1

Requires few sunk costs q Requires little scale Brand / know-how perhaps

Wintel monopoly Forward integration by contract manufacturers Hold-up by JIT suppliers

Commoditization Rapid obsolescence Overlapping strategies Fragmented industry

Distributors a limited threat due to direct sales model Users price sensitive and increasingly knowledgeable Low switching costs (Wintel)

Complements? (Software)

Increasing pressure from: Network computers PDAs and cell phones TV set-top boxes Game players

Net Margin g

29%

Ope erating System

18% Micropro ocessor

Intel = $43B in sales, 18.2% net margin MSFT = $62B in sales, 29.3% net margin Dell = $52B in sales, 4.8% net margin HP = $126B in sales, 7% net margin Acer = $17B in sales, 2.8% net margin

4% PC Assemblers 50 75 100 Share of Industry Revenue

25

Components

Assembly

Software

Distribution

Proprietary OS Motorola and Intel Chips (since 2006)

Differentiate product d in i terms of quality, styling

Rely on mix of self developed self-developed and third party titles

Spend heavily on advertising, branding Retail stores eliminate shelf space competition & create buzz

Cost to develop OS: $6 billion P ice per pe cop $50 Price copy: ~$50 Variable cost: ~$0 Breakeven: $6B/($50-$0) = 120M copies Microsoft: 92% share x 300M PCs/year = 276M copies/year Years to recoup = 120M/188M = 0.68yrs 0 68yrs = ~33 weeks Apple: 16M sold in 2011 Years to recoup = 120M/16M = 7.5 years!

Desktop and Laptops

Mobile and Tablets

Source: NetMarketshare.com