Apple Case Study

1. Historically, what were Apple's major competitive advantages?

Apple were a very successful company at maintaining competitive advantage over its main competitors, this success can be analysed in more detail using Porter's five forces model which is broken into:

1. The threat of substitute products

2. The threat of the entry of new competitors

3. The intensity of competitive rivalry

4. The bargaining power of customers

5. The bargaining power of suppliers

These are the five forces that determine the competitive intensity and therefore attractiveness of a market.

The threat of substitute products

Lev Grossman once commented that, "Apple is essentially operating its own closed miniature techno-economy." In other words Apple do everything for themselves, they produce their own hardware, software, operating systems and peripherals such as consumer electronics. This made it very difficult for competitors and new entrants to the market alike, to copy their ideas. There were many attempts to clone the Apple concept but none were successful, while other companies such as IBM fell victim to this. Apple promoted itself as a "hip" alternative, with colourful graphics, as opposed to the boring "green screen" of IBM. Apple also made it impossible for competitors in the MP3 player market to keep up with their cutting edge designs and ever evolving concepts, many competitors such as Dell were forced to pull out of the market.

The threat of the entry of new competitors

Apple had many new competitors enter the PC market, namely Dell and IBM, other smaller players such as Compaq and Gateway followed later. However, Apple were able to maintain customer loyalty and see off the threat of others. This began initially under the reign of John Sculley in 1990 who strived to become a low cost producer with mass-market appeal and also by bringing out "hit" products every 6 to 12 months. This helped Apple to constantly be at the forefront of the market. To facilitate the Microsoft OS users, Apple made Microsoft OS available on their machines and rightly predicted that this would lure traditional PC users to the MAC. Apple had created a whole new loyal customer base for themselves because of this.

The intensity of competitive rivalry

The intensity of competitive rivalry was easily combated for Apple by being able to supply their own hardware, software and peripherals and not having to rely on suppliers and other outside factors to complete their orders. Because Apple also modelled themselves as being "hip" and "trendy" with sleek and cutting edge designs, compare this to the dull and boring designs of IBM and other computer manufacturers of the time, this set them apart from competitors and gave them a competitive edge. MAC users grew more and more to love their machines and its functionality.

The bargaining power of customers

As soon as customer loyalty increased amongst MAC users Apple were able to produce a more exclusive range and therefore able to charge higher prices for their products. Top of the line MACs went for as much as $10,000, which led to the connotation that Apple was the BMW of the computer industry. Once customers were hooked on the MAC, Apple returned to being a low cost producer with mass-market appeal to regain market share.

The bargaining power of suppliers

Apple were a very self sufficient company in the sense that they produced all their own hardware and software and developed their own operating systems, therefore Apple had no dealings with suppliers and were able to control to the finest detail, the components that went into their product. Apple maintained this advantage over other companies such as Dell, who used Intel and Windows as some of their main suppliers. Apple therefore never had to negotiate or have any conflict with suppliers.

2. Analyse the structure of the personal computer industry over the last 15 years. How have the dynamics of the PC industry changed?

In 2005 the PC industry had recorded more than $200 billion in sales. Shipments of PCs were up by an increase of 16% on previous years. This had become a steady trend since the inception of the PC industry in the mid 1970s. IBM are recognised as being the company who brought the PC to the mainstream and made it more affordable to the everyday user. For this reason the IBM brand became closely associated with quality products and retained a sizeable proportion of the market in the early 1980s. People were so drawn to IBM that they were reluctant to purchase product clones for fear of inferiority. These trends grew until an estimated 900 million PCs were in use worldwide in 2005. IBM began to lose its dominant grip on the market in the late 1980's and its "IBM-compatible" standard, which was seen as being the best there was, was replaced by "Wintel" (Windows operating system with Intel processors). Markets for PCs such as the Asian market began to flourish and the average price of a PC actually fell from $1,699 in 1999 to $1,034 in 2005.

From a manufacturing point of view the PC is made up of four main components, a microprocessor, a motherboard, memory storage and peripherals such as a keyboard, mouse etc. Therefore anybody with any bit of manufacturing knowledge could build a PC. This is mainly due to the fact that PC components have become increasingly standardised, in turn the leading PC manufacturers slashed their R&D budgets from 5% to 1%. Companies such as Dell, instead, opted to invest their money in other areas such as marketing etc. to give them a competitive edge.

Outsourcing became a major part of PC manufacturing. Larger PC manufacturers were contracting work to parts of the globe where things like labour and components could be obtained far cheaper than in America. Places