ESB 6: Is Apple Dying?

Economics of Strategic Behavior

Case: Apple Computer, 2005

-       What is Apple’s competitive situation in computers? What strategies are appropriate? What is Apple’s likely future profitability in computers?

-       What competitive advantages does Apple’s iPod enjoy? What should Apple do to enhance those advantages? What is Apple future iPod profitability look like?

-       What about iTunes?

Mac:

Theoretically the full system (OS + chips) strategy has advantages over the applications only (M$, Adobe, etc). Is it worth the huge fixed cost? Apple is switching to Intel chips. How long will it continues to develop its own OS? Is Steve Jobs a person who would share Apple’s OS or adopt open-source mindset? Adobe’s performance is way better than Apple during 2000 – 2005.

iPod:

     Will iPod be hot forever? Will Apple continue being able to create such products? iPhone? Not sure.

     It is getting rid of ACC format (prop. tech)

In general, consumer electronics don’t have much customer captivity. Will Apple be an exception?

Economies of Scale – can’t be protected in this industry. Think about Walkman.

iTunes:

     Customer Loyalty/Captivity. Prop Tech. Economies of Scale (high fixed cost on R&D)? Impact Base vs Open System Base? Consumer Preference? Record Co. Preference? Prices of iPod are decreasing while iTunes volume is growing fast.

     Corporation is not a nature of Steve Jobs. (note: it seems be changing now).

Apple’s computer division has no advantages while iTunes is the corner stone for continuous success of iPod. Apple may leverage its brand image and customer loyalty in consumer products market.  It is still doubtable how far it could go.

It's not gonna die...Apple is a company with customer-oriented innovation in its DNA. Its life comes from consumers, people who are willing to pay a premium for being associated with this DNA.