ensure company security. At the same time, they must incorporate the employees’ need
for customization with their mobile phones for personal usage outside of work. Without
the development of a product to compete directly with Blackberry for the enterprise
market, Apple will likely see a loss in a very profitable market.

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 The online opportunities created by the iPhone’s advanced Smartphone
technology provide a whole new generation of phone usage and mobility, while offering
consumers a new level of personalization with their everyday phone. The key aspect that
Apple is bringing to the mobile phone market is their innovative style and technological
competencies with user friendly products. Adversely, Apple is entering into a market that
is already highly competitive with such companies as Sanyo, Samsung, and LG. Apple
can prove to be successful within this competitive market if it is able to stay ahead of the
pack with increased developments in online surfing via its mobile phone device. By
expanding the online capabilities of its mobile phone, Apple creates a whole new sector
to the already diverse telecommunications market. Recently released phones such as the
LG Dare and Samsung F700 have shown striking resemblances to the iPhone both in look
and function. While these large mobile phone companies continue to trail behind the
original iPhone, Apple can address bigger concerns with the current system defects of its
3G model.
The iPhone allows for an extraordinary computer-like experience with a place to
upload phone applications as well as products updates in general; the Apple App Store.
The App Store is an online department for iPhone users to continually improve and
personalized their phone. This service provides consumers with many more opportunities
for incorporating the iPhone into their daily lives. Unfortunately, Apple has had little
success implementing this aspect of the iPhone in foreign countries. It has had an
especially difficult time in Japan. According to Yukari Iwatani Kane of the Wall Street
Journal it is “estimated that demand in Japan has fallen to a third of what it was initially
and analysts are now expecting fewer iPhone sales” (Kane, WSJ). The decline in sales
can be contributed to the lack of information being provided about the iPhone to foreign
buyers, the availability of far more advance cellular technology, and an overall lack of
any strong App Store presence. The ability to quickly address the issues overseas through
the help of companies like SoftBank Corp., an Apple partner, and services like the App
Store could mean the difference between victory and defeat for the iPhone in Asia.
Lastly, by selectively choosing its service providers (AT&T, Orange, etc), Apple,
is able to effectively maintain a strong control on the pricing of its products. Additionally,
by restricting the total number of service providers Apple is able to keep the demand for
its products high in order to maximize total profits with limited total costs. Currently,
Apple has set its new iPhone 3G at an astonishing $340-$400 price range, which is also
accompanied by an expensive service plan. Although, Apple has shown tremendous
success thus far there are still immense threats and weaknesses that stem from its
suppliers and current service providers’ technological capabilities. From the software
perspective Apple is facing a risky business partnership through its service providers as
there have been multiple bugs, defects and general malfunctions with the iPhone and its
wireless connections. If the issue isn’t address immediately Apple could see enormous
losses in consumer satisfaction and trust. In addition, there are perceived threats in
Apple’s hardware providers as Apple uses third party suppliers to manufacture its goods.
If a sharp increase in demand were to take place, Apple would potentially be vulnerable
to a shortage in goods.

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 3.2 Strategic Option One

Currently Apple only permits exclusive rights to AT&T as its sole service
provider. Apple will open up its service options to all service providers. AT&T will no
longer be the sole service provider. Therefore, access will be available to other carriers
such as Verizon Wireless, T-Mobile, and Alltel, worldwide.
3.3 Strategic Option Two

The iPhone is Apple’s sole product offered in the mobile devices industry. The
lack of product differentiation limits sales because the company is unable to meet
different customer wants and needs. Therefore, Apple will offer its customers different
variations of the iPhone to cater to their personal wants and needs.

4. Strategic Option Development

4.1 Open Market Service Providers

Throughout 2007 and early 2008 Apple reached contract agreements with select
service providers granting exclusive service provider rights to its second generation of
iPhone, the iPhone 3G. It is our proposal that Apple terminate its current domestic
agreement with AT&T, creating an open market of service providers. By making the
iPhone available to a broader range of service providers, Apple will increase market share
and overall profits through by attracting a larger consumer base.
Additionally, a single service provider limits the introduction of the iPhone
throughout the wireless telecommunications services market. As a result, Apple
voluntarily minimizes its consumer base and potential revenues.
Furthermore, Apple’s current providers offer insufficient network connections
that reduce the quality of the iPhone. According to iPhoneAtlas.com, “the iPhone 3G is
capable of attaining higher speeds when linked to networks other than” Apple’s current
service providers. For example, its French service provider, Orange, has been proven to
be nearly six times slower than other possible 3G service providers.
Although, an open market service provider strategy has many benefits, there are
also several trade-offs that accompany such implementation. For example, allowing
iPhone to be paired with any service provider reduces the rarity of the product because
consumers unwilling to change service providers are granted access to the phone. Also,
the open market service provider strategy could reduce the revenue percentage earned
from each service plan sold. Currently, Apple is receiving an estimated three dollars a
month from AT&T per iPhone user and an additional eight dollars a month for new
subscribers (Krazit, 2007). A reduction in these revenues could adversely affect Apple’s
net income. Overall, despite potential drawbacks, the open market service provider
strategy provides sustainable solutions to current problems.

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 4.2 iPhone Differentiation

The iPhone is only customizable through its downloadable applications, which

must be authorized by Apple The authorization process is time consuming and limits
customer’s options. The Google phone, however, provides an open installation forum for
installing third party software that provides limitless options for end users (Quittner,
2008). Since Apple declines some third party software, the applications that are finally
released to end users are supposedly safe. However, as previously mentioned, this
process has introduced applications which had to be recalled. The best solution to this
problem is to authorize particular software developers rather than the applications
themselves. The endorsement of various software developers would increase competition
and quality of programs offered, giving the end user a wider variety of customization
through downloadable applications. Also, increased competition between software
developers would prevent any class action lawsuits claiming that Apple is being
monopolistic by only authorizing applications that do not compete with its own (Elgan,
2007).
An additional way Apple could increase customization options would be to
diversify hardware arrangements based on customer preferences. For example, Apple
could offer hardware packages designed for gaming, movie or music playback, internet
surfing, picture taking, etc. Although these options would only be provided for AT&T
customers, it would increase the marketability of the iPhone by targeting more specific
consumer groups. Furthermore, package options could increase the price of the iPhone as
additional raw materials would be needed to meet consumer needs.
Application and hardware customization are solutions that could lead to increased
sales and a larger customer base. Also, the integration of customization options would
negate adverse diversification limitations.

5. Strategy Selection

5.1 Strategy Selection- Open Market Service Providers

After discussing the two mutually exclusive courses of actions above,

Cooperstown, Inc. suggests the implementation of the open market service provider
strategy. Apple is in a contract with AT&T until 2010. At this point, Apple will need to
implement a plan for open market service providers. The most conventional method to
implement this plan is by releasing the next generation of the iPhone by 2010. The new
phone should be capable of multi-service expansion. Before 2010, Apple should also
attempt to resolve or end its contract with AT&T and all exclusive international
providers.
By implementing this plan, Apple, would began to build upon greater future
successes via multiple networks. Apple creates an opportunity for increased growth and
increased market share. Additionally, Apple would benefit by reaching out to a consumer
market yet to be tapped. The most likely reaction to this strategy by competitors would be
to produce new generations of phone that are accompanied by similar provider strategy.
Continually, by utilizing all service providers, Apple reduces the contractual
bargaining power of buyers. Buyers would have limited influence on the price of the

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iPhone because the demand of iPhone is strong. However, Apple would no longer have a
guaranteed or contracted portion of each service plan sold to the end user. Regardless,
Apple would likely gain significant competitive advantages over competitors as all
service providing companies would pursue the product with the highest demand to satisfy
consumers.

6. Strategy Implementation

6.1 Strategy Implementation

By implementing the strategic plan of opening up the iPhone market to other

service providers, Apple will encounter various policy and restructuring changes. Some
policy changes will primarily deal with negotiating and restructuring AT&T’s exclusive
provider rights. Apple will develop policy that incorporates other national and worldwide
providers. Apple will have to diversify its product line to meet consumer demands.
Currently, Apple releases a new model of their iPhone yearly, and by opening up to
multiple providers, it will have new iPhone products on the market frequently.
The execution of opening the iPhone market to other service providers is a
necessity in order to increase Apple’s desired market share. The decision to use all main
service providers will increase its profits substantially as many potential buyers whom are
locked in contracts with Verizon Wireless, T-Mobile and other providers will be able to
buy Apple’s iPhone. To ensure that this expansion plan will be feasible, Apple should
begin cultivating new relationships with other service providers. This is necessary to give
the providers several years to ensure they have the required towers and services needed to
be an efficient provider for the iPhone.

7. Apple’s Competitive Advantage

7.1 Strategic Implications

In addition to the competitive advantages identified by the VRIO Analysis, the

implementation of the chosen strategy will provide the market with more options for its
service provider. This will allow providers to compete with each other and drive down
the service price. This adds value to the competitive advantage in that it will allow greater
service plan customization to suit the needs of each individual customer. It also adds
rarity because the developers of the other next generation cell phones have followed
Apple’s example and teamed up with only one service provider and since they will have
entered into contracts with these providers, it will be very costly to imitate Apple. After
Apple has broken away from its contract with AT&T, it will need to focus on exploiting
this new, unbounded situation in order to maintain a sustainable competitive advantage
and stay ahead of its competitors.

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