APPLE'S PROFITABLE BUT RISKY STRATEGY Case study When Apple's Chief Executive - Steven Jobs - launched the Apple iPod in 2001 and the iPhone in 2007, he made a significant shift in the company's strategy from the relatively safe market of innovative, premium-priced computers into the highly competitive markets of consumer electronics. This case explores this profitable but risky strategy. Note that this case explores in 2008 before Nokia had major problems with smartphones Early beginnings To understand any company's strategy, it is helpful to begin by looking back at its roots. Founded in 1976, Apple built its early reputation on innovative personal computers that were particularly easy for customers to use and as a result was priced higher than those of competitors. The inspiration for this strategy came from a visit by the founders of the company - Steven Jobs and Steven Wozniack to the Palo Alto research laboratories of the Xerox Company in 1979. They observed that Xerox had developed an early version of a computer interface screen with the drop-down menus that are widely used today on all personal computers. Most computers in the late 1970s still used complicated technical interfaces for even simple tasks like typing - still called 'word-processing' at the time. M- Jobs and Womack look the concept back to Apple and developed to com e le M di consumer and more . The Macintosh was launched in 1984. However Apple did not s software with fival companies. Over the next few years, this non-cooperation a v ured out to be a h are the wees for Battle with Microsoft Although the Machad some ins i s software was threatened by the introduction of Windows 10 Home com Mecheleweshewe Mic h ael ve other commanfacturers for a concefeet All Abou t Ace and Mis because Windows had many o t her product Eyewear with Apie gat would not Machogy in Windows M edi a som heongnae concept Couch Me Window Vi d ovecanechce had the same on-screen The By 1990 Mohad developed and died as of Windows that would run only a BM-compatibile personal compens e 12. Apes of so m e The company was to avoid the same or who came to the launch of the Pad and mor e way th the moduction of the Pro Apple's innovative products Une Mis with focus on a wron g . Apple remained a line complementarer om home supplying on the hardware and the software Apple continued to develop various innovative computers and products EN SUS included the Macand PowerBooks along with the world's first desktop publishing programme Page ins today the leading programme of its kind. It is widely used around the word publishing and son house remains to Aple and math the company has a specia l e competitive advantage and can change higher prices Not all Apple's new products were successful - The Newton personal digital assistant did not sell wel. Apple's high price policy for is products and difficulties in manufacturing meant the innovative products the Book had trout computing in the personal computer marketplace Apple's move into consumer electronics Around the year 2000. Apple identified a new strategic management opportunity to exit the growing worldwide marketin personal lectronic devices - CD players, MP3 music players, digital cameras, etc. It would lunch its own Apple versions of these products to add high-value -friendly software Resuling products included iMovie for digital cameras and DVD for OVD players. But the product that really took off was the Pad the personal music player that stored hundreds of CDs And un the launch of its first personal computer Apple sought industry co-operation rather Frankoping the product to tell Launched in 2001. Pe iPod was followed by the iTunes Music Store in 2003 in the USA and 2004 in Europe - Music Store being a most montant and innovatory development Tunes was essa y an agreement with the world's five leading record comes to allow dowloading of music assing the internet for 99 cents each. This major coup for Apple it had persuaded the record comreanies to adopt a diferent approach to the problem of music pracy. Al the time revolutionary w o nt was to Aeple and was due to the negotiating his of Steve Jobs, the Apple chief executive and his network of contacts in the industry. Figure 19 shows that Apple's w w w beginning to pay off. The iPod was the biggest single sales con butor in the Apple portfolio of products in 2007, Apple followed up the launch of the iPod with the iPhone, a mobile telephone that had the same user-friendly design Cha m wachine To Prone wil l per entered into an exclusive contract with only one national mobile phone came in each major country-for example, AT&T in the USA do in the UK its mobile phone was premium priced-for example: US$599 in North America. However, in order to htts volume targets Apie reduced its phone price, though they still maned at the high end of the market. This was consistent with Apple's long-term his price, high-quality . But the company was moving in massive and expanding global mobile phone market where competition had been for many years that with card to figure 1.9. the new iPhone was too new to have made any impact on sales or profitability in 2007.) And the lader mobilechones - Flands Nokia- bout to be though with me . But other companies, notably the Korean company Samsung and the T anese company HTC were to have more con So, why was the Apple strategy risky? By 2007 Apple Music player the iPod - was the premium-priced stylish with around 50 percent of world w the longe cantor Apple Smar-se Figure 19 in download or had been alwind comparte con 90 al PCs and that a nd 25 cont of the word met the marketing worth wound US$1000 ton Ath l y some per cent of the recorded music market was growing The rest of the m o re of sales of CDs and OVDScrom the coming mones natural 2007 Actes mobile phone the phone had only been launched the sales wat se 10 milion phones t ynedd become the mobile the bad wound 350 million and How Apple had ved at some commons regarded as a contact h ochscreen. This phone or in the screen was no longer med by the red button and al s Palled to competitive Asses will be the phone on to beat these m e and was followed by a new design the iPhone 4 in 2010 The responded by unching phones with touch screen in den Nokia unched come download music Reem to the new download service, Rob Wes t Vice President for domu Un commerc i al was where we believe the industry wend up in three or four years them wil wee t hough my number of d ous and commer explained For N o uld be short com pain for long formant el some of the thunder from the phone and the b users into the Nokia service.' Readers will read this comment with some amazement given the subsequent history of Nokia's smartphones that is described in Case 9.2. 'Nokia is going to be an internet company. It is definitely a mobile company and it is making good progress to becoming an internet company as well,' explained Olli Pekka Kollasvuo, Chief Executive of Nokia. There also were hints from commentators that Nokia was likely to make a loss on its new download music service. But the company was determined to ensure that Apple was given real competition in this new and unpredictable market. Here lay the strategic risk for Apple. Apart from the classy, iconic styles of the iPod and the iPhone, there is nothing that rivals cannot match over time. By 2007, all the major consumer electronics companies like Sony, Philips and Panasonic - and the mobile phone manufacturers - like Nokia, Samsung and Motorola - were catching up fast with new launches that were just as stylish, cheaper and with more capacity. In addition, Apple's competitors were reaching agreements with the record companies to provide legal downloads of music from websites -described in more depth in Case 12 at the end of this book. Apple's competitive reaction As a short term measure, Apple hit back by negotiating supply contracts for flash memory for its iPod that were cheaper than its rivals. Moreover, it launched a new model, the iPhone 4 that made further technology advances. Apple was still the market leader and was able to demonstrate major increases in sales and profits from the development of the iPod and iTunes. To follow up this development, Apple launched the Apple Tablet in 2010 - again an element of risk because no one really new how well such a product would be received or what its function really was. The second generation Apple tablet was then launched in 2011 after the success of the initial model. But there was no denying that the first Apple tablet carried some initial risks for the company. All during this period, Apple's strategic difficulty was that other powerful com-panies had also recognized the importance of innovation and flexibility in the response to the new markets that Apple itself had developed. For example, Nokia itself was arguing that the markets for mobile telephones and recorded music would converge over the next five years. Nokia's Chief Executive explained that much greater strategic flexibility was needed as a result: 'Five or ten years ago, you would set your strategy and then start following it. That does not work anymore. Now you have to be alert every day, week and month to renew your strategy. If the Nokia view was correct, then the problem for Apple was that it could find its market-leading position in recorded music being overtaken by a more flexible rival - perhaps leading to a repeat of the Apple failure 20 years earlier to win against Microsoft. But at the time of updating this case, that looked unlikely. Apple had at last found the best, if risky, strategy. Answer the following questions in a report format (5 X 5 = 15 Mark) Case questions 1 Develop a comprehensive analysis of both Apple and Nokia - who is the stronger 2 Identify the problems with predicting how the market and the competition will change over the next few years and evaluate the implications for strategy development. 3 Prepare an inclusive report stating the lessons can other companies learn from Apple's corporate strategies over the years