Historically, what have been apples competitive advantages?

Apple has had quite many competitive advantages during its time. First being with the release of Apple II, which accumulated a huge profit with annual sales of $1 billion. With competition increasing, it created the Mac, which was easy to handle with an industrial design and elegance. Apple was confident with its products and maintained its design without licensing its products to third parties. With the introduction of Mac into new markets, it acquired more than 50%in the educational sector with its markets share recovering and stabilizing at 8%, which in the 90s made it the most profitable PC firm in the world. By creating a complete desktop idea, it offered a simple solution that allowed its customers to plug and play. Nevertheless, IBM, one of Apples closest competitions, was closing up on sales. This then forced Apple to begin its design on its products from scratch using, unique chips, disk drivers and monitors that caught more attention from its customers. This enabled the company to sell at premium price that created a gross profit of 50%. High spending on R&D at Apple can also be seen as its competitive advantage. Historically, Apple always paid strong attention to R&D, and even in 2003 when its competitors cut their fund for that, Apple still raised its R&D from 4.8% to 7.6% of the sales. Steve Jobs, in one interview with Fortunes journalist Betsy Morris, claimed that in managing the company through the economic downturn, they still increased their R&D budget to be ahead of their competitors when the downturn is over. Jobs also added that R&D always is one of the primary chain values at Apple, because with Apple's strategies and goals, lots of money is needed on engineering, designing, and programming. Analyze the personal computer industry. Are the dynamics favorable or problematic for Apple? At the beginning of the PC industry during the early 1980s, only a few business managers were the leading purchasing group largely due to receivable and storable data function. In the 1980s, IBM was indeed the largest and strongest player in the industry, and after adapting Windows-based OS, the influence got more effective. In the 1990s, with the emergence of new players such as Compaq and Dell, the competition of the industry became more intensive than ever. Not only the competition participants changed, but the structure of the competition also changed, with significant price pressure. From PC to Smartphone, the industry focused on developing and diversifying products, because many manufacturers or providers couldnt stand out the downward pricing pressure. For instance, an average PC selling price was $1699 in 1999. However, the figure got plummeted to $1034 in 2005. In addition to the point just mentioned, companies tried to lower the R&D spending.

For example, Dell spent less than 1% of their total budget on R&D, and instead focuses mainly on distribution, design, sales, and marketing. The implication of this situation is that the PC industry is not simply a market with cutting-edge inventions. Since 2000, emerging markets got much paid attention to its high productivity with low labor costs. Some Chinese companies, such as Acer and Lenovo, were active in broadening their market share in the PC industry and acquiring subsidiaries. As a result, the market share of each manufacturer or provider was distributed fairly well. Competitive markets for Intel still exists, however the dominance still has been stable up to 2009 with AMD being second. Further research indicates that Intel is almost the most powerful microprocessor company when comparing figures for PC units shipped and installed base. In addition, the coverage of the microprocessor market is wider than that of the PC one. How sustainable is Apples competitive position in PCs? Apples market share in global PC markets was 4,2% in 2009. At the same time the biggest players HP, Dell and Acer had market shares between 13 and 20 percent. It would be easy to say that Apple is a way too small company for these markets but when you look at gross margins Apple is in their own league. In 2009 Apples gross margin in PCs was 40% and second highest figure was HPs 24%. Also, Apples market share has grown steadily for the last four years and the future direction looks the same. Apple has a very good reputation as a high quality PC manufacturer and thats why people are willing to pay extra for Apple computers. Although the most valuable asset Apple has needs to be their individual, exclusive and sophisticated brand/way of thinking. Apple computer is like a Porsche in the car industry, something that differentiates from others. But in this case people can have the same feeling with 1500 euro instead of 150000. Its clear that nothing lasts forever in PC markets, even IBM didnt, but at this time it looks that the popularity of Apple PCs is very deep in ground because they have succeeded to change the way of thinking, not just making good hardware. How sustainable is Apples competitive position in MP3 players? In 2009 Apple sold 54 million iPods, which was almost the same amount than in 2007 and 2008, but the average price of the device had reduced 10-20 dollars. MP3 player markets have been facing some serious threats for a couple of years because mobile phones have developed into music listening devices. Why a new iPod, when you can listen to music on your phone? Another issue is the sunken prices of MP3 players. You can buy a Philips or a Creative MP3 player for less than 50 so the added value in an iPod needs to justify the 200 price tag. To compete with these cheap devices, Apple has launched iPod Shuffle sells for less than 100. Overall, big margins in MP3 business are water under the bridge. Maybe the most expensive iPods can still make it but the amount of users is very limited. IPod was a great way make an easy buck for many years but playing music with other

devices is nowadays so easy that it doesnt generate enough customer value to purchase MP3 players for good price. How do you assess Apples competitive position in smartphones? In 2009 Mac OS X had a 14,4% market share in worldwide smartphone markets by operating system. Symbian had a share of 46,9% and RIM 19,9%. Apples figures in this market look very nice compared to the PC industry. When talking about smartphones, iPhone appears to be somewhat of a benchmark. The iPhone brand is like Coca-Cola. It has changed the whole concept of smartphones into what it is now. The ideology behind the iPhone is the same with other Apple devices: beautiful design, easy to use and high quality. IPhone is the most desirable device in smartphone markets and this is a very good situation to penetrate in mass markets. Smartphone markets are still very immature so we believe that there is huge potential for Apple to make money. The most important thing is to maintain the high profile of iPhone but at the same time follow the development of markets when it comes to price and solutions. One of the biggest advantages compared to competitors is the huge amount of available applications. In March 2010 Apples App Store provided approximately 185000 different applications when Blackberry had only 6000, for example. Overall, estimating Apples success in PCs, MP3s and smartphones we believe that smartphones is the branch that Apple should develop and invest in because there is the biggest future market potential for many years. What are the prospects for the iPads? Referred to as the giant iPod touch by most, the iPad was designed with a featured tablet of a 9.7 inch led screen and ran with an A4 chip designed by Apple in an attempt to prolong its usage. The iPads casts a "halo" over the older iPhone, with owners of the tablet about twice as likely to want the company's smartphone as consumers who own neither. Apple Store performs a big role too by being able to share the same applications they purchased on all their other devices free of charge. This leads consumers to add more devices Apple, and effectively retains them as upgrade customers," said Entner. According to Apple's latest earnings statement, the company sold nearly 3.3 million iPads in the second quarter of 2010, along with 8.4 million iPhones and a record of 3.5 million Macs. (Computerworld) How does the success of one product category support other product categories? This question can be approached by discussing what affects user experience. Apple's products have five customer categories: Home, small- and medium-sized business, corporate, education, and government. While all customers value price to some extent, they all have their own criteria that they also take into account when making purchasing decisions. Business and corporate

consumers usually value service and support while education and government customers are very dependent on software availability. There might be a specific software product used, and this might well affect their decisions. Home consumers value design, mobility, and wireless connectivity. In addition, there is one more thing that affects all customers. This is the user experience. After using a device, the most important factor that determines user satisfaction is the impression on users. This consists of all the factors listed above. In essence, how easy and enjoyable is the user experience. Another crucial question is: How does the device perform the tasks it is made for. Ease of use, stability, and user interface design are key factors when dealing with information technology. Simply because of the dominance of Windows computers, most people have been introduced to the PC world through a Microsoft operating system. OS X, being somewhat different to use, has been difficult to approach by most people. After the introduction of the iPod, the majority of customers might have been attracted to buy the device simply because of its design. However, what leaves the strongest impression on users on the long run is the user experience that the intuitive user interface of the iPod gives. This ease of use is in line with OS X experience. After having used an iPod, it can be assumed that many people gave Apple a shot in computers, and perhaps fell in love with the experience provided by OS X. A similar halo effect has also happened with both iPhone and iPad. After understanding the philosophy of Apple products, most people will find Apple products simply better than anything else. This has two major effects. The first one being the willingness of customers to pay a premium for a better user experience, and the second one being the fact that satisfied users are willing to explore other product categories by the same company. This is one way of seeing how the success of one product category supports other product categories of the same company. Assessment of the innovation capability of Apple Innovation, as defined during a lecture, is an idea, service or product that can generate an increase in profits. According to this definition, the overall innovation capability of Apple is great. Although it is not the case that everything done at Apple generates record high profits, it seems that the company is one of the top innovators in the world. Apple keeps announcing hyped products they claim revolutionary, and so far they have been incredibly successful. The mobile hand set sales of this year clearly represents the profitability of the company. According to the sales between January and June of 2010, Apple had only a 3% market share unit wise. However, when measured by profit, Apple's market share was 39%. This is astonishing! The amount that Apple is able to charge premium on its products is an innovation in itself. Apple has discovered that people are willing to pay extra for a good user experience. Even though innovation does not necessarily require first presence in an industry, Apple has been a pioneer and a trendsetter in many fields. A good example of the company's vision is its online

multimedia and application retail business. Opened in 2003, iTunes was the first legal site that allowed music downloads on a pay-per-song basis. Later on categories were expanded to audio books, TV-shows, and movies. Although Apple's pricing policy of iTunes music store caused the store to perform losses, the effect on iPod sales was unbelievable. The introduction of iTunes caused the quarterly sales of iPods to go from 113,000 to 733,000. As the case text names it, this reverse form of razor-and-blade business was an innovative way of cranking up the sales. Later on the pricing policies have been changed and the App Store has been introduced to provide content to iPod Touch and iPhone users. An interesting piece of information is that on average, an iPhone user has 37 applications on the device, compared to 22 applications of an Android user. It seems that with iPhones, the symbiosis with the App Store is working quite well. Although iTunes and App Store are profitable businesses on their own, their profitability is not easily calculated, because their effects on hardware sales are dramatic.

Sources: Case file http://www.computerworld.com/s/article/9179458/Mac_iPad_sales_push_Apple_to_record_reven ue http://www.articlesbase.com/computers-articles/the-life-span-of-computers-1367576.html http://www.macworld.co.uk/news/index.cfm?RSS&NewsID=15370

Appendix C

Least squares based linear regression of Apples net income for lines 1-3

2010 1. 2. 3. 3905 5622 8391

2011 4103 6252 9595

2012 4300 6881 10799

2013 4498 7511 12002

2014 4696 8140 13206

2015 4893 8770 14410

2016 5091 9399 15614

2017 5289 10029 16818

2018 5486 10658 18022

2019 5684 11288 19225

2020 5881 11917 20429