Using Porter's 5 Forces on Apple

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Apple
Nasdaq: AAPL
Porter’s Five Forces

2. • Porter’s Five Forces make up one of the most recognized
frameworks for assessing the competitiveness and
attractiveness of a particular company and its industry.
• Named after Harvard professor Michael E. Porter, this
framework identifies five forces that can help investors identify
opportunities and threats within an industry.
• The five forces are: threat of new entry, supplier power, buyer
power, threat of substitution, and competitive rivalry.
• While Porter’s is good for examining a company’s strengths and
weaknesses, it’s only meant as a starting point and may not be
predictive of the long term.
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What are Porter’s Five Forces?

3. • There is no one official way to score the model. This method is
simply a way to categorize companies.
• Each market force is scored on a spectrum, with high representing
the highest threat and low representing the lowest threat.
• All five forces are then taken together and evaluated holistically on
the same low/high spectrum.
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Scoring
Low High
Medium

4. The more players there are, the more intense the competition for the
same customers. As companies struggle to differentiate themselves,
it’s easy to make pricing the focal point.
• Apple has avoided price-based competition thus far by staying away
from low-end markets, where price is the main differentiator.
• Apple products never go on sale. By generating a superior product
to the Android phones, rival tablets, and e-readers, it competes
based primarily on quality, service, and unique ecosystem.
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Competitive Rivalry

5. The bargaining power of suppliers is determined by the uniqueness of
supplier’s products.
• Apple reduced the power of chipmakers by designing its own chips.
• Apple reduced the power of manufacturers, like Foxconn, by buying
manufacturing equipment and only allowing the equipment to be
used for Apple products.
• Apple reduced the power of distributors by taking over retail
distribution and product services through the Apple Store.
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Supplier Power

6. In general, the more customers a company has, the less bargaining
power each customer will have. And if switching costs are high, then
buying power substantially decreases.
• Apple keeps switching costs high by keeping critical products’
features the same and easily transferable among devices, i.e.
contacts, calendar, Pages, Numbers, iCloud, iPhoto, iMovie, iOS.
• To increase Apple’s stickiness, the company carefully broadens its
innovative product flow. (From iPod to Watch, but always on iOS).
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Buyer Power

7. In order to succeed against Apple, new entrants have to find a way to
offer better products at more affordable prices.
• Apple has a strong brand image, innovation, and customer service
— making it difficult for new entrants to compete against.
• Tim Cook’s supply-chain expertise is a great defense against low-
end disruption from new entrants. New entrants will have difficulty
matching or beating the supply-chain cost structure.
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Threat of New Entrants

8. Not necessarily the same products offered by other companies, but
rather different products that satisfy the same need as the products
being offered.
• Apple mitigates this effect by selectively making products which
might ultimately replace the MacBook or the iPhone, i.e. wearables
and simple, cheaper version of the MacBook.
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Threat of Substitutes

9. • Competitive Rivalry: Medium
• Supplier Power: Low
• Buyer Power: Low
• Threat of New Entrants: Low
• Threat of Substitutes: Medium
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Summary