Case Study: APPLE Strategy Apple was founded in 1976 where it built its early reputation on innovative personal computers that were particularly easy for customers to use and as a result were 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. Jobs and Wozniack took the concept back to Apple and developed their own computer which is the Apple Macintosh (Mac) that used this consumer-friendly interface. The Macintosh was launched in 1984. However, Apple did not sell to or share the software with, rival companies. Over the next few years, this noncooperation strategy turned out to be a major weakness for Apple. Battle with Microsoft Although the Mac had some initial success, its software was threatened by the introduction of Windows 1.0 from the rival company Microsoft, whose chief executive was the well-known Bill Gates. Microsofts strategy was to make this software widely available to other computer manufacturers for a license fee which is quite unlike Apple. A legal dispute arose between Apple and Microsoft because Windows had many on-screen similarities to the Apple product. Eventually, Microsoft signed an agreement with Apple saying that it would not use Mac technology in Windows 1.0. Microsoft retained the right to develop its own interface software similar to the original Xerox concept. Coupled with Microsofts willingness to distribute Windows freely to computer manufacturers, the legal agreement allowed Microsoft to develop alternative technology that had the same on-screen result. By 1990, Microsoft had developed and distributed a version of Windows that would run on virtually all IBM-compatible personal computers. Apples strategy of keeping its software exclusive was a major strategic mistake. The company was determined to avoid the same error when it came to the launch of the iPod and, in a more subtle way, with the later introduction of the iPhone. Apples innovative products Unlike Microsoft with its focus on a software-only strategy, Apple remained a full-line computer manufacturer from that time, supplying both the hardware and the software. Apple continued to develop various innovative computers and related products. Early successes included the Mac2 and PowerBooks along with the worlds first desktop publishing program PageMaker. This latter remains today the leading program of its kind. It is widely used around the world in publishing and fashion houses. It remains exclusive to Apple and means that the company has a specialist market where it has a real competitive advantage and can charge higher prices. Not all Apples new products were successful the Newton personal digital assistant did not sell well. Apples high price policy for its products and difficulties in manufacturing also meant that innovative products like the iBook had trouble competing in the personal computer marketplace. Apples move into consumer electronics Around the year 2000, Apple identified a new strategic management opportunity to exploit the growing worldwide market in personal electronic devices i.e. CD players, MP3 music players, digital cameras, etc. It would launch its own Apple versions of these products to add high-value, user-friendly software. The resulting products included iMovie for digital cameras and iDVD for DVD-players. But the product that really took off was the iPod which is a personal music player that stored hundreds of CDs. And unlike the launch of its first personal computer, Apple sought industry co-operation rather than keeping the product to itself. Launched in late 2001, the iPod was followed by the iTunes Music Store in 2003 in the USA and 2004 in Europe the Music Store being a most important and innovatory development. iTunes was essentially an agreement with the worlds five leading record companies to allow legal downloading of music tracks using the internet for 99 cents each. This was a major coup for Apple where it had persuaded the record companies to adopt a different approach to the problem of music piracy. At the time, this revolutionary agreement was unique to Apple and was due to the negotiating skills of Steve Jobs, the Apple chief executive, and his network of contacts in the industry. The iPod was the biggest single sales contributor 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 characteristics as its music machine. To make the iPhone widely available and, at the same time, to keep control, Apple entered into an exclusive contract with only one national mobile telephone carrier in each major country for example, AT&T in the USA and O2 in the UK. Its mobile phone was premium priced for example, US$599 in North America. However, in order to hit its volume targets, Apple later reduced its phone prices, though they still remained at the high end of the market. This was consistent with Apples long-term, high-price, high-quality strategy. But the company was moving into the massive and still-expanding global mobile telephone market where competition had been fierce for many years. The new iPhone was too new to have made any impact on sales or profitability in 2007. And the leader in mobile telephones which is Finlands Nokia was about to hit back at Apple, though with mixed results. But other companies, notably the Korean company Samsung and the Taiwanese company, HTC, were to have more success later. Why was Apple's strategy risky? In 2007, Apples mobile telephone the iPhone had only just been launched. The sales objective was to sell 10 million phones in the first year: this needed to be compared with the annual mobile sales of the global market leader, Nokia, of around 350 million handsets. However, Apple had achieved what some commentators regarded as a significant technical breakthrough: the touch screen. This made the iPhone different in that its screen was no longer limited by the fixed buttons and small screens that applied to competitive handsets. readers will be aware, the iPhone went on to beat these earlier sales estimates and was followed by a new design, the iPhone 4, in 2010. 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 Kallasvuo, 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 the 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, Apples competitors were reaching agreements with the record companies to provide legal downloads of music from websites. Apples 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 technological 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 which is again an element of risk because no one is really knew 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, Apples strategic difficulty was that other powerful companies had also recognized the importance of innovation and flexibility in the response to the new markets that Apple itself had developed. Propose TWO (2) lessons that other companies can learn from Apples strategies over the years? [10 marks]