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Apple, Inc.:
Creating and Sustaining a Competitive Advantage











By:
Brian Lubeck
John Nitz
JeII DanIorth
Josh Brannon
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EXECUTVE SUMMARY

The mobile devices industry is a competitive market dominated by key Iirms like
Nokia Corporation, Samsung Electronics Company, and Motorola, Inc. These companies,
which have extensive product lines, capture a large portion oI consumers in the mobile
devices industry. However, the release oI Apple, Inc.`s iPhone, in June oI 2007,
positioned the company as a direct competitor in the industry as the iPhone oIIered a
variety oI unparalleled Ieatures. Although the product has conIronted various problems
since the unveiling, Apple has done well to identiIy key internal and external threats that
challenge the success oI the iPhone.
Conceptual Irameworks, such as Porter`s Iives Iorces model and VRIO analysis
(Value, Rarity, Imitability, Organization) establish Apple`s resources and capabilities and
identiIy the organization`s positioning within the market. The analysis also provides an
understanding oI Apple`s current competitive advantage and provides inIormation
necessary Ior strategic planning.
From these studies, it is apparent that the iPhone has had tremendous success per
volume oI sales. However, with Apple`s severely limited product line, little product
diversiIication capabilities, and the recent release oI similar alternatives, such as the T-
Mobile G1 by Google and the Dare by LG, the iPhone`s competitive advantage seems
Ileeting. New strategy and direction is pertinent to the continued success oI Apple`s
iPhone.
Upon review, it is Cooperstown, Inc.`s position that Apple adopt one oI two
strategic solutions: an open market service provider strategy or an iPhone customization
and diversiIication strategy. The Iormer 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 oI 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
diIIerent providers.
The latter solution provides consumer speciIic customization and hardware
packaging which would increase Apple`s product diversiIication and eliminate the threat
oI competitive alternatives. Meeting consumer wants is crucial Ior the continued success
oI Apple`s iPhone.
Although these two strategies would solidiIy Apple`s competitive advantage in
the mobile devices industry, the implementation oI an open market service provider
strategy is a stronger solution that provides long-term revenue beneIits and attracts a
larger consumer base. Although the initial cost oI exiting the contract with AT&T might
be detrimental, increasing competition in the telecommunications industry will Iavor
Apple`s Iuture success. This increase in competition will lower the cost oI service plans
Ior 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 Iull potential beneIits.



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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
2.1.1 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

1.1Mission Statement

In 1976, Apple Computer, Inc. was established and was incorporated in 1977.
Apple`s Iirst 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 shiIted their Iocus Irom only producing computers to producing other
products Ior industries such as entertainment and mobile telecommunications. The
current mission statement Ior Apple is as Iollows:

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 Iocus on last part oI the mission statement: the
iPhone industry oI Apple.

1.2 Key Issues with the iPhone 3G

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

Cost
hen the original iPhone was released, the sales price Ior the phone was $399.
The biggest portion oI Apple`s marketing campaign Ior the release oI the second
generation iPhone was that the phone was going to be halI the size as the original phone
and also halI the price. Only the Iormer came true according to researchers. These
researchers Iound that the iPhone 3G did cost halI the price as marketed, $199, but there
was a catch. ith the lowered price, AT&T increased the data package cost by 150, or
Irom $20 to $30 per month. In addition, he new iPhone service did not include an SMS,
or text messaging, plan. The Iirst generation iPhone package came with 200
complementary text messages per month. To make up the diIIerence 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 Ior 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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diIIerence between the original iPhone, the iPhone 3G and their closest competitors
(Chen, 2008).


(Chen, 2008)
As can be seen Irom the table, the iPhone 3G would cost $1,975 aIter two years as
compared to the $1,815 with the original iPhone. This change in the coverage AT&T has
inIlicted has made a liar out oI 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 liIe and replacement options. In most cell phones, like Blackberries and
PDAs, the battery can be replaced by the consumer. ith 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 Ior this service is $79 plus shipping and handling
which costs $6.95 (Battery Replacement, 2008). According to the Verizon ireless
website, the cost to replace a battery Ior any model oI the BlackBerry costs $39.99, a
diIIerence oI $45.96 (Standard Battery, 2008). This is another hidden cost which the end
user will have to deal with aIter 400 charges oI his/her battery.
ith the new slick and slim look oI the iPhone, they have lost valuable space Ior
a more powerIul, long-lasting battery. hen using the high-tech services such as 3G
connectivity and other Iunctions, the amount oI battery time decreases signiIicantly. II the
user oI the iPhone has their 3G Iunction turned on, the phone only has 5 hours oI talk-
time or 5 hours oI internet use beIore the phone will need to be charged. II the iPhone is
in standby, the battery will last up to 300 hours but iI a businessman or woman is
traveling and needs to access email and other inIormation Irom 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 Ior the phone`s
reception issue has not been exactly identiIied, but many are saying that the problem is
with the relatively new InIineon 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 chieI technology oIIicer oI AT&T, John Donovan, admitted that
some oI the issues with the connectivity oI the iPhone 3G had to due with the AT&T 3G
service as it was 'unprepared Ior the US success oI 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 oI the iPhone. In the beginning oI 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 oI the iPhone have Iailed to reach the levels Apple has
hoped Ior. According to the latest estimates as stated by the website Seeking Alpha, the
market Ior unlocked` iPhones will cost Apple over $1 billion in lost revenue over the
next 3 years (Sullivan, 2008). ith 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 oI owning an iPhone to increase signiIicantly.

1.3 Problem Statement

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

2.1 Porter`s Environmental Threat Analysis

Apple competes as a manuIacturer in the mobile devices industry, which consists
oI 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 Ior $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, Iorecasted U.S. revenues dwindle in comparison to 2011 European
and Asian-PaciIic market revenues, suggested to be $34.6 billion and $84.8 billion
respectively.
Currently, European and Asian-PaciIic mobile phone industries continue to
generate more revenue. In Iact, the United States only accounts Ior 20.6 oI 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 Iound
domestic and international success. Apple has integrated core competencies, such as
touch screen capabilities, with successIul commercialization strategies to introduce a new
generation oI phone. A Iive Iorces analysis will provide an overview oI the industry and
help deIine Apple`s positioning within the mobile phone market.

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

Threat of Suppliers
Suppliers in the mobile phone industry provide the raw materials necessary to
manuIacture phones. Since the hardware and soItware components are highly specialized,
mobile phone manuIactures are dependent upon suppliers Ior quality materials (Data
Monitor 2008; 12). Thus, suppliers can inhibit the perIormance oI manuIactures by
raising the price or lowering the quality oI the raw materials provided.
Continually, the revenue generated by servicing the mobile phone industry is a
small percentage oI total revenue Ior suppliers because suppliers provide materials Ior
various industries (Data Monitor 2008; 13). Suppliers are able to inIluence supply
contracts, as the mobile phone industry is not a signiIicant Iigure in their total revenues.

Threat of New Entrants
The threat oI new entrants into the mobile devices market is relatively low with
the exception oI companies that already operate in the electronics industry. For
companies interested in competing as new entities, the cost oI capital is extremely
prohibitive as large amounts oI capital would be required to establish research,
development and production Iacilities (Data Monitor 2008; 13). Apple is, however, an
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example oI an electronics company that has expanded its product lines into the mobile
devices industry with the introduction oI the iPhone (Data Monitor 2008; 13). Apple`s
success is attributed to its ability to manuIacture an innovative product at a reasonable
cost, which could not be attained by a startup company.

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

Summary of Position
Overall, rivalry in the mobile devices industry is relatively intense because oI the
increased penetration in domestic and international markets. The rivalry, however, brings
new technology to market. Apple, Ior example, entered the mobile devices market with
an innovative product that other Iirms have come to imitate. Although the iPhone has
recently attracted the attention oI a large percentage oI consumers, Apple is at a
disadvantage because oI its lack oI product diversiIication. Larger Iirms with various
products appeal to many consumers, rather than targeting a particular segment. But
because buyers oI 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




Cheap
Product Design
Expensive
Basic

Technical
Consumer Price

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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 Iocused on in its design Ior the iPhone. These three
advantages are the Apple brand name, the simplicity oI it user interIace, and the advanced
technology incorporated into its design.

Resources and
Competencies
Value Rarity Imitability Organization
Competitive
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 oI the iPhone is to combine the communications ability oI a phone with
the Internet, data storage, and dissemination capabilities oI a computer and the compact
and quick access Ieatures oI a PDA. In addition, they wanted to make it Iast and easy to
use. Since the introduction, they have added the Ieatures oI their other products such as
the music playback and photo viewing oI 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 oI providing quality, glitch-Iree products and the
hype oI owning Apple products as being a status symbol among young adults to make
their product worth the extra money. UnIortunately, they have been Iailing to provide the
Iormer recently as glitches have begun to surIace. They have been releasing updates to
Iix these glitches but just recently, a design Ilaw was discovered. The iPhone has been
experiencing call dropping problems and slow Internet connection speeds and until last
week, they had been pointing the Iinger 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 suIIer and they could lose some
oI their market share Ior a while but since the operations chip is replaceable, this design
Ilaw can be easily repaired in Iuture models. In the meantime, it is likely that the hype oI
owning Apple products and the simplicity oI the phone Iunctions will continue to keep
their sales high.

Imitability
There are very Iew other products on the market capable oI providing the Ieatures
oI 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 oI the touch screen Ieature out oI 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 oI things well, its
competitors are able to incorporate the basics oI the iPhone while Iocusing on improving
one aspect and pushing sales on that Ieature.
Now, Google has released a phone oI its own named the T-Mobile G1 (Quittner,
2008). It is expected to give the iPhone quite the run Ior its money. Though it is a new
product and no one can tell how well it will do so early on, it has two Ieatures that the
iPhone doesn`t have. The Iirst is an open platIorm Ior customization. Though Apple has
relied on third-party applications Ior the iPhone, they have to be approved by Apple,
which gives consumers Iewer options. On the other hand, it also means that the programs
Apple releases should be saIe to install on your iPhone but they have already lost some oI
that appeal, as they have had to recall some oI the applications they approved due to
malIunctions.
The other bonus that the G1 holds over the iPhone is a cut-and-paste Iunction
which may not seem like much but to a market that has voiced an interest in it; it can tip
the scales out oI Apple`s Iavor. This shows that Google has done a better job oI listening
to the market.
Regardless oI 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 oI the
companies attempting to imitate the iPhone have gotten the chance to see Apple`s initial
mistakes and can, thereIore, avoid them.

Organization
Apple has done an excellent job oI exploiting its Brand Name which is its biggest
competitive advantage. In addition, it has kept in line with the ideals oI its brand name
which includes simplistic user interIaces and long lasting, glitch-Iree hardware, despite
the one piece oI malIunctioning hardware that is easily replaced in Iuture models.
However, Apple is trying to exploit the applications market by Iorcing 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 Iree. 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
Iunction simple. Any substitutes that attempt to take away Irom their market share are
generally too complicated and include large numbers oI superIluous Ieatures. This means
that even iI other companies add Ieatures like a cut-and-paste Iunction, they are not
actually adding to the value oI their product. However, even though they are struggling
to compete with Apple, there is such a huge market Ior the next generation cell phone
that, regardless oI the cost to develop imitations, the other big cell phone manuIacturers
will have to continue to compete Ior their share oI a market that could very well make a
good deal oI their current cheap, basic cell phones obsolete.

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

To successIully compete within a variety oI alternative markets, such as the
wireless telecommunications market, a company must stick to their core values and
strengths in order to generate any sort oI Iinancial 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 oI its strong brand image. According to
Marketatch the 'iPhone looks likely to be the next step in the convergence oI mobile
telephone, portable media playback and mobile internet technologies; the device is
attractively designed, while also having market leading Iunctionality and
usability(Marketatch: Global). By linking its MP3 technology with a quality mobile
service provider (AT&T), Apple was able to bring a large number oI its current
customers into its new business venture. The niche market that Apple is striving Ior
involves less product diIIerentiation; unlike its competitors who produce a handIul oI
varied products each year to meet consumer demand. Furthermore, Apple has placed
more Iocus on the creation oI a single dynamic, updatable and reliable Smartphone
without sacriIicing its reputation oI creating simplistic user interIaces.
On the other hand by searching Ior a niche market that requires less product
diIIerentiation, Apple has created a possible weakness towards meeting consumer
demand. Despite the Iact that the creation oI a single, dependable device may meet the
needs oI most consumers, Apple could potentially strike out within the enterprise market.
The enterprise market pertains to Iirms who allow employees to check and send emails,
as well as exchange important internal company inIormation to one another via their
mobile phones. A common trend oI this market has been the 'allocation oI mobile
devices, such as Blackberry, to employees to enable them to check their email and be
responsive when they are away Irom the oIIice (Marketatch: Global). The problem
inherent with this Ireedom stems Irom the enterprise`s need Ior mobile phone monitoring
to ensure company security. At the same time, they must incorporate the employees` need
Ior customization with their mobile phones Ior personal usage outside oI work. ithout
the development oI a product to compete directly with Blackberry Ior the enterprise
market, Apple will likely see a loss in a very proIitable market.
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The online opportunities created by the iPhone`s advanced Smartphone
technology provide a whole new generation oI phone usage and mobility, while oIIering
consumers a new level oI 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 Iriendly 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 successIul within this competitive market iI it is able to stay ahead oI the
pack with increased developments in online surIing via its mobile phone device. By
expanding the online capabilities oI 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 Iunction. hile these large mobile phone companies continue to trail behind the
original iPhone, Apple can address bigger concerns with the current system deIects oI its
3G model.
The iPhone allows Ior 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 Ior iPhone users to continually improve and
personalized their phone. This service provides consumers with many more opportunities
Ior incorporating the iPhone into their daily lives. UnIortunately, Apple has had little
success implementing this aspect oI the iPhone in Ioreign countries. It has had an
especially diIIicult time in Japan. According to Yukari Iwatani Kane oI the all Street
Journal it is 'estimated that demand in Japan has Iallen to a third oI what it was initially
and analysts are now expecting Iewer iPhone sales (Kane, SJ). The decline in sales
can be contributed to the lack oI inIormation being provided about the iPhone to Ioreign
buyers, the availability oI Iar more advance cellular technology, and an overall lack oI
any strong App Store presence. The ability to quickly address the issues overseas through
the help oI companies like SoItBank Corp., an Apple partner, and services like the App
Store could mean the diIIerence between victory and deIeat Ior the iPhone in Asia.
Lastly, by selectively choosing its service providers (AT&T, Orange, etc), Apple,
is able to eIIectively maintain a strong control on the pricing oI its products. Additionally,
by restricting the total number oI service providers Apple is able to keep the demand Ior
its products high in order to maximize total proIits 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 Iar there are still immense threats and weaknesses that stem Irom its
suppliers and current service providers` technological capabilities. From the soItware
perspective Apple is Iacing a risky business partnership through its service providers as
there have been multiple bugs, deIects and general malIunctions with the iPhone and its
wireless connections. II the issue isn`t address immediately Apple could see enormous
losses in consumer satisIaction and trust. In addition, there are perceived threats in
Apple`s hardware providers as Apple uses third party suppliers to manuIacture its goods.
II 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. ThereIore, access will be available to other carriers
such as Verizon ireless, T-Mobile, and Alltel, worldwide.
3.3 Strategic Option Two
The iPhone is Apple`s sole product oIIered in the mobile devices industry. The
lack oI product diIIerentiation limits sales because the company is unable to meet
diIIerent customer wants and needs. ThereIore, Apple will oIIer its customers diIIerent
variations oI 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 oI
iPhone, the iPhone 3G. It is our proposal that Apple terminate its current domestic
agreement with AT&T, creating an open market oI service providers. By making the
iPhone available to a broader range oI service providers, Apple will increase market share
and overall proIits through by attracting a larger consumer base.
Additionally, a single service provider limits the introduction oI 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 oIIer insuIIicient network connections
that reduce the quality oI the iPhone. According to iPhoneAtlas.com, 'the iPhone 3G is
capable oI 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 beneIits, there are
also several trade-oIIs that accompany such implementation. For example, allowing
iPhone to be paired with any service provider reduces the rarity oI 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
Irom each service plan sold. Currently, Apple is receiving an estimated three dollars a
month Irom AT&T per iPhone user and an additional eight dollars a month Ior new
subscribers (Krazit, 2007). A reduction in these revenues could adversely aIIect 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 Iorum Ior
installing third party soItware that provides limitless options Ior end users (Quittner,
2008). Since Apple declines some third party soItware, the applications that are Iinally
released to end users are supposedly saIe. However, as previously mentioned, this
process has introduced applications which had to be recalled. The best solution to this
problem is to authorize particular soItware developers rather than the applications
themselves. The endorsement oI various soItware developers would increase competition
and quality oI programs oIIered, giving the end user a wider variety oI customization
through downloadable applications. Also, increased competition between soItware
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
diversiIy hardware arrangements based on customer preIerences. For example, Apple
could oIIer hardware packages designed Ior gaming, movie or music playback, internet
surIing, picture taking, etc. Although these options would only be provided Ior AT&T
customers, it would increase the marketability oI the iPhone by targeting more speciIic
consumer groups. Furthermore, package options could increase the price oI 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 oI customization options would
negate adverse diversiIication limitations.

5. Strategy Selection

5.1 Strategy Selection- Open Market Service Providers

AIter discussing the two mutually exclusive courses oI actions above,
Cooperstown, Inc. suggests the implementation oI 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 Ior open market service providers. The most conventional method to
implement this plan is by releasing the next generation oI the iPhone by 2010. The new
phone should be capable oI multi-service expansion. BeIore 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 Iuture
successes via multiple networks. Apple creates an opportunity Ior increased growth and
increased market share. Additionally, Apple would beneIit 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 oI phone that are accompanied by similar provider strategy.
Continually, by utilizing all service providers, Apple reduces the contractual
bargaining power oI buyers. Buyers would have limited inIluence on the price oI the
15
iPhone because the demand oI iPhone is strong. However, Apple would no longer have a
guaranteed or contracted portion oI each service plan sold to the end user. Regardless,
Apple would likely gain signiIicant competitive advantages over competitors as all
service providing companies would pursue the product with the highest demand to satisIy
consumers.




6. Strategy Implementation

6.1 Strategy Implementation

By implementing the strategic plan oI 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 diversiIy its product line to meet consumer demands.
Currently, Apple releases a new model oI their iPhone yearly, and by opening up to
multiple providers, it will have new iPhone products on the market Irequently.
The execution oI 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 proIits substantially as many potential buyers whom are
locked in contracts with Verizon ireless, T-Mobile and other providers will be able to
buy Apple`s iPhone. To ensure that this expansion plan will be Ieasible, 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 eIIicient provider Ior the iPhone.

7. Apple`s Competitive Advantage

7.1Strategic Implications

In addition to the competitive advantages identiIied by the VRIO Analysis, the
implementation oI the chosen strategy will provide the market with more options Ior 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 oI each individual customer. It also adds
rarity because the developers oI the other next generation cell phones have Iollowed
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. AIter
Apple has broken away Irom its contract with AT&T, it will need to Iocus on exploiting
this new, unbounded situation in order to maintain a sustainable competitive advantage
and stay ahead oI its competitors.


16
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