ASSIGNEMENT : 01

APPLE INC. IN 2010

CASE STUDY

Submitted to

Prof. VEERESH SHARMA

Submitted by

AMIT KANABAR

2011002

Indus World School of Business Date:

Greater Noida 10/02/2012

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APPLE INC. IN 2010

Ques 1. How sustainable is Apple’s competitive position in MP3 players?

Ans 1. Apple’s iPod was first introduced in 2001 and because of the innovative design strategy of Apple; iPod soon became one of the most successful products in terms of revenue and popularity. It is a also important to note that strategy of launching iPod and other subsequent new products were very much in synchronization with the ‘Digital Hub’ strategy. Analyzing the industrial environment based on Porter’s 5 force model we get:

1. Intensity of Rivalry:

Apple faced competition from other iPod players such as Zune (Microsoft), San Disk, Creative and Samsung. However despite these companies having more or less the same hardware had less than 10% of the market share because of the launch of iTunes.

Within the industry the intensity of rivalry was high though Apple was vey ahead of it competitors even when it was charging a premium price which was $50 to $100 higher than the ASP of other iPods.

Hence INTENSITY OF RIVALRY IS MODERATE & IS RISING WITH THE ENTRY OF PLAYERS SUCH AS MICROSOFT.

2. Threat of Substitute Product:-

Substitutes:-

Substitutes of iPod included Free Internet radio sites, other online music streaming sites. However mobile segment was fast emerging as a big substitute of MP3 players. As a result Apple faced very stiff competition from these rivals. Though Apple responded well with launch of iPhone and Lala.com (music streaming site), yet the threat of other substitutes is pretty high and Apple will find it difficult to have a sustainable position in MP3 players.

Complements:-

The launch of iTunes Desktop software and iTunes Music Store was very instrumental in helping the growth of iPod. The sales of iPod shot up by 6 times after the launch of iTunes store.

Fairplay enabled Apple to have a strong hold on those songs that were encompassed within the FairPlay i.e. No other MP3 player can play these songs.

Apple had also launched iPod accessories such as fashionable cases which in turn generated revenue of $1 for every $3 spent on iPod.

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3. Power of Suppliers:-

We can categorize the suppliers in to 2 groups:

I. Supplier of raw materials for iPodsII. Supplier of raw materials for iTunes.

i) Supplier of raw materials for iPods:

The most important component of iPod is its flash memory. Since there are few good suppliers of this component such as Hynix, Samsung Toshiba and Intel, hence they have a high supply power. As we saw in the case as well that even Apple realizing the importance of these components and power of these buyers readily paid $500 Million to Intel and Micron

POWER OF SUPPLIER IS HIGH.

ii) Supplier of raw materials for iTunes:

Raw material for iTunes consists of the songs and other music content. Amazon.com, Napster and Walmart.com offered songs to iTunes at a discounted price. In retaliation Private music players allowed some other stores to sell free music. Even social networking sites formed an alliance with music labels and provided music services which can even be played on iPod. Hence now it was not mandatory for people to purchase songs only from iTunes.

Thus we can say that POWER OF SUPPLIERS FOR iTunes IS HIGH.

4. Power of Buyers:-

Apple has well differentiated itself within the MP3 market by bringing in new and innovative products. Even though the prices of iPod are pretty high yet it has captured majority of the market. Hence we can say that price is not the only component, Brand and variety of product is also an aspect which is valued by the buyers.

Since Apple had a good brand and series of innovative product, people remained very loyal to it and hence POWER OF BUYERS IS LOW.

5. Threat of the new entrant:-

Technology is not a barrier to enter in to the market. However the innovations that are brought by Apple certainly create a barrier for other players to enter.

Apple has a got very loyal customer base that is even ready to buy its product at a premium price.

Barriers to entry are high. These barriers are created by the existing companies who are fighting among themselves to capture more market. Apple is the leader, however there is a very tough competition going between the players in the zone of 10% market share. Hence the chances of their retaliation are pretty high if a new player enters the market.

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Apple also has economies of scale since it has captured most of the market and has to meet the demand of the market with adequate supply. Apple also has favorable access to raw materials of iPod i.e. flash memory. It has maximum share from the output produced by manufacturers of flash memory.

So THREAT OF NEW ENTRANT IS LOW.

Conclusion:

Power of Buyers is low as the buyer is more interested in creative and innovative product rather

than price.

Power of Suppliers is high.

The intensity of Rivalry is moderate but is increasingly rapidly with entry of big giants like

Microsoft.

Threat of substitute product particularly the mobiles is very high.

Complements (esp. iTunes) are fueling the demand of iPods.

Thus we can say that at present Apple does have a sustainable position in MP3 market; however innovation is still the key to their further success. If innovation stops then perhaps Apple might face a downturn in iPods mainly because of the threat of substitute products i.e. Mobile phones.

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Ques 2.How do you asses Apple’s competitive position in Smartphone?

Ans 2. Apple first introduced iPhone in 2007. Nokia, Motorola and Samsung were the major players in the market and held 60% of the market share during that time. Analyzing the industry environment of smartphones we get to know about the following points:-

1. Intensity of Rivalry:-

Apple faced a very tough competition from 2 rivals: Blackberry and Nokia. Blackberry was the other phone in smartphone industry that was most profitable along with Apple. However the leader in this industry was Nokia whose share accounted to 47% of the total market.

However with the entry of new players like Samsung, Motorola in to smartphone industry the intensity of rivalry has increased.

The intensity further increased when other players also launched their application stores like Nokia came up with Ovi etc.

Not only did Apple face tough competition in application market but it also faced critical competition in OS segment. With Nokia leaving the Symbian software and launching its own OS named MeeGo, Google launching its free Android OS and Windows coming up with Windows Phone 7 the smartphone industry is turning in to Red Ocean.

Markets such as India and China were even more intense in terms of price. Every company had to reduce its prices in order to sustain in the market. Since no subsidy is available in these markets company having best cost structure will benefit the most. Even then Apple’s premium priced is working well in these markets.

Thus we can say that INTENSITY OF RIVALRY IS HIGH IN THE INDUSTRY.

2. Threat of Substitutes:-

Substitutes:- Other manufacturers having their own version of smartphones with touch screens provide direct competition to the Apple’s iPhone. Apple’s low battery life, lack of QWERTY keyboard and lack of additional memory also fueled the market for other smartphone companies.

No indirect substitutes are available. Blackberry which is QWERTY phone is a tough competitor to Apple’s touch screen iPhone.

Complements:- Like iTunes desktop software and iTunes Music store Apple iPhone also had App store which was launched in 2008. It was because of this App Store that made it easy to distribute, access and download applications directly into mobile phones. Customers could either directly download the applications to their mobile or to their PC.

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Moreover the many applications were free or even the paid ones cost less than $1. This attracted the customers, which in turn increased the sales of Apple iPhone. Net income from these applications reached as high as $1 billion.

Like App store, network operator is also a complement to the iPhone. AT&T provided subsidized iPhones which costed very low as compared to market price of iPhone. This led to substantial increase in the revenues of iPhone.

Although Apple’s decision to keep their iPhones restricted to one single network operator was very unpopular because AT&T’s network was patchy had flaws which the customers didn’t like. Since iPhone could only operate with AT&T’s network many users faced a dilemma whether to go for a more reliable network or purchase an innovative phone. Many users even opted for a reliable network like Verizon Wireless and purchased Apple’s iPod Touch instead.

Thus we can see that on one hand App store helped enhance the sale of the iPhones while on the other hand Apple’s reluctance to move to different network was costing it its customers.

The industry has less threat of indirect substitute product and share of Apple is iPhone industry is also very good. As a result threat from direct substitute product is also moderate.

3. Power of Suppliers:-

Component cost was fast falling. As a result the suppliers had low bargaining power because they can easily switch the company who gives them same products at lower price. The cost structure was a very important in markets where there is a tough price war. As a result companies will choose those companies which will give them low cost, high quality component.

Hence SUPPLIERS HAVE LOW POWER.

4. Power of Buyers:-

The market for iPhone is rapidly increasing and more customers are getting attracted to Apple’s iPhone and App store. It is already known that customers of Apple are very loyal to the brand and will purchase iPhone even though it is a premium priced product. People are ready to pay as high as $599 for Apple iPhones which in turn shows that people are looking more for innovative designs and features rather than prices.

Launch of Apple 3G phones further fueled the demand for Apple iPhone and with launch of iPhone 3GS the rates of subsidized iPhone went down to $99. This helped Apple to increase their revenues.

Thus we can say that BARGAINING POWER OF BUYERS IS LOW.

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5. Threat of new entrants:-

Economies of scale:-

Apple differentiates it products in every aspect as compared to its competitors. It spends a huge amount in R&D of its products. It took the industry by surprise by introducing a touch screen phone and then high storage capacity. It further took advantage by opening up App store which provided application at low cost or even free applications.

Hence it is very difficult for a new entrant to compete with already established Apple and other existing players since these players already have economies of scale due to their present customer base. Hence this acts as an entry barrier for other companies to enter in to the market.

Loyal Customer Base:-

Also Apple has a very loyal customer support and as we have already seen they are ready to purchase even at high price thus this also acts as a barrier for other players to enter in to smartphone and makes it equally difficult for existing and new players to capture the audience.

Thus we can say that THREAT OF NEW ENTRANTS IS LOW.

Conclusion:-

Power of buyers is low due to differentiation and innovative design strategy of Apple.

Power of suppliers is very low since the cost of components is fast decreasing.

Threat of substitutes for indirect products is less as compared to the direct substitutes.

Rivalry within the industry is very high.

Threat of new entrants is also pretty low because of loyal customer base.

Complements are expanding the sales of iPhone & serves as a very profitable side business there

by further increasing the revenue of Apple Inc.

Apple has a competitive advantage over its rivals in terms of technology. As Apple keeps on brining new

innovative products in the market hence its competitors face a challenging task to keep up with Apple. It

is enjoying a high position in smartphone industry with increasing revenues and even the number of

units going up due to various complements.

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