Apple Inc Pc Industry

Case Write-Up #1

Apple Inc. In 2012

12 February 2015

BUSML 4490, 7:05 Section

Team #6

1. Introduction         to Apple Inc. and PC Industry

Steve Jobs and Steve Wozniak founded Apple Inc., an IT hardware manufacturer famous for its creative ideas and innovative products, on April fool’s Day, 1976. Jobs and Wozniak started business in Jobs’ family garage and invented computer circuit board that they named Apple I. Later, Apple II was introduced which sparked a computing revolution that drove the PC industry to $1 billion in annual sales in less than three years. Due to first-mover-advantage, Apple was able to gain leadership in the market and quickly became the industry leader. However, competition began to rise and many competitors entered the market as the industry became profitable. The entrance of industry rivals affected Apple’s competitive advantage as well as first-mover-advantage. In 1981, IBM entered the PC market with Microsoft’s operating system and Intel’s microprocessor. IBM, unlike Apple, offered relatively open system that other producers could clone, soon gained more market share than Apple and set a new industry standard which caused Apple’s net income to fell significantly. PC industry’s attractiveness has changed as the industry evolved throughout the time while many competitors enter and exit the industry.  

2. Industry Analysis

        As stated above in the introduction, PC industry’s structure and overall attractiveness have been changed over time as competition between firms rose and fell trying to gain industry leadership. Due to the fact that PC industry’s structure and components have been changed over time, it is insufficient to conduct only one industry analysis to grasp the 360-degree view of the industry. Thus, this paper conducts two separate industry analysis on two segments of timeframe, early stage and current stage. To do so, this paper will utilize Porter’s five forces model to evaluate the Entry barrier, Power of supplier, Power of buyer, Threat of substitute, and Rivalry between competitors to grasp the total view on overall attractiveness of the industry.

        Even though it was Apple who immigrated the idea of “Personal” computer into market, IBM was the one that flourished the popularity of PCs. Soon after, “Wintel” which means Intel microprocessor with Microsoft’s Windows operating system became the mainstream domination of the market and set a new standard. The main difference between Apple and IBM was that Apple was reluctant to open its system to third party producers and practiced horizontal and vertical integration while IBM offered a relatively open system. Since IBM became the industry leader and thus mainstream of products offered open system that allowed other producers to clone, which lowered the industry Entry barrier. Moreover, since the mainstream of products used the indifferent “Wintel” system, the Customer switching cost was also set at low level.

        Traditionally, the most distinct and powerful suppliers of PC industry were developers of operating system (OS). Without the OS, computer cannot gain access to any application software, which provides the most benefit to the consumers. Even though there were multiple different firms, which developed different OS including Ubuntu, Linux, etc., Microsoft was able to gain the majority of the market share and industry leadership with its success of MS-DOS and Windows. Though Apple was able to come up with its own OS, IBM decided to outsource the OS system to Microsoft. PC industry, except Apple, became highly dependent to OS supplier, Microsoft, which granted the supplier high power.

        Majority portion of buyers of PC industry were composed of loyal customers, business customers and professionals. Due to the fact that the availability of products was limited to two major companies, IBM and Apple, buyers faced limited range of choice.(Please elaborate this more).

Unlike today, where PC industry is facing strong threat of substitution by variety range of products such as smartphone or tablets, PC industry was not confronted by threat of substitution back in its early stage. By the time, few things could perform same, or even similar functions as PC due to lack of technology. Hence, the threat of substitution of PC industry in its early stage was low.

The rivalry within PC industry in its early stage was at intermediate level. However, IBM soon gained the majority of the market share and Apple became the second-runner in the industry. Apple, in order to maintain its competitive stance in the industry, pioneered into a new market, education.

Early stage

The entry barrier was quite low in the PC industry in the early stage. Apple was the only company in the PC industry based on its first computer, which means that the product differentiation is low. What’s more, because of the development of OS, the requirement technology is relatively low. In another words, the cost of capital is low for new entrants.  The few competitors, low-level capital, and low differentiation product make the industry attractive for new entrants.

The bargaining power of suppliers in the early stage was medium. For those suppliers who provide products like mouse and memory chips, they have a wide market. So they don’t have much power. For those suppliers who provide CPUs and OS like Intel and Microsoft, they make the industry concentrated so that they have market power.

The bargaining power of buyers in the PC industry is low. In the early stage, the PC market was relatively small, and the products were basically undifferentiated in design, quality, price and service. Under that condition, the power of buyer is low.