Industry Analysis: Apple Computers

Industry Analysis: Apple Computers

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Industry Analysis: Apple Computers

Analyzing the computer industry from 1995 to 2005 seemed to be like analyzing a game of chest between the major competitors. The development is noticeable and the shaping of different corporate strategies could be sensed easily thanks to the different approaches toward the movement of the industry that the companies had; some of them shaped it, some followed it and some helped it grow. In order for us to analyze the computer industry during the up said time period, we will consider porter's five forces analysis, though static, it helps improve one's understanding of the setting and the conditions of such. Porte's five forces constituted the analysis of the new entrants to the industry as the barriers that can occur and the rivalry that represents it, the supplier's and buyer's power and the threats from substitute products. With this in mind, in order to determine if the industry is attractive or not we need to understand the pulling of these forces and therefore the profit potential of such industry. Since we are mainly concerned with Apple computers, we will alternate also with the position of the company and its defense against these forces giving a setting for recognizing the company's corporate strategy.

By 1995 the computer industry was a relatively new industry with a history of around 20 years only, a considerable time for a technology based industry, but still not a mature industry. On the other hand, by 2002 the industry was all ready a "$220 billion global industry" showing how "from its earliest days in the mid 1970's, the industry had experienced explosive growth" and presenting the industry as a very attractive industry with capability of even more growth. Even with this growing strength, there was a great presence of economies of scale, if a new company were to enter this industry it would have to face the cost disadvantage of not coming in with a large scale, since competing against IBM and Microsoft, and even Apple in a large scale would be suicide. Following, the industry was characterized also for been very capital intensive, for developing new products and new technologies required and investment on R&D of around $500 to $700 million, representing in Apple's case some what of a 4% to 6% of revenue investment fluctuating through out the years. On the other hand, by 2005 this capital intensive industry changed as

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manufacturers and more competitors a raised, IBM lower it's R&D investments to around 1% to 2% of revenue and other competitors dedicated to assembling and manufacturing computers like Compaq, Dell and HP had no investment in R&D but, in contrast with Apple, were highly dependent on Intel Microprocessors and Microsoft operating systems.

Like such, we can characterize the industry's rivals into two categories: Producers and Developers and Manufacturers. Developers wise, the computer industry by 1995 was dominated by two key players; IBM and Microsoft, even though Apple had introduced the first friendly to use PC Computer, it had very little market share by 1995 and IBM and Microsoft dominated the industry, "with 2001 sales of $86 billion, IBM was the largest computer company in the world" but had failed to maintain the owner ship of the PC platform allowing for Microsoft and Intel to gain control. As far as manufacturers only, the most representative companies, "accounting for 40% of PC shipments in 2001" , were Compaq, Dell and HP (Hewlett-Packard). Dell developed a very competitive internet based direct-sales structure which aloud for mass customization and low inventory costs, Compaq managed to maintain very low and competitive prices for its desktop computers through its build-to-order model and Hewlett-Packard revenue from computer sales constituted only a 20% of the entire firm's revenue, but its printers and electronic instruments for PCs constituted a 43%. As so, the competitions is high and intensive, but given the current conditions as of 2005, there may be space for new comers for the industry growth helps for it and product differences or new management models can provide good incentives.

Supplier's power, on the other hand, may be more of a barrier, for as Yoffie and Wang state: "microprocessors were the hardware brains of a PC", there for having a sole producer evidently create a great supplier power. Even thought through out the 1995 to 2005 time period there were more producers of this piece, Intel remained the market leader and Apple had a hard time competing but was not highly dependent on Intel microprocessors given that apple produced its computers from scratch. As far as the second most important piece of the computer, the operating system, Microsoft dominated the market especially after during 1995 to 2005 after the release of Windows 95 and its following versions. Ones again, Apple did not have a high dependency of Windows processing system, but had a hard time competing with it. Considering, supplier's power for manufacturers and most companies, except for Apple, is extremely.

As far as buyer's power, the PC buyers are segmented by Yoffie and Wang into four categories: 1) business, 2) Government, 3) Education and 4) Home. The business buyers represented around 60% of the PC industry, even so, we may not consider the business buyer as a very powerful one since (comparing to other consumers) it is the least cost sensitive, this not saying that the business buyer is not concern with price, but it is more concern with a combination of service an price and not just price. Apple's business buyer were not the most representative, but had a small share, still, government and education did represent the most buyers of Mac computers. Government and education represented around 8% of the PC market, but Apple's presence in this segment was powerful. Finally, home buyers were the most price-sensitive, they represented 32% of the industry and were mainly targeted by IBM and other manufacturers even though Apple had always intended to have more share in this market but still has not had a representative one. Apple's main issue is targeting and concentrating on its core buyers, but essentially, buyer's power is relatively low for this industry.

To rap up into our five forces, we have to consider now the substitute products to the PC or alternative technologies. According to Yoffie and Wang, "a number of analysts believed that PCs had reached the end of the line" , some substitutes considered were the network computer, hand held PDAs, smart phones, TV set-top boxes and video game boxes, still, only the network computer could represent a threat, but still this can be viewed more as a development of the industry than a threat for most of the companies which produced, manufactured and distributed PCs are the same companies that follow the network computer. As far as PDAs, TV boxes and video game boxes, it doesn't seem like these products could be so much of substitutes but more of complements.

Concluding, the main entry barriers that can be considered is the economies of scale and the great cost that could be enquired on for not been able to come in through large scale production. This no capability of large scale production is given by the big rivalry that all ready exist and the oligopoly that characterizes the industry; IBM, Microsoft, Intel, Apple, Dell, Compaq and HP can summarize pretty much the main players in this industry. Continuing with entry barriers, during the beginning of the period (1995 10 1997) was still characterized for been a highly capital intensive industry requiring big investments in R&D, still, by 1999 to 2001 with the entrance of more manufacturers, the investment in R&D lowered (excepting Apple to some extend) and capital requirement represented less of a barrier. Following this idea, we said that supplier's power was high considering the dominance of Intel's microprocessors and Microsoft's operating systems, still, buyer's power was relatively low considering only the four buyers appointed by Yoffie and Wang; business, government, education and home. Finally, substitute technologies did not represent a big threat for the industry but more of a development of such.


Creating a core competence out of the iPod could be a great challenge since differentiating between product advantage and competitive advantage could be tricky. There for, we can look at Ghemawat and Rivkin's clear definitions for competitive advantage to set a guide for our suggestions; a firm creates competitive advantage by adding value and by an "integrated set of choices that distinguishes a firm from its rivals." Based on or previous industry analysis, we could say that Apple's main challenge to create a competitive advantage out of iPod could focus more on integrating than differentiating or adding value.

With this idea, we need to focus on the difference between creating competitive advantage vs. sustaining competitive advantage. Apple's added value of the iPod is clear to the market, its competitors and its consumers, the gap between willingness to pay and supplier opportunity cost for the iPod is very big and its is been kept this way by Apple through the introduction of new iPod versions and iPod based products periodically. In essence, if Apple diapered, the MP3 market would suffer greatly, there for, we can also relate iPod to scarcity. Even though the iPod is not the only MP3 player in the market, it is the most representative and hardly competes for market share with other products that serve to the same purpose.

Still, even if iPod has this great product advantage, as we can see from the industry analysis, the PC industry is highly dependent on supplier's power, been that iPod is of course dependent on PC support, it is important to consider Apple's asserted attempt to make its iTunes application (the iPod's basic software foundation) compatible to Microsoft's operating systems providing a step closer to a competitive advantage by reducing dependency on only Mac software.

As far as integrating, as we said before, this might be the greatest challenge for Apple. We have seen how Apple had characterized as of 2005 for pioneering innovations but also falling into failure after a big success, not been able to maintain its position. By understanding the industries biggest threats (supplier power and rivalry) Apple can this time foresee its maintenance of it current peak state. Decomposing the company into the main activities and analyzing the cost drivers could help, but it seems to be more important for Apple to explore options and make choices. It might have come to the point were all efforts need to concentrate on the development of the iPod and its future branches. iPod as of 2005 represented around 46% of the companies Net sales , asking for an integrated company solution to make it sustainable.

Given all of this, Apple should concentrate on working with the PCs main supplier, broadening it customer segmentation and maintaining rivalry in the MP3 business at its lowest. As Ghemawat and Rivkin stated: "competitive advantage involves choice" , it might be time for Apple to stop trying to change the world though its Mac computers (with out, off course, retiring from this market) but to focus on it new possible core competence: the iPod.
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