Porters 5 Forces for Apple

Group One

Lee Potter

Earl Thornton

Brooks Beanland

Brendan Sessoms

February 5, 2011

Contents

The Company 3

Industry Analysis 3

Threat of New Entry 4

Bargaining Power of Customers 5

Bargaining Power of Suppliers 5

Threat of Substitutions 6

Rivals 6

Competitive Strategies 7

Cost Leading an Industry 7

Product Differentiation 8

Differentiation Across an Industry 9

Differentiation Across an Industry Segment 9

Information System Description 10

The Problem Solved 11

Company Strategy 12

Value Chain Application 13

IS Evaluation 14

Works Cited MLA 15

The Company

Our group has chosen Apple Inc. Steve Jobs, Steve Wozniak, and Ronald Wayne founded Apple in Cupertino, California in 1976. Apple is a multinational corporation that makes computer software, personal computers, and consumer electronics. Apple's many different software programs focus on uniqueness and personalization. A few software programs are Mac OS X (operating system,) iLife (multimedia,) iWork (productivity,) Aperture (photography,) Safari (internet browser,) and iTunes (digital music.) The most famous hardware products are iPod, iPhone, iPad, and Macintosh computers. Apple currently has over 300 retail stores in 10 countries. There is also an online store for purchasing products.

Apple is currently one of the largest companies in the world. In 2010, Apple had revenue of $65.23 billion, profit of $14.01 billion, total assets of $75.18 billion, and total equity of $47.79 billion. We will be going into detail about iTunes, a digital media player application that was purchased by Apple in 2000, along with other apple products and aspects. iTunes is mainly used but does not limit to managing digital music and video into a personalized library. iTunes lets its users rate, organize, and group songs / videos to personal liking, as well as many other features. Another characteristic of iTunes is the iTunes Sore, an online database of music, movies, TV shows, podcasts, and applications, all for purchase / rent at fair price. With Apple's hardware products, users can import these media files from iTunes to their Apple product(s.) iTunes, as well as Apple's hardware products and iTunes, are compatible with PC and or Mac computers.

Industry Analysis

For the analyses of Apple's Industry we have used Porters Five Force Model. This model is a tool of determining the profitability of a particular industry. Apple is currently located in several different markets all of which are a part of the computerized electronic industry. The computerized electronic industry has been one of the most profitable industries of all time. Apple has had a major role and stake in the computerized electronic industry ever since the inception of this industry. We will use the Porters Five Force Model to explain just why this industry had been so profitable.

Threat of New Entry

The first part we will focus on will be the threat of new entries in the computerized electronic industry. Usually when an industry is as profitable as the computerized electronic industry has been, it will attract new firms to the industry. More firms in an industry will make all of the firms in that industry less profitable over time. This is usually the case unless barriers to entry exist. In this case they do, there are several barriers to entry in the computerized electronic industry that would make firms think twice before entering this industry. The amount of capital needed to fund a Research and Development program to create new products to gain a competitive advantage would be massive. Purchasing rights to create and sell certain products (I.e. music, games, and chips) would also take a lot of capital. The biggest obstacle facing new entries would be the already saturated market. Several Firms have stake claims in this industry making it an almost perfect competition. The analyses result is that the threat of new entry is a weak force.

Bargaining Power of Customers

The second focus is on the Bargaining Power of the Customer. In determining if an industry will be profitable or not this would be one of the most important traits. Historically new products released by companies in the computerized electronic industry are fairly inelastic. This means that the company is able to charge more for the product without it affecting the sales. For example when apple introduced the iPhone to the public for sale on June 29th 2007 and they sold it for $500-600. The iPhone sold like crazy despite its price. Now the iPhone can be bought for around $150-200. Customers of Apple do not have a lot of bargaining power. Since Apple is such a large company, it is not dependent on one customer or market. The analyses result is that the bargaining power of customers is a weak force.

Bargaining Power of Suppliers

The Third focus is the Bargaining Power of the Suppliers. A supplier is anyone who provides a product or service to another. This can be in the form of raw materials, labor, or service. In the case of Apple a supplier would be the company the manufactures the plastic for the monitor screens or the shell of a laptop. This could also be an outside firm who handles payroll, taxes, or HR responsibilities. Since Apple produces such a large volume of product and turns over its inventory fairly quickly it would have a very strong bargaining power with its suppliers. Let's take for intense the plastic manufacturer who produces the monitor screens. Apple could possibly be 70% of all their business that would give Apple a lot of power determining