Apple Inc. Case 2010

Apple has had various competitive advantages since its origin until the present. Firstly, Apple’s innovation has always been its hallmark. Beginning with the first “Apple I” till the “iPad 2”, Apple products have change the development of the market many times, specially during the last decade, with the first iPod’s lunch. Although Apple’s single technologies have not been walkthroughs created by the company itself, it has developed the characteristics of these technologies and combined them in a way that had never been done before.

One of Apple’s main ways to innovate is through the ease of use of its products, another of its big competitive advantages. Apple’s products are popularly considered as very intuitive and, although MP3 players already existed in 2001 or multi-touch surfaces in 2007, products like the iPod and iPhone allow the use of these technologies and devices in a very practical way with an almost vertical learning curve. Besides this ease-to-use, Apple has “plug & play” oriented designs: devices ready to be used with a series of peripherals without requiring prior knowledge.

This has led Mac computers to be “digital hubs” of the new digital devices. Moreover, Apple has always had a proprietary design. Apple has never licensed any of its products or designs (except during Spindler’s management). This means that it has always had a wide control over its value chain, from the designs from scratch of their computers, till the software and its marketing or sales. It has a widely vertical integrated business and nowadays, it is even beginning to design its own microchips. This has led to a very unique differentiation that can be hardly found in competitors’ products.

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That is why one of Apple’s most typical characteristics are its products’ elegant and state-of-the-art industrial designs and superior software (OS). All components of its products are perfectly integrated and work altogether better than separated. Apple’s design process consists of a series of activities that can be hardly copied. Finally, it is very important to highlight Apple’s brand image and the whole culture created around it. As Jobs says, Apple products are intended to be a “cultural force”.

Apple delivers through its products complete solutions and experiences, different to the use of any other company’s products. Its devices are considered as iconic within their correspondent markets and the company is seen as a leader of the “digital age”. Apple has always had a solid base of loyal customers and its brand is presently one of the best known in the world. Furthermore, Steve Jobs CEO is considered as an innovation guru and has been named CEO of the decade, boosting Apple’s popularity even higher, if possible.

Analyze the Personal Computer Industry

Are the dynamics favorable or problematic for Apple? The personal computer industry is a highly concentrated market. The four top PC vendors (Acer, Dell, HP and Lenovo) control the 55% of worldwide shipments. It is a competition intense sector given the low switching costs of the industry. Growth has been driven by a decrease of prices and expansion of capabilities, with consequently higher sales volumes, but with a relatively smaller growth in revenues. PC components are going through a standardization process and PC makers are cutting expenditures in R&D.

Due to the aforementioned low switching costs and the low differentiation among vendors, the threat of substitute products is very high in the industry. However, despite the low product differentiation, vendors have built strong brands and the investments required to enter the sector are very high, for what the entrance of new competitors with similar volume and brand awareness as the present top vendors is quite unlikely. The only open way for competitors seems to be the “white-box” market (with around 30% of sales in 2009), but these machines cover only the desktop market.

Regarding the clients’ power, they have a wide range of very similar products in design, capabilities and price to choose from, for what the switching costs are very low, as mentioned. PC vendors’ customers are therefore in a strong position to push them in the desired direction. On the other hand, PC makers have also high bargaining power in their relationships with their suppliers, as PC components are widely available at very competitive prices (excluding microprocessors and operating systems).

As for Apple, the sector’s dynamics involve both favorable and problematic characteristics. The still hegemonic “wintel” systems make Apple’s products a strong and very differentiated alternative. Moreover, home consumers are the biggest segment in the industry, a group that values design, mobility and connectivity, some features in which Apple is a leader. On the other hand, the company may have an overall minor base of potential clients willing to acquire the knowledge to operate its devices.

Despite the fall in prices and increase in capabilities that the market requests, something that could seem problematic to any player in the sector, Apple is still able to charge premium prices through design and “user experience” differentiation, without requiring to push its devices capabilities over the average. All of this means that Apple can make big profits in its premium niche market, but that overall penetration might be a setback. Nevertheless, Apple is still reliant on its components’ suppliers, who “force” Apple to purchase major volumes in order to reach competitive costs.

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