Apple after Steve Jobs

Submitted To Prof. Shreeniwas V Bidwai

Submitted By

Khushboo Kumari 10bsp0698 (Sec-A)

IBS Mumbai

Business Strategies followed by Apple

1. Product Differentiation Apple prides itself on its innovation. When reviewing the history of Apple, it is evident that this attitude permeated the company during its peaks of success. For instance, Apple pioneered the PDA market by introducing the Newton in 1993. Later, Apple introduced the easy-to-use iMac in 1998, and updates following 1998. It released a highly stable operating system in 1999, and updates following 1999. Apple had one of its critical points in history in 1999 when it introduced the iBook. This completed their product matrix, a simplified product mix strategy formulated by Jobs. This move allowed Apple to have a desktop and a portable computer in both the professional and the consumer segments. The matrix is as follows: Professional Segment Desktop G3 Portable PowerBook iMac iBook Consumer Segment

In 2001, Apple hit another important historical point by launching iTunes. This marked the beginning of Apples new strategy of making the Mac the hub for the digital lifestyle. Apple then opened its own stores, in spite of protests by independent Apple retailers voicing cannibalization concerns. Then Apple introduced the iPod, central to the digital lifestyle strategy. Philip W. Schiller, VP of Worldwide Product Marketing for Apple, stated, iPod is going to change the way people listen to music. He was right.

Apple continued their innovative streak with advancements in flat-panel LCDs for desktops in 2002 and improved notebooks in 2003. In 2003, Apple released the iLife package, containing improved versions of iDVD, iMovie, iPhoto, and iTunes. In reference to Apples recent advancements, Jobs said, We are going to do for digital creation what Microsoft did for the office suite productivity. That is indeed a bold statement. Time will tell whether that happens. Apple continued its digital lifestyle strategy by launching iTunes Music Store online in 2003, obtaining cooperation from The Big 5 Music companiesBMG, EMI, Sony Entertainment, Universal, Warner. This allowed iTunes Music Store online to offer over 200,000 songs at introduction. In 2003, Apple released the worlds fastest PC (Mac G5), which had dual 2.0GHz PowerPC G5 processors. Product differentiation is a viable strategy, especially if the company exploits the conceptual distinctions for product differentiation. Those that are relevant to Apple are product features, product mix, links with other firms, and reputation. Apple established a reputation as an innovator by offering an array of easy-to-use products that cover a broad range of segments. However, its links with other firms have been limited, as we will discuss in the next section on strategic alliances. There is economic value in product differentiation, especially in the case of monopolistic competition. The primary economic value of product differentiation comes from reducing environmental threats. The cost of product differentiation acts as a barrier to entry, thus reducing the threat of new entrants. Not only does a company have to bear the cost of standard business, it also must bear the costs associated with overcoming the differentiation inherent in the incumbent. Since companies pursue niche markets, there is a reduced threat of rivalry among industry competitors.

A companys differentiated product will appear more attractive relative to substitutes, thus reducing the threat of substitutes. If suppliers increase their prices, a company with a differentiated product can pass that cost to its customers, thus reducing the threat of suppliers. Since a company with a differentiated product competes as a quasi-monopoly in its market segment, there is a reduced threat of buyers. With all of Porters Five Forces lower, a company may see economic value from a product differentiation strategy. A company attempts to make its strategy a sustained competitive advantage. For this to occur, a product differentiation strategy that is economically valuable must also be rare, difficult to imitate, and the company must have the organization to exploit this. If there are fewer firms differentiating than the number required for perfect competition dynamics, the strategy is rare. If there is no direct, easy duplication and there are no easy substitutes, the strategy is difficult to imitate. There are four primary organizing dilemmas when considering product differentiation as a strategy. They are as depicted below.

resolve these dilemmas, there must be an appropriate organization structure. A UForm organization resolves the inter-functional collaboration dilemma if there are

product development and product management teams. Combining the old with the new resolves the connection to the past dilemma. Having a policy of

experimentation and a tolerance for failure resolves the commitment to market vision dilemma. Managerial freedom within broad decision-making guidelines will resolve the institutional control dilemma. 2. Leadership roles

It will facilitate the innovation process: Institutional Leader, Critic, Entrepreneur, Sponsor, and Mentor. The institutional leader creates the organizational This role also resolves disputes,

infrastructure necessary for innovation.

particularly among the other leaders. The critic challenges investments, goals, and progress. The entrepreneur manages the innovative unit(s). The sponsor

procures, advocates, and champions. The mentor coaches, counsels, and advises. Apple had issues within its organization. In 1997, when Apple was seeking a CEO acceptable to Jobs, Jean-Louis Gasse (then-CEO of Be, ex-Products President at Apple) commented, Right now the job is so difficult, it would require a bisexual, blond Japanese who is 25 years old and has 15 years experience! Charles Haggerty, then-CEO of Western Digital, said, Apple is a company that still has opportunity written all over it. But youd need to recruit God to get it done. Michael Murphy, then-editor of California Technology Stock Letter, stated, Apple desperately needs a great day-to-day manager, visionary, leader and politician. The only person whos qualified to run this company was crucified 2,000 years ago. Since Jobs took over as CEO in 1997, Apple seems to have resolved the innovation dilemmas, evidenced by their numerous innovations. To continue a product

differentiation strategy, Apple must continue its appropriate management of innovation dilemmas and maintain the five leadership roles that facilitate the innovation process. 3. Strategic Alliances Apple has a history of shunning strategic alliances. On June 25, 1985, Bill Gates sent a memo to John Sculley (then-CEO of Apple) and Jean-Louis Gasse (thenProducts President). Gates recommended that Apple license Macintosh technology to 3-5 significant manufacturers, listing companies and contacts such as AT&T, DEC, Texas Instruments, Hewlett-Packard, Xerox, and Motorola. (Linzmayer, 245-8) After not receiving a response, Gates wrote another memo on July 29, naming three other companies and stating, I want to help in any way I can with the licensing. Please give me a call. In 1987, Sculley refused to sign licensing contracts with Apollo Computer. He felt that up-and-coming rival Sun

Microsystems would overtake Apollo Computer, which did happen. Then, Sculley and Michael Spindler (COO) partnered Apple with IBM and Motorola on the PowerPC chip. Sculley and Spindler were hoping IBM would buy Apple and put them in charge of the PC business. That never came to fruition, because Apple (with Spindler as the CEO) seemed contradictory and was extraordinarily difficult in business dealings. Apple turned the corner in 1993.

Spindler begrudgingly licensed the Mac to Power Computing in 1993 and to Radius (who made Mac monitors) in 1995. However, Spindler nixed Gateway in 1995 due to cannibalization fears. Gil Amelio, an avid supporter of licensing, took over as CEO in 1996. Under Amelio, Apple licensed to Motorola and IBM. In 1996, Apple announced the $427 million purchase of NeXT Software, marking the

return of Steve Jobs. Amelio suddenly resigned in 1997, and the stage was set for Jobs to resume power. Jobs despised licensing, calling cloners leeches. He pulled the plug, essentially killing its largest licensee (Power Computing). Apple subsequently acquired Power Computings customer database, Mac OS license, and key employees for $100 million of Apple stock and $10 million to cover debt and closing costs. The business was worth $400 million. A massive reversal occurred in 1997 and 1998. In 1997, Jobs overhauled the board of directors and then entered Apple into patent cross-licensing and technology agreements with Microsoft. In 1998, Jobs stated that Apples strategy is to focus all of our software development resources on extending the Macintosh operating system. To realize our ambitious plans we must focus all of our efforts in one direction. This statement was in the wake of Apple divesting significant software holdings (Claris/FileMaker and Newton). There is economic value in strategic alliances. In the case of Apple, there was the opportunity to manage risk and share costs facilitate tacit collusion , and manage uncertainty. It would have been applicable to the industries in which Apple operated. Tacit collusion is a valid source of economic value in network industries, which the computer industry is. Managing uncertainty, managing risk, and sharing costs are sources of economic value in any industry. Although Apple eventually realized the economic value of strategic alliances, it should have occurred earlier.

What next for Apple after Steve Jobs' resignation?

"Steve Jobs had an artist's eye as well as a definition of what great engineering is," Eric Schmidt, the chairman of Google, said in his keynote speech at the Edinburgh Television Festival on Friday.

Steve Jobs unveils the new iPhone 4 in June, 2010 Photo: PAUL SAKUMA If Apple's arch enemy is paying tribute to the company's departing chief executive in this way, his replacement, Tim Cook, could be forgiven for feeling daunted about the challenge which lies ahead of him. Cook may be well-versed in the company he now finds himself in charge of, but as Apple vies with Exxon Mobil to be the biggest company in the world, it feels as though it has reached something like corporate maturity. And companies at the top of the pile have only one way to fall. That's not to say Jobs' exit marks the start of an immediate descent. Far from it. Cook is a skilled operational leader while Jobs, widely recognised as the creative

force of Apple, will continue to make his presence felt in his new role as chairman for which he has volunteered himself. The markets clearly have faith in the new set-up, together with the world-beating team of senior managers that they have gathered around them. However, Cook must keep sharply focused on Apple's life blood its relentless conveyor belt of innovation if he is not to oversee the slow demise of the most successful technology company in the world. Apple's success in the past decade has been defined by a succession of hyperdesigned, game-changing gadgets that consumers never really knew they needed until they were launched and became indispensable. Jobs had instinctive faith in Apple's new products he eschewed market testing but that is a rare skill. Among the many tributes to Jobs' legacy this week, rivals have told how they underestimated Apple innovations. Dan Hesse, the chief executive of Sprint Nextel who was a director on the iPhone board when it launched in 2007, said: "Everyone underestimated how incredibly successful it would be. We took the iPhone seriously, but we were much more concerned with RIM [the maker of BlackBerry." Nick James, at Numis Securities, agrees. "It's never been easy to guess where Apple might go next, even though within 12 months of launching a new product, it is hard to imagine it could ever have been any other way," he said. "Apple doesn't so much create new markets as change the way we do everything." Its products rebalance and in some cases redefine entire industries. Apple may be a technology company first and foremost, but in the past decade it has arguably been

the single most dominant force in each of the music, telecoms and print media businesses. It does this not through introducing brand new inventions, but by perfecting existing ideas. Microsoft had been playing around with tablets for years before the iPad launch, but they had never taken off until Apple's sleek version. However, the company's pitch-perfect aesthetic should not be allowed to overshadow the rapidity with which Apple has kept these new products coming to market and the speed with which they have entirely restructured its revenues. In 2008, Apple achieved nearly half of its income from sales of Mac desktops and laptops and around a quarter from the iPod. The iPhone had been in existence for a year but barely registered 6pc. Fast forward to Apple's most recent results, covering the three months to June 25, and iPhones accounted for half of Apple's revenues with iPods contributing just over 6pc. It's a dizzying recalibration, and one that works just fine if Apple can keep on coming up with those game-changing ideas. Apple has not given any indication of what it will tackle next, but speculation is rife that it will take on the television. "Apple likes to sell a global product, but television is traditionally quite fragmented in the way it is delivered," James said. "If Apple goes all the way down the route of the video distribution model, there is a real threat of it effectively disrupting the business models of stalwarts like Sky." But just imagine if Apple hadn't come up with that iPhone, or if it had been out-smarted by a sleeker, faster competitor? What sort of decline would Apple be seeing then? Or, rather more pressingly, if Cook's team does not keep delivering products that are of the same

level of success as consumers have come to expect from Apple, what sort of decline could happen when the two-year pipeline that Steve Jobs left in place starts to run dry? Unfortunately for Apple, Jobs' resignation has come at a critical time for the company. It has been used to out-running traditional hardware behemoths but now it is standing on the edge of an altogether different sort of battlefield. Google, a new-generation tech giant with ambitions and scope on the same scale as Apple's, has decided to move into hardware. Its $12.5bn (7.6bn) deal to acquire Motorola Mobility, the mobile phone maker, signals its intention to take Apple on at its own game. It wants its Android operating system to dominate smartphones (and, almost certainly, other spheres as well) at the expense of the iOS in iPhones, and Motorola's war-chest of patents give it the legal might to protect Android's customers. It is already gaining ground. In the second quarter of 2011, the Android operating system was installed in 43pc of all smartphones shipped, compared with 18pc from iOS. Meanwhile early Apple loyalists, many of whom once loved its underdog status, have started to rebel against its dictatorial approach. The new underdog, Android, is improving with each iteration allowing users more freedom and, as with Apple, so turning many of them into evangelists. However, Crispin Reed, managing director of Brandhouse, a branding agency, said: "Although Apple's products are exciting and somewhat intoxicating, some believe that its technology and software isn't as sharp as it used to be."

But while Google is arguably the most pressing threat to Apple's domination, it is far from the only one. The new hardware start-ups in Silicon Valley have grown up with Apple kit and understand the importance of aesthetic design and apparent (if not actual) simplicity. Companies that are unknown, or that are still a project in a teenager's bedroom, will develop with that model and endgame in their sights, and as is well established, technology companies have a tendency to go from 0-100mph very rapidly. Other threats comes from the Far East, where manufacturers such as China's pithily-named Semiconductor Manufacturing International Corporation (SMIC) or the mobile phone business Huawei are starting to move away from designing and producing goods for others, and towards a model where they do it for themselves. They already have the expertise and the facilities. What is more, many make goods for Apple, giving them the potential to inconvenience their would-be competitor. They couldn't easily pull the plug in his position as chief operating officer, one of Cook's most far-sighted achievements was to tie up a series of exclusive contracts with its suppliers but Apple is going to feel the pressure. And it can only sustain the reported 62pc margin on its iPhones if it is the only place where customers can get their hands on the goods. The growth of Chinese competitors could also put a dent in Apple's plans for China to play a starring role in its future growth. In the three months to June 25 it turned over $3.8bn in "Greater China" China, Hong Kong and Taiwan something Cook described as "just scratching the surface" of the opportunity he sees there.

But perhaps it's a red herring to focus on ways that Apple can keep on growing. It is true that its goal to date has been to expand in size and scope, but Jobs' resignation could signal a new phase in its evolution one more defined by focus and profitability than in the past. On Wall Street, some Apple-watchers have started to suggest that the company would be better placed to manage the next stage of its growth path if it were to split in two. One part could house the hardware business, producing the gleaming gadgets which have made Apple so beloved by consumers. Meanwhile the much faster growing iCloud and iOS businesses could be spun out into a software company. According to US reports, some analysts believe the latter businesses, which are just three years old, could already be worth more than Apple's current market capitalisation of $346bn. Separating the two units out would help Apple to play to their strengths and manage their growth strategies accordingly. In the meantime, it also has to think of what to do with the $51bn cash on its balance sheet. Simon Clements, global equity fund manager at Aviva Investors, says the "upside" of Jobs' resignation could be the softening of the Apple's board policy on returning cash to investors. "Given Jobs remains chairman, that is unlikely in the short term, but the return of cash to shareholders is a very interesting possibility in the future. From a valuation perspective Apple remains very attractive," he says. The alternative to returning that cash to investors would be some sizable acquisitions. While its Silicon Valley competitors have been busy hoovering up other companies, Apple has been pretty restrained for a company of its magnitude.

According to Bloomberg data, Apple invested just $1bn in new companies in the past decade, compared with an average of $15bn by each of its largest US rivals. If Google is spending $12.5bn on a strategic shift in direction, and hardware giant Hewlett-Packard is paying nearly that amount for Autonomy, the UK company based around cloud, Apple will be under pressure to put its money to work. As it knows only too well, in the world of technology and stoking consumer desire, no company, however large, can afford to stand still for a moment, and Apple's war-chest may be Cook's trump card to help it sustain its momentum. "They're sitting on a cash pile," says Arvind Malhotra, an associate professor at the University of North Carolina, and an expert on Apple's strategy. "[Jobs] always grew from within. If [the] lack of his vision and availability of his position causes the future pipeline not to be there, that's when the acquisition model comes into play."