An Integrative Analysis of Apple's Strategy

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STRT018 STRATEGIC MANAGEMENT

Individual Pre-class Write-up: Apple Inc.

Prepared for:  Prof. Peter Moran, Prof. Yu Zhang

Prepared by: MA20180021, Section 2

Submitted Date: November 06, 2016

This is to certify that this work is entirely and exclusively my own, except for those cited and noted.

Student Code: MA20180021

China Europe International Business School

1. The latter part of the 19th century saw two personal computer makers mark their dominance in the market: IBM and Apple. Both these players differed in their strategies, value propositions, product innovations, marketing positioning and values and yet competed for the largest share of the same pie in the personal computer market. Even though Apple is known for its excellence in product innovation and creativity, IBM is remembered as the biggest value creator in the PC industry for the following reasons:

• The growth of the PC industry in the 1990s can be attributed to IBM’s open system approach whereby it produced a microprocessor and OS to be used as an Industry standard by the thousands of PC producers in the market. This approach encouraged the industry to mature and also provided the necessary competition to strong players like Apple to innovate to the benefit of the industry.
• IBM priced the PC competitively low, thus targeting a larger mass market segment to capture maximum market share and outreach. It positioned its product as the basic standard for a PC used by the masses.
• The introduction of the Windows OS as part of its system’s demonstrated its differentiation yet similarity to Apple’s ‘ease of use’ value proposition. IBM fostered continuous R&D led innovations in terms of CPU speed and OS/Application compatibility.
• While Apple, for some part during the evolution of this industry, refused to license its products and services to other players, IBM used a strategy by which it aimed at collaborating with forward integrators to provide its microprocessors and OS system units to different PC brands and in this way, created value in the industry as a whole.

1. The PC Industry can be analyzed on the basis of Porter’s 5 forces:

• Barriers to Entry (High): Capital Intensive, High initial investment, Well-established players. The smaller players who cannot establish a competitive advantage early on in the market either exit (eg Fujitsu) or get acquired (HP acquired Compaq).
• Buyer Power (High): Customer is price sensitive (Windows based laptops) but there is a segment of customers that is also loyal if the value proposition is consistent over time (Apple). The customer is willing to switch brands and pay more for technology innovations
• Supplier Power (High): Few suppliers in the market supply microprocessors (Intel) and Windows OS (Microsoft) giving them a high bargaining power. PC manufacturers like Apple make their own processors and OS so they enjoy greater supply chain control thus enjoying economies of scale.
• Degree of Competition (High): Players need to invest heavily in R&D and innovation to keep up with or stay ahead of the the market trend. Companies like Apple have to maintain innovation in line with their brand image and value proposition. The market is saturated with different brands yet, some low cost- high feature Chinese brands provide strong competition.
• Threat of Substitutes: Smart phones and tablets are replacing the need for a PC offering the same features and better convenience. Technological innovation is a characteristic of this market to further substitute personal computing with smaller and faster devices.

A majority of the value created in the PC industry was captured by Microsoft with the Windows OS service which served as a standard OS for all non-Apple based PCs. IBM and Intel developed an ecosystem for a large number of PC manufactures that Microsoft could thrive upon until a certain point in time until other open-source OS systems entered the market but couldn’t compete with well established Microsoft OS given the high switching cost for all the customer segments. Its “open system” approach played well for all PC manufacturers to offer pre-installed as part of their PC product. Microsoft also had a first mover advantage in creating an ecosystem for third party application creators to develop applications with creative utilities which made its service offering only stronger and a high barrier to entry for a competing OS. By the end of 2014, nearly 90% of all PCs ran the Windows OS. The MS office application served as another benchmark product for professional and home users and ran exclusively on Windows and later on the Apple OS as well. In these many ways, Microsoft seems to have captured maximum value in the PC market.