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Apple

Introduction
In its 36 years of existence Apple has evolved from being an assembler of Micro Computers to a digital convergence giant and the most cash-rich company on earth with over $100 billion cash reserves. Apple currently operates in several industry spaces - Computers, Portables and Peripherals - Media devices - Media Sales - Software and Applications

Apple in the new millennium

By the end of the last century Apple was mired by a low market share and a recent history of losses but it had a glint of hope to regain its past glory in the world of technology.

Apple continuously defied the traditional Porters 5-forces model by changing the industry

itself. Apple blurred the boundaries between different industries while raising the barriers around self to keep away the competition from its cult followers. In the last 12 years Apple has constantly changed the technology landscape to redefine the market spaces. Apple launched the iPod to create a revolution in the music player industry. It was not just a computer manufacturer anymore. It had entered the music player or media devices industry. Realizing the importance of locking-in its device buyers, Apple next launched the iTunes. For the first time, a renowned company was offering music a la carte at just a dollar! The touch devices were previously seen mostly in movies and science fiction literature, but Apple suddenly put it in the hands of every common man by launching the iTouch and iPhone. The Apple magic worked and consumers picketed stores for days before launch of subsequent new products. The brand of Apple had arrived; in USA and in the world. Just when portable market was beginning to become too hot to stay in, Apple created a new niche market of its own Ultra-books. MacBook Air revolutionized the way people perceived laptops with unimaginable battery time, ultra-fast booting time and aesthetics and dimensions unforeseen by competitors! Madhuranath R

Fig.1 Apple Product Range

A hallmark of the Apple product family is that each product is seamlessly integrated with the other Apple offerings. This effortless interplay of devices and services has created a strong digital eco-system for the Apple users and Apple has historically strived to maintain it as a closed eco-system. By closing the loop for the customer experience Apple has moved into a blue ocean which can be harvested while competition across segments play catch up with Apple.

Just when every company was trying to kill Apple by launching comparable products, Apple just created a new market segment tablet devices. The iPad was hailed as a new generation device with a size and functionality lesser than that of a laptop but more than that of a smart phone. Consumers were charmed. A new industry segment was born.

What makes Apple tick?

When we analyze the growth story of Apple certain strategies stick out like a sore thumb, like - Supply Chain excellence - Changing the rules of the game - Complete & controlled digital eco-system 1. Supply Chain Excellence No other technology company achieved the kind of supply chain mastery that Apple demonstrates. The sourcing capability of Apple is probably the most important contributor to its bottom-line. The cost effectiveness and consumer satisfaction derived from its unmatched supply chain allow Apple to maintain a competitive advantage in the fickle digital electronics market. 2. Changing the rules of the game The iPod, iPad and iPhone were not the first devices of their kind. Yet, when Apple launched these products the market fell in love with them. So, what did Apple add to these devices to make them hot? Design Innovation. The aesthetic and simplistic designs that Apple introduced through these devices made them widely acceptable. It was not just a techie or a corporate honcho who desired to possess a smartphone anymore. Everyone wanted it! Apple created a desire in consumers to fulfill a need that had not existed till then. Apple had changed the rules of the game for all its competition in each of its product launch. Apple became a lifestyle brand; it was not about just technology anymore! So, how can the rules of a technology game apply to Apple anymore?

Porters 5 Forces and the Apple juggernaut

Porters 5-forces analysis is applicable to one industry whereas Apple straddles multiple industries. So, no single 5-forces model would be sufficient to analyze the rivalry of Apple. This is how Apple has become a technology juggernaut of this century.

Fig.2 The Apple Pie The distribution of Apples revenues gives a picture of the impact of different industries on Apple as well as the impact of Apple on different industries. Clearly, we need 6 times 5-forces analysis for Apple.

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3. Complete & Controlled Eco-system The consumer does not know what he wants, said the legendary of Apple founder, Steve Jobs. Jobs understood early on that consumers cannot be made to stay in the fickle technology products market. The staying power is possible only when a company produces something which no one else can produce for the customer. Since anyone could replicate a technology product, this could never be a sustainable strategy for Apple. So, Apple developed everything that a consumer needs from digital devices and put it together in a seamless way. The consumer was charmed by the smooth interaction between Apple devices, the iTunes and the iStore a feature no other company provided. The consumer was willing to pay a premium for this ease of use. He never went away to another.

Apple in the next decade

The past decade saw the growth of Apple by leaps and bounds. At one point it had more cash than the Federal Reserves of USA! It surpassed all technology brands in the world and reached every corner of the world with its magical devices. Apple has continuously pursued innovation to move into the Broadly Differentiated Strategy segment.

Fig. 4 Apples Strategy But the key questions that arise at this point are - Sustainability: When will the magic end? Is the Apple story sustainable in the next decade? - Changing the game: Can Apple keep on changing the rules of the game? Or has the competition started doing the same to Apple? Fig. 3 Apple Digital Eco-system

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Sustainability
Supply Chain Excellence has been a hallmark of Apples competitiveness in the market. But, how long can this be sustained? China is crumbling under its own weight of economy. Global pressure is increasing on China to stop maintaining a lower exchange rate by artificial means. The recent scandal at the Foxcon regarding human rights violation can have a significant impact on Apple as Foxcon is the main producer/aggregator of Apple products. The floods in Thailand wiped out large portions of the memory devices supply; again a dent in the Apple supply chain. The externalities are catching up with Apples supply chain and it is not possible to hedge the same anymore; at least not while maintaining the cost advantages it experiences now! The digital eco-system and convergence achieved by Apple is not yet complete. The digital consumer is increasingly bombarded with newer and cheaper alternatives to Apple products. Samsung, for one, has a product in every price point that Apple operates in and also in other price points where Apple does not operate. Naturally, it has the potential to take over the market from Apple eventually. The controlled eco-system that Apple operates now may become a liability for Apple in the long run. Currently, it is intended to increase the switching costs for the consumer while creating the illusion of whole solutions for ease of use of the customer. But the Android eco-system or the Microsoft eco-system may soon give Apple a run for its money. With competition catching up and playing along the same lines as Apple helped define, how long will Apple be able to sustain its eco-system in a water-tight way?

Changing the rules of the game is not the forte of Apple alone anymore. The Asian tigers are catching up; and catching up real fast. They are in fact redefining the rules of the game that Apple created! Samsung, Acer, Lenovo, and many more are creating devices which are a combination of tablet and ultrabooks. Acer, Samsung and Lenovo, between them launched 25 models of ultra-books, some of which are considered superior to the MacBook Air! Intel itself is promoting the growth of the ultra-book segment by pumping in $300 million worth of funds in SMEs and companies which are invested in the development of technology and applications for the ultra-books. Intel has bet its next big wave of growth on the sales of processors for this ultra-book segment. Samsung has created a touch device and a smartphone in every possibly conceivable size and configuration. This year it moved into the top slot in the global smart phone market space. The Galaxy Note was a device which was between a smartphone and the tablet. What Apple did to laptops with iPad, Samsung is trying to do with the Note. Amazon, a totally unlikely rival of Apple, launched the Kindle Fire. The Android based device was sold at a price point at which no iPad was selling. Everyone thought Amazon was creating a new market segment for itself by carving a niche below the iPad. But the latest news is that Amazon is building Kindle devices with a configuration exactly on par or better than the new generation iPad. There goes the game changing strategy of Apple to the wind! Thus, I see sustainability as a key challenge to be overcome by Apple in the coming decade. Madhuranath R

What next, Apple?

After the sad demise of Steve Jobs, the responsibility of managing Apples exponential growth has fallen on the slender shoulders of Tim Cook, former COO and a close confidante of Jobs. How he aims to steer Apple in the coming depths of business cycles is yet to be seen. However, having followed the story of Apple, I can dare to make a few strategic recommendations for Apples continued success.

The game is never over!

Apple can still continue to play the game of changing the game. Apple still has some openings in new markets for launching new products like media devices, photography & video devices, projection and media consumption devices. According to a recent report, Apple is supposedly working on a stand-alone camera based on iSight. Compared to all technology companies Apple probably has the highest percentage of spending on R&D. This, combined with innovation, can be the cornerstone of success in the long run for Apple. Initiatives like the establishment of The Apple University and the One Infinite Loop Apple campus are aligned towards the sustainability of innovation. It can continue to attract the most talented employees and create the most admired devices and products.

segments of the Japanese consumer electronics giant Sony which has been struggling to maintain its market shares. Now, it has become a fight for survival at the legendary Japanese company. Sharp and Panasonic are equally hit by the growth of Samsung and LG. Apple has launched the Apple TV, can it move into the segment of projection systems & home theaters? This is a move that can significantly help Apple if it acquires the relevant businesses from Japanese ailing companies. Economy is at an all-time low, Japan is reeling under recessionary pressures and the companies have hit record losses and share prices; the worst in the last 32 years for Sony or Sharp. This could be the right time for Apple to acquire their businesses, spin the Apple innovation magic and launch the next generation of home theaters. Thus, Apple can actually expand the digital eco-system that Apple has already created. Like I said earlier, Apple is not about technology anymore, it is all about lifestyle and consumer.

Acquisitions & Partnerships

Google did it with Android and then by acquiring Motorola. Nokia tied up with Microsoft. Apple may soon be tempted to target some business

Madhuranath R