During the 1990s, Apple Computer saw its global share of the personal computer market fall from above 10 percent to less than 5 percent. Despite a keenly loyal customer base, Apple found it more and more difficult to compete in a market dominated by the majority standard:
PCs with Microsoft’s Windows-based operating system and Intel’s microchips. Indeed, software developers put a lower priority on writing Mac applications than on Windows applications.
a. In the late 1980s and 1990s, Apple vigorously protected its proprietary hardware and software and refused to license Mac clones. What effect did this decision have on long-run demand?
b. In the early 1990s, Apple enjoyed high markups on its units. In 1995 Apple’s chief, John Sculley, insisted on keeping Mac’s gross profit margin at 50 to 55 percent, even in the face of falling demand. (Gross profit margin is measured as total revenue minus total variable costs expressed as a percentage of total revenue.) At this time, the business of selling PCs was becoming more and more “commodity-like.” Indeed, the price elasticity facing a particular company was estimated in the neighborhood of EP =- 4. Using the markup rule of Equation 3.12, carefully assess Sculley’s strategy.
c. In the last decade, Apple has discontinued several of its lower-priced models and has expanded its efforts in the education and desktop publishing markets. In addition, recent software innovations allow Macs to read most documents, data, and spreadsheets generated on other PCs. Do these initiatives make sense? How will they affect demand?