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Case 2: Apple Inc., 2008: Date: 23-09-2009
Case 2: Apple Inc., 2008: Date: 23-09-2009
, 2008
Date: 23-09-2009
Table of Contents
Table of Contents .................................................................................................................................... 2 Introduction............................................................................................................................................. 3 Theory and Analysis................................................................................................................................. 4 Research question 1: The structure of the PC industry....................................................................... 4 Research Question 2: The difficulty of Apple in the PC industry over time ........................................ 7 Research Question 3: Sustainability of competitive advantage for Apple in the PC business .......... 10 Strategic advice ..................................................................................................................................... 12 Conclusion and Reflection ..................................................................................................................... 12 References ............................................................................................................................................. 13
Introduction
In 1976 Steve Jobs and Steve Wozniak founded Apple Computer Inc. together with a group of 20 other people and started out in Steve Jobs garage. Apple started making computer circuit boards and followed that with an easy to use computer in 1978, through the years it focused on the PC business and developed applications for their own Macintosh computers. They created laptops called the Macbook in 1994 and even entered the MP3 player industry with the iPod brand in 2001 and more recently the mobile phone industry with the iPhone in 2008. Through the years Apple has changed from being the worlds largest producer of PCs controlling almost the entire market at the beginning of the 1980s, to only controlling a small share of the industry after several circumstances which left the company in crisis. Its market share had declined significantly to a current 3% market share, still Apple is a successful business due to its other products and its Macintosh computers are still profitable. Currently Apples PC Business is on the rise again, but is this only temporal or can Apple reclaim its original market leader position in the PC industry. Goal and structure of this report In this report we review the current state of PC industry and that of Apples PC Business and we review the future of Apples PC business. We started this report by giving a small introduction of the company in which showed some of its history and some of the products that are developed by Apple. We continue our report with our analysis which we conduct by answering the following research questions: 1. Analyze the structure of the PC industry. Are the dynamics in this industry favourable or problematic for Apple? 2. Given that Apple has always had superior products, why has the company had so much difficulty in the PC industry over time? 3. Does Apple possess any resources that provide it with a sustainable competitive advantage in the PC business? We answer these research questions through the application of the theories we have found in the articles we used to solve these research questions. We continue the report by giving our strategic advice to aid the company in attaining sustainable competitive advantage within the PC industry. We end this report with our reflections and our conclusion on the subject and the limitations of the theories we have used in this report.
Substitutes force Other PCs from other companies are treated as substitutes for Apples computers, the same is true the other way around. Thus in this market there are a number of substitutes which have an influence on the sales of each producer. Industry competitors force Combined, HP, Dell, Lenovo and Apples unit sales decreased only 5% year-over-year, however, their collective ASP dropped 13%, causing an 18% decline in PC revenues.(X-bit, 2009) Competition has always been fierce within the personal computer industry and this is only increasing. Cutting costs is required to survive in this a situation. Moreover, Apple is facing three aspects of conflict in the Personal Computer industry. a) PC hardware Needless to say, there are many companies which provide PC hardware. In 2007, Apple had only 2.6% share in global personal computer market (PC Market Still Strong in Q4 With Solid Growth Across Regions, According to IDC, 2008). b) Operating System Mac OSX has minor share comparing to Windows OS. Some important applications do not support Mac OSX. c) Software Apple provides software for Mac OS, but most of Apples software and the software developed by third-parties for Apple could only be used on an Apple Computer in the past. Apples computer used to play a role as digital creative tool, but now, other software producers have reached same level and these software programs can be used on multiple operation systems and competition has occurred. For example, Final Cut Studio 2 Adobe Creative Suite 4 Production Premium, iWork 08 Microsoft office, iLife 08 Blog, Adobe Dreamweaver, flicker, and picasa, and Logic Studio DTM software. Considering this output of five force analysis, two strong forces could be found: a strong decrease is price and severe competitive environment in PC industry. Especially, a conflict of software is important because existence of similar software as all competitive software can be used with the Windows OS, means that there is nothing we can only do with Apples computer. Are the dynamics in this industry favourable or problematic for Apple? They are problematic as Apple focuses on keeping its computers unique. Its strong points have been threatened by its competitors and its environment. If Apple could not find a way to create differentiation that attracts customers in this highly competitive market, their computers lose their attractiveness and Apple would lose even more of its market share.
We must therefore conclude that when there is no mismatch between consumers economic resources and Apples computers the problem must be a mismatch between Apples computers and the consumers tastes and preferences.
Because of these two findings it can be concluded that the supplier force within the PC industry were not really the problems that caused the decline in market share of Apple over time. Buyers force The buyers force has changed over time. In the beginning of the PC industry (1980) consumers were not very well informed about functionality etc. The Internet has made information about PCs widely available (Yoffie & Slind, 2008, p. 8). With information being more widely available people could compare functionality and prices more. This change over time could (partially) explain why Apple lost market share. Perhaps people found out that comparable products were cheaper and/or better. New entrants force The threat of new entrants is partly determined by the entry barriers. In the computer industry it became more difficult to enter the industry over time. This has been the result of multiple reasons the most important being that Personal Computer components became more standardized over time (Yoffie & Slind, 2008, p. 7). This resulted in easier access to the products and a decline in price of components (Yoffie & Slind, 2008, p. 7). The computers of Apple didnt use very much standardized products and were in the beginning only compatible with other Apple products. With products being standardized there costs of components were driven down through economies of scale. Thus lowering the prices of computers, this made it difficult for new companies to enter the market.
Substitutes force Within the computer industry there are many substitutes. One of the main substitutes is probably newer products (PCs) with a higher functionality, better specifications for an equal (or lower) price. This is an example of a higher relative price performance. What also could be counted as a substitute product are Personal Digital Assistants (PDAs) and Smartphones that came to the market in the last years (Yoffie & Slind, 2008, p. 10). Other examples that are described by Yoffie & Slind in the case text are TV set-top boxes and game consoles that could start to replace (substitute) PCs. It is however mentioned that these examples could just as easily supplement PCs. Therefore it is not sure whether this is a negative or a positive development. Industry competitors force The industry has grown tremendously. Data that supports this trend before 2002 could not be found. Data from 2002 2007 (Yoffie & Slind, 2008, p. 17) shows that total computer net sales have grown from $4.534.000.000 in 2002 to $10.656.000.000 in 2008. This shows that there must be a huge internal rivalry. The switching costs must probably have declined over the years. Reasons for this are off course the standardizing of PC components (Yoffie & Slind, 2008, p. 7). With lower switching costs, it must have become easier for Macintosh users to switch to alternatives; something that resulted in a decline in market share. Consumers determinants in the purchasing a personal computer The second part of the analysis of this research question takes the consumers determinants into account. There can be a mismatch between the economic resources of the consumer and the prices of a product and there can be a mismatch between the consumers tastes and preferences and the product. In the case of Apple Inc. it is clear that competitors products became cheaper over time while Apple didnt have the benefits of growing economies of scale. Cheaper prices for competing products could be a reason why consumers chose other PCs over Apples Macintosh. A second aspect is that with the development of Windows in the 1990s (Yoffie & Slind, 2008, p. 6), the main advantage of Apples software vanished. It is said in the case that the Windows OS combined with an Intel processor) had replaced IBM-compatible as the industry standard (Yoffie & Slind, 2008, p. 6). This development implies that consumers no longer prefer Apples software, and perhaps hardware, over other PCs. This could then have lead to a decline in market share. It can be concluded that despite Apples superior products, the new IBM-standard, with its standardized components that made components cheaper through economies of scale, higher industry competitors forces, easier distribution of computers, better information about computers and their prices etc. are reasons for Apples declining market share over time.
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they also function with other non Apple computer products, like keyboards. This can be viewed as a valuable resource and imitable resources as some of these design factors are protected by property rights and thus competitors cannot copy these factors. Another Key resource are the apple stores, these stores are valuable resources as they create quite some revenues, 19% of total revenues in 2008 (Yoffie&Slind,2008,P.6). Brand recognition and the building of resources is another imitable resource that is a key resource for Apple. As Apple was created during the 1980s it has had a long time to develop its brand and accumulate resources. Because Apple is now so well known for its quality products and distinctive style it is difficult for competitors to copy these products with the same success. As the PC industry and the components within them have been largely standardized it is difficult to obtain rare resources. Sustainability Now that we know what Apples resources are we can answer the question. Do these resources provide Apple with a sustainable competitive advantage in the PC business? The problem with Apple and every other PC producer is that none have rare resources as the parts used in building PCs are largely standardized. Another problem is that there is always a substitute for a certain PC. Non-substitutable resources are also limited as the products mainly need to have the same functions. Thus companies need to largely rely on brand name and quality, but quality increases price. This is a problem for Apple as its high quality products are more expensive than computers from other companies. Currently Apples share in the PC business is relatively small, thus it can be concluded that they do not currently posses as sustainable competitive advantage and the current resources are not enough to create a sustainable competitive advantage. However it does seem that Apples PC Business does currently have sustainable growth. Part of this growth can be attributed to the Halo effect of the i Brand, which has been extremely successful due to products like iPod and iTunes and thus increase the interest in Apple products including the Macintosh computers. The other part of the growth can be attributed to the changes Steve Jobs implemented in recent years including restructuring of Apple and improving the image of Apple. So currently Apple has sustainable growth and if this growth continues it can change into competitive advantage.
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Strategic advice
Apple could build up its market share by using its resources more effectively. However Apple does not possess a lot of resources that could provide a sustainable competitive advantage. The resources are the creativity to differentiate itself, brand recognition and the Apple Stores. These differentiated products can be patented and protected. Brand recognition must be used to rebuild market share that is partly based on this brand recognition. This recognition has been enhanced by the i-Brand that has emerged in the last decade. Apple Stores can also be used to further enhance the brand recognition and offer Apple PCs. Another option to regain market share would be to lower the prices of the PCs and at the same time try and retain the quality of the products as this is currently one of the larger problems Apple faces as its competitors all have cheaper products.
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References
Articles: Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management (17), 99120. Bingham, C. B., & Eisenhardt, K. M. (2008). Position, Leverage and Opportunity: A Typology of Strategic Logics Linking Resources with Competitive Advantage. Managerial and Decision Economics (29), 241-256. Collis D.J., Montgomery C.A., (2005). Corporate Strategy: A Resource-Based Approach. McGraw-Hill: Boston. Stahura, J., DeVaney, A., & Win, Y. (2005). Determinants of Household Expenditure on Computer Hardware and Software. The Journal of Consumer Affairs (39:2), 254-275. Wit, d. B., & Meyer, R. (2004). Strategy Process, Content, Context An International Perspective (3rd edition ed.). London: South Western Learning. Yoffie, D. B., & Slind, M. (2008). Apple Inc., 2008. Boston, MA: Harvard Business School. Websites: Apple.com - Press Release Library. (2009). Retrieved September 21, 2009, from Apple.com: http://www.apple.com/pr/library/ Apple.com - Investor Relations - 10-K Annual Report. (2008): http://library.corporate-ir.net/library/10/107/107357/items/315133/AAPL_10K_FY08.pdf. Accessed 21. Sep. 2009. X-bit laboratories - Average Selling Prices of Personal Computers Collapse. (2009). http://www.xbitlabs.com/news/other/display/20090306064622_Average_Selling_Prices_of_Persona l_Computers_Collapse__Market_Research.html .Accessed 21. Sep. 2009.
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