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Since its inception, Apple has been a revolutionary company, often at the forefront of personal technological advancements and a strong position in the premium market. However, it has not been without its ups and downs. With a large customer base and the funds to expand, Apple has the potential to grow even more, but to do this it must first solve some existing issues within the company. Apple has been struggling with the following: competing with Android products outside the U.
S., fierce competition from music streaming services, and low penetration in corporate environments. To solve this, Tim Cook should appeal to international consumers, take advantage of Apple’s acquisition of Beats, and devote more attention to corporate consumers.
Over the years, Apple has diversified and is now present in several tech-related industries, including computers, smartphones, cloud storage, music (iTunes, acquisition of Beats), TV, tablets, watches, and mobile payments. Within these industries, Apple does not hold the largest market share but often generates a large portion of the industries’ total profits, such as in the personal computer and smartphone industries.
For example, although Apple only had 6.4% market share in 2014, it generated gross margins of 39%, topping Hewlett-Packard and Lenovo. While the iPhone only represent 14.8% of worldwide market share, it generated 93% of the handset industry’s total profits in 2014.
Apple’s primary competitors are Android and PC vendors, such as Samsung, Google, Lenovo, Hewlett-Packard, Dell, and more. In the music industry, iTunes primary competitors include Pandora, Spotify, Rdio, and Rhapsody.
Microsoft and IBM have acted as both competitors and allies. Although they compete in some industries, such as the tablet industry, they have also collaborated. For example, in 1997 Microsoft invested $150 million in Apple and developed products, such as Microsoft Office, for the Mac.
One of Apple’s advantages is its streamlined design. Unlike Android phones, which vary slightly from each other, Apple products seamlessly work together and employ a simple, easy-to-use design. The benefits of this are evident in the App Store’s success; although it had fewer downloads than Google Play in 2014, it generated more revenue. Additionally, developers found it more challenging to write apps for Android, since they would have to make slight alterations to the code to be suitable for all Android phones. Another value driver is Apple’s exclusivity and presence in the premium market. Apple’s emphasis on intellectual property patents and refusal to license their software adds to their desirability and value and contributes to their streamlined design. Moreover, their retail stores provide adds to the user experience by providing customers the opportunity to try out products. In 2014, retail stores generated 12% of Apple’s total revenue.
Apple’s profit margins are consistently larger than their competitors. This is achieved through their customer loyalty and reputation for premium products, which allows them to charge customers higher prices, in combination with their ambition to continue driving costs down. To do this, Apple has chosen to manufacture their products in China, rather than the United States. However, this is not without its issues. As one of the largest customers of Foxconn in China, Apple’s low production costs became controversial after several Foxconn workers committed suicide. A study commissioned by Apple found violations of the Fair Labor Association’s code of conduct. Apple has since promised to do their part to fix this. Another strategy Apple employs to keep costs down, and arguably among its most effective strategies, is horizontal and vertical integration, often relying on their own designs. For instance, in 2007 Apple invested in a plethora of memory producers in order to drive prices down. Apple also created a 25% gross margin on the first iPad model by using its own CPU.
Apple’s success is largely derived from its loyal customer base, which allows it to sell products at a premium price; when combined with their ambitions to keep production prices down, it results in huge profit margins for Apple. Furthermore, leadership plays a monumental role in Apple’s success. After a period of ups and downs in leadership, Steve Jobs return to Apple in 1997 revived the company from bankruptcy following the Amelio years. Among Apple’s strengths is its ‘digital hub’ strategy and its control of both hardware and software. Employed by Jobs, this control allows Apple products, from the Mac to the iPhone, to serve as ‘hubs’ to manipulate, streamline, and add value to Apple devices. An essential aspect of their ‘digital hub’ is making it easy to use. By creating an intuitive operating system and design, Apple strengthened the appeal of their products.
I recommend that Tim Cook strengthens Apple’s presence in international markets, primarily when in the smartphone industry; utilize its acquisition of Beats to strengthen iTunes; and create products tailored to corporate customers.
One of Apple’s weaknesses is international markets. In countries outside of the United States, most notably China, Android products dominate the cell phone market. If Cook expands Apple’s international presence, Apple could see huge gains in the smartphone industry and increase the sustainability of Apple’s competitive position in the industry. In order to compete with cheaper brands, like Xiaomi, Apple must create an alternative line of lower-cost smartphones, as well as wearables, which are growing in popularity. The Apple Watch is essential to continue competing with Android smartphones, which are compatible with other smartwatches. Additionally, new ad campaigns should be created to promote this line of products. Another way Apple can increase their international presence is by expanding its retail locations. Retail stores have been effective in the past for Apple by enhancing the user experience and giving potential customers the opportunity to test out Apple products.
With iTunes struggling, Apple should use its recent acquisition of Beats to its advantage. Exclusivity and a streamlined design have worked well for Apple in the past by adding to its appeal; creating smarter Beats headphones that integrate well with Apple products can take advantage of Beat’s customer base. Moreover, Beats’ 250,000 monthly listeners on its streaming service can help Apple compete with other streaming services, like Spotify and Pandora.
Additionally, there is potential for growth in the business world. While iPhones and iPads are present in 90% of Fortune 500s, there is a low rate of penetration. Cook’s 2014 partnership with IBM to create enterprise applications was a good move and should be further explored. I believe that it can boost iPad sales, even as tablets decline in popularity for home use. A portion of the research and development budget should be devoted to creating products with improved processing capabilities, tailor-made for corporate consumers. This will hopefully lead to an increased rate of penetration. Moreover, creating applications that are compatible with both Apple and non-Apple products can increase Apple’s presence in the corporate world. Although Apple is sometimes reluctant to open up its products, careful consideration when doing so can lead to immense benefits, such as the success seen in the App Store. It would be significantly easier to change a company’s applications to Apple products than changing all of its hardware. Apple’s software and applications can serve as stepping stool to converting corporations into Apple consumers.
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