This is a case study analysis of Apple In in 2010. It is strategic case study. It is analysed with porters's five force model.

1. ASSIGNEMENT : 01
APPLE INC. IN 2010
CASE STUDY
Submitted to
Prof. VEERESH SHARMA
Submitted by
SIVA SHANMUGA PRIYA N S
2011012
Indus World School of Business Date:
Greater Noida 10/02/2012
Words 2,278
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2. 1. How sustainable is Apple’s competitive position in MP3 players?
Introduction
Apple’s Ipod:
Ipod is an mp3 player designed by Apple, was launched in 2001. It found its own way to
explore the market. “An Icon of the Digital Age” – a writer wrote. When it was launched it was
designed in such a manner to be very friendly to use, large storage memory, and attractive outlook like
very sleek. It could store 1000 songs at first, when other MP3 players offered just several hours of
music. Its’ price was at $399. It contained Flash memory, one of its’ main cost component. It soon
became the world’s largest buyer of flash memory. One after other innovative designs, it came up with
new versions of Ipod like Nano, Mini etc,.. In 2010 more than 70 % of US MP3 market was captured
by Apple’s Ipod.
iTunes:
It was opened in April 2003. At first it contained no of songs in that store. Users can download
directly from the store by paying per/song cost that cost them 99 cents. This was also for the major
record labels, and there were independent music labels also. Within three days of launch, it was
downloaded one million copies of its software, and they paid for that.
Analysis
The sustainability of Apple’s Ipod can be identified by the analysis of porter’s five force model.
Threat of Entry : Low
Product Differentiation:
 The trick in iTunes Launch: It was a Razor and blade business in reverse method. That
means, by opening the iTunes music store there was no much revenue generation by it,
because out of 99 cents, 70 went to music labels, 20 cents went to credit card processing,
then also apple had to pay for its website, with other direct and indirect coats. So finally it
left with only a mere revenue in that, but its’ impact on the Ipod sale is significantly notable.
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3.  Apple’s Ipod sale for a quarter was on an average of 113,000 units, but after iTunes
Music Store launch it went to its own exploratory sale path of 733,000 units, which
was 6.5 times of the previous figure, and was continuously increasing.
 It attracted the customer by its iTunes music store by its large collection and the ease
of use. The downloaded songs could be played in user’s personal computers,
transformed to an ipod, and burned in to a Compact Disk.
 It soon became the world’s largest music catalog. Then its’ offering expanded to
audiobooks and TV shows.
 It provided latest episodes of shows and offered 8000 movies that could be rented or
downloaded.
 For competitors, iTunes music store was a disadvantage.
Cost Advantage:
 Price : When the other players came in to existence, the Average Selling Price of ipods
were in position to decrease. They were initially priced by $399 when Apple launched it, but
then when the comparison begun apple’s ipods were higher than the price range of $50 to
$100.
 DRM - Digital Rights Management : Initially when the ipod was launched the DRM
system named Fairplay was an disadvantage for the users. Its main policy is to prevent the
iTunes from the piracy issues. So it limited the computers that could play a downloaded
iTunes song only for five. It means it can’t be played more than that. The other main trick is
the other company MP3 players can’t play the downloaded song in it. So it simply made
observers to call iTunes as Trojan horse. This made the different users to download more
number of download for a single song because copying is limited.
 First Mover: Apple has changed not only the way people listen to music, but it has
transformed its parent company Apple into an entertainment giant. The another main
advantage it had was the early mover. After apple’s ipod, other companies like SanDisk,
Creative, Samsung came with their products, but they had market of 10 % and below. In
2006 Microsoft also came with Zune. Any competing product will certainly be judged
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4. against the gold standard of iPod, and because of Apple’s early entry and subsequent early
lead.
 “Halo Effect”: The iPod is not merely an MP3 player. It is a symbol which encompasses
many grand ideas. Apple’s ipod got a good reputation, one of the reasons for that is, because
it got benefited by its Mac computers. It helped the ipod with the credibility on the new
product, that it would have something new to experience. The reason for the need of this
support is, at that time the market was not very well acquainted with this type of digital
electronic portable music players.
 Stylish Models: Their look of the ipod was very stylish, which could attract youth largely.
Threat of Rivalry: Moderate
 Competition for iTunes: Other online music stores took the advantage of DRM system,
which apple maintained with music labels and then they become biggest competitors for
Apples iTunes music store. They are Amazon.com, Napster, Walmart.com. They offered
individual songs at a discounted and competitive price to iTunes.
 Competition for Music Streams: Internet radio sites such as Pandora and Last.fm offered
free music streaming. Spotify, allowed its users to create their own playlist.
 Competition from Mobile segment: The competition from mobile phone segment is really
a biggest threat for Ipods, because they are also providing the same capacity of number of
songs and stylish, but if it does not keep the products innovative, the other company’s
products which are lower in price than iPod can be a significant threat in anytime.
Threat of Substitutes: Moderate
The substitutes for ipods can be a mobile phone, CD player, MD player, radio, etc.; The easy of
getting the MP3 files has been making customers leave from the other music players. Apple’s iTunes
music store and other online music stores are making download easier and the access of those files are
easier to use and convert in other formats.
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5.  Trend Change: As already people moved from ipods to iphones which consist of all the
advantages of ipods music needs, their own iphone product may cannibalize their ipod sale.
Bargaining power of Suppliers: High
The suppliers for raw materials and labor can be the threat, but the supplier who holds the main
profitability is the song writers, singers and players.
 DRM: Before the agreement with Apple, to get more margin, those music labels started
offering monthly rental plans through other retailers. Another big threat is the illegal free
music download websites or P2P file- sharing sources. Easy and cheap access to MP3 files
can encourage the MP3 player market, but on the other hand, this can be the threat to
iTunes.
Bargaining power of buyers: Low
The number of buyers is continuously increasing and they are looking for innovative products
and updated products. The increasing sophisticated knowledge of mobile phone applications and
Information technology makes the buyer knowledgeable to use all kind of software. The internet speed
and the music file providers are developing and these environments encourage the MP3 buyers. IPod
has relatively loyal customers and they are willing to pay the premium price to their favorable featured
products and for their stylish looks. So that the threat is low.
Conclusion
Trend: MP3 players from in its future won’t be strictly judged by their technical merits, but rather
than may be on their value as a style accessory. However iPod also created a whole industry, which
must now be characterized as having a broad scope, simply because of its ubiquitous presence. It may
be a unique niche. It certainly will be at the time, because they intentionally did not go for cost
leadership, as the price has already come to a reasonable halt.
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6. 2. How do you assess Apple’s competitive position in smartphones?
Introduction
Apple’s competitive position can be explained in analyzing the Porters five force model.
In 2007, Steve Jobs, renowned CEO of Apple, announced that the company which he founded
would no longer be known as Apple Computer, Inc. Its new name would just be Apple, Inc.
This seemingly trivial change represents a fundamental shift with deep implications that were
the result of many changes Apple had engineered over the past six or seven years; transitioning
itself from a computer company slugging it out for a meager share of an increasingly
competitive hardware and software market, to a business that promoted an entirely new concept,
the digital lifestyle. Apple was in the technology sector, and has expanded from the computer
industry into peripherals and the digital entertainment industry because of the wide scope of its
products and services.
Analysis
The sustainability of Apple’s Iphone can be identified by the analysis of porter’s five force
model.
Threat of New Entrant : Low
 Product Differentiation: iPhone has add-on functions with technology from their own PC
and MP3 player. Mobiles are now focused more on adding feature with them like camera,
calendar, watches, memory for Mp3, alarm, internet browsers, mail facility etc,… With
those additional downloaded feature software applications made them more useful and
makes users for to be more dependent on them. Those are dictionary, games, Office notes,
etc,…
 Cost Advantage: High proprietary technology and favorable access to raw materials. While
other competitors were having the price range of $300 to $ 400 with all those features,
Apple had the advantages of price range of around $562.
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7.  Consumers Loyalty: Its loyal customers are always showing a positive response for
Apple’s product. The new customers of their ipod added a significant customer base to
Apple iphone. They were changed and showed interest to use the more featured devices.
 Economies of Scale: High demand in R&D and marketing. Today’s cell phones come with
a lot of add-ons like camera, voice recorder, speakerphone, MP3 player and FM receiver.
Apple spent more than two and half years in the development of phone, under intense
secrecy. They had almost spent around $150 million. In addition to it, it had some
experience in radio technology which was helpful in developing mobile technology soft
wares.
 Memory: They also have built in memories to record and retain voice and pictures and
facility to download them to a computer. The price of the products varies according to the
memory capacity of the phone. 8 GB memory capacity iphone cost around $ 199 with
subsidy from AT & T and the same model cost around $599 without subsidy from AT & T.
They have 16 GB memory capacity also. So it always tries to be in a place where and when
the customers need increase.
 Number of available Apps: When we see the exhibit no 9 we can indentify that the number
of available apps in Apple’s store was the highest one with 1,85,000,where android has only
30, 000 and Symbian didn’t have anything. One study indicates that the iphone users having
average of 37 apps, when compared to the Android users having 22 apps.
Threat of Rivalry: High
There are relatively large number of competing firms such as Samsung, LG, Motorola, etc., but
from exhibit 8 we can come to know that Mac OS X was in the third position in over all smart phone
market with 14.4 % of market share, when others like Symbian and RIM having the market share of
46.9% and 19.9%. of world wide market of smart phones. Microsoft and android gained 8.7% and 4 %
in the world market by 2010.
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8. Threat of Substitutes : Moderate
Till now the threat of substitute is low, but when we look at the ipad segment, in future they
may be a thread for them. They are providing all the features of a smart phone as well as the features of
most of the features and operations of a laptop / notebook.
The reason for this they are also handy, portable, weightless when compared to laptops and
service all the requirements of a smartphone, but it has to define itself whether it is going to position
itself as the up gradation of iphone or a small version of laptop or notebook.
Bargaining power of Suppliers: Low
As many more developers are interested in developing iphone and android apps, this will lessen
the competition more from aggressive, because the almost 87% were interested in developing iphone
apps and around 81% were interested in developing Android apps.
There is no scares for developers. Today’s phone has a lot of functions in addition to
calling/receiving so there are many kinds of suppliers for the camera, MP3 players, Video players,
memories, etc. Apple which is already in the industry of PC and MP3 mostly deals with internal
mediates and suppliers.
Initially it was facing the problem of telecom operator’s “locked” policy. Then it was sorted out
with Apple ad AT & T. Though it doesn’t support any flash memory, there is no need to rely on any
other company for this.
Bargaining power of buyers: Low
The smart phone industry is booming day by day, the users are moving more towards improving
themselves in using the sophisticated versions to make their work easy, because it replaces so many
other handy separate devices like watches, calculators, calendars, digital camera, etc,…
The other reason for this could be the attraction towards the stylish sensitivity of youth. They
are more attracted towards those nice appealing outlook of iphones. So till now it has its own
advantages and savvy techs to retain its position.
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