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The CTL EURO COLLEGE

Title: Research project on Apple Inc Student name: Yogesh arande Registration no! "#$#%"# Course: &'A

Super(isor: Dr.Andreas Constantinou )ate: August #%* #%"+

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Table of Contents Title Introduction -istor. Apple Inc: 0ision Statement o1 Apple: E2planation o1 0ision Statement: &ission Statement o1 Apple: Re(ie4 o1 Literature The 5C Industr. The Online &usic Industr. The 6uture o1 Apple Strategic Alliances and Entertainment E2ternal Aanal.sis Industr. Anal.sis Using 5orter7s 6i(e 6orces &odel 9hich E2ternal Threats are &ost Signi1icant Additional E2ternal Threats 0ertical Integration o1 Competitors 0alue Chain Anal.sis S9OT Anal.sis o1 Apple Inc: 'CG &odel: 9hat is dri(ing &acintosh acceptance: Remo(ing 'arriers 1or Users Application 5re1erences Apple pro1it ma;es huge rise due to i5od success Apple 'eats Competitors at In(entor. Turn O(er I5od: The &ar;eting o1 an Idea 5roject 6inancial Anal.sis -istorical 5er1ormance 5ro1ita=ilit. &easures Li>uidit. and Le(erage &easures 5roduct Unit Sales Operating Segments &ar;et 0alue Anal.sis Apple #%"# "? 1inancial anal.sis Share (alue 5ro$6orma Income Statement 5rojected 6ree Cash 6lo4 and E>uit. 0aluation Page %, %/ %/ %/ %3 %3 "" "# "# ", "/ "8 #+ #, #/ #3 #8 +" ++ ++ +, +, +< +8 ," ,# ,+ ,, ,/ ,3 ,3 ,< /% /< /8

Strateg. 5roduct )i11erentiation Strategic Alliances Recommendations Conclusion

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Introduction Apple Computer7s +%$.ear histor. is 1ull o1 highs and lo4s* 4hich is 4hat 4e 4ould e2pect in a highl. inno(ati(e compan.! The. e(ol(ed throughout the .ears into an organiAation that is (er. much a representation o1 its leader* Ste(en Bo=s! Apple made se(eral hugel. success1ul product introductions o(er the .ears! The. ha(e also completel. 1allen on their 1ace on se(eral occasions! The. struggled mightil. 4hile Bo=s 4as not a part o1 the organiAation! Apple reached a point 4here man. thought the. 4ould not sur(i(e! 9hen as;ed in late "@@< 4hat Bo=s should do as head o1 Apple* )ell Inc!Cs D)ELLE then$CEO &ichael S! )ell said at an in(estor con1erence: FICd shut it do4n and gi(e the mone. =ac; to the shareholders!G D'urro4s* Gro(er* and GreenE! 9ell* times changed! Less than "% .ears later* 'usiness 9ee; ran;ed Apple as the top per1ormer in its 2012 'usiness 9ee; /%! Apple attri=utes their recent success to ro=ust sales o1 i5od music pla.ers D<@ million in #%""E! The. are optimistic a=out the economies o1 scope 4ith media giants* such as )isne. and 5i2ar! Apple rarel. introduces a ne4 t.pe o1 product! Thus* instead o1 =eing the pioneer* the. are an e2pert Hsecond mo(erG =. re1ining e2isting products! 5orta=le music pla.ers and note=oo; computers are e2amples! Apple increases the appeal o1 these products =. ma;ing them st.lish and more 1unctional! The. no4 appear poised to ma;e signi1icant strides in the home computer mar;et and to creating a total digital li1est.le 4here=. the home is a multimedia hu=!

History of Apple Inc: Apple Inc 1ormerl. ;no4n as Apple Computer Inc 4hich pro(ides corporate Ser(er* &AC OS S.stems and Operating S.stem! Apples core product lines are the i5hone* i5od and &acintosh S.stem! Ste(e Bo=s and Ste(e 9oAnia;* The 1ounder o1 Apple has created the Apple Computer on 1st April 1976 and integrated in the compan. on rd !anuary 1977* in Cupertino Cali1ornia! It has dri(en the Computer manu1acturing mar;et 1or more than t4o decades! &r! Ste(e Bo=s 4ho 4as e2pelled in "@8/ 4as return as CEO o1 the A55LE Inc in "@@3 4ith ne4 Ideas and corporate philosoph.! 9ith introduction o1 success1ul I5od 5la.er in to #%%" Apple has again pro(ed itsel1 as a &ar;et leader in consumer electronics! Latest era o1 e2traordinar. success o1 the compan. is in iOS =ased Apple products li;e I 5hone* I5od slim* I 5ad and no4 I 5ad #! Io4 a da.7s Apple is a =iggest technolog. corporation in the planet 4ith the pro1its o1 more than J3/ =illion! It has a=out "9#"$$ emplo.s all o(er the 4orld! 6ortune &agaAine most Admired compan. in United State in #%"# and in the 4orld in #%"#* #%%@ and #%%@! Apple has o(er #,% Store all o(er the 4orld and the =i1urcation o1 these store in di11erent countries are as =elo4! %ision &tate'ent of Apple: H&an is the creator o1 change in this 4orld! As such he should =e a=o(e s.stems and structures* and not su=ordinate to them!G ()planation of %ision &tate'ent: Apple li(es this (ision through the technologies it de(elops 1or consumers and corporations! It stri(es to ma;e its customers masters o1 the products the. ha(e =ought! Apple doesn7t simpl. ma;e a statement! It li(es it =. ensuring that its emplo.ees understand the (ision and stri(e to reach it! It has put s.stems in place to ena=le smooth customer interaction! It has put o=jecti(es in place to continuousl. mo(e 1or4ardK implemented strategies to 1ul1il these o=jecti(esK and ensured that the right mar;eting* 1inancial and operational structures are in place to appl. the strategies!

*ission &tate'ent of Apple: HApple ignited the personal computer re(olution in the "@<%s 4ith the Apple II and rein(ented the personal computer in the "@8%s 4ith the &acintosh! Apple is committed to =ringing the =est personal computing e2perience to students* educators* creati(e pro1essionals and consumers around the 4orld through its inno(ati(e hard4are* so1t4are and Internet o11erings!G +e,ie- of .iterature Ste(e Bo=s and Ste(e 9oAnia; 1ounded Apple on April "* "@<3! The t4o Ste(es* Bo=s and 9oA Das he is commonl. re1erred to L see 4oA!orgE* ha(e personalities that persist throughout Apple7s products! Bo=s 4as the consummate salesperson and (isionar. 4hile 9oA 4as the in>uisiti(e technical genius! 9oA de(eloped his o4n homemade computer and Bo=s sa4 its commercial potential! A1ter selling /% Apple I computer ;its to 5aul Terrell7s '.te Shop in &ountain 0ie4* CA* Bo=s and 9oA sought 1inancing to sell their impro(ed (ersion* the Apple II! The. 1ound their 1inancier in &i;e &ar;;ula* 4ho in turn hired &ichael Scott to =e CEO! The compan. introduced the Apple II on April "<* "@<<* at the same time Commodore released their 5ET computer! Once the Apple II came 4ith 0isicalc* the progenitor o1 the modern spreadsheet program* sales increased dramaticall.! In "@<@* Apple initiated three projects in order to sta. ahead o1 the competition: "E the Apple III L their =usiness oriented machine* #E the Lisa L the planned successor to the Apple III* and +E &acintosh! In "@8%* the compan. released the Apple III to the pu=lic and 4as a commercial 1lop! It 4as too e2pensi(e and had se(eral design 1la4s that made 1or less$than$ stellar >ualit.! One design 1la4 4as a lac; o1 cooling 1ans* 4hich allo4ed chips to o(erheat! In late "@8%* Apple 4ent pu=lic* ma;ing the t4o Ste(es and
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&ar;;ula 4ealth. L to the tune o1 nine 1igures! '. "@8"* the Apple III 4as not selling 4ell and Scott in1amousl. 1ired ,% people on 6e= #/ DH'lac; 9ednesda.GE! Scott7s direct management st.le con1licted 4ith the culture Bo=s and &ar;;ula pre1erred* and Scott resigned in Bul.! &ar;;ula stepped into his position as CEO! In August "@8"* I'& released their 5C! Unimpressed and una1raid* Apple 4elcomed I'& to the 5C mar;et 4ith a slightl. smug 1ull$page ad in the 9all Street Bournal! It 4ould not =e long =e1ore I'&7s 5C dominated the mar;et! The Mero2 Alto 4as the inspiration 1or Apple7s Lisa! Apple emplo.ees 4ere a=le to e2amine the Alto in e2change 1or allo4ing Mero2 to in(est in Apple =e1ore Apple7s initial pu=lic o11ering DI5OE! Apple released the Lisa in Banuar. "@8+ and 4as nota=le 1or =eing the 1irst computer sold to the pu=lic that utiliAed a Graphic User Inter1ace DGUIE! Un1ortunatel.* the Lisa 4as not compati=le 4ith e2isting computers* and there1ore came =undled H4ith e(er.thing and a list price to match!G At J@*@@/ Do(er J#"*%%% in 2012 dollarsE* the Lisa missed its target mar;et =. a 4ide margin! Apple introduced the &acintosh 4ith great 1an1are during the "@8, Super 'o4l! The Or4ellian$themed commercial Ddirected =. Ridle. Scott* o1 NAlien7 1ameE portra.ed I'& as 'ig 'rother and em=odied &acintosh and Apple as 1reedom$ see;ing indi(iduals =rea;ing a4a. 1rom this oppressi(e regime!The commercial 4as largel. success1ul and sales 1or the &ac started strong! -o4e(er* &ac sales later 1aded! Bohn Sculle. le1t 5epsiCo to join Apple in April "@8+! -e 4as 1amous 1or engineering the H5epsi ChallengeG* in 4hich =linded testers tasted =oth Co;e and 5epsi to un(eil the Ntruth7 o1 the taste o1 5epsi! In response to lagging &ac sales* Sculle. contri(ed the NTest )ri(e a &acintosh7 campaign! In this promotion* prospecti(e users could ta;e home a &acintosh 4ith onl. a re1unda=le
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deposit on their credit card! 9hile lauded =. the pu=lic and the ad(ertising industr.* this campaign 4as a =urden on dealers and signi1icantl. impeded the a(aila=ilit. o1 &acs to serious =u.ers! In "@8/* Apple tried to ha(e lightening stri;e t4ice 4ith their NLemmings7 commercial during the Super 'o4l! In 4hat 4as =ecoming Apple7s t.pical patroniAing 1ashion* this commercial insulted current 5C users =. portra.ing them as 4itless lemmings* unthin;ingl. doing harm to themsel(es! Although Bo=s attempted to o(erthro4 Sculle.* the =oard =ac;ed Sculle.! Bo=s le1t Apple to 1orm IeMT computer! A1ter Bo=s le1t in "@8/* sales o1 the &ac He2ploded 4hen Apple7s Laser9riter met Aldus 5age&a;er!G Apple dominated the des;top pu=lishing mar;et 1or .ears to come! Under Sculle.* Apple gre4 1rom J3%% million in annual sales to J8 =illion in annual sales =. "@@+! Apple introduced &ac 5orta=les in "@8@ and the 1irst 5o4er'oo;s in "@@"! '. "@@#* 5C competition ate into Apple7s margins and earnings 4ere 1alling! Sculle. 4as under pressure to ha(e Apple produce another =rea;out product! -e 1ocused his energ. on the Ie4ton L Apple7s introduction o1 the 5ersonal )igital Assistant D5)AE! )espite Sculle. generating su=stantial demand 1or Ie4ton* it did not li(e up to the h.pe due to it =eing se(erel. underde(eloped! Sculle. resigned in "@@+ and &ichael Spindler replaced him! Spindler spent most o1 his time and energies on regaining pro1ita=ilit.* 4ith the end goal o1 1inding a =u.er 1or Apple! O(er the ne2t se(eral .ears* Spindler shopped Apple to Sun &icros.stems* Eastman supplier pro=lems and 1ault. demand predictions! oda;* ATOT* and I'&! To add insult to injur.* &ean4hile* Apple 4as una=le to meet the gro4ing demand 1or its products due to &icroso1t released 9indo4s @/ 4ith great 1an1are in "@@/! A1ter signi1icant >uarterl. losses in "@@3* the =oard replaced Spindler 4ith )r! Gil Amelio* CEO o1 Iational Semiconductor! )r! Amelio tried to =ring Apple =ac; to =asics*

simpli1.ing the product lines and restructuring the compan.! One o1 Apple7s most pressing issues at the time 4as releasing their ne2t generation operating s.stem Dcode named HCoplandGE to compete 4ith 9indo4s @/! Amelio and his technolog. o11icers 1ound that Copland 4as so =ehind schedule that the. loo;ed outside the compan. to purchase a ne4 OS! Ultimatel.* and some4hat ironicall.* the. decided to purchase IeMT computer 1rom Bo=s! Iaturall.* Apple 4elcomed Bo=s =ac; into the 1old! The =oard =ecame increasingl. impatient 4ith Amelio due to sales not re=ounding >uic;l. enough! Apple =ought out Amelio7s contract a1ter just " P .ears on the jo=! Bo=s e(entuall. claimed the CEO position! Then* he cleaned house =. re(amping the =oard o1 directors and e(en replacing &i;e &ar;;ula!Bo=s simultaneousl. put an end to the 1ledgling clone licensing agreements D4hich created a 1e4 &ac clonesE and entered into cross$licensing agreements 4ith &icroso1t! On &a. 3* "@@8* Apple introduced the ne4 i&ac* a product so secret that most Apple emplo.ees had ne(er heard o1 it! The ne4 i&ac 4as a runa4a. success 4ith its translucent case* all$in$one architecture* and ease o1 use! It =rought Apple to a ne4 mar;et o1 users L those 4ho had ne(er o4ned a computer =e1ore! Bo=s 1urther simpli1ied the product lines into 1our >uadrants along t4o a2es: )es;top and 5orta=le on one* 5ro1essional and Consumer on the other! Apple completed the matri2 4ith the introduction o1 the consumer$=ased i'oo; in "@@@! The .ear #%%" 4as an important .ear 1or consumers o1 Apple products! Apple opened their 1irst #/ retail stores Dtotaling "3+ stores in , countries as o1 &a. 2001E! In Septem=er #%%"* Apple introduced the ne4 i&ac 1eaturing a screen on a s4i(el!The ne4 i5ods Dporta=le music pla.ersE 4ere a tremendous success! Apple sold so man. that Apple7s dependence on &ac sales 4as signi1icantl. less! This 4as no small 1eat considering that the #%%" i&ac =ecame Apple7s =est$

selling product H=. a long shotG! Apple o11ered iTunes Da 1ree applicationE to help their consumers organiAe music on i5ods and &acs! In #%%+* Apple e2panded iTunes =. "E opening the iTunes music store to allo4 &ac users to purchase music online and #E e2panding iTunes to 9indo4s users! Sales o1 i5ods s;.roc;eted and currentl. pro(ide the =ul; o1 product sales to Apple! In 2012* Apple announced that it 4ould start using Intel$=ased chips to run &acintosh computers! In April 2005* Apple announced 'oot Camp* 4hich allo4s users o1 Intel$=ased &acs to =oot either &ac or 9indo4s OS! This 1unctionalit. allo4s users 4ho ma. need =oth OSs to o4n just one machine to run =oth* al=eit not simultaneousl.!

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T/e PC Industry 9e can glean Insight into the histor. and composition o1 the 5C Industr. 1rom its epon.mous title! In the late "@<%s* as 9oAnia; and Bo=s 4ere starting Apple computer* personal computers 4ere an emerging product! The 1ollo4ing chart DReimerE gi(es an o(erall (ie4 o1 the major mar;et pla.ers since the mid$"@<%s!
PC Share of Market
100% 90% 80% Share of Market 70% 60% 50% 40% 30% 20% 10% 0%
ar 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 Ye

IBM SOM Apple II SOM Mac SOM Amiga SOM C64 SOM TRS 80 SOM

'. "@8+* the mar;et share o1 the Apple II 1ell to 8Q 4hile the 5C had #3Q! &ar;et share o1 &acintosh pea;ed at slightl. more than "%Q in the earl. "@@%s and has since tapered to =et4een #$+Q! The I'& 5C and its clones =ecame the standard due to the success o1 the open nature o1 the 5C! This allo4s product de(elopers to o11er (astl. more products 1or the plat1orm!

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Some argue that not licensing the &ac OS 4as a mista;e!

'ill Gates and

&icroso1t 4ere encouraging Apple to license their OS in the earl. "@8%s* =ecause the. 4ere de(eloping so1t4are 1or Apple and had much riding on the success o1 the compan.! 9hen Apple did not license* &icroso1t =egan de(eloping their operating s.stem* 9indo4s! T/e 0nline *usic Industry 9hile Apple clearl. dominates the online music industr.* the =attle 1or domination is not o(er! Although digital music sales are gro4ing rapidl.* the Recording Industr. Association o1 America DRIAAE states that digital sales account 1or onl. ,Q o1 all music sales! D'orlandE Anal.sts at 6orrester D'artiromoE and Gartner D'runoE (alidate this! Apple7s sales are =et4een 33Q and </Q o1 do4nloads and 8%Q o1 music pla.ers! D'runoE Apple is part to a suit alleging monopolistic practices concerning their mar;et share dominance o1 pla.ers and do4nloads! The other pla.ers in the do4nload mar;et are Dthe re(isedE Iapster* Yahoo &usic* Rhapsod.* and illegitimate 1ile$sharing ser(ices! 5orta=le music pla.ers competing 4ith the i5od include those made =. Creati(e* Samsung* iRi(er* and Son.! A major point o1 contention =et4een these ser(ices and pla.er manu1acturers is the control o1 a (ariet. o1 incompati=le )igital Rights &anagement D)R&E schemes! T/e 1uture of Apple Personal Computers A Shift in Strategy Apple has historicall. ta;en a 1ar di11erent path than the traditional 9indo4s and Intel com=ination! &icroso1t pro(ides the 9indo4s operating s.stem to separate

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do4nstream hard4are producers such as )ell! Apple (erticall. integrated =oth the operating s.stem so1t4are and hard4are completel. under Apple! A consumer running &icroso1t 9indo4s can choose 1rom a m.riad o1 s.stems =ased on the Intel processor* 4hile a consumer running Apple7s OS M must purchase Apple hard4are! Apple is adjusting this strateg. =. migrating their microprocessors 1rom I'& and &otorola 5o4er5C to Intel! Anal.sts =elie(e that the Intel$=ased &acintosh ma. =e a=le to run &icroso1t 9indo4s applications =. the end o1 2009! D'urro4sE In addition to s4itching processors* Apple positioned their computers as an immediate option 1or the traditional &icroso1t 9indo4s user! 9ith Apple 'oot Camp* users ma. no4 use &ac OS M or 9indo4s on an Apple computer! DSutherlandE!'. allo4ing users to run 9indo4s on an Intel &ac* Apple reduced the s4itching costs 1or traditional 5C users! Apple ma. steal a4a. customers that are 4illing to pa. a premium 1or a s.stem that runs =oth 9indo4s and &ac OS M! Apple continues to retain a strategic option to license its technolog. to clone ma;ers such as )ell! 5ast attempts at licensing Apple technolog. Dto I'&* Gate4a.* and othersE 1ailed on accord o1 Apple7s rigid demands! &an. technolog. leaders Dsuch as a "@8/ letter =. 'ill Gates to Apple CEO Bohn Sculle.E criticiAed Apple 1or ;eeping a closed architecture! Apple co1ounder Ste(e 9oAnia; criticiAes this strateg.* H9e had the most =eauti1ul operating s.stem* =ut to get it .ou had to =u. our hard4are at t4ice the price! That 4as a mista;e!G9hether Apple 4ould =e 4illing to pursue this re(ersal o1 (ertical integration is unclear! Although such a mo(e 4ould canni=aliAe a portion o1 Apple7s o4n hard4are sales* it 4ould also pro(ide ro.alt.$=ased re(enue that could approach J" =illion annuall.!

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&trategic Alliances and (ntertain'ent Bo=s had the earl. strategic (ision to complement computing 4ith mo(ie entertainment! A1ter 1ounding IeMT* he personall. ac>uired a majorit. interest in the .oung mo(ie compan. 5i2ar in 6e=ruar. "@83! Bo=s 4ent on to in(est R o1 his personal 4ealth into 5i2ar! In "@@/* 5i2ar solidi1ied its position 4ithin animated mo(ies 4ith the de=ut o1 To. Stor.! Grossing J+/8 million 4orld4ide* it =ecame the +rd$largest grossing animated mo(ie in histor.! A1ter this success* Bo=s too; 5i2ar pu=lic and negotiated 1ar =etter terms 4ith )isne.! Later successes included Toy Story 2* &onsters Inc!* and 6inding Iemo . The alliance =et4een 5i2ar and )isne. has tremendous potential 1or economies o1 scope! As CEO o1 Apple and )isne.7s largest shareholder* Bo=s is the strategic lin; =et4een )isne.* Apple* and 5i2ar! Opportunities include com=ining the animated mo(ie e2pertise o1 )isne. and 5i2ar* as 4ell as sharing the content o1 )isne.7s A'C or ES5I net4or;s o(er Apple7s digital o11erings! D'urro4s* Gro(er* and GreenE A current e2ample o1 the 1usion =et4een )isne.* Bo=s* Apple* and technolog. is (ideo on the i5od! )isne.7s )esperate -ouse4i(es 4as one o1 the 1irst tele(ision programs a(aila=le 1or purchase and do4nload to the ne4er (ideo$ena=led i5od! There are concerns a=out 4hether these s.nergies 4ill come to 1ruition! There are 1ears that the personalit. and st.le o1 Bo=s ma. con1lict 4ith )isne.* and that )isne. CEO Iger could =e HAmelioedG $$ dri(en out o1 o11ice =. Bo=s in a manner

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similar to ho4 Bo=s dro(e Amelio out o1 the CEO post at Apple! D'urro4s* Gro(er* and GreenE!

()ternal Aanalysis Tec/nological (n,iron'ent 'rand A4areness L St.le at a 5remium Apple7s products are trend. and st.lish! A1ter Bo=s returned in "@@<* Apple retained designer Bonathan I(e to di11erentiate their computers 1rom the t.pical =eige =o2! I(e7s design o1 the i&ac included clear color1ul cases that distinguished Apple computers! Apple7s i5od D4ith the trademar; 4hite ear =uds and simple trac; 4heelE commands a "/Q$#%Q premium o(er other &5+ pla.ers! Apple and 5i2ar limit the num=er o1 computer products and mo(ies that the. sell! 5roduct di11erentiation 4ith 1ocused >ualit. and st.le also e2tend to the Bo=s 5i2ar L H5i2arCs e2ecuti(es 1ocus on ma;ing sure there are no N' teams*7 that e(er. mo(ie gets the =est e11orts o1 5i2arCs =rain. sta11 o1 animators* stor.tellers* and technologists!G D'urro4s* Gro(er* and GreenE Apple positions its &acintosh computers as higher >ualit. and higher price! -5* )ell* and other 5C manu1acturers are pricing man. s.stems under the J"*%%% threshold! HApple is struggling to meet demand 1or its ne4 &ac'oo; 5ro laptop despite a J"*@%% price tag that is nearl. t4ice that o1 garden$(ariet. ri(als!G Apple has onl. recentl. entered the lo4$end D=elo4 J/%%E consumer mar;et 4ith the &ac &ini! Although the &ac &ini is a =ase model 4ith 1e4 1eatures* it comes
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encased in a (er. small and distincti(e pac;age! Apple portra.s this computer as HSmall is 'eauti1ulG! DAppleE Li;e4ise* the i5od Shu11le 4as Apple7s 1irst entr. into the lo4er$end DJ"%% rangeE o1 1lash$memor.$=ased porta=le music pla.ers!

Interoperability Although Apple competes directl. 4ith &icroso1t 1or operating s.stems* the release o1 iTunes 1or 9indo4s in #%%# 4as a ;e. strategic mo(e! This decision e2panded the potential customer =ase to nearl. all personal computer o4ners* e(en though Apple onl. has #Q$+Q o1 all personal computer sales! Con(ersel.* Apple depends on &icroso1t 1or a (ersion o1 &icroso1t O11ice! As the most 4idel. used o11ice suite o1 applications* &acintosh users rel. on O11ice to correspond 4ith companies that standardiAed on 9indo4s! This is 1rom a strategic alliance =et4een Apple and &icroso1t a1ter Bo=s returned in "@@<! Apple7s iTunes ser(ice has a technological hoo; Dasset speci1icit.E to Apple7s i5od! Although (ersions o1 iTunes e2ist 1or =oth Apple and &icroso1t operating s.stems* the iTune7s AAC 1ile 1ormat pre(ents other porta=le music pla.ers Dsuch as iRi(er or SamsungE 1rom pla.ing purchased songs!

Tec/nology and t/e Digital .ifestyle Apple not onl. dominates the music pla.er mar;et* its iLi1e suite pro(ides consumers 4ith eas.$to$use so1t4are 1or music and (ideo composition! 9ith HpodcastG a household 4ord* Apple7s Garage 'and application ma;es the recording o1 podcasts and music (er. eas.!

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+egulatory (n,iron'ent 9hile introducing ne4 technologies* there is a persistent threat o1 legal action =. competitors! 6or e2ample* Apple sued &icroso1t in "@88 Dsettled in "@@< 1or an undisclosed amountE 1or percei(ed similarities =et4een &icroso1t 9indo4s and &acintosh audio(isual 4or;s!&icroso1t has generall. =een the 1ocus 1or go(ernment antitrust charges Dsuch as U!S! (! &icroso1tE DUS )OB* 2009E! 'oth 1ederal and state go(ernments assert that &icroso1t7s dominance =loc;ed 1air competition 4ithin the so1t4are industr.! This is an ad(antage 1or Apple* =ecause its operating s.stems are a (ia=le su=stitute 1or 9indo4s! 6urthermore* &icroso1t7s continued support 1or O11ice 1or &acintosh reduces the percei(ed le(el o1 mar;et monopol. and a=use! &anu1acturers 4ill continue to trespass on Apple7s intellectual propert.! In #%%#* Apple too; legal action against te2@* 4ho then altered the programme and renamed it sumi! Legal threats can sur1ace 1rom some4hat unusual sources! Apple Corps Ltd! is the London$=ased compan. that o4ns the rights to the music o1 the 'eatles! 5aul &cCartne. and Ringo Starr recentl. sued Apple o(er the use o1 the Apple logo in iTunes* claiming that it (iolated Apple7s agreement not to produce music under an apple$=ased logo! Research and de(elopment is a ;e. component to Apple7s sustained competiti(e ad(antage! Apple is currentl. ta;ing legal action against se(eral popular technical 4e= sites 1or releasing proprietar. product research! Sites such as appleinsider!com ha(e allegedl. posted (er=atim content 1rom documents

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protected =. emplo.ee non$disclosure agreements! D&cCullaghE ri(al products!

Release o1

critical insider in1ormation could gi(e Apple7s competitors a jump in producing

Industry Analysis 2sing Porter3s 1i,e 1orces *odel Apple operates in t4o primar. industries: Computing $ -ard4are and So1t4are )eli(er. o1 Entertainment and &edia Apple has al4a.s =een under intense competition 4ithin the computer* so1t4are* and entertainment industries! HLoo;ing to 2012!!!E(er. time that Apple had jumped into the lead in a product categor. during the past t4o decades* it had had di11icult. in sustaining its leadership position!G 9e use 5orter7s 6i(e 6orces &odel to understand 4h. Apple7s industries are so competiti(e! 6igure: 5orter7s 6i(e 6orces &odel

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Threat of New Entrants Bargainin g power of Suppliers Level of Threat in an Industry Bargainin g power of Buyers

Threat of Substitutes

6igure: Summar. o1 Industr. Threats DComputer E>uipment and Entertainment )istri=utionE Type and 0rgani4ation &e,erity of T/reat (ntry Hig/ T/reat 5 0eriAon Streaming audio and (ideo 4ith 0 CAST!

AmaAon Google

On demand online ser(ices to purchase music Dsimilar to iTunesE! The. ma;e e(er.thing!

The HIe2t Ie4 entrants 4ith disrupti(e technolog.! GoogleG +i,alry 5 &icroso1t 9indo4s Operating S.stem* 9indo4s &edia

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Hig/ T/reat Linu2 Iapster* Rhapsod. )ell* Leno(o iRi(er* Samsung* Creati(e )ream9or;s YouTu=e!com &ubstitutes M&* Sirius 5 *oderate T/reat M'o2* 5S# 0arious

5la.er 1or pla.ing music and (ideo! Competition to &ac OS M Operating S.stem! Online music sources L alternati(es to iTunes &usic Store! -5* Alternate sources 1or computer hard4are! Small* st.lish &5+ 5la.ers!

Animated mo(ies! Online (ideo! Satellite Radio 1or music!

Entertainment &edia* &edia and &usic! Internet Streaming Radio and 5odcasts!

&usic C)s* Alternati(e means to ac>uire music! )0)$Audio and SuperAudio C) 'roadcast* Alternati(e sources 1or (ideo! Ca=le* Satellite* Iet6li2* Ti0o* Theatres &uppliers &otorola* Suppliers o1 5rocessors and computer memor.!
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5 Hig/ I'&* Intel* T/reat Samsung &icroso1t The 'ig 6i(e $ '&G* E&I* Son.* Uni(ersal* and 9arner Strategic Alliance S Supplier o1 O11ice 1or &ac! Sources o1 music! 9ill the. raise prices and =rea; the dollar per song model: Some in the record industr. resent Apple7s distri=ution model! HApple reaps =illions 1rom selling its hit music pla.er* =ut there are sparse pro1its 1rom the songs =eing sold o(er the Iet!G D'urro4s* Gro(er* and GreenE

)isne.* A'C* Suppliers o1 Tele(ision and &o(ies! 9ill the. sign I'C* C'S* e2clusi(e contracts 4ith other online ser(ices: 6o2* 5i2ar* Iote that this threat is reduced 1or )isne. S 5i2ar! Son. 6uyers 5 Consumers and Consumers share music using *oderate Illegal peer$to$ net4or;s 4ithout pa.ing 1or music! T/reat peer 1ile sharing )istri=utors peer$to$peer

Apple retailers ma. pressure 1or lo4er prices or =etter terms! 6or e2ample* the release o1 the Apple Store in #%%" Hin1uriated longtime independent Apple retailers that didn7t appreciate Cupertino canni=aliAing their sales!G DLinAma.er* +%%E

Consumer Consumers or =usinesses ma. reduce spending on Attitudes and personal computers or non$essential Dpotentiall. 'eha(iors high elasticit. o1 demandE music pla.ers i1 the. 1ear economic do4nturns! Consumer Consumers and =usinesses ma. continue to use Re1resh C.cles pre(ious$model i5ods and &acs rather than upgrade to current i5ods* i&acs* or OS

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The total industr. threat 1or the industr. space that Apple occupies is a high threat industr.!Apple must continue to pursue product di11erentiation Di!e! the st.le and ease$o1$use o1 an i5odE and economies o1 scope Di!e! o11ering A'C tele(ision sho4s on iTunesE to maintain their sustained competiti(e ad(antage in this industr.!

7/ic/ ()ternal T/reats are *ost &ignificant Computer -ard4are and So1t4are: Open Source so1t4are such as the

Linu2 Operating S.stem and Open O11ice applications threaten =oth Apple and &icroso1t! The lo4 Do1ten* 1reeE cost o1 the so1t4are ma. allo4 it to o(erta;e Apple and &icroso1t* especiall. in de(eloping mar;ets such as China! &usic 5roducts: &ajor online retailers such as AmaAon are considering entr. into the online music mar;et! 9ith a 4ide internet presence and a household name* AmaAon could present a 1ormida=le challenge to Apple! I1 the major record la=els DUni(ersal* Son. '&G* E&I* and 9arnerE negotiate =etter terms 4ith ne4 competitors to iTunes* Apple ma. =e una=le to pro(ide some o1 the music content that the. currentl. o11er! The major music la=els disli;e Apple7s dollar per song pricing! The. 4ould pre1er to earn higher pro1its 4ith H(aria=le pricingG!

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Suppliers: The recent shi1t to Intel processors could present a signi1icant threat to Apple! 9ith onl. t4o companies DIntel and A&)E producing Intel$compati=le processors* there is a strong potential 1or tacit collusion and oligopol. po4er =et4een these suppliers! Apple purchasing must no4 directl. compete 4ith -5* Leno(o* and )ell! I1 shortages or e2clusi(e agreements materialiAe* Apple could 1ace pro=lems 4ith o=taining ra4 materials! Apple should consider additional sources such as Ad(anced &icro )e(ices DA&)E!

6igure: C5U &ar;et Share

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Additional ()ternal T/reats Securit. Apple so1t4are* li;e all large so1t4are products* has securit. (ulnera=ilities that hac;ers ma. e2ploit! A signi1icant e2ploitation in the 1uture could damage man. =usinesses and households using Apple computers! This 4ould a11ect 1uture customer purchasing decisions! Apple enjo.s a competiti(e ad(antage* =ecause their OS M is mature and sta=le due to its =asis on 'S) Uni2! In 1act* Hcomputer securit. 1ol;s =ac; at 6'I -? use &acs running OS MG! -o4e(er* the increased use o1 Apple computers is prompting hac;ers to target the plat1orm! In 6e=ruar. 2009* there 4as documentation o1 the 1irst ;no4n Apple OS M 4orm! '. using iChat instant messaging* it spreads to other users and deletes 1iles 1rom their &ac computers! I1 &ac OS M =ecomes as 4ide o1 a target as 9indo4s* Apple7s percei(ed di11erentiation as the more secure plat1orm ma. disappear!

%ertical Integration of Co'petitors

Son. is an e2ample o1 a competitor 4ith a uni>ue position against Apple! Son. &usic supplies Apple 4ith man. o1 the songs 1or iTunes! Son. also creates a (ersion o1 the 9al;man porta=le music pla.er that is a direct competitor to the i5od! Son. is attempting to (erticall. integrate 1or4ard directl. to the music =u.er! Son. integrated their music s.stem D&oraE into the Son. 9al;man! Son. is e2clusi(el. distri=uting certain songs on &ora! D-allE &ora currentl. targets Bapanese consumers! I1 Son. can gain additional momentum Dsuch as

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colla=orating 4ith other record la=elsE* their ser(ice could present a 1ormida=le challenge to iTunes in additional mar;ets!

%alue C/ain Analysis To determine 4here Apple de(eloped distincti(e capa=ilities* 5orter7s generic (alue chain model pro(ides a s.stematic 1rame4or; 1or identi1.ing Apple7s utiliAation o1 resources! 5rimar. acti(ities 1or Apple include Technolog. and 5roduct )esign* 5roduction* Sales and &ar;eting* Customer Ser(ice* and Legal Ser(ices! Tec/nology and Product Design

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This component represents the true core Dno pun intendedE o1 Apple7s capa=ilit.! 6rom =eing the 1irst plat1orm to run an electronic spreadsheet D0isiCalc on the Apple II 5lusE to the 1irst to esta=lish a Hdigital li1est.leG hu= Dthe &acintosh product linesE* Apple7s histor. is rich 4ith cutting$edge technolog. de(elopment! Apple dri(es to =e the =est* no simpl. the 1irst! The Apple operating s.stem is uni(ersall. regarded as more sta=le and relia=le than 9indo4s* 4hile the des;top pu=lishing so1t4are =undles Di&o(ie* i5hoto* iTunes* etc!E are the most comprehensi(e a(aila=le to end users! I(es =est summariAes the entrepreneurial culture 4ithin Apple =. sa.ing that Hit7s (er. eas. to =e di11erent* =ut (er. di11icult to =e =etter!G Production 'ecause Apple had long re1used to license its operating s.stem to e2ternal entities* the =undled pac;ages o1 Apple$de(eloped hard4are and so1t4are =ecame the cornerstone o1 Apple7s production process! Apple achie(ed unparalleled per1ormance (ia 3,$=it architecture* integrated distincti(e st.ling 4ith the multi$ colored translucent i&ac cases* and rede1ined intuiti(e operation 4ith the i5od! 9hile e(er. product introduction has not =een a success DLisa* Ie4ton* etc!E* Apple treats component production as a natural e2tension o1 the design process! &ales and *ar8eting 9e could simpl. title this section HSte(e Bo=sG! Since his return as CEO in "@@<* Bo=s personall. un(eils all ne4 product introductions* re(ie4s corresponding mar;eting campaigns* and appro(es ne4 product de(elopment guidelines! In a departure 1rom their tur=ulent histor.* Bo=s Hentered into patent cross$licensing and technolog. agreements 4ith &icroso1t!G DLinAma.er 5g! no! #@%E A1ter .ears o1 unimpressi(e mar;et share gro4th and canni=aliAation o1 a lo.al consumer =ase* the door to the e2pansi(e 5C mar;et 4as no4 more accessi=le to Apple than
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e(er =e1ore! Apple continued to command a mar;et premium 1or producing a H=etter mousetrapG throughout its histor.! Custo'er &er,ice -o4 has Apple retained su=stantial cash reser(es during the e2plosi(e gro4th and dominance o1 5Cs 4orld4ide: Apple created a (irtual lo(e a11air 4ith their customer =ase =. deli(ering technicall. superior products Di5ods (s! other &5+ pla.ers* &acs (s! 5Cs* etc!E* and aggressi(el. pursuing hard4are and so1t4are updates! Apple integrated their primar. acti(ities so 4ell that it is transparent to the consumer 4here one acti(it. =egins and the other ends! A per1ect e2ample o1 this is Apple7s 4illingness to de(elop so1t4are to run 9indo4s M5 on its ne4 Intel$=ased i&ac and then post it online 1ree to i&ac users! D9ing1ieldE In such an en(ironment* customer ser(ice merel. =ecomes the realiAation o1 recei(ing a little more than e2pected! Although Apple emplo.s man. resources and capa=ilities to support their primar. acti(ities Dhuman resources* suppl. procurement* etc!E* the most strategicall. rele(ant 4ould =e Legal Ser(ices!

.egal &er,ices In a mar;et climate o1 constant change and inno(ation* it is ine(ita=le that the dri(e to e2pand product and ser(ice o11erings 4ill su=ject Apple to patent and cop.right in1ringement claims! The dispute o(er the Apple logo on its iTunes &usic Store* 1or e2ample* continues despite a pre(iousl. reached settlement 4ith 'eatles7 Apple Corps Ltd! in "@@"! D)o4 Bones Ie4s4iresE 9hile such litigation as &icroso1t7s 9indo4s in1ringement on &ac OS patents has =een highl.

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pu=liciAed* use o1 legal guidance to dri(e ac>uisition (ersus internal de(elopment strategies 1or such products as Garage'and and i&usic ha(e pro(en highl. (alua=le! &70T Analysis of Apple Inc: Although participation in such acti(ities ma. add (alue* the. ma. not =e a source o1 competiti(e ad(antage! Ultimatel.* the (alue* rarit.* inimita=ilit.* andSor organiAation D0RIOE o1 an acti(it. or resource determine its sustaina=ilit. as a source o1 competiti(e ad(antage! 9ithin this conte2t* 4e can identi1. a 1irm7s strengths* 4ea;nesses* opportunities* and threats DS9OTE! In S9OT anal.sis Strength and 9ea;nesses are depends on Internal 1actors and Opportunities and Threats )epends on E2ternal 6actors o1 and OrganiAation! S9OT anal.sis is use1ul in decision ma;ing a=out the organiAation going 1or an. ne4 or e2isting project!

Apple &70T Analysis &trengt/: iTunes &usic Store is a e2cellent source o1 re(enue* especiall. 4ith the i5od and the accessi=ilit. on 9indo4s plat1orm! Apple Computer are e2pert in )e(eloping o4n so1t4are and hard4are! Apple7s niche audience pro(ides the compan. 4ith some lagging 1rom the direct price competition!

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Gi(ing a 1ace$li1t to des;top and note=oo; lines! technolog. can =e used to impro(e product a4areness and sales! Lo4 de=tTmore maneu(era=le! Apple Computers ha(e good =rand lo.alt.! Strong Research O )e(elopment )epartment! 7ea8nesses: 9ea; relationship 4ith Intel and &icroso1t! 9ea; presence in =usiness arena! The product li1e c.cle o1 Apple products are (er. small 1or that reasons re(enues are more depend on launch o1 ne4 products and ser(ices! 9ea; presence in mar;ets other than education and pu=lishing! Slo4 turn around on high demand products! Apples mar;et share is 1ar =ehind 1rom major competitor &icroso1t! In past the relationship =et4een Ste(e jo=s and emplo.ee 4ere not good 4hich result in reputation loss!

0pportunities: Increase in 4orms and (iruses on 5Cs so the anti(irus solution can =e de(eloped =. Apple Large population DGen MOYE 4hich are e2tremel. indi(idualistic and name =rand conscious!

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The ties o1 apple other companies are 4ea;* Apple can de(elop good relationship 1or joint (entures )o4nloada=le music and &5+ pla.ers are highl. mar;eta=le! The online sales o1 computer are increasing 4ith rapid speed! The laptop mar;et gro4th is highK Apple Computers should 1ocus to de(elop ne4 models to cater the need o1 customers! T/reats: Companies not seeing Apple as compati=le 4ith their so1t4are! Apple 1acing strong competition 1rom )ell* -5* Son. and Toshi=a in laptop segment! )o4nloading 1ree music 1rom other online source 4ithout pa.ing cost is common it ma. impact the iTunes sales! Apple so1t4are* Cell phone and hard4are are e2pensi(e as compared to other competitors such as )ell! The long lasting recession ma. impact the sales o1 the compan. due to higher prices o1 the products and ser(ices &icroso1t launched &icroso1t 0ista* 9indo4s < 4hich is gaining mar;et share! The s4itching in technolog. is (er. 1ast

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6C9 *odel of Apple Inc.

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'oston Consulting Group D'CGE model is a techni>ue de(eloped =. 'RUCE -EI)ERSOI o1 the 'oston Consulting Group in earl. "@<%7s! According to this techni>ue =usinesses or products are classi1ied as lo4 or high per1ormers depending upon their mar;et gro4th rate and relati(e mar;et share! It is (er. use1ul tool to identi1. the product line o1 an organiAation! 6C9 'odel classified in four 'ain categories are 1.: &tar ;.: Cas/ Co.: <uestion *ar8 ".: Dog

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7/at is dri,ing *acintos/ acceptance= Supporters agree that it is the productCs eas. to use graphic inter1ace! FOnce a user sits do4n and 4or;s 4ith a &acintosh* the. ne(er go =ac; to an I'& 5ersonal Computer*F proclaimed 5rice Collins* a programming manager at General Electric Co! in 'ridgeport* Conn!The ease o1 use 1eatures translate into su=stantial sa(ings 1or man. corporations! F9e spend much less time training &acintosh users than 4e do training I'& microcomputer users*F noted 5earson at the Ie4 Yor; )ail. Ie4s! Studies comparing &acintosh and I'& microcomputer training costs 1ound that it ta;es t4ice as long 1or an I'& user to learn ho4 to operate his machine and three times longer 1or the user to understand ho4 to opeate a second application! A sur(e. commissioned =. Apple 1ound the a(erage cost o1 training an I'& user 4as J<3/ compared to J#@, 1or a &acintosh user!The &acintoshCs graphics capa=ilities also o11er man. middle managers their o4n strategic 4eapons in the =attle 1or upper managementCs attention! FAn emplo.ee 4ill use a &acintosh to generate slides and charts 1or an important presentation*F GECs Collins e2plained! FThe output is 1ar superior to an.thing generated on an I'& microcomputer* so other managers immediatel. 4ant to produce the same >ualit. output! ?uic;l.* use o1 &acintoshes spreads through the compan.!F

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+e'o,ing 6arriers for 2sers Anal.sts reported that another reason 1or acceptance 4as aggressi(e Apple actions! FApple remo(ed =arriers that corporations erected to ;eep &acintoshes out o1 usersC hands*F said Richard reseller! FOne o1 the initial concerns 4as the ina=ilit. to run &S$)OS so1t4are on a &acintosh! ?uic;l.* Apple deli(ered hard4are so users could run those applications!F To date* &acintoshes ha(e =een relegated to personal producti(it. tools in most companies! F&ost users purchase a &acintosh to more e11icientl. do their o4n 4or;*F noted &ichael &asterson* a microcomputer s.stems specialist at Arthur Young O Co! in San Bose* Cali1! Users are primaril. 4or;ing 4ith traditional microcomputer applications* such as spreadsheet and 4ord processing! -o4e(er* there are nuances in the t.pes o1 applications emplo.ed =. I'& 5C and &acintosh users! Application Preferences In a sur(e. o1 "*#"3 large companies Deach ha(ing more than /%% emplo.eesE* )ata>uest Corp!* a mar;et research 1irm in San Bose* Cali1!* reported that 4ord processing 4as the &acintoshCs most 4idel. used application$$named =. /,Q o1 respondents! Graphics applications 1ollo4ed 4ith ,3Q* and spreadsheets placed third 4ith +8Q!On the I'& 5ersonal Computer* the response 4as as 1ollo4s: 3/Q used spreadsheetsK /<Q* 4ord processingK and +/Q* data=ase management ollme.er* the director o1 mar;eting and technical ser(ices at The Support Group Inc!* a 9ellesle.* &ass!* microcomputer

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s.stems! 6e4 o1 the companies that dominate the I'& microcomputer so1t4are mar;et ha(e had much success pl.ing &acintosh 4ares! 6or e2ample* Lotus )e(elopment Corp! o1 Cam=ridge* &ass!* and Ashton$Tate o1 Torrance* CAli1!* ha(e had little success in the mar;et! The most nota=le e2ception* &icroso1t Corp!* Redmond* 9ash!* o11ers the three =estselling applications: E2cel* a spreadsheetK 9ord* a 4ord processing pac;ageK and 9or;s* an integrated spreadsheet* 4ord processing and data=ase application!

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AppleInsider reports on a research note 1rom '&O anal.st

eith 'achman that

could ha(e =een 4ritten 1or CraA. Apple RumorsTi1 the. hadnCt gone ghost$site on us! It turns out the success o1 the &ac in recent .ears isnCt =ecause o1 &ac OS M* or Intel C5Us* or the i5od -alo E11ectK rather* itCs =ecause &icroso1t suc;s! FThus 1ar* user satis1action ratings 1or 0ista ha(e =een 4ea;* and startup times 1or 0ista ha(e =een ;no4n to =e much slo4er than the &ac OS M*F 'achman sa.s! FThus* more than /%Q o1 recent customers =u.ing &acs in Apple retail stores are 1irst$time =u.ers!F 9hile itCs great that the si2$1igure anal.st projects #!, to #!/ million &acs sold 1or the >uarter just ended* his rationale is* 4ell* craA.! Setting aside the image o1 some grandma dropping J#*3%% 1or a &ac'oo; Air 4ith SS)* thereCs nothing FrecentF a=out hal1 o1 &ac =u.ers in Apple Stores =eing ne4 to the plat1orm! ItCs =een that 4a. since =e1ore 0ista 4as released! 6urther* as the chart =. the 1our$1igure anal.st clearl. sho4s* the surge in &ac sales started around the time Apple transitioned to Intel C5Us! Ironicall.* one could argue that &ac sales are rising =ecause o1 0ista* =ut not in the 4a. 'achman suggests! 5rior to the release o1 Leopard and the discontinuation o1 'oot Camp as a separate product* Apple reported huge do4nloads o1 the program that let &ac users launch 9indo4s 0ista (er.* (er. slo4l.!

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Apple 6eats Co'petitors at In,entory Turn 0,er )espite a 4ea;ening econom. and a need to meet customer demand* Apple has =een a=le to maintain a 1ast in(entor. turno(er rate! The &ac and i5hone ma;er is sitting at 1i(e da.s 4orth o1 in(entor. on an. gi(en da.* =eating )ellCs se(en da.s 4orth o1 in(entor.* according to data 1rom U'S! Other 5C ma;ers are ha(ing e(en more trou=le matching AppleCs in(entor. e11icienc.! Leno(o* 1or e2ample* is a(eraging "/ da.s o1 in(entor.* and -5 is sitting at +# da.s! Intel* ho4e(er* is sho4ing a much slo4er in(entor. turno(er rate at 8@ da.s* and )$Lin; is sitting on a staggering "+" da.s 4orth o1 in(entor.! AppleCs >uic; turno(er rate ma. ha(e =een due in part to preparing 1or its just announced i&ac* &ac mini and &ac 5ro updates! The compan. released ne4 des;top computer models on &arch +* and ;eeping in(entor. lo4 helped assure that there 4ould =e 1e4er o1 the pre(ious model machines sitting on store shel(es! 9hile maintaining a higher in(entor. le(el can help a compan. cope 4ith sudden increases in demand* it can also sho4 a compan.Cs ina=ilit. to ade>uatel. gauge mar;et interest in their products! 6or no4* it loo;s li;e Apple is managing in(entor. =etter than its competition! IPod: T/e *ar8eting of an Idea Pro>ect Apple7s i5od has ta;en the 4orld =. storm! Iearl. u=i>uitous* it has changed not onl. the 4a. people listen to music* =ut it has trans1ormed its parent compan. Apple into an entertainment giant! In order to understand ho4 this change came a=out* 4e7ll ta;e a loo; at Apple7s ongoing e11orts to ma;e i5od s.non.mous 4ith

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hip! 9e7ll also discuss e2actl. 4hat customers are =u.ing 4hen the. =u. an i5od* and 4e 4ill ta;e a deep loo; at se(eral aspects o1 Apple7s mar;eting o1 this e2citing ne4 product* 1rom the i5od itsel1* Apple7s strategic planning* possi=le research 1indings that supported their approach* segmentation strategies that ma. ha(e =een emplo.ed and 4h.* as 4ell as pricing strateg. across these segments! Li;e &agritte7s surrealist painting o1 a pipe 4ith the caption Ceci n7est pas une pipe DThis is not a pipeE* the i5od is not merel. an &5+ pla.er! It is a s.m=ol 4hich encompasses man. grand ideasK ideas that in(ol(e 4orld change* and ho4 cool 4e all can =e i1 4e are part o1 that change! Apple7s care1ul and deli=erate e2ploitation o1 this concept* comprising an entire mar;eting ecos.stem 4hich nurtures that idea 4ill =e the su=ject o1 this paper! On Banuar. @th* 2010* Ste(e Bo=s* reno4ned CEO o1 Apple* announced that the compan. 4hich he 1ounded 4ould no longer =e ;no4n as Apple Computer* Inc! Its ne4 name 4ould just =e Apple* Inc!" This seemingl. tri(ial change represents a 1undamental shi1t 4ith deep implications that 4ere the result o1 man. changes Apple had engineered o(er the past si2 or se(en .earsK transitioning itsel1 1rom a computer compan. slugging it out 1or a meager share o1 an increasingl. competiti(e hard4are and so1t4are mar;et* to a =usiness that promoted an entirel. ne4 concept: the digital li1est.le! 'e1ore 4e dig do4n into 4hat this radical shi1t entailed* =oth 1or the compan. and the 4orld* a compan. alread. 1irml. rooted in se(eral notions that allo4ed this transition to ma;e sense! Apple made a name 1or itsel1 =. =eing instrumental in ushering in the home 5C re(olution! 6or millions* Apple 4as single$handedl. responsi=le 1or this re(olution =. (irtue o1 the 1act that it created radical ne4 1eatures such as 4indo4s$t.pe graphical user inter1aces* pull$do4n menus and simpli1ied computer control (ia the mouse! The histor. o1 the 5C re(olution is a histor. o1 4ar =et4een Apple* a num=er o1 losers that no one remem=ers an. more* and archri(al &icroso1t 4ith its du=ious counterclaims o1 ha(ing pioneered
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the concept o1 9indo4s! 6rustrating to an.one 4ho o4ned a &ac =ac; in the "@8%7s is the ;no4ledge that Apple did indeed pioneer the 4indo4s metaphor as a distinct 1eature o1 its operating s.stem! This 4as at a time 4hen &icroso1t users 4ere still struggling 4ith te2t$=ased )OS commands* and .et the commercial success o1 &icroso1t has ser(ed to re4rite histor. to some degree! 'attles ensued o(er the .ears* =ut no matter 4hose side .ou 4ere on* =. the late @%7s it 4as clear that Apple 4as not gaining an. ground 4hatsoe(er as a computer and so1t4are manu1acturer! In 1act due to man. e2ternal e(ents* Apple7s position 4as in clear threat! The leading de(ice at the time 4as Sonic=lue Rio0olt &5+ C) 5la.er* 4hich retailed 1or less than J"%%! Creati(eCs Iomad Bu;e=o2 4as selling its recentl. introduced 3G' hard dri(e 1or a=out J#/%* and e!)igital Corp! 4as touting its 4alloping "%G' palm$siAe Treo "% 1or J #,@ Treo! Against these contenders* i5od7s J+@@ price tag 1or a mere / G' o1 storage doesn7t seem to ma;e sense"3! Also* at this time* i5od 4as onl. compati=le 4ith &acs* 4hich amused 'ill Gates* and continued to do so e(en as late as 2012 4hen USA toda. >uoted him as sa.ing: I thin; .ou can dra4 parallels here 4ith the computer T here* too* Apple 4as once e2tremel. strong 4ith its &acintosh and graphic user inter1ace* li;e 4ith the i5od toda.* and then lost its position!"< It is our contention that the initial release o1 iTunes "!%* 4hich as noted 4as practicall. laughed at* 4as a Trojan -orse that deli(ered >uite a =it o1 =usiness intelligence to Apple!

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Historical Perfor'ance Although sales remained stagnant during "@@8$#%%#* sales more than dou=led since Dsee graph =elo4E! This dramatic shi1t in per1ormance is primaril. due to the increase in sales 1rom the i5od product line!

&toc8 Price Perfor'ance

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Another interesting 4a. to consider the 1inancial per1ormance is to e(aluate ho4 Apple7s stoc; price per1ormed against the mar;et and against its main competitors! Apple7s per1ormance has =een inconsistent o(er the last #% .ears compared to the SO5 /%%! It also has not per1ormed at the same le(el as its main competitors* )ell and &icroso1t! -o4e(er* per1ormance impro(ed since then! Profitability *easures Apple su=stantiall. impro(ed in its ;e. measures o1 pro1ita=ilit. in the last 1e4 1iscal .ears! In terms o1 return on assets* return on e>uit. and pro1it margin* Apple strengthened 1inanciall. and no4 has similar ratios to that o1 its competitors and the o(erall computer hard4are industr. ! 200 9 +eturn on "!%" Assets Q 201 0 +!,+ Q 2012 *icroso ft ?1$ ""!/3 "@!</Q Q Dell ?1$ Indust ry ?1$ &@P A$$

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+eturn on "!3+ (Buity Q Profit *argin PC( +atio "!"" Q

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In re(ie4ing Apple7s "st and #nd >uarter 2012 earnings releases* gross margins dropped slightl.!Apple attri=utes this decline primaril. to price pressures* especiall. in the i5od product line! D"st ?uarter "%?E This 4ill continue to a11ect per1ormance o(er time! -o4e(er* Apple7s a=ilit. to maintain the momentum it =uilt in the mar;etplace 4ill control the speed 4ith 4hich erosion 4ill occur! .iBuidity and .e,erage *easures Apple historicall. held (er. little long$term de=t! The ta=le =elo4 compares Apple7s li>uidit. measures to their competitors* their industr.* and the general mar;et! )uring the period o1 strong 1inancial per1ormance* Apple accumulated cash! This strengthens Apple7s position should the. choose to access the capital mar;ets!

200 9 Current +atio <uic8 +atio #!/ #!,<

201 0 #!3 #!/@

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*icrosoft Dell ?1$ ?1$ #!88 #!8/ "!"" "!%8

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Product 2nit &ales In the last se(eral .ears* there ha(e =een dramatic changes to Apple7s product sales =. categor.! Apple =rea;s its unit sales into 1our primar. categories: des;tops* note=oo;s* i5ods* and peripherals! The graph =elo4 sho4s the product mi2 1or Apple in #%%#! Iote the domination =. des;tops and note=oo;s and the small contri=ution =. i5ods!

Comparing the same graph* .ou see dramatic di11erences in the product mi2 1or Apple! The i5od sales no4 account 1or +#!/Q compared to #!/Q 1or #%%#! The

,+

com=ined sales o1 computers Ddes;topSnote=oo;E lost share* dropping 1rom <@Q to ,/Q o1 sales! This drop merel. represents a shi1t in Apple7s product mi2* not their glo=al computer mar;et share D4hich remains sta=le in the #$+Q rangeE! &ean4hile* sales o1 peripherals Dincluding 4ireless connecti(it. and net4or;ing solutionsE* remained sta=le! D-oo(er7sE

0perating &eg'ents Apple =rea;s its sales into 1i(e Hoperating segmentsG! The chart =elo4 sho4s the sales =. segment 1or each .ear #%%#$2012! On a percentage =asis* onl. the retail segment appears to =e outper1orming the others! Iet sales in the retail segment gre4 to J"/!+/ =illion in 2009! In the "st >uarter 2009* sales gro4th continued in the retail segment to J"!" =illion Da @"Q increase o(er the same period last .earE! This increase 4as due to gro4th in the num=er o1 stores D1rom "%" to "+/E and to a ,"Q same$store sales gro4th! D"st ?uarter "%?E Although the retail segment 4as the onl. segment to realiAe gro4th as a percentage o1 total sales* all o1 the segments had solid gro4th! In the Americas* sales increased 3/Q and continued to represent appro2imatel. ,<Q o1 total 4orld4ide sales! Sales in Bapan and Europe gre4 =. @#Q and ,<Q* respecti(el.! D"st ?uarter "%?E

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*ar8et %alue Analysis 9e used )iscounted Cash 6lo4 D)C6E anal.sis to assess the appropriate e>uit. (alue o1 Apple! To complete this anal.sis* 4e de(eloped a pro$1orma income statement and e2tracted 1ree cash 1lo4! 9e then discounted these cash 1lo4s using a calculated 9eighted A(erage Cost o1 Capital D9ACCE! Apple7s 9ACC e>ualed their cost o1 e>uit. since the. carr. no long$term de=t! 9e used the Capital Asset 5ricing &odel DCA5&E to calculate the cost o1 e>uit.! CA5& consists o1 a ris;$1ree rate* a mar;et ris; premium* and a compan. 'eta! The .ield on the "%$.ear Treasur. is the standard 1or a ris;$1ree rate! To determine the mar;et ris; premium* 4e used the a(erage return that an in(estor 4ould re>uire 1or an in(estment 4ith a(erage ris;! 9e used data a(aila=le online to determine Apple7s 'eta* projected to =e "!,3! The =elo4 chart summariAes Apple7s cost o1 e>uit.!

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Cost of (BuityC7ACC +is8 1ree +ate *ar8et +is8 Pre'iu' 6eta Ad>usted Pre'iu' Apple +is8

Dote "% Yr Treasur. DAnal.sisE 6rom Google

%alue /!"# , "!,3 /!8, "%!@3

Cost of (BuityC7ACC

1inancial Analysis Apple7s 1inancial per1ormance continued to strengthen o(er the last se(eral >uarters! In the most recent earnings announcement* Apple reported signi1icant gro4th in net re(enues dri(en =. the strong per1ormance o1 its i5od product line! Iet sales 1or the #nd >uarter gre4 to J,!+3 =illion* 4hich is a +,Q increase o(er # nd quarter 2012 results! Iet income increased =. ,"Q to J,"% million! The i5od product line continues to dri(e the 1inancial per1ormance o1 the compan.! In the #nd >uarter alone* Apple sold 8!/ million i5ods* representing a 3"Q increase o(er the /!+ million units sold in the # nd >uarter o1 the prior .ear! &ac sales sho4ed slight gro4th o1 onl. ,Q! Apple7s .ear$to$date re(enues total just o(er J"% =illion and earnings total just under J" =illion! 6or the + rd >uarter* C6O 5eter Oppenheimer stated* HU4e

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e2pect re(enue o1 a=out J,!# to J,!, =illionG 4hich 4ill push total sales a=o(e last term7s annual num=ers!

Apple ;$1; 1< financial analysis #%"# April #/ 5osted =. admin under #%"# "?* Apple* Technolog.* USA Apple #%"# "? results continues to impress! Re(enue has jumped 1rom #,*< =n!J to +@*# =n!J or =. /@Q compared to #%"" ?"! -igh re(enue increase lead to e(en more rapid Iet Income =e1ore depreciation increase! 9hich has risen 1rom 3*, =n! J to "#*, =n!J or almost du==ed! This 4as lead =. slo4er re(enue cost DV,+QE and operating cost increase DV+3QE then re(enue!

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Companies sales =. geograph. is good! "S+ o1 sales are 1rom US and "S+ is 1rom Asia 4hich are the regions 4ith highest estimated gro4th! Europe ta;es ##Q o1 sales! Asia sales has du==ed compared to last .ear so this mar;et has gro4n the most! &ost o1 companies re(enue is generated =. i5hone /8Q 4hich sales has increased =. V8/Q! &ost rise 4as in i5ad 4here re(enue has increased =. V"+#Q and no4 contains "<Q o1 companies income* this is a de1iantl. income gro4th segment 4hile &ac and special . i5od D$#/QE are the products o1 the past!

According to http:SS444!netmar;etshare!com Apple share in mo=ile and ta=led mar;ed has increased 1rom ,8Q to 3%Q and is =etter than its main competitors Google Android* 4hich share has increased 1rom "/Q to "@Q! 'ut ne(er the less =ig =attle is projected in the 1uture at this mar;ed =et4een Google and Apple

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In general co'panies results are positi,e.

'alance sheet continue to =e (er. strong! E>uit. le(el has increased to 38Q! That did not e11ect high return on E>uit. le(el 4hich is ,/Q at ?"! Since compan. announced di(idend pa.ments and share repurchases companies E>uit. should not increase in the 1uture! Li>uidit. ratio is "*3 4hich is good! Compan. has cash surplus o1 ""% =n!J 4hich has increased 1rom @< =n!J 1rom ?,! Companies in(entor. and Account recei(a=les are minimal so as lia=ilities!

Io other major changes at the =alance sheet! In general co'panies balance structure is strong. &/are ,alue:

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Co''on &toc8s V Retained earnings V " .ear Iet income =e1ore )epreciation

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Companies share =asic (alue is F1$9E (+13,5%/ !" #ompare$ %ith &'() Current mar;et price is W61$E (+1*,1%/5''"() 4hich sho4s that mar;et is pa.ing W/%%J more or ""*, .ears o1 Iet income =e1ore )epreciation earnings* 4hich sho4s that companies shares are a =it o(er e(aluated! I1 calculating Iet income =e1ore )epreciation according to last >uarter .earl. earnings should =e around /# =n!JS.ear D"+ =n!S>uarterE or //*3JSshare 4hich ma;es it F9 year* ne(er the less indicator is >uit high! Share pro1ita=ilit. DShare mar;et priceSIet income =e1ore )epreciationE i1 calculating projected income D/# =n!JS.earE is 9#1G 4hich is a =it o(er a(erage!

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Total Re(enue

J"/3*/%8*%%% J"%8*#,@*%%% J3/*##/*%%% J,#*@%/*%%%

Cost o1 Re(enue

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Gross 5ro1it

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Iet Income Applica=le to Common Shareholders

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Current Assets Cash and Cash E>ui(alents

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.ongITer' Assets

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Long$Term )e=t

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Treasur. Stoc;

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ProI1or'a Inco'e &tate'ent 6irm made se(eral ;e. assumptions in compiling a pro$1orma income statement! 6irst* to complete the estimate 1or the 2009 data*Compan. merel. annualiAed the earnings 1or the 1irst t4o >uarters! The. then projected a declining rate o1 gro4th in sales 1or the ne2t 1our 1iscal terms o1 +%Q* #%Q* "/Q* and "%Q* respecti(el.! 9e do not =elie(e that the gro4th in i5ods is sustaina=le 1or the long$term! The. also used the percent$o1$sales method to calculate cost o1 goods sold* research O de(elopment* SGOA* and interest!As applied the 2012 ta2 rate 1or all 1uture periods! As the ta=le =elo4 sho4s* the mid$term earnings gro4th is positi(e! Pro>ected 1ree Cas/ 1lo- and (Buity %aluation Apple 4ill continue 4ithout long$term de=t! There 4ill =e no signi1icant changes in capital e2penditures and net 4or;ing capital! Thus* 1ree cash 1lo4 4ill e>ual
3#

net income plus depreciation! Gi(en 9ACC* 4e are a=le to discount cash 1lo4s =ac; using hal1$.ear 50 1actors D4e are through the 1irst hal1 o1 #%%@E!Calculated terminal (alue using a perpetual annual gro4th rate o1 <Q* 4hich is slightl. a=o(e the industr. gro4th rate o1 /!3Q! Gi(en intrinsic e>uit. (alue* 4e estimate the per share stoc; price! Gi(en their particular mar;et condition* Apple appears under(alued!

(Buity %alue Total &/ares H$$$?s: %alue H$$$?s: %alueC&/are Current Price 8,83"# <"3#@%%% J8, J<"!8@

&trategy 6irm can descri=e Apple7s strateg. in terms o1 product di11erentiation and strategic alliances! In each o1 these strategies* 4e e2amine 4hat Apple did historicall. and then discuss alternati(es 1or Apple7s 1uture!

Product Differentiation Apple prides itsel1 on its inno(ation! 9hen re(ie4ing the histor. o1 Apple* it is e(ident that this attitude permeated the compan. during its pea;s o1 success! 6or
3+

instance* Apple pioneered the 5)A mar;et =. introducing the Ie4ton in "@@+! Later* Apple introduced the eas.$to$use i&ac in "@@8* and updates 1ollo4ing "@@8! It released a highl. sta=le operating s.stem in "@@@* and updates 1ollo4ing "@@@! Apple had one o1 its critical points in histor. in "@@@ 4hen it introduced the i'oo;! This completed their Hproduct matri2G* a simpli1ied product mi2 strateg. 1ormulated =. Bo=s! This mo(e allo4ed Apple to ha(e a des;top and a porta=le computer in =oth the pro1essional and the consumer segments! The matri2 is as 1ollo4s: In #%%"* Apple hit another important historical point =. launching iTunes! This mar;ed the =eginning o1 Apple7s ne4 strateg. o1 ma;ing the &ac the hu= 1or the Hdigital li1est.leG! Apple then opened its o4n stores* in spite o1 protests =. independent Apple retailers (oicing canni=aliAation concerns! Then Apple introduced the i5od* central to the Hdigital li1est.leG strateg.! 5hilip 9! Schiller* 05 o1 9orld4ide 5roduct &ar;eting 1or Apple* stated* Hi5od is going to change the 4a. people listen to music!G -e 4as right! Apple continued their inno(ati(e strea; 4ith ad(ancements in 1lat$panel LC)s 1or des;tops in #%%# and impro(ed note=oo;s in #%%+! In #%%+* Apple released the iLi1e pac;age* containing impro(ed (ersions o1 i)0)* i&o(ie* i5hoto* and iTunes! In re1erence to Apple7s recent ad(ancements* Bo=s said* H9e are going to do 1or digital creation 4hat &icroso1t did 1or the o11ice suite producti(it.!G That is indeed a =old statement! Time 4ill tell 4hether that happens! Apple continued its digital li1est.le strateg. =. launching iTunes &usic Store online in #%%+* o=taining cooperation 1rom HThe 'ig /G &usic companiesT'&G* E&I* Son. Entertainment* Uni(ersal* 9arner! This allo4ed iTunes &usic Store

3,

online to o11er o(er #%%*%%% songs at introduction! In #%%+* Apple released the 4orld7s 1astest 5C D&ac G/E* 4hich had dual #!%G-A 5o4er5C G/ processors! 5roduct di11erentiation is a (ia=le strateg.* especiall. i1 the compan. e2ploits the conceptual distinctions 1or product di11erentiation! Those that are rele(ant to Apple are product 1eatures* product mi2* lin;s 4ith other 1irms* and reputation! Apple esta=lished a reputation as an inno(ator =. o11ering an arra. o1 eas.$to$use products that co(er a =road range o1 segments! -o4e(er* its lin;s 4ith other 1irms ha(e =een limited* as 4e 4ill discuss in the ne2t section on strategic alliances! There is economic (alue in product di11erentiation* especiall. in the case o1 monopolistic competition! The primar. economic (alue o1 product di11erentiation comes 1rom reducing en(ironmental threats! The cost o1 product di11erentiation acts as a =arrier to entr.* thus reducing the threat o1 ne4 entrants! Iot onl. does a compan. ha(e to =ear the cost o1 standard =usiness* it also must =ear the costs associated 4ith o(ercoming the di11erentiation inherent in the incum=ent! Since companies pursue niche mar;ets* there is a reduced threat o1 ri(alr. among industr. competitors! A compan.7s di11erentiated product 4ill appear more attracti(e relati(e to su=stitutes* thus reducing the threat o1 su=stitutes! I1 suppliers increase their prices* a compan. 4ith a di11erentiated product can pass that cost to its customers* thus reducing the threat o1 suppliers! Since a compan. 4ith a di11erentiated product competes as a >uasi$monopol. in its mar;et segment* there is a reduced threat o1 =u.ers! 9ith all o1 5orter7s 6i(e 6orces lo4er* a compan. ma. see economic (alue 1rom a product di11erentiation strateg.! A compan. attempts to ma;e its strateg. a sustained competiti(e ad(antage! 6or this to occur* a product di11erentiation strateg. that is economicall. (alua=le must
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also =e rare* di11icult to imitate* and the compan. must ha(e the organiAation to e2ploit this! I1 there are 1e4er 1irms di11erentiating than the num=er re>uired 1or per1ect competition d.namics* the strateg. is rare! I1 there is no direct* eas. duplication and there are no eas. su=stitutes* the strateg. is di11icult to imitate! There are 1our primar. organiAing dilemmas 4hen considering product di11erentiation as a strateg.! To resol(e these dilemmas* there must =e an appropriate organiAation structure! A U$6orm organiAation resol(es the inter$1unctional colla=oration dilemma i1 there are product de(elopment and product management teams! Com=ining the old 4ith the ne4 resol(es the connection to the past dilemma! -a(ing a polic. o1 e2perimentation and a tolerance 1or 1ailure resol(es the commitment to mar;et (ision dilemma! &anagerial 1reedom 4ithin =road decision$ma;ing guidelines 4ill resol(e the institutional control dilemma! 6i(e leadership roles 4ill 1acilitate the inno(ation process: Institutional Leader* Critic* Entrepreneur* Sponsor* and &entor! The institutional leader creates the organiAational in1rastructure necessar. 1or inno(ation! This role also resol(es disputes* particularl. among the other leaders! The critic challenges in(estments* goals* and progress! ad(ises! Apple had issues 4ithin its organiAation! In "@@<* 4hen Apple 4as see;ing a CEO accepta=le to Bo=s* Bean$Louis Gass[e Dthen$CEO o1 'e* e2$5roducts 5resident at AppleE commented* HRight no4 the jo= is so di11icult* it 4ould re>uire a =ise2ual* =lond Bapanese 4ho is #/ .ears old and has "/ .ears7 e2perience\G Charles -aggert.* then$CEO o1 9estern )igital* said* HApple is a
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The entrepreneur manages the inno(ati(e unitDsE!

The

sponsor procures* ad(ocates* and champions! The mentor coaches* counsels* and

compan. that still has opportunit. 4ritten all o(er it! 'ut .ou7d need to recruit God to get it done!G &ichael &urph.* then$editor o1 Cali1ornia Technolog. Stoc; Letter* stated* HApple desperatel. needs a great da.$to$da. manager* (isionar.* leader and politician! The onl. person 4ho7s >uali1ied to run this compan. 4as cruci1ied #*%%% .ears ago!GTo continue a product di11erentiation strateg.* Apple must continue its appropriate management o1 inno(ation dilemmas and maintain the 1i(e leadership roles that 1acilitate the inno(ation process!

&trategic Alliances Apple has a histor. o1 shunning strategic alliances! On Bune #/* "@8/* 'ill Gates sent a memo to Bohn Sculle. Dthen$CEO o1 AppleE and Bean$Louis Gass[e Dthen$ 5roducts 5residentE! Gates recommended that Apple license &acintosh technolog. to +$/ signi1icant manu1acturers* listing companies and contacts such as ATOT* )EC* Te2as Instruments* -e4lett$5ac;ard* Mero2* and &otorola! DLinAma.er* #,/$8E A1ter not recei(ing a response* Gates 4rote another memo on Bul. #@* naming three other companies and stating* HI 4ant to help in an. 4a. I can 4ith the licensing! 5lease gi(e me a call!G In "@8<* Sculle. re1used to sign licensing contracts 4ith Apollo Computer! -e 1elt that up$and$coming ri(al Sun &icros.stems 4ould o(erta;e Apollo Computer* 4hich did happen! Then* Sculle. and &ichael Spindler DCOOE partnered Apple 4ith I'& and &otorola on the 5o4er5C chip! Sculle. and Spindler 4ere hoping I'& 4ould =u. Apple and put them in charge o1 the 5C =usiness! That ne(er came to 1ruition* =ecause Apple D4ith Spindler as the CEOE seemed contradictor. and 4as e2traordinaril. di11icult in =usiness dealings! Apple turned the corner in "@@+! Spindler =egrudgingl. licensed the &ac to 5o4er Computing in "@@+ and to
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Radius D4ho made &ac monitorsE in "@@/! -o4e(er* Spindler ni2ed Gate4a. in "@@/ due to canni=aliAation 1ears! Gil Amelio* an a(id supporter o1 licensing* too; o(er as CEO in "@@3! Under Amelio* Apple licensed to &otorola and I'&! In "@@3* Apple announced the J,#< million purchase o1 IeMT So1t4are* mar;ing the return o1 Ste(e Bo=s! Amelio suddenl. resigned in "@@<* and the stage 4as set 1or Bo=s to resume po4er! Bo=s despised licensing* calling cloners HleechesG! -e pulled the plug* essentiall. ;illing its largest licensee D5o4er ComputingE! Apple su=se>uentl. ac>uired 5o4er Computing7s customer data=ase* &ac OS license* and ;e. emplo.ees 1or J"%% million o1 Apple stoc; and J"% million to co(er de=t and closing costs! The =usiness 4as 4orth J,%% million! There is economic (alue in strategic alliances! In the case o1 Apple* there 4as the opportunit. to manage ris; and share costs 1acilitate tacit collusion * and manage uncertaint.! It 4ould ha(e =een applica=le to the industries in 4hich Apple operated! Tacit collusion is a (alid source o1 economic (alue in net4or; industries* 4hich the computer industr. is! &anaging uncertaint.* managing ris;* and sharing costs are sources o1 economic (alue in an. industr.! Although Apple e(entuall. realiAed the economic (alue o1 strategic alliances* it should ha(e occurred earlier! The 1ollo4ing are some comments a=out Apple7s no$licensing polic.! HI1 Apple had licensed the &ac OS 4hen it 1irst came out* 9indo4 4ouldn7t e2ist toda.!GTBon (an 'ron;horst* HThe computer 4as ne(er the pro=lem! The compan.7s strateg. 4as! Apple sa4 itsel1 as a hard4are compan.K in order to protect our hard4are pro1its* 4e didn7t license our operating s.stem! 9e had the most =eauti1ul operating s.stem* =ut to get it .ou had to =u. our hard4are at t4ice
38

the price! That 4as a mista;e! 9hat 4e should ha(e done 4as calculate an appropriate price to license the operating s.stem! 9e 4ere also na](e to thin; that the =est technolog. 4ould pre(ail! It o1ten doesn7t!GTSte(e 9oAnia;* Apple co1ounder HI1 4e had licensed earlier* 4e 4ould =e the &icroso1t o1 toda.!GTIan 9! )ier.* Apple E2ecuti(e 05* I am a4are that I am ;no4n as the Great Satan on licensingUI 4as ne(er 1or or against licensing! I just did not see ho4 it 4ould ma;e sense! 'ut m. approach 4as stupid! 9e 4ere just 1at cats li(ing o11 a =usiness that had no competition!GTBean$Louis Gass[e* 'e CEO and e2$CEO o1 Apple* admitting he made a strategic mista;e A strategic alliance can =e a sustained competiti(e ad(antage i1 it is rare* di11icult to imitate* and the compan. has an organiAation to e2ploit it! I1 the num=er o1 competing 1irms implementing a similar strategic alliance is relati(el. 1e4* the strateg. is rare! I1 there are sociall. comple2 relations among partners and there is no direct duplication* the strateg. is di11icult to imitate! 9hen organiAing 1or strategic alliances* a 1irm must consider 4hether the alliance is non$e>uit. or e>uit.! A non$e>uit. alliance should ha(e e2plicit contracts and legal sanctions! An e>uit. alliance should ha(e contracts descri=ing the e>uit. in(estment! There are some su=stitutes 1or an e>uit. alliance* such as internal de(elopment and ac>uisitions! -o4e(er* the di11iculties 4ith these dri(e the 1ormation o1 strategic alliances! It is (ital to remem=er* HCommitment* coordination* and trust are all important determinants o1 alliance success!G

Apple a,oids co'petition

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I1 .ou loo; at the histor. o1 Apple* .ouCll see that instead o1 rising to competition* the. o1ten ignore it* or tr. to use legal means* or =undling clout* to erase it! 9hen challenged =. a larger mar;et 1orce* as 4ith the I'& 5C and its clones in the earl. 8%s* and 4ith 9indo4s +!%* @/ and then IT ,!% in the @%s* the. miss o=(ious mar;eting opportunities* 4a.s to ma;e their products stronger =. participating in mar;ets that others de(elop! This is an art that &icroso1t has mastered* thereCs no reason Apple couldnCt ha(e learned the same lessons* =ut the. didnCt! And 4hen dealing 4ith smaller competitors* Apple routinel. and o1ten unconsciousl. 1orced them out o1 =usiness =. =undling* or declaring that the. 4ill =undle a competiti(e o11ering! 9hen the Internet happened* Apple struggled against it instead o1 em=racing it* pre1erring to in(est in technologies that e(entuall. ended up on the scrap heap! A 4asted lead in content de(elopment* de(elopers going to 9indo4s* a poor Ba(a implementation on the &ac! The =ottom line* the strateg. o1 a(oiding competition has =een disastrous 1or Apple! 'ut the. 4ant to do it again! +he same ol$ strategy The cloners* &otorola* 5o4er Computing* U&AM* I'& and others* are poised to ship products that 4ould ta;e Apple out o1 the hard4are =usiness* =ecause the.Cre cheaper* 1aster* =igger* more po4er1ul machines than AppleCs ne4 products! These are the computers that &ac users 4ant and are* in m. opinion* entitled to!

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E(en though 4e ha(enCt seen the license agreements 4ith the cloners* it appears that Apple has the contractual right to 1or=id them to ship the computers* 1or an. reason at all! Apple 4ants to ;eep their hard4are =usiness* so the. e2ercise that right! I despise companies that use hard=all tactics to put their competitors out o1 =usiness! I admire companies that rise to competition! I happil. =u. ne4 products 4hen I ha(e a choice! I donCt li;e to =u. products that ICm 1orced to =u.!

,s it a ni#e -usiness. I1 .ou donCt ha(e an.one to compare 4ith* i1 .ou arenCt su=ject to customer choice* .our product loses direction* .ou 1ocus in4ard* and e(entuall. Das no4 1or AppleE .our interests =ecome out o1 s.nch 4ith the interests o1 .our customers! 6ocus on that 1or a moment! A compan. 4hose interests are against their customers! Is that a nice =usiness: )oes it ha(e much o1 a 1uture: ,s it legal. The customerCs interest here is clearl. ser(ed =. competition! The usual =ene1its appl. $$ lo4er prices* more realistic con1igurations* more di(ersit.! AppleCs complaint that the cloners 4erenCt gro4ing the mar;et can =e e2plained =. AppleCs licensing polic. that ;ept them 1rom ma;ing 1undamentall. di11erent products than Apple! 9hereCs the cheap su=$note=oo; &ac: 9hereCs the handheld &ac: The &ac =uilt into the dash=oard o1 m. car: Apple 4ouldnCt let the cloners

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ma;e these products! Apple is an economic disaster area! The. 4ant &ac users to put all their eggs in AppleCs crum=ling =as;et!

+(C0**(DDATI0D&: 1or Co'pany Lo4ering the cost o1 products and maintaining the same >ualit. standards! Can 1orm joint L (entures! no4ledge &anagement!

&ore num=er o1 retail stores 1or eas. access! Continuous inno(ation to e2pand!

1or 0t/ers )o not compromise on price 1or >ualit.! Choose the products =ased on indi(idual needs!
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'e uni>ue and di11erent!

Conclusion I 1eel that Apple must 1ocus on se(eral ;e. aspects to continue to gro4 and succeed! The. must continue a sta=le commitment to licensing* push 1or economies o1 scope =et4een media and computers* and =ecome a learning organiAation! Although it should continue* Apple ma. 4ant to consider other 1orms o1 strategic alliances! An e>uit. strategic alliance ma. o11er Apple the opportunit. to o=tain additional competencies! An e11ecti(e 4a. 1or a compan. li;e Apple to accomplish this 4ould =e in the 1orm o1 a joint (enture! Apple should continue pushing the ne4 line o1 media$centric products! &ean4hile* Apple should not lose 1ocus on its computers! &acintosh computers 4ere /@Q o1 Apple7s sales in #%"#! D'urro4sEThis (er. inno(ati(e compan. e2ploits its second$mo(er position! In the 1uture* the. 4ill need to continue inno(ating to e2pand the =oundaries o1 =oth media and computers!

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Apple apparentl. made a commitment to licensing! Although it should continue* Apple ma. 4ant to consider other 1orms o1 strategic alliances! An e>uit. strategic alliance ma. o11er Apple the opportunit. to o=tain additional competencies! An e11ecti(e 4a. 1or a compan. li;e Apple to accomplish this 4ould =e in the 1orm o1 a joint (enture!Apple should continue push 1or economies o1 scope =et4een media and computers* and =ecome a learning organiAation* pushing the ne4 line o1 media$centric products! This (er. inno(ati(e compan. e2ploits its second$mo(er position! In the 1uture* the. 4ill need to continue inno(ating to e2pand the =oundaries o1 =oth media and computers!This 4ill allo4 the compan. to 4ithstand a departure =. Bo=s! 'ased on the actions o1 the organiAation* 4e 1eel that the mid$ term per1ormance o1 Apple 4ill =e strong! This period allo4s Apple time to o(ercome their challenges i1 the. mo(e s4i1tl.! 6or this reason* 4e 1eel that the. 4ill continue to succeed and 4ill continue to outper1orm their peers! Pro>ect +eferences and +eading: http:SS444!nasda>!comSs.m=olSaaplS1inancials:>uer.XratiosYi2AA#0(#; j http:SS444!nasda>!comSs.m=olSaaplS1inancials:>uer.Xincome$ statementYi2AA#0("&Z.Y, 5aul un;el* Apple)esign: The 9or; o1 the Apple Industrial )esign Group IS'I @<8$"$888%%"$#/$@ Ste(en Le(. D"@@,E* Insanel. Great: The Li1e and Times o1 &acintosh* the Computer That Changed E(er.thing IS'I @<8$%$",$%#@"<<$+ O4en LinAma.er D#%"%E* Apple Con1idential #!%* Io Starch 5ress IS'I @<8$"$/@+#<$%"%$%

&ichael S! &alone D"@@@E* In1inite Loop IS'I @<8$%$+8/$,838,$#

6ran; Rose D"@@%E* 9est o1 Eden: The End o1 Innocence at Apple Computer* 5enguin 'oo;s IS'I @<8$%$",$%%@+<#$8
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Bohn Sculle.* Bohn A! '.rne D"@8<E Od.sse.: 5epsi to Apple* -arperCollins* IS'I @<8$%$%3$%"/<8%$< Apple Inc! SEC 1ilings at SEC)ata=ase!com

Apple Inc! SEC 1ilings at the Securities and E2change Commission Bim Carlton* Apple: The Inside Stor. o1 Intrigue* Egomania and 'usiness 'lunders IS'I @<8$%$88<+%$@3/$3 Alan )eutschman D#%%%E* The Second Coming o1 Ste(e Bo=s* 'road4a.* IS'I @<8$%$<3<@$%,+#$# And. -ertA1eld D#%%,E* Re(olution in the 0alle.* OCReill. 'oo;s IS'I @<8$%$/@3$%%<"@$/
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