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Apple Inc in 2010 - Case Analysis

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This is a case study analysis of Apple In in 2010. It is strategic case study. It is analysed with porters's five force model.

This is a case study analysis of Apple In in 2010. It is strategic case study. It is analysed with porters's five force model.


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  • 1. ASSIGNEMENT : 01 APPLE INC. IN 2010 CASE STUDY Submitted to Prof. VEERESH SHARMA Submitted by SIVA SHANMUGA PRIYA N S 2011012Indus World School of Business Date:Greater Noida 10/02/2012Words 2,278 1
  • 2. 1. How sustainable is Apple’s competitive position in MP3 players? IntroductionApple’s Ipod: Ipod is an mp3 player designed by Apple, was launched in 2001. It found its own way toexplore the market. “An Icon of the Digital Age” – a writer wrote. When it was launched it wasdesigned in such a manner to be very friendly to use, large storage memory, and attractive outlook likevery sleek. It could store 1000 songs at first, when other MP3 players offered just several hours ofmusic. Its’ price was at $399. It contained Flash memory, one of its’ main cost component. It soonbecame the world’s largest buyer of flash memory. One after other innovative designs, it came up withnew versions of Ipod like Nano, Mini etc,.. In 2010 more than 70 % of US MP3 market was capturedby Apple’s Ipod.iTunes: It was opened in April 2003. At first it contained no of songs in that store. Users can downloaddirectly from the store by paying per/song cost that cost them 99 cents. This was also for the majorrecord labels, and there were independent music labels also. Within three days of launch, it wasdownloaded one million copies of its software, and they paid for that. Analysis The sustainability of Apple’s Ipod can be identified by the analysis of porter’s five force model.Threat of Entry : LowProduct Differentiation:  The trick in iTunes Launch: It was a Razor and blade business in reverse method. That means, by opening the iTunes music store there was no much revenue generation by it, because out of 99 cents, 70 went to music labels, 20 cents went to credit card processing, then also apple had to pay for its website, with other direct and indirect coats. So finally it left with only a mere revenue in that, but its’ impact on the Ipod sale is significantly notable. 2
  • 3.  Apple’s Ipod sale for a quarter was on an average of 113,000 units, but after iTunes Music Store launch it went to its own exploratory sale path of 733,000 units, which was 6.5 times of the previous figure, and was continuously increasing.  It attracted the customer by its iTunes music store by its large collection and the ease of use. The downloaded songs could be played in user’s personal computers, transformed to an ipod, and burned in to a Compact Disk.  It soon became the world’s largest music catalog. Then its’ offering expanded to audiobooks and TV shows.  It provided latest episodes of shows and offered 8000 movies that could be rented or downloaded.  For competitors, iTunes music store was a disadvantage.Cost Advantage:  Price : When the other players came in to existence, the Average Selling Price of ipods were in position to decrease. They were initially priced by $399 when Apple launched it, but then when the comparison begun apple’s ipods were higher than the price range of $50 to $100.  DRM - Digital Rights Management : Initially when the ipod was launched the DRM system named Fairplay was an disadvantage for the users. Its main policy is to prevent the iTunes from the piracy issues. So it limited the computers that could play a downloaded iTunes song only for five. It means it can’t be played more than that. The other main trick is the other company MP3 players can’t play the downloaded song in it. So it simply made observers to call iTunes as Trojan horse. This made the different users to download more number of download for a single song because copying is limited.  First Mover: Apple has changed not only the way people listen to music, but it has transformed its parent company Apple into an entertainment giant. The another main advantage it had was the early mover. After apple’s ipod, other companies like SanDisk, Creative, Samsung came with their products, but they had market of 10 % and below. In 2006 Microsoft also came with Zune. Any competing product will certainly be judged 3
  • 4. against the gold standard of iPod, and because of Apple’s early entry and subsequent early lead.  “Halo Effect”: The iPod is not merely an MP3 player. It is a symbol which encompasses many grand ideas. Apple’s ipod got a good reputation, one of the reasons for that is, because it got benefited by its Mac computers. It helped the ipod with the credibility on the new product, that it would have something new to experience. The reason for the need of this support is, at that time the market was not very well acquainted with this type of digital electronic portable music players.  Stylish Models: Their look of the ipod was very stylish, which could attract youth largely.Threat of Rivalry: Moderate  Competition for iTunes: Other online music stores took the advantage of DRM system, which apple maintained with music labels and then they become biggest competitors for Apples iTunes music store. They are Amazon.com, Napster, Walmart.com. They offered individual songs at a discounted and competitive price to iTunes.  Competition for Music Streams: Internet radio sites such as Pandora and Last.fm offered free music streaming. Spotify, allowed its users to create their own playlist.  Competition from Mobile segment: The competition from mobile phone segment is really a biggest threat for Ipods, because they are also providing the same capacity of number of songs and stylish, but if it does not keep the products innovative, the other company’s products which are lower in price than iPod can be a significant threat in anytime.Threat of Substitutes: Moderate The substitutes for ipods can be a mobile phone, CD player, MD player, radio, etc.; The easy ofgetting the MP3 files has been making customers leave from the other music players. Apple’s iTunesmusic store and other online music stores are making download easier and the access of those files areeasier to use and convert in other formats. 4
  • 5.  Trend Change: As already people moved from ipods to iphones which consist of all the advantages of ipods music needs, their own iphone product may cannibalize their ipod sale.Bargaining power of Suppliers: High The suppliers for raw materials and labor can be the threat, but the supplier who holds the mainprofitability is the song writers, singers and players.  DRM: Before the agreement with Apple, to get more margin, those music labels started offering monthly rental plans through other retailers. Another big threat is the illegal free music download websites or P2P file- sharing sources. Easy and cheap access to MP3 files can encourage the MP3 player market, but on the other hand, this can be the threat to iTunes.Bargaining power of buyers: Low The number of buyers is continuously increasing and they are looking for innovative productsand updated products. The increasing sophisticated knowledge of mobile phone applications andInformation technology makes the buyer knowledgeable to use all kind of software. The internet speedand the music file providers are developing and these environments encourage the MP3 buyers. IPodhas relatively loyal customers and they are willing to pay the premium price to their favorable featuredproducts and for their stylish looks. So that the threat is low.Conclusion Trend: MP3 players from in its future won’t be strictly judged by their technical merits, but ratherthan may be on their value as a style accessory. However iPod also created a whole industry, whichmust now be characterized as having a broad scope, simply because of its ubiquitous presence. It maybe a unique niche. It certainly will be at the time, because they intentionally did not go for costleadership, as the price has already come to a reasonable halt. 5
  • 6. 2. How do you assess Apple’s competitive position in smartphones? Introduction Apple’s competitive position can be explained in analyzing the Porters five force model. In 2007, Steve Jobs, renowned CEO of Apple, announced that the company which he founded would no longer be known as Apple Computer, Inc. Its new name would just be Apple, Inc. This seemingly trivial change represents a fundamental shift with deep implications that were the result of many changes Apple had engineered over the past six or seven years; transitioning itself from a computer company slugging it out for a meager share of an increasingly competitive hardware and software market, to a business that promoted an entirely new concept, the digital lifestyle. Apple was in the technology sector, and has expanded from the computer industry into peripherals and the digital entertainment industry because of the wide scope of its products and services. Analysis The sustainability of Apple’s Iphone can be identified by the analysis of porter’s five forcemodel.Threat of New Entrant : Low  Product Differentiation: iPhone has add-on functions with technology from their own PC and MP3 player. Mobiles are now focused more on adding feature with them like camera, calendar, watches, memory for Mp3, alarm, internet browsers, mail facility etc,… With those additional downloaded feature software applications made them more useful and makes users for to be more dependent on them. Those are dictionary, games, Office notes, etc,…  Cost Advantage: High proprietary technology and favorable access to raw materials. While other competitors were having the price range of $300 to $ 400 with all those features, Apple had the advantages of price range of around $562. 6
  • 7.  Consumers Loyalty: Its loyal customers are always showing a positive response for Apple’s product. The new customers of their ipod added a significant customer base to Apple iphone. They were changed and showed interest to use the more featured devices.  Economies of Scale: High demand in R&D and marketing. Today’s cell phones come with a lot of add-ons like camera, voice recorder, speakerphone, MP3 player and FM receiver. Apple spent more than two and half years in the development of phone, under intense secrecy. They had almost spent around $150 million. In addition to it, it had some experience in radio technology which was helpful in developing mobile technology soft wares.  Memory: They also have built in memories to record and retain voice and pictures and facility to download them to a computer. The price of the products varies according to the memory capacity of the phone. 8 GB memory capacity iphone cost around $ 199 with subsidy from AT & T and the same model cost around $599 without subsidy from AT & T. They have 16 GB memory capacity also. So it always tries to be in a place where and when the customers need increase.  Number of available Apps: When we see the exhibit no 9 we can indentify that the number of available apps in Apple’s store was the highest one with 1,85,000,where android has only 30, 000 and Symbian didn’t have anything. One study indicates that the iphone users having average of 37 apps, when compared to the Android users having 22 apps.Threat of Rivalry: High There are relatively large number of competing firms such as Samsung, LG, Motorola, etc., butfrom exhibit 8 we can come to know that Mac OS X was in the third position in over all smart phonemarket with 14.4 % of market share, when others like Symbian and RIM having the market share of46.9% and 19.9%. of world wide market of smart phones. Microsoft and android gained 8.7% and 4 %in the world market by 2010. 7
  • 8. Threat of Substitutes : Moderate Till now the threat of substitute is low, but when we look at the ipad segment, in future theymay be a thread for them. They are providing all the features of a smart phone as well as the features ofmost of the features and operations of a laptop / notebook. The reason for this they are also handy, portable, weightless when compared to laptops andservice all the requirements of a smartphone, but it has to define itself whether it is going to positionitself as the up gradation of iphone or a small version of laptop or notebook.Bargaining power of Suppliers: Low As many more developers are interested in developing iphone and android apps, this will lessenthe competition more from aggressive, because the almost 87% were interested in developing iphoneapps and around 81% were interested in developing Android apps. There is no scares for developers. Today’s phone has a lot of functions in addition tocalling/receiving so there are many kinds of suppliers for the camera, MP3 players, Video players,memories, etc. Apple which is already in the industry of PC and MP3 mostly deals with internalmediates and suppliers. Initially it was facing the problem of telecom operator’s “locked” policy. Then it was sorted outwith Apple ad AT & T. Though it doesn’t support any flash memory, there is no need to rely on anyother company for this.Bargaining power of buyers: Low The smart phone industry is booming day by day, the users are moving more towards improvingthemselves in using the sophisticated versions to make their work easy, because it replaces so manyother handy separate devices like watches, calculators, calendars, digital camera, etc,… The other reason for this could be the attraction towards the stylish sensitivity of youth. Theyare more attracted towards those nice appealing outlook of iphones. So till now it has its ownadvantages and savvy techs to retain its position. 8