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Apple Computer, 2006

Situation
Complication
Resolution
Jobs has revived Apple
entering new markets (iPod, iTunes)
Intel collaboration
direct sale to consumers online, followed by the push into retail
stores
PC industry growing to be less attractive

Continue to focus on Apples core competency of being a technology
lifestyle force identify nascent substitutes to engage in disruptive
self-innovation

Apples current scenario
Only Apple and IBM
in the market,
allows them to
charge high prices
and pursue
different strategies.
IBM-compatible
clones, low
investments
needed to enter
the mkt.
No substitutes
for the PC
Numerous
suppliers,
Wintel not
established
yet.
Few
competitors,
market growth,
product highly
desirable
Many players
Lack of product
differentiation

Personal Digital
Assistants (1990s)
Increasing powerful
smartphones
(2000s)
Concentrated
supplers: Wntel
Personal Digital
Assistants (1990s)
Increasing powerful
smartphones
(2000s)
1970 to 1990 1990 to 2006
L
o
w

M
e
d
i
u
m

H
i
g
h

PC Industry has grown less attractive over the last 20 years
Contract
manufacturers and
white-box
manufacturers
minimize capital
investment for new
entrants
Rvalry New entrants Substtutes Supplers Customers
Apples Sources of Competitive Advantage


Allows for
differentiation &
creation price premium

Exercise greater control
on quality & synergy

Be perceived as a
technology lifestyle and
cultural force

Design Philosophy

Focus on Performance

Closed Ecosystem

Culture of Innovation
Departure from core competencies hurt Apple during the
Non-Job years
1990: Release of Mac Classic (low-cost) computer to counter Windows 3.0 and IBM clones
1991-1992: Collaboration with IBM and Intel for development of Next-Gen OS.
1993-1995: Focus on international markets & licensing for Mac clones.
1995-1997: Inability to launch a new OS eroded technology leadership.
Dilution of Brand Value
Switch from first-mover to follower
Lack of a clear strategy to counter Wintel growth
Apples significantly smaller sales volume compared to
Microsoft Windows puts it at a competitive
disadvantage.

Microsoft recovers development cost of Windows XP in
1.3 months as compared to 52 months for Apple

To achieve competitive parity with Windows, Mac would
need to capture equal market share as Windows (~45%
of the PC market from current market share of 2.2%)

Microsoft, with its huge competitive advantage, will not
allow Mac to steal so much market share, and will
intensify R&D f necessary to match up its OS capabltes.

On the other hand, embracing the Windows OS on Mac
may significantly dilute Apple`s differentiation within an
extremely competitive industry

Lastly, immediately closing down the Mac with just the
ipod remaining will result in a too thin product portfolio,
and dilute the brand of Apple.

As a result, we recommend Apple to leverage its core
competencies in consumer understanding and design to
explore blue ocean lifestyle markets and reduce
dependency on Mac n the long run
Superior Product yet lack of economies of scale makes Apple
vulnerable in the long run
Economics of shifting to Windows
Window Licencse (In USD) 50,0
Units Sold by Apple (In Million units) 4,53
Cost of Windows OS per annum (In
USD Millions) 227
Current Mac OS expenses per annum
(In USD million) 1 000
Net Annual Savings (USD million) 773
Savings as % of current net profits 58%
Particulars Windows MAC OS
Cost of Developing an OS (In
USD Millions) 1 000 1 000
Volume Per Year (2005, In
million units) 187,74 4,53
Charge per copy (In USD) 50 50
Revenue per year (In USD
Millions) 9 387 227
Recovery time (In
Months)months 1,3 52,9
Implied cost of OS to Apple
per unit sold (In USD) 220,6
Average Sales Price per unit
of Macintosh (In USD) 1 384,0
Margin on sales price unit 16%
What helped Apple turn-around?
Refocus on core competencies of performance, product
design and ease-of-use
Intel collaboration
iMac (Wndows plug-n-play peripherals)
BOOTCAMP application to help users migrate from
windows to OSX
Moving
towards Wintel
standards
whilst charting
its own path

Using strengths to enter blue ocean markets with a focus
on building a lifestyle brand
iPod, iTunes

Move towards direct sales to consumers
Online sales
Subsequent push into retail stores

What Are Key Issues Facing Apple Today?
Small and Stagnant share in the PC industry
lack of compatibility between Apple & Wintel products
closed ecosystem limits availability of complements
IPods, ITunes
rise of new substitutes (mobile phones, streaming)
music labels are unhappy with the rigid iTunes pricing structure
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How Can Apple Ensure Continued Success Going Forward?
Continue to focus on Apples core competencies
Identify nascent PC substitutes
Leverage innovative culture and R&D expertise to engage in self-disruptive
innovation
Position as a lifestyle brand
Continue to target the consumer segment
Implementation Risks / Key Considerations
Discontinuity in long-term strategy
CEO dependence succession plan should be implemented
Opportunity cost of not targeting the enterprise customer?
How to consistently sustain a culture of continuous self-disruption and avoid
complacency/drift towards incremental innovation?
Music label companies - supplier power?