Apple faced increasing problems and declining market share in the mid-1990s that led to a crisis. Microsoft's Windows operating system became the dominant standard as it licensed its software to multiple PC manufacturers who were able to offer cheaper prices than Apple's premium-priced computers. As a result, Apple's market share dropped significantly from 16% in the early 1980s to just 4% in the late 1990s. Additionally, Apple's lack of a clear pricing strategy and changing approaches hurt its ability to compete, leading to an operating loss of $1.2 billion in 1996.

1. IBCON – Global Strategic Management
Georgi, Alexander (ID: 332765)
Case: Apple Inc. 2010 – One pager case questions
October 2011
Question: Please explain and generalize Apple’s increasing problems and core strategic issue(s) leading to
the crises around the mid 1990s?
By overtaking Exxon Mobil Corp., Apple Inc. became the world’s most valuable company on 9th August 2011
with a market valuation of $337.2 billion1. However, Apple has not always been that successful throughout
the company’s history. During the mid 1990s Apple was struggling to stay afloat and almost went bankrupt
by 1996.
Loss of market share
Founded in 1976, Apple grew rapidly with high profits and became market leader of the PC industry by the
end of 1980. As IBM entered the market in 1981, the competition between Apple with its Macintosh
Operation System (OS) and Microsoft with its “open” DOS (later Windows) OS has begun (see case p. 2). At
least one factor which led into Apple’s crises was that both competitors followed different market entry
strategies. On the one hand, Apple kept its Macintosh OS proprietary and was not willing to license the
software and technology in order to enable other manufacturers producing Macintosh clones. Michael
Spindler was the first CEO which turned Apples strategy into this direction – obviously too late2. On the
other hand, Microsoft not only started setting up an ecosystem with a lot of PC manufacturers (e.g. IBM)
very early, but also a close cooperation with Intel as a producer for microprocessors. This partner network
enabled IBM and other PC producing companies to attack the market with very low prices. As a result, the
Microsoft-Intel cooperation (called “Wintel”) became a de facto standard in the Personal Computer
industry by the early 1990s, which is reflected in a market share of more than 90%. In comparison to that,
Apple’s market share decreased from 16% in the early 1980s to 10% in the early 1990s, further down to
finally 4% in the late 1990s (see Exhibit 3).
We can observe a parallel trend in today’s smartphone industry. Apple dominated this industry with its iOS
but lost a great portion of market share as Google’s open-source OS Android with a wide ecosystem of
mobile phone manufacturers such as Samsung or HTC entered the market.
It seems to be obvious that Apple’s strategy to keep third parties out of their own proprietary system does
not lead to a success in terms of gaining market shares. Regarding the PC industry, Apple was not able to
turn their advantage as a pioneer in this industry into sustained success.
Loss of operating income
Due to the significant loss of market share it was even harder to get software and applications adapted for
Macintosh. However, this is important to increase customer satisfaction. A survey conducted by
Computerworld in 1995 underlines this competitive disadvantage (see case p. 3). In addition to that, Apple
followed the strategy of selling products at a premium price. This leads into problems as competitors
started to attack the market with very low prices. Apple could not adapt their prices accordingly because of
their high cost structure, especially R&D costs, as compared to other competitors (see Exhibit 5). At this
time Apple did not have had a clear strategy how to go to the market. First, they pushed their products into
markets such as desktop publishing and education at a premium price. Later on, Scully tried to change
Apple’s pricing strategy to become more attractive to the mass-market. This plan was changed again by his
successor Amelio who returned to the premium-price strategy. Not focusing on one clear strategy was one
of the causes Apple had to bear an operating loss of $1.2 billion in 1996 (see Exhibit 1a). When Steve Jobs
returned to the company in 1997 he set up a marketing campaign to turn around Apple’s tarnished image.
Until today, Apple kept on track with this strategy which finally leads to great success.
1
“Apple Overtakes Exxon Becoming World’s Most Valuable Company”, Bloomberg.com, August 10, 2011,
http://www.bloomberg.com/news/2011-08-09/apple-rises-from-near-bankruptcy-to-become-most-valuable-
company.html, accessed October 2011
2
“Apple Computer struggles to hold on to its legend”, New Straits Times Newspaper, February 1, 1996, p. 22