Title: Apple Computer
1Apple Computer
Jonathan Leonard
2The Personal Computer Industry
- Increasingly sophisticated buyers
- Intense price competition/ limited ability to
differentiate - Low barriers to entry
- Many potential substitutes
- Strong suppliers, who appropriate much of the
industrys profits (i.e., think Microsoft and
Intel) - Complements have been fueling demand (only bright
spot)
Tough industry!
3A Better Product
- Windows 95 Apple 85
- So What?
41996 Hey, We Made the Cover!
5The Icons 1996 Obit
- Today, that Apple--the very icon of a
post-industrial, high-tech America--is barely
recognizable in the troubled 11 billion company
that bears the name. Years of overlooked
opportunities, flip-flop strategies, and a
mind-boggling disregard for market realities have
caught up with Apple. Microsoft Corp.'s Windows
95 has seriously eroded the Mac's technology
edge.
Business Week 1996
6Great Tech- Poor Business
- A product advantage does not guarantee a
competitive advantage - Product advantage is difficult to sustain, esp.
in tech. Imitation, reverse engineering,
inventing around is rampant - Building competitive advantage requires thinking
about whole value system, including complements
7Great Tech- Poor Business
- Firms must look broadly at the economics and
factors driving change in their industries - Apple was clearly too insularthey believed they
were insulated from the forces affecting the PC
industry - Didnt understand and respond to the broader
forces affecting PCs
8Death by Substitute
- Lower PC prices reduce customers WTP for Apple
- Windows made PCs a closer substitute to Macintosh
(i.e., differentiation declined) - Macs and PCs dont have the same complements
- Apple benefited little from the only bright spot
in the PC industry
9Should You Agree to a Dominant Standard?
- Niche player High Margins in a Smaller market
- Alliance player Lower Margins in a Larger Market
10Resistance is Futile
11Standards Fundamentally Change the Nature of
Competition
- Expands Network Externalities
- Reduces Uncertainty
- Reduces Consumer Lock-In
- Competition on Price vs. Design
- Components vs. Systems Competition
- Ex Post vs. Ex Ante Competition
12Closed or Open Architecture
Apple Closed Architecture
Wintel Open
Shapiro and Varian
13Multiple Standards?
- Difficult for multiple standards to co-exist
- Must effectively serve different markets.
- Otherwise, compatibility with complements drives
movement toward a single standard. - Supporting multiple standards is costly (do you
want an 8-track player and a CD player?)
14Network Economics
- Sell first to those with highest WTP.
- Suppose WTP also increases with number of users-
a network effect. - Demand curve first increases with network size,
then falls as hit marginal customers with lower
WTP (late adopters).
15Network Economics
Willingness to Pay
Network Size
Katz and Shapiro
163 Decades of PC Industry History in One
Slide
Willingness to Pay
A is for Apple
W is for WinTel
Network Size
17CEO Gilbert Amelio Apple Springs a Leak
- Amelio Apple is a boat. Theres a hole in the
boat, and its taking on water, but there is
treasure on board. And the problem is, everyone
on board is rowing in different directions, so
the boat is just standing still. My job is to
get everyone rowing in the same direction so that
we can save the treasure. - CFO But what about the hole?
- Source Brent Schlender, Somethings Rotten in
Cupertino, Fortune, March 3, 1997.
18Worms in the Apple
- A better product does not guarantee a better
business. - Better doesnt mean isolated from competition.
- Substitutes (Windows) erode differentiated
product advantages. As convergence progressed,
Apples niche position was increasingly
threatened.
19Worms in the Apple
- The OS market has both huge scale economies and
important network economies. - Apple chose to get on the wrong side of both when
it chose high margin proprietary architecture.
20Worms in the Apple
- Complements Apple failed to appreciate industry
value system and importance of complementors in
network markets. - Proprietary architecture (and resulting smaller
scale) made them less attractive to ISVs
21Timing is crucial.
- History takes away options. Apples options in
the late 1990s were vastly different than the
options available to it in the 1980s. - Right strategy, wrong time. Licensing the OS
might have made a huge difference a decade
earlier. You need to act when the window of
opportunity is open.
22Eight years later
- Jobs There really has been a genie locked in
that bottle! Apples innovation and creativity
have been unleashed in a way that they havent
been for 20 years. Look at the results. This
isnt a company about 5 market share this is a
company capable of competing with world-class
competitors and achieving market shares of 65,
70, and even 90. - Source Brent Schlender, How Big Can Apple
Get? Fortune, February 7, 2005.
23 90? Just not in PCs.
- Leadership Paint the Bulls-eye Around the Arrow
24BW Best Leader
Business Week 2005
25A New Strategy?
- Apple, Pixar
- No one in techland had a better yearor a
broader impactthan Apple Computer CEO Steve
Jobs. Apple continued to set techs fashion
agenda in 2005 with products such as the iPod
nano and the video iPod, as well as the Mac mini,
Apples cheapest computer ever. Indeed, no exec
sits astride both the technical and creative
worlds as much as Jobs, who also runs powerhouse
Pixar Animation Studios, maker of megahits such
as Finding Nemo and The Incredibles.That helps
explain why Jobs, 50, was able to persuade Disney
to make hit TV shows such as Lost available on
the video iPod. Within weeks of Apples coup, CBS
and NBC launched their own digital-distribution
deals. Disney played ball because it wanted to
extend its partnership with Pixarand because
iPods are so hot. Some 10 million are expected to
sell this quarter, many at Apples sleek retail
stores, where consumers see and play with Macs.
That helped Apple make its biggest PC market
share gains in yearsand helped the stock price
more than double since Jan. 1, to about 73.
Business Week 2005
26IPOD
- Marketing, Interface, and Software create
differentiation essential for premium pricing. - Proprietary Software Locks Consumer into
Hardware. (Where have we seen this move before?)
27Microsofts Response Look Before You Lock-in
And where have we seen this Complementors move
before?
28Apple Computer Today
- Current Market Value 56 Billion (They had a
good year) - Operating Margin 12
- Cash Short-Term Investments 8.7 Billion
- Debt 0
- Net Income FY 2005 1.3 Billion
- Sales by segment 2006 Q1
- Macintosh 1.7 B
- IPOD music 3.4 B
- Other (software peripherals) 0.6 B
29Apple 2001-2006
30Apple and an Alternative
31Apple They used to make PCs didnt they?
- How fast is the market for portable music players
likely to grow? When will growth slow down? - Is Apples dominant position with iPod/ ITunes
sustainable? - Oh yeah, that secondary market theyre in, can
they break out of their niche in PCs?