PC industry truly took off with Apple and hence the competitive advantages have changed

with the changing industrial forces

1976 1985-1993 1997-2011

Steve Jobs
Established Sculley years years
Established in 1976, launched Superior software & designing Narrow focus & New HR policies
indigenously designed circuit products from
board Apple II in April 1978 and Reinvigorated culture of
sparked computing revolution Loyal customers allowed it to innovation and increased
sell product at high premium spending in R&D
Moved towards the mainstream Revamped marketing campaigns
by becoming a low cost
producer

Spindler and
Initial years Amelio years
Not many players in the PC Efforts for overseas expansion
market; quickly became the
industry leader Suffered huge losses; on the
verge of bankruptcy
Ease of use, industrial design
1976-1985 and technical elegance 1993-1997
Entry of IBM in the PC industry
standardized the PCs
2
 Apples Competitive Advantages
R&D and Innovation
New breakthroughs in innovation and
technology have been the backbone of the
company
Very high emphasis on designing their
product from scratch, using unique chips,
Product
disk drives, and monitors Differentiated products with very high value placed
on aesthetics and customer experience (Customers
Devoted higher share of its sales to R&D as loved their Macs)
compared to its competitors resulting in
technologically superior products (Chart) Products like Mac, iPod, iPhone marked a
breakthrough in ease of use, industrial design, and
technical elegance
Very high customer loyalty towards the products
allowing apple to charge a high premium on its
products leading to a higher gross margin (Chart)

Operations
Strategy
& Marketing
Very high emphasis on vertical and
horizontal integration a)helped retain
Campaigns
control over propriety knowledge
b) Reduce transaction costs
c) Higher quality
HR policies
Extreme practices of secrecy, including a closed
Successful multimillion dollar campaigns door policy and dummy positions for new hires
like Think Different ads and catchy
slogans increasing the brand value Violation of Apples culture of confidentiality was
grounds for termination
3
 R&D to Sales
HP Dell Apple
14.00%

12.00%

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%
1997 2000 2003 2006 2008 2010 2012 2014

Back
 Gross Margin
50.00%

45.00%

40.00%

35.00%

30.00%

25.00%

20.00%

15.00%

10.00%
5.00%
0.00%
1997 2000 2003 2006 2008 2010 2012 2014
HP Dell Lenovo Apple

Back
 Value Chain Analysis of Apple

Firm Infrastructure
SUPPORT ACTIVITIES

Most of the production taking place inside the USA

Human Resource
Management Very strict HR policies

Technology Indigenous technology development, highest spent on R&D from sales many
technological breakthroughs
Procurement Initially everything was produced by the company. Later on outsourced to
providers like intel, Microsoft, Samsung etc.
Alliance with Design & Plug and Play
major suppliers Innovation
Music Player Secure OS
Linkage with Technology Horizontal & with iTunes Ease of use
independent driven Vertical gives brand Replacement
software Collaborations integration awareness warranties
vendors with AT&T & Revamped
Vodafone marketing
campaign

Inbound Operations Outbound Marketing Service

Logistics Logistics & Sales

PRIMARY ACTIVITIES
 PC Industry Analysis
Supplier Power(High)
-Microsoft is the dominant OS
supplier and Intel the dominant
microprocessor supplier over
80% share
-High Switching costs from
suppliers
Supplier
Power
(High)
Internal Rivalry(High)
-Commoditized Product
-9 major manufacturers, large
number of clones
Overall Attractiveness Score 2.47
Threat of
New Threat of New Entrants (High)
Entrants +High Capital Expenditure
+Economies of Scale
-Existence of Low cost Clones
-Commoditized Product
Internal
Rivalry Buyer Buyer Power(Moderate)
Among Power +Moderate switching cost
firms +High dependency on computers
Threat of Substitutes(Low)
Threat of Although the introduction of
Substitutes tablets, smartphones and gaming
devices have affected the PC
industry but a computer remains
a necessity
Comparison of market shares in PC industry
Apples struggle in PCs

Entry of IBM in PC market in 1981

62% fall in net income of Apple between 1981 and 1984

Closed OS (Macintosh) vs Open OS

Premium pricing of Mac when PC prices were declining
Change of Strategy from Narrow differentiator to Broad Cost leader
(Graphic)
Cannibalization of Apples profits due to clones
In 1997, Macintosh licensing program was halted

Rise of Wintel
 1978-1990
1990-1997 Steve Jobs
Scully,
Steve Jobs and Scully
Spindler
1997-2011 and Amelio

Broad
Scope

Narrow

Cost Differentiation

Back
Shipped and Installed Base of PC Microprocessors

In millions

*Exhibit 4
Apples Position in the Smartphone Industry
Market Share over the years
45

40

35

30

25

20
(%age)

15

10

0
2009 2010 2011 2012 2013 2014
Apple Samsung Nokia HTC RIM
Is Apples Competitive Position Sustainable in the
Smartphones?
Valuable Technology is at the core of iPhone
Apples Brand Image

Rare The technology is not in control of anybody

Developing the technology was an expensive and time-consuming process and hence, it was not
Imitable readily imitable. However operating systems similar to Apples iOS have been developed

Non Substitutable Multiple substitutes like android, windows phone exist

Durable Rapidly changing technology and market. Frequently changing customer needs

Appropriable High gross profit margin. Large part of the profit accrued to Apple due to propriety technology
Is Apples Competitive Position Sustainable in the
Smartphones? COMPETITIVE FORCES
Economic Moat Theory

NONE COMPANY
WIDE NARROW
PROFITABILITY

Intangible Assets Switching Costs Cost Advantage Network Effect

Medium 1.2 million
Strong Brand None
switching Costs available apps
Patents due to itunes Store
iOS is one of integration with Revenue is 70%
its kind OS itunes & App higher than Play
Store store
 Apple Watch

Apple watch is part of digital hub strategy

IPhone works as a central hub
Apple watch going to be the next iPhone: pay,
calling, music, fitness etc
Sales of smart watches has risen by 41 percent
in a year (exhibit 9)
Loyal customer base of apple products
 Apple has always integrated services with
products: itunes-ipod, AppStore-iPhone
This time also it is trying to integrate Apple
Pay with apple watch
The infrastructure for apple pay and allied
services has to improve significantly for Apple
watch to successful
It has to strongly link services like apple pay
and fitness apps to apple watch and market
them aggressively
 Apple watch is at ferment stage, where
it has to radically focus on the product

The features should concentrate on

niche customer needs to improve
performance
 Initially Apple watch needs to focus on the innovators
and early adopters

At this ferment stage priority should be given to

product innovation like an app store, incorporate
fitness tracking features, integrate apple pay strongly.

To cross the chasm and capture early majority,

process innovation becomes supremely important
Battery-life, storage space etc need to be improved
significantly with newer updates
Challenges Ahead
We can see the units shipped has risen by 41 % in a year where as revenue
has risen by only 10 % (Ex. 9)
This clearly shows there is an adoption but customers are not ready to pay
a high price
Apple watch is not a first mover in this traditional to digital space so
doesnt have a first mover advantage
Need to delink Apple watch from iphone to give it an independent identity
Except from calling, apple watch should have independent features like
apps, music, wifi, etc
Introduce compatibility with other OS as well
References
http://www.businessinsider.com.au/google-play-vs-apple-app-store-
2015-2
https://corporate.morningstar.com/US/documents/Indexes/What-
Makes-A-Moat.pdf
http://www.androidauthority.com/google-play-store-vs-the-apple-
app-store-601836/
Appendix
Analysis of Rivalry among Competitors

Weight Criteria Rating (1-5) Reason

9 major players mentioned, No firm occupied more than 19% of
No. of Competitors 1
0.2 the market
0.15 Industry Growth 2 Initially high, Currently stagnated
0.15 Fixed Cost 2 High fixed costs
Majorly Commoditized Product, with a few players focussing on
Differentiation 2
0.2 differentiation
0.2 Switching Cost 3 Moderate switching costs
0.1 Strategic stakes 2 No strategic stakes of a single player
1 Total 2
 Threat of New Entrants
Barriers to Entry
Weight Criteria
0.1 Economies of scale
0.1 Product Differentiation
0.1Brand Identity
0.1 Switching Cost
0.1 Access to distribution channels
0.1 Capital requirement
0.1 Access to technology
0.1 Access to Raw Material
Rating (1-5) Reason
4 Low gross Margins, Economies of Scale Required
1 Commoditised Product
2 Not Important, Newer player like Lenovo have made a mark
3 Moderate Switching Costs
5 Easy, Direct sales can be done
1 High Capital Requirement for R&D
3 Available Easily
5 Not a Constraint

Barriers to Exit
Weight Criteria Rating (1-5) Reason
0.1 Asset specialization 2 Low
0.1 Cost of Exit 2 High

Threat of New Entrants(Attractiveness)

Total = 2.8
Bargaining Power of Buyers

Weight Criteria Rating (1-5) Reason

0.3 Number of buyers 4 Large No of Buyers
Availability of substitutes Tablets, Play Stations, Smartphones
3
0.3
Switching Cost 3 Moderate
0.2
Threat of backward Integration 1 None
NA
Threat of forward integration 1 Minimal
0.1
Contribution to quality 1
NA
Contribution to cost 2 High
0.1
Buyers profitability 1 None
NA
Total 2.9
1
 Bargaining Power of Suppliers
Weight Criteria Rating (1-5) Reason
0.15 Number of suppliers 2 Software dominated by Microsoft and Hardware By Intel
Availability of substitutes Tablets, Smartphones and Gaming Devices
2
0.15
0.15 Switching Cost 3 Moderate

NA Threat of backward Integration

0.1 Threat of forward integration 3 Minimal
Contribution to quality 2 High, Microprocessors and OS are the core of the Computer
0.15
Contribution to cost 2 High
0.15
0.15 Industrys importance to supplier 3 High

1 Total 2.4

Threat from Substitutes

Weight Criteria Rating (1-5) Reason
Availability of close
2 Tablets, Smartphones, Gaming Devices
0.3 substitutes
Switching Cost Moderate Switching Costs
3
0.25
0.25 Substitutes price-value 2 Lower than Computers
Profitability of the producers High Profitability
2
0.2 of substitutes
1 Total 2.25
Overall Assessment of Industry Attractiveness
Weight Criteria Rating (1-5)
.2 Rivalry among Competitors 2
Barriers to Entry and exit 2.8
0.2
0.2 Power of Buyers 2.9
0.2 Power of Suppliers 2.4
Threat of Substitutes 2.25
0.2
1 Overall Attractiveness 2.47