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Porter’s 5 forces analysis


Threat of Complements
New entry products

Suppliers within PC Customers

Threat of

Rivalry within PC industry:
The rivalry within the PC industry evolved from an oligopoly industry between
IBM and Apple in 1980s into a perfect competition industry in 2000s where the pricing
competitions are fierce.

New entry:
The entry barrier for PC industry became very low as the products became
increasingly standardized. There is not technical barrier, switching cost and large capital
requirement involved in this context. In addition, the advantages of economies of scale
and brand identity are also not obvious when the industry is dominant by supplier brand
identity (Wintel).

The “digital convergence” of PC and customer electronic products becomes a
significant factor in the PC marketplace (Yoffie and Slind, 2008). Handheld PDA, Sony
PlayStation has eventually begun to supplement or even to replace PC from different

Generally the suppliers can be divided into multiple source suppliers and generic
suppliers. For multiple source suppliers, the competitions are fierce and product
differentiations are not obvious as the standardizations of the products are guided through
IEEE standard. Thus the switching costs are low and bargaining powers of these suppliers
are low.
On the other hand, the generic suppliers such as Intel for microprocessors and
Microsoft windows for OS enjoy very strong bargaining power. These suppliers
possessed a strong influence and brand identity in PC industry although they don’t
directly deal with the end users.

PC buyers fell into five categories: home, small and medium business (SMB),
corporate, education and government (Yoffie and Slind, 2008). With about 74% of the
market share fell into home and SMB, generally PC industry can be perceived as a price
sensitive industry where customer bargaining power are very strong. The buyer switching
cost is low and the bargaining powers of buyers are strong. This is because as the
components of a PC became increasingly standardized, the value of PC manufacturer
decreased as the assemble process of a PC was perceived as a relatively simple process.
In consequence, the values of the brand identity for a PC being replaced by the
components’ brand identity such as Intel and Microsoft.

Complements products
The value of PC are largely depends on the development of software industry as a
complements products. One of the major reasons why Apple lost their market share to
IBM during the early 1980 PC industry competition is due to lack of compatible
software. IBM with the “open” system that allowed other producers to clone the design
largely stimulated the independent software development thus higher value perception for
the end user.

Apple value curve versus the industry:
In the early days of 1980s, Apple practiced horizontal and vertical integration to a
greater extent than any other PC company hence offer customer a complete desktop
solution, including hardware, software and peripherals that allowed customers to “plug
and play” (Yoffie and Slind, 2008). The products differentiation boundaries are clear and
the gaps are big between IBM and Apple as shown in figure2.
However, with the digital booming in 1990s and introduction “system on chip”
concept in electronic technology, more and more value that previously delivered by the
PC manufacturer eventually integrated into the smaller chip. In consequence, the
branding value of the chip maker such as Intel had overtakes the branding value of PC
maker. As the result, the product differentiations are not clear nowadays among the
overall PC industry.
Over time, even though the value curve of Apple in 2000s are moving close to
general PC in the markets, but Apple continue highlighted features that differentiated
them from other PCs while also emphasizing their interoperability with other machines.
This enables Apple to defend current market by differentiating the market as a blue ocean
market with extra value proposition instead of fall into the bloody red ocean for price

Competitive Apple in 1980s
IBM in 1980s

Apple in 2000s
General PC makers in 2000s

Price Ease to Software Processor Multimedia
use compatibility speed

Strategy analysis:
In general, the vertical integration strategy of Apple continuously enables the
company to emerge competitive advantages in products differentiations such as in the
aspect of product ease to use. The strategy that previously limits the market development
especially in the aspect of software compatibility, popularity among the end user and
processor speed in 1980s now perceived as a competitive advantages with emergence of
software integration technology such as VmWare.
The domination of Apple in the value chain from designing the products from
scratch, using unique chips, disk drives, and monitors, as well as unusual shapes and
developed own proprietary OS, the technology emergence of Apple computer architecture
are largely far behind IBM computer architecture who eventually being recognized as an
industrial standard.

During the early days of 1980s, even though Apple enjoying a strong bargaining
power over the buyer as they dominate most of the value added process in the value
chain, but the over diversified strategy largely constraint Apple computer’s market value
development as the value of an OS corresponded directly to the quantity and quality of
application software that was available on that platform. In addition, the CPU technology
solely depending on Motorola and than PowerPC also limits the market popularity when
Intel 80X86 processors became the technology leader while Motorola continue to
concentrate their focus on other business.
1985 – 1993
Overall, Sculley try to bring Apple’s strategy to focus in a few high-end markets
such as education and publishing through their combination of superior software and
peripherals. Meanwhile, Apple also forged an alliance with IBM to develop new OS
hence strengthen their market position (for Apple) and bargaining power (for IBM) while
compete or dealing with Microsoft. On the other hand, Sculley also plan to make Mac OS
to run on Intel chips in order to regain a stronger bargaining power by diversified the
CPU suppliers’ concentration.

1993 – 1997
During Spindler and Amelio’s years, the company strategy would still concentrate
in the effort to compete with Microsoft in user popularity. They try to license a handful of
companies to make Mac clones for international growth and implement.

after 1997
The return of Stave Jobs signified the changing of focus in Apple strategy from
competition in conventional PC industry into end user industry. With the announcement
of Microsoft invest $150 million in Apple and Microsoft Office in Mac, the value
competition between 2 OS, Mac and Windows seems to be cool down. Besides, Job also
launched iMac as a strategy to target for different market segment.
In general, Job strategy is to differentiate not from the product features but from
the value Apple deliver to their customer in PC industry. He outsourced product
manufacturing as product manufacturing is no longer in Apple strategy development
consideration. He tried to restructure the value chain for Apple by revamped its
distribution system, eliminating unnecessary intermediate party and launched a website to
sell its products directly to consumers. Besides, investment in R&D also increased.