Apple Inc 2015

Introduction

This paper leverages the case study “Apple Inc. in 2015” by David Yoffie and Eric Baldwin (2015) to discuss several aspects of Apple Inc.’s competitive advantage. Specifically, the discussion focuses on Apple’s historical competitive advantage, its struggle in the personal computer industry, whether its competitive advantage in the smartphone industry is sustainable and an evaluation of Apple’s strategy for the Apple Watch. The opinions presented in this paper will be formulated based on the information provided in the case study as well as perspectives from the publications listed as References.

Apple Inc.’s Competitive Advantage – A Historical Perspective

I met the local Apple fan base when I was a member of the Trinidad and Tobago Computing Society in the late 1990’s. The “Maclimeen” as they were called, all two of them, swore by Apple’s products and if they said they prayed to Steve Jobs when they wake up from sleep on mornings, no one would doubt them. Through thick and thin, they stuck by Apple and when Steve Jobs returned as Chief Executive Officer (CEO), they sang a resounding “Hallelujah!” These Apple fanboys regularly touted Apple’s products as easy to use, pleasing to the eye, original and more stable that Microsoft Windows. These perspectives are easily identified as Apple’s historical competitive advantages.

Michael Porter (1985) points out that competitive advantage exists when a firm is able to deliver products at a lower cost or with superior benefits to its customers when compared to its competitors. This is more commonly known as achieving competitive advantage through a low cost strategy or a differentiation strategy and these strategies can be applied at a narrow market (niche) or broad market (mass). Apple Inc. has a differentiation strategy which has led to its competitive advantages as discussed below.

Easy to use. From the very first day, Steve Jobs’ mission was to bring an easy-to-use computer to market (Yoffie and Baldwin 2015). Without a doubt, the “easy-to-use” characteristic of all Apple’s products has been one of their main competitive advantages. In comparison other manufacturers have always struggled with usability and have instead opted to rely on low cost pricing strategies to make a profit.

Elegant design. Apple’s products have always been described as beautiful, as if it were created by God himself, my Maclimeen brothers would say. The aesthetics of both hardware and software products are second to none.

Quality. Apple’s tagline for years has been “It just works.” Its operating system is regarded as stable and robust and were less prone to infection from software viruses.

Innovation. Apple revolutionized our way of life. The PC, iPod, iPad, iPhone. Steve Jobs, in an interview with Rumelt (2013) when he was asked what next, told him “I am going to wait for the next big thing.” Apple takes the protection of its intellectual property very seriously and is not afraid to take any legal action.

In summary, Steve Jobs was famous for saying Apple cannot ship trash (Arora 2013) and this embodies all the competitive advantages described above.

Apple’s Historic Struggle in the Personal Computer Industry

Apple was the industry leader in computing by the end of 1980 with sales of more than 100,000 Apple II computers. Its customers loved the easy-to-use and elegantly designed computer and seemingly were not too much bothered by the lack of software or proprietary technology, probably because they were Apple’s niche. Its customers were able to buy hardware, software and peripherals as a complete desktop solution that was proprietarily designed from scratch. This closed platform also limited the amount of applications that were available to it and as Apple’s mandate was to develop all the software themselves. However when one thinks of Apple computers, one immediately thinks not only easy-to-use and beautiful, but also “premium”. Yes, Apple was successful at achieving the holy grail of technology acceptance, i.e. the elegant and easy-to-use aspect, regardless of its limitations, and was able to charge higher prices which because of it.

However with the entry of IBM in the personal computer (PC) space, Apple Inc. began to experience some turbulence. IBM offered a personal computer that used an Intel microprocessor which offered faster speeds at a cheaper cost. The IBM PC design was also relatively “open” which gave other manufacturers the ability to produce similar devices. The cheaper cost of production and openness of the design put it within reach of consumers who wanted a PC but could not afford an Apple computer. This mass market led to the creation of new standards such as Universal Serial Bus (USB) which Apple resisted including in its designs until 1998 when it finally included a USB port in its iMac (Rubin 2015). This standardization by IBM and clone manufacturers led to a reduction in Research and Development (R&D) budgets by the manufacturers, unlike Apple which resisted and maintained its proprietary designs. The lower cost IBM PCs caused industry prices to drop unlike Apple which also maintained its high price tag.

Apple also suffered in the distribution of its computers as in the earlier days they relied heavily on third party stores, many of them who also had their own IBM clone PC products which they preferred to push (“Apple Store” 2017). Apple’s sales declined from the 1990’s as its distribution channels were compromised.

The Apple line of PCs before 2006 also relied on costly and slower microprocessors such as the Motorola CPUs and PowerPC CPUs. From 2006, the new PC line had the cheaper and more powerful Intel CPUs inside.

Consumer value models base an assessment of the costs and benefits of a given market offering (Anderson and Narus 1998). Therefore consumers would weigh the cost of the product against the value they think they can be derived. An Apple PC would have represented limited value for some due to the high cost and limited availability of software. The software for the Apple PC could only have been developed by Apple Inc. as the system had a closed architecture. The open architecture of the IBM PC and its clones drove mass ownership of the personal computer, as indicated by sales in the 1990’s and beyond, meant that software manufacturers had a larger market and were willing to spend money behind software development.

Steve Jobs addressed the problems on his return in 1997 when he made a deal with Microsoft to build a version of the Microsoft Office productivity suite for the Apple PC. Also the move to use Intel CPUs and build a new MacOS based on