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, Inc. has done well to identify key internal and external threats that challenge the success of the iPhone. Conceptual frameworks, such as Porters fives forces model and VRIO analysis (Value, Rarity, Imitability, Organization) establish Apples resources and capabilities and identify the organizations positioning within the market. The analysis also provides an understanding of Apples 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 Apples severely limited product line, little product diversification capabilities, and the recent release of similar alternatives, such as the Google phone and the LG Dare, the iPhones competitive advantage seems fleeting. New strategy and direction is pertinent to the continued success of Apples iPhone. Upon review, it is Cooperstown, Inc.s position that Apple adopts one of two mutually exclusive 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 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 Apples product diversification and eliminate the threat of competitive alternatives. Meeting consumer wants is crucial for the continued success of Apples iPhone. Although these two strategies would solidify Apples 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 Apples future success. Increased competition will lower the cost of service and plans for the consumer, attracting more end users to the iPhone. As alternative products, such as the 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.

Table of Contents
EXECUTIVE SUMMARY........................................................ERROR! BOOKMARK NOT DEFINED.

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 2.2. INTERNAL-VRIO ...................................................................................................................... 8 2.2.1 POSITIONING GRID ........................................................................................................ 10

3. STRATEGIC OPTION DEVELOPMENT...................................................................................... 10 3.1 SWOT STRATEGY ................................................................................................................... 10 3.2 STRATEGIC OPTION ONE........................................ 1ERROR! BOOKMARK NOT DEFINED. 3.3 STRATEGIC OPTION TWO ...................................... 1ERROR! BOOKMARK NOT DEFINED.

4. STRATEGIC OPTION EVALUATION............................. 1ERROR! BOOKMARK NOT DEFINED. 4.1 OPEN MARKET SERVICE PROVIDERS ................. 1ERROR! BOOKMARK NOT DEFINED. 4.2 IPHONE DIFFERENTIATION ................................................................................................ 13

5. STRATEGY SELECTION............................................................................................................... 13 5.1. RECOMMENDATIONS: ......................................................................................................... 13

6. STRATEGY IMPLEMENTATION................................................................................................. 13 6.1. STRATEGY IMPLEMENTATION ......................................................................................... 13

7. APPLE, INC.S COMPETITIVE ADVANTAGE ............................................................................. ? 7.1 STRATEGIC IMPLICATIONS .................................................................................................. ?

1. Strategy Identification 1.1 Mission Statement In 1976, Apple Computer, Inc. was established and was incorporated in 1977. Apple first product was the Apple I which began the personal computer revolution. In 2007, Apple Computer, Inc. changed their name to just Apple, Inc. Apple made this change because they change their focus from just producing computers to adding other industries such as entertainment and mobile telecommunication. The current mission statement for Apple, Inc. 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 Inc. 1.2 Key Issues with the iPhone 3G Back on June 29, 2007, Apple Inc. officially entered the mobile devices and telecommunication industries with the release of the first iPhone. This last summer, the second addition 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 company is experiencing are as follows; the cost, battery life, 3G connectivity and the service provided by AT&T. The following paragraphs will discuss each of these problems in greater detail. Cost When the original iPhone was released, the sales price for the phone was $399. Apples large 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 half of this came out true according to researchers. To purchase the iPhone 3G, it will cost you half the price as marketed, $199. The catch with the lowered price is that AT&T increased the data package 150%, from $20 to $30 per month. The new iPhone service also came without a SMS (text messaging) plan. The first generation iPhone package came with 200 complementary messages per month. To make up the difference between the old and new SMS packages, it will cost you 5 dollars a month. As these extra costs do not seem like a large issue, the data plan for the second generation iPhone will cost you $160 more over the two year commitment with AT&T. The table below shows

the price difference between the original iPhone, iPhone 3G and close competitors.(Chen, 2008)

(Chen, 2008) As you can see from the table, the iPhone 3G would cost you $1,975 after two years compared to only $1,815 with the original iPhone. The change in the coverage in which AT&T has inflicted has made Apples advertising campaign for the new phone false, as it actually overall 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 changeability of the battery. In most cell phones, BlackBerrys and PDAs, the battery is replaceable. In the iPhones, when the battery eventually wears out, you have to send the phone into their 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 (Standard Battery, 2008), costs $39.99, a difference of $45.96. This is another hidden cost which you will have to face after 400 charges of your battery. With the slick skinnier look of the iPhone, they loose valuable space for a more powerful lasting battery. When using the high tech services such as 3G and other services, the amount of battery time decreases significantly. If the user of the iPhone has their 3G turned on, the phone only has 5 hours of talk time or 5 hours of internet use before you need to charge the phone. If the iPhone is in standby, the battery will last up to 300 hours (Battery Replacement, 2008). But, if a businessman or woman is traveling and needs to access email and other information from his or her phone, they will have to bring a charger with them even on a day trip. 3G Connectivity and Service The iPhone 3G has been having issues with being able to connect to the AT&T U.S. network towers. According to iPhone Atlas, The root cause for the phones 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 fix this issue with releasing iPhone OS 2.0.2 and 2.1 but the problems keep on continuing. 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 have to due with AT&T being unprepared for the US success of the iPhone 3G (iPhone 3G Connectivity Failure: Roundup, 2008).

AT&Ts Monopoly over the iPhone In the United States, AT&T has a monopolistic advantage over all other mobile telecommunication companies. Apple and AT&T signed a contract which made AT&T the exclusive carrier of the iPhone. At the beginning of August, Apple and AT&T extended their allegiance through 2010 (Dannen, 2008). There have been many questions of why Apple made an exclusive allegiance with AT&T. Some of the questions are as follows. First, many possible customers who are interested in investing with an iPhone are unwilling to transfer from other cell services such as Verizon wireless. Because of this, Apples sales of iPhones is not nearly the amount it could have been. Secondly, according to the website Seeking Alpha, the latest estimates have unlocked iPhones costing Apple over $1 billion in lost revenue the next 3 years (Sullivan, 2008). Lastly, with AT&T having monopolistic control of the iPhone market, they can control the voice and data package costs as aforementioned causing the price of owning an iPhone to increase significantly. 1.3 Problem Statement The previously identified problems outline the challenges that Apple, Inc. is facing as it enters into a new competitive industry. This case study provides an in depth look at the external threats of the industry and an internal analysis of Apple, Inc.s resources and capabilities, in order to produce sound solutions which confront current issues and create prohibitive barriers against entry. 2.1 Porters Environmental Threat Analysis Apple, Inc. 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 still generate more revenue. In fact, the United States only accounts for 20.6% of the global mobile phone markets value (Data Monitor 2008; 7).

However, being a substantial contributor in each major market, Apple, Inc. has found domestic and international success. Apple, Inc. 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, Inc.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 contract, 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. Because the hardware and software 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 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 total revenues for suppliers. 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 monies would be need to establish research, development and production 7

facilities (Data Monitor 2008; 13). Apple, Inc., however, is an 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, Inc.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-overinternet 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, Inc., 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 target 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

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 Competencies Brand Name Simplicity Hardware Software Value Yes Yes Yes Yes Rarity Yes No No No Imitability Yes No Yes No Organization Yes Yes Yes No Competitive Advantage Sustained Parity Temporary Parity

Value The target of the iPhone is to combine the communications ability of a phone with the Internet capabilities, data storage, and dissemination 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 had been experiencing call dropping problems and slow Internet connection speeds and until last week, they had been pointing the finger at the service provider. However, the real problem was discovered to be the chip that managed the devices operations. (McLean, 2008) This could cause Apples reputation to suffer and they could lose some of their market share for a while but since the design flaw is replaceable, it can be easily fixed 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 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 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 things that the iPhone doesnt have. One 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 buyers 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 that appeal, as they have had to recall some of the applications they approved. 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 Apples favor. This shows that Google has done a better job of listening to the market. Buying, regardless of how much it costs to imitate the iPhone, the market demand is so huge that people are willing look at cheaper alternatives. In addition, all of the companies attempting to imitate the iPhone have gotten the chance to see Apples 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 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 a large number of superfluous of 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 the 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 attempt to enter the market to compete for their share of a very profitable market and, also, to simply maintain their ability to compete against a product that might soon make the basic cell phone obsolete.

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3. Strategic Option Development 3.1 SWOT Strategy Strengths y Strong brand image y Advanced Smartphone technology y Application/update availability y Selective providers Opportunities y Niche market y Online capability/options y App Store y Overall pricing control Weakness y Limited product selection y New entrant stage y International markets y Insufficient network/system Threats y Product diversification y Immense competition y Superior technology y Dependence on third party suppliers

The ability to successfully compete within a variety of alternative markets, such as the wireless telecommunications services 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 some 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 has been able to bring large majorities of previous consumers into its newer business venture. The niche market that Apple appears to be striving for involves fewer differentiations of its phone products, unlike fellow phone creators who produce a handful of varied products to meet consumer demand each year. Furthermore, Apple has placed more focus on the creation of a single dynamic, updatable and reliable Smartphone that is still very user friendly. On the other hand by searching for a niche market that requires less product differentiation, Apple creates a possible weakness towards meeting consumer demand. Although, the creation of single dependable devices may meet the need 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 the enterprise market has been the allocat[ion] 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 stems from the enterprises need for mobile phone monitoring to ensure company security, while incorporating the employees need for customization with their mobile phones for personal usage outside of work related subjects. 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. The online opportunities created by the iPhones advanced Smartphone technology provide a whole new generation of phone usage and mobility, while offering 11

consumers a new level of personalization with their everyday phone. A 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 of online suffering via the mobile phone device. By expanding online capabilities of the 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[s], and as long as these large mobile phone companies continue to play catch-up to the original iPhone, Apple can address bigger concerns with the current system defects of its 3G model. The iPhone allows for 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 online department for iPhone users to continually improve and personalized their phone. This service provides consumers with multiple opportunities for incorporating the iPhone more in their daily lives. Unfortunately, Apple has had little success implementing the iPhone in foreign country, especially Japan. According to Yukari Iwatani Kane of the Wall Street Journal it is estimate[d] 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 features. 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 will likely be the make or break of 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 of its products at a 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 with a hefty service plan. Although, Apple has shown tremendous success thus far there is 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 service providers as there have been multiple bugs, defects and overall malfunctions with the iPhones and the wireless connections. If the issue isnt address immediately Apple could see large losses in consumer satisfaction and trust. Finally, there are perceived threats that are created via Apples hardware providers as Apple uses third party suppliers to manufacture its goods, and if a sharp increase in demand were to take place Apple would potentially be vulnerable to a shortage in goods. 3.2 Strategic Option One Apple currently only permits exclusive rights to AT&T as a sole service provider. Apple will open up free service market to all their phones. AT&T will no longer be the

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sole provider; accesses will be available to Verizon Wireless, T-Mobile, Alltel and other carriers worldwide. 3.3 Strategic Option Two The iPhone is the sole product offered in the mobile devices industry by Apple, Inc. The lack of product differentiation limits sales because the company is unable to meet different customer wants and needs. 4. Strategic Option Development 4.1 Open Market Service Providers Throughout 2007 and early 2008 Apple, Inc. 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, Apples 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 Apples 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 Apples net income. Overall, despite potential drawbacks, the open market service provider strategy provides sustainable solutions to current problems. 4.2 iPhone Differentiation The iPhone is only customizable through its downloadable applications, which must be authorized by Apple, Inc. The authorization process is time consuming and limits customers 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

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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, Inc. 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, Inc. 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 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.

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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&Ts 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 Apples 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 Apples 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, Inc.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 Apples 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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