1. What, historically, have been Apple’s competitive advantages? First competitive advantage of Apple is high margin. In Exhibit 5 you can compare the percentage of gross margins and R&D/Sales of three major PC manufacturers. The percentage of gross margin of apple is the highest among the three from 2006 while there is no big difference in R&D/Sales. This implies that the manufacturing process of Apple is more efficient than those of other companies and that consumers are willing to pay a little more to buy Apples products which means they are loyal enough. Second advantage is that the product category of Apple is simpler than other companies. When you look at Exhibit 1b, you can see in what product line Apple is making profit. From March 2011 to March 2012 Apple’s net sales are generated only from Macintosh(desktops and portables), iPad, iPod, iPhone, other music products, peripherals and software. And more than 85% of its total net sales came from Macintosh, iPad and iPhone. This simple product line will be easy for the company to control over the market change.
For example in the case of phone, there are five iPhones launched (3gs, 4, 4s, 5, 5s) in Apple but Samsung has numerous kinds of cellphones. It will be very hard to take care of many kinds of product lines. Third advantage is integration. Apple has a well-made integrated system which can be utilized among the Apple’s products. For example, all the pictures, music, apps can be shared among the Apple devices through the iCloud and iTunes. So customers can get much synergy effect by buying Apple’s products rather than others. This system directly leads people to buy Apple’s product once they bought any product of Apple.
2. Analyze the personal computer industry. Why did Apple struggle historically in PCs? Apple sticked to their horizontal and vertical integration. They didn’t allow other parties to license its hardware and didn’t want to accept OS from others.
On the contrary IBM used a relatively “open” system by accepting Microsoft’s OS and a microprocessor from Intel. This flexibility led to gaining more market share and made Apple struggle in PCs.
3. How sustainable is Apple’s competitive position in PCs, MP3 players, and smart phones? Because all the features of iPod are absorbed in iPhone, I am going to consider only two; PCs and smartphones. I think Apple’s position is sustainable enough for the next few years. According to Exhibit 8, the OS market share of iOS in 2011 is 18.9% which is quite large and it is growing until now. And the unique design of products and the comfortable integrated system like iCloud and iTunes makes hard for people to change their Apple’s products to others and even make them loyal customers.
Once tasting the convenience of Apple’s system, it’s very hard to switch the product and adapt to other system. And in the case of PCs, many applications and programs, which were compatible for windows only, are getting compatible for Apple’s PCs too. We can see many Macbook users who were very hard to find a few years ago. These can be the evidence I would like to say Apple’s position is quite sustainable.
4. What are Apple’s long-term prospects for the iPad?
Apple is already providing some iPad applications like MS office. It looks like that Apple want to replace notebook computers. In today’s classroom we can see many students who are taking notes with their iPads. They don’t print or copy materials. They just download the materials and take notes on the slide right away. I felt that Apple made iPad a trend. By providing integrated systems and comfortable apps they are making people to think ‘iPad is a vital device’. Cellphone was one of luxurious goods. Smartphones are also one kind of it. But they are vital these days. Just like the phones, iPad is being considered as vital. With various kinds of applications and large market share in tablet PCs, Apple can forward more on the iPad. The iPad is very prospective.
5. What advice would you offer the new CEO Tim Cook?
Originally Apple started its business with manufacturing computers. Its name was Apple Computer Inc. at the beginning. But think about today’s Apple. When it comes to Apple, people bring up I-pod, I-phone, I-pad to their minds rather than Macintosh. Apple did not settle for its PC business but always tried to seek for other prospective business area. “Our job is to figure out what they’re going to want before they do” Jobs said. Constant efforts to be always being innovative led to the innovative image of Apple and that image made people to believe ‘there is always something different in Apple’s product.’ I think this belief is the key factor of people’s loyalty towards Apple. I just want to tell him just not to betray on that belief. Otherwise Apple can be successful as it were.