This presentation will focus on the Apple Inc company, its innovations in hardware, and the business choice to manufacture closed systems with proprietary hardware. From the beginning Apple has been utilizing closed systems. In it’s infancy it was an industry leader, but over time its popularity faded. According to O’Brien & Marakas (2009), the microcomputer system “became a niche player because it designed closed systems with proprietary hardware and software” and ended up with “barely 3.2 percent of the U.S. desktop market.” It was able to hold on to this small market because of its desktop publishing capabilities and because some consumers did not mind paying for “an easier-to-use and more elegant product” (Cusumano, 2008). However, with the innovation of new products, Apple’s market share has risen considerably.
This presentation will begin with a brief talk about Apple’s history, including their present business endeavors. Next, the concept of “closed systems” is discussed, with an emphasis on Apple’s systems and products. What will be shown is that many of their systems such as Mac OSX, iTunes, the iPod and ,released in April 2010, the Apple iPad suffer from issues stemming from Apple’s use of “closed systems.” The discussion will then move toward potential solutions for these issues and an evaluation of the solutions. To close this discussion, it is recommended that the solution for the “closed system” problem is for Apple to do nothing. This solution will be discussed in more detail at the end of our presentation.
The story goes that Steve Jobs and Steve Wozniak began building their first computer in Jobs’ parents’ garage. Ronald Wayne joined the team and the Apple Computer company was created on April 1 st , 1976. Their innovations would create a product and brand that is recognized and sold around the world. Today the former Apple Computer Inc. manufactures everything from personal computers, software and peripherals to network solutions and mp3 players. The company, with headquarters in Cupertino, California, changed its name to Apple Inc in January 2007 “to better reflect their steady but relentless move into the wider field of consumer electronics” (Ricker, 2007)
Apple has acquired 8 companies since 2002. The 8 companies translate to about $600 Million. Some of these acquisitions are Quattro Wireless, Emagic, Propel Software, and P.A. Semi. It is with the acquisition of P.A. Semi that has gotten a great deal of attention. It appears that the reason for acquiring this company is to “acquire expertise and technology to help run increasingly sophisticated software on iPhones and iPods” (Kane & Clark, 2009), a hint that Apple is seeking to design its own computer chips. Apple has several competitors but the more obvious ones are Microsoft, Sony, Adobe Systems, Dell, Hewlett-Packard, LG and Samsung Electronics. In 1980, Apple became a publicly traded company. According to the Hoovers Inc. (2010) website, their stock started roughly at $9.00 and now sells for $224.75, as of March 22, 2010, and the third quarter of 2009 Apple posted their strongest non-holiday quarter with a 12 percent jump in revenue.
This definition of closed system can be loosely interpreted to Apple’s situation. Apple’s products are not a completely isolated system. Third parties have access and can develop software for Apple’s hardware, but have to adhere to Apple’s rules and regulations. Apple decides what programs and software can be put on their products. Here are some examples of Apple’s closed system at work and the issues that are associated with the hardware.
Have you ever noticed that Apple’s operating system is only on Apple computers? That is because Apple does not allow any other computer companies to use their OS on other computers except their own. Microsoft allows their OS to be used by various hardware companies. Companies such as Dell, Sony, and Gateway create computers that only run windows. Apple believes that keeping their OS in house allows them to have a superior product that is not compromised by a third party. Roger Kay, vice president of client computing with research firm IDC,explains that “if Mac OS X could be separated from Apple’s hardware, hackers would have pirated copies of the operating system out on the streets with little delay…this would cause great harm to Apple’s business model, which emphasizes its tight control over the entire combination of hardware and software as a premium product” (Krazit, 2005).
Apple introduced iTunes and iPod in 2001 and changed the digital media market. The iPod became a success with its sleek design and easy navigation due to the click wheel. As of 2007, Apple has sold 100 million iPods (Cohen, 2007). To create a closed system dominance in the market, Apple made the iPod compatible only with the iTunes software. Apple’s media software is the only way you can upload media onto an iPod. O’Brien and Marakas (2009) explain that Apple made a deal in 2003 that locked up their device. Apple signed a deal with the Big Five record companies first, allowing them to sell their music on iTunes on copy-protection software that is only iPod compatible. So to be able to play music that was copy-protected from iTunes, users must purchase a iPod. Also in 2003, Apple released their iTunes program to the Windows OS, so Apple’s products were able to have a wider customer base and mass market appeal. Apple’s closed system blew past the competition and now iTunes sells more than 75 percent of all digital songs (O’Brien & Marakas, 2009).
Introduced in June 2007, the iPhone became the first smartphone with not only cell phone capabilities but also iPod features. In one year over 4 million had been sold (Mickalowski, Mickelson, & Keltgen, 2008). These features included the ability to download applications, some web-based, that enhanced the functionality of the iPhone. These are not the only features that made this product unique. The iPhone functions on only one network provider, AT&T Wireless. Therefore, in order to use a fully functioning iPhone one must subscribe to AT&T. Although the applications are from different manufactures, they must go through a process to be allowed to integrate with the hardware. So while Apple “opened” their hardware doors it was only a crack and for a big reward.
The iPad is a mobile tablet browsing device that is a cross between the iPhone and the iTouch. It is expected (by Apple) to enhance our e-book reading experience as well as enhance the way we surf the net and email friends. The iPad is expected a be the panacea of tablet’s against it’s competitors (i.e. Amazon Kindle, Sony Reader, Barnes & Noble Nook, Samsung Papyrus, Bookeen Cybook, and Elonex E-book). The presentation given in San Francisco on January 27 th , 2010 on the new device but will it hit the electronic community as did the iPod and iPhone is the question. With a name borrowed from Fujitsu, who has a device of the same name used to aide store clerks in remotely checking prices, inventory, and complete sales, what will this device do that’s different from its competition.
The most logical answer to Apple’s closed systems would simply to be, open them. It is what Microsoft has done with their computer systems and what RIM Blackberry and Symbian/Nokia have done with their smartphones and these companies still lead Apple in revenue and market share. Cusumano (2008) suggests that with the open system, Microsoft for example, produces products that are “good enough” so that they can serve the industry and bring “cheap and powerful computing to the masses.” In contrast, Apple has always been a company set on developing “truly great” products and by opening up their systems they may very well lose this focus (Cusumano, 2008). With an open system Apple’s iPhone, iPod, and now the iPad would be able to effectively use websites and web-based applications that rely on Adobe Flash and Java. This could increase the use of this hardware in business, some of which rely heavily on the Java programming language and with Flash on many websites.
One possible solution for Apple is to do nothing at all. Apple’s closed model system has turned into huge profits for the company. In 2005, Apple had a U.S. market share of 4.5% (Dalrymple, 2005). In the first quarter of 2009, Apple’s U.S. computer market share was at 7.4%. (Jordan, 2009). Slowly Apple is becoming a significant competitor against Microsoft and the PC market it has dominated for decades. Some people believe that the recent success comes from a ‘halo effect’ of Apple hardware. The ‘halo effect’ are people buying an iPod or iPhone and becoming fans of that product. They believe it is a good product and want to purchase more Apple products such as a computer. People are enjoying Apple’s mobile devices and want that same enjoyment in their laptops and PC’s.
Welcome to the club, is what it would essentially be if Apple Inc. decided to open their systems. Windows, Linux, RIM, and Nokia have all done it with great success. Open systems allows for any hardware to be utilized by using a third-party supplied driver (Cartwright, 2006). By having “relatively open technical interfaces and easy licensing terms in order to encourage other firms to contribute complementary products and services”, you create an ecosystem that would allow for more users to adopt the platform (Cusumano, 2008). Currently, Apple has so many restrictions concerning interpreted codes. This has been one of the reasons that Adobe’s Flash and Java have not been about to integrate with their “closed system”. Adobe is still trying to convince Apple to allow the integration of flash into Safari. Early in 2010, a new version of flash was released. It has been utilized Google Android, Blackberry, Windows Mobile and Nokia Symbian. Being an open system would allow for the integration that these other companies have allowed. While this sounds good and has been seen to work well for other companies, it also lends itself to problems. Having an open system is potentially dangerous for the consumer. According to Cartwright (2006), these vendors could simply “hike the price of add-ons in the knowledge that the customer had no alternative but to buy the vendor’s own bits.”
Apple has an advantage by having closed systems. For instance, “the hardware base is finite and modest; if writing an OS, all that needs to be dealt with is a small variety of hardware” (Cartwright, 2006). This gives Apple more control over its systems and what is put out on the market, and they have shown that they can grow. With their new products they have relaxed a little so that applications will work with their systems. On a business stand point, Apple’s business model “is infectious and unprecedented” and “the company’s competitors often admit to Apple envy” (Yoshida & Ojo, 2009). This stems from what they did first with the iPod. They combined hardware, software and service as part of their business model. As Johnson, Christensen, & Kagermann (2008) wrote, they utilized “Gillette’s famous blades-and-razor model in reverse by giving away the “blades” (low-cost iTunes music) to lock in the purchase of the “razor” (high-cost iPod) thus defining value in a new way and providing game-changing convenience to the consumer.”
As previously stated, Apple has moved away from being an entirely closed system. They have learned that in order to gain more of the market they will need to appeal to more individuals, and the have done so by developing new products and being open to software applications from other vendors. They have also learned that by taking their time and developing new and innovating products, while lowering the prices of some of their existing products (i.e. their laptops), they could effectively get the consumer who is buying the new product interested in their other products. But remaining as they are will require them to continue on the path of innovation. The resulting success of their innovations does not seem to warrant them being an open system.
So why then have their innovations led to the recommendation that they continue on their path? The answer to that: software and their current popularity. Apple has shown great leaps and bounds not only in their design, but also with their hardware. But hardware is just a platform. And while their hardware, such as the iPhone, is appealing in it’s function and design, it is the software applications that can really appeal to a consumer. With popular hardware being created, those developing the software will want to “get into the game” with that product. We are seeing that with Apple’s applications and with other companies. In October 2009 Adobe and Blackberry were discussing their progress in bringing support for their Flash software to blackberry devices. O’Dell (2009) states that 19 out of the top 20 mobile headsets manufacturers are supporting Flash or in talks to discuss who to bring flash support to their phones. Likewise, Apple has seen how collaborating with software developers, though not with Adobe at this time, as being very benefitical. According to Savov (2010), it was reported by Gartner , one of the leading information technology research and advisory companies, that the Apple App Store’s market share of application downloads was 97.5 percent in 2009. This has occurred with Apple keeping it’s systems “closed.”
<ul><ul><li>Apple Inc. </li></ul></ul><ul><ul><li>Is a Closed System a Problem? </li></ul></ul>Authors: Edward Lee, Katrina Jones, Michael Brown, and Steve Bodnar
Agenda <ul><li>Company Overview </li></ul><ul><li>What is a Closed System? </li></ul><ul><li>Apple’s Systems </li></ul><ul><li>Potential Solutions </li></ul><ul><li>Evaluation of Solutions </li></ul><ul><li>Final Recommendation </li></ul>
Company Overview <ul><li>Founded in 1976 by Steve Jobs, Steve Wozniak and Ronald Wayne in California </li></ul><ul><li>Worldwide and publicly traded company </li></ul><ul><li>Over 35,000 employees (and counting) and 160 executives </li></ul><ul><li>Changed name from Apple Computer Inc. to Apple Inc. in January 2007 </li></ul>Steve Wozniak & Steve Jobs 1976
Company Overview <ul><li>Acquired 8 companies since 2002 </li></ul><ul><li>Revenue and Net Income in 2009, $42.9 and $8.2 billion, respectively </li></ul>
Apple’s Systems <ul><li>A closed system is an “isolated system that has no interaction with its external environment” </li></ul><ul><li>(Anonymous, www.businessdictionary.com/definition/closed-system.html) </li></ul>
OS X <ul><li>Apple’s OS X can only be run on Apple computers! </li></ul>
iTunes and iPod <ul><li>iTunes is a digital media program that allows users to play any music,movies,or apps on their computer </li></ul><ul><li>iPod is a portable media player that uses itunes to load media files onto the device </li></ul>
iPhone <ul><li>A revolutionary cellular phone in both design and features. </li></ul>
iPad <ul><li>On January 27, 2010, CEO & Director of Apple Inc., Steve Jobs, introduced Apple’s latest innovation, the iPad </li></ul>
Solutions for Apple’s Closed Systems- Open Systems <ul><li>Most common systems </li></ul><ul><li>Integrate with the most common languages/ software </li></ul><ul><li>Loss of “niche” </li></ul>
Solutions for Apple’s Closed Systems- Do Nothing <ul><li>“ Since the iPod was introduced in October 2001, its share price has multiplied by more than 23 times from $8.78 to $207.88” (Foremski, 2010). </li></ul><ul><li>Halo effect- “customers who buy an iPod become hooked on Apple’s products and their ease of use, and then buy a Macintosh as their primary or secondary PC” (Gibson, 2005) </li></ul>
Evaluating Solutions- Open Systems <ul><li>Standard IT and consumer electronics business practice </li></ul>
Evaluating Solutions- Do Nothing <ul><li>Apple has evolved, somewhat </li></ul><ul><li>Staying innovative has it’s benefits </li></ul><ul><li>It’s business model is working </li></ul>
References <ul><li>Anonymous. Retrieved from www.businessdictionary.com/definition/closed-system.html </li></ul><ul><li>Cartwright, D. (2006). Do you still need a Mac? ITNOW, 48 (5), 30-31. </li></ul><ul><li>Cohen, P., (2007). Apple 100 Million iPods sold, and Counting. Retrieved from http://www.macworld.com/article/57233/2007/04/ipodmilestone.html </li></ul><ul><li>Cusumano, M. (2008). Technology strategy and management: The puzzle of Apple. Communications of The ACM, 51 (9). 22-24 doi:10.1145/1378727.1378736. </li></ul><ul><li>Dalrymple, J., (2005). Analyst: iPod Halo Effect Should Continue. Retrieved from http://www.macworld.com/article/45964/2005/07/halo.html </li></ul><ul><li>Foremski, T., (2010). Apple Becomes More Closed With Each New Device. Retrieved from http://blogs.zdnet.com/Foremski/?p=1089 </li></ul><ul><li>Gibson, B., (2005). Analysts Agree: Apple’s ‘Halo Effect’ Might Be the Real Deal. Retrieved from http://www.macobserver.com/tmo/article/Analysts_Agree_Apples_Halo_Effect_Might_Be_the_Real_Deal </li></ul><ul><li>Hoovers, Inc. (2010).Retrieved from http://hoovers.com/company/Apple_Inc/rtjcci-1.html </li></ul>
References <ul><li>Johnson, M.W., Christensen, C.M., Kagermann, H. (2008). Reinventing you business model. Harvard Business Review, 51-59. </li></ul><ul><li>Jordan, A., (2009). Apple’s Computer Market Share Falls Slightly In Q1 of 2009. Retrieved from http://www.mactropolis.com/apple-news/apples-computer-market-share-falls-slightly-in-q1-of-2009 </li></ul><ul><li>Kane, Y.I. & Clark, D. (2009, April 30). In major shift, Apple builds its own team to design chips. The Wall Street Journal. </li></ul><ul><li>Krazit, T., (2005). Mac OS On A Dell? Dell Favors, Apple Opposes. Retrieved from http://www.pcworld.com/article/121421/mac_os_on_a_dell_dell_favors_apple_opposes.html </li></ul><ul><li>Mickalowski, K., Mickelson, M., & Keltgen, J. (2008). Apple’s iPhone launch: A case study in effective marketing. The Business Review, Cambridge, 9 (2). 283-289 </li></ul><ul><li>O’Dell, J. (2009, October 4). Adobe announces full Flash player for Blackberry devices & 35 funded Flash apps. Retrieved from: http://www.readwriteweb.com/archives/full_flash_player_coming_to_blackberry_devices.php </li></ul>
References <ul><li>O'Brien, J., & Marakas, G. (2009). Management Information Systems. New York, NY: McGraw-Hill. </li></ul><ul><li>Ricker, T. (2007). Apple drops “Computer” from name. Retrieved from: http://www.engadget.com/2007/01/09/apple-drops-computer-from-name/ </li></ul><ul><li>Yoshida, J. & Ojo, B. (2009, December 14). The case for Apple, and the case against it. Electronic Engineering Times, 4-10. </li></ul>