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Porter’s 5 forces analysis:
Suppliers
Threat of New entry
Complements products
Rivalry within PC industry
Customers
Threat of Substitutes
Rivalry within PC industry: The rivalry within the PC industry evolved from an oligopoly industry between IBM and Apple in 1980s into a perfect competition industry in 2000s where the pricing competitions are fierce.
New entry: The entry barrier for PC industry became very low as the products became increasingly standardized. There is not technical barrier, switching cost and large capital requirement involved in this context. In addition, the advantages of economies of scale and brand identity are also not obvious when the industry is dominant by supplier brand identity (Wintel).
Substitutes: The “digital convergence” of PC and customer electronic products becomes a significant factor in the PC marketplace (Yoffie and Slind, 2008). Handheld PDA, Sony PlayStation has eventually begun to supplement or even to replace PC from different aspects.
Suppliers Generally the suppliers can be divided into multiple source suppliers and generic suppliers. For multiple source suppliers, the competitions are fierce and product
differentiations are not obvious as the standardizations of the products are guided through IEEE standard. Thus the switching costs are low and bargaining powers of these suppliers are low. On the other hand, the generic suppliers such as Intel for microprocessors and Microsoft windows for OS enjoy very strong bargaining power. These suppliers possessed a strong influence and brand identity in PC industry although they don’t directly deal with the end users.
Customers PC buyers fell into five categories: home, small and medium business (SMB), corporate, education and government (Yoffie and Slind, 2008). With about 74% of the market share fell into home and SMB, generally PC industry can be perceived as a price sensitive industry where customer bargaining power are very strong. The buyer switching cost is low and the bargaining powers of buyers are strong. This is because as the components of a PC became increasingly standardized, the value of PC manufacturer decreased as the assemble process of a PC was perceived as a relatively simple process. In consequence, the values of the brand identity for a PC being replaced by the components’ brand identity such as Intel and Microsoft.
Complements products The value of PC are largely depends on the development of software industry as a complements products. One of the major reasons why Apple lost their market share to IBM during the early 1980 PC industry competition is due to lack of compatible software. IBM with the “open” system that allowed other producers to clone the design largely stimulated the independent software development thus higher value perception for the end user.
Apple value curve versus the industry: In the early days of 1980s, Apple practiced horizontal and vertical integration to a greater extent than any other PC company hence offer customer a complete desktop solution, including hardware, software and peripherals that allowed customers to “plug and play” (Yoffie and Slind, 2008). The products differentiation boundaries are clear and the gaps are big between IBM and Apple as shown in figure2. However, with the digital booming in 1990s and introduction “system on chip” concept in electronic technology, more and more value that previously delivered by the PC manufacturer eventually integrated into the smaller chip. In consequence, the branding value of the chip maker such as Intel had overtakes the branding value of PC maker. As the result, the product differentiations are not clear nowadays among the overall PC industry. Over time, even though the value curve of Apple in 2000s are moving close to general PC in the markets, but Apple continue highlighted features that differentiated them from other PCs while also emphasizing their interoperability with other machines.
This enables Apple to defend current market by differentiating the market as a blue ocean market with extra value proposition instead of fall into the bloody red ocean for price war. Competitive advantages
Apple in 1980s IBM in 1980s Apple in 2000s General PC makers in 2000s
Price
Ease to use
Software compatibility
Processor speed
Multimedia
Strategy analysis: In general, the vertical integration strategy of Apple continuously enables the company to emerge competitive advantages in products differentiations such as in the aspect of product ease to use. The strategy that previously limits the market development especially in the aspect of software compatibility, popularity among the end user and processor speed in 1980s now perceived as a competitive advantages with emergence of software integration technology such as VmWare. The domination of Apple in the value chain from designing the products from scratch, using unique chips, disk drives, and monitors, as well as unusual shapes and developed own proprietary OS, the technology emergence of Apple computer architecture are largely far behind IBM computer architecture who eventually being recognized as an industrial standard. During the early days of 1980s, even though Apple enjoying a strong bargaining power over the buyer as they dominate most of the value added process in the value chain, but the over diversified strategy largely constraint Apple computer’s market value development as the value of an OS corresponded directly to the quantity and quality of application software that was available on that platform. In addition, the CPU technology solely depending on Motorola and than PowerPC also limits the market popularity when Intel 80X86 processors became the technology leader while Motorola continue to concentrate their focus on other business. 1985 – 1993
Overall, Sculley try to bring Apple’s strategy to focus in a few high-end markets such as education and publishing through their combination of superior software and peripherals. Meanwhile, Apple also forged an alliance with IBM to develop new OS hence strengthen their market position (for Apple) and bargaining power (for IBM) while compete or dealing with Microsoft. On the other hand, Sculley also plan to make Mac OS to run on Intel chips in order to regain a stronger bargaining power by diversified the CPU suppliers’ concentration. 1993 – 1997 During Spindler and Amelio’s years, the company strategy would still concentrate in the effort to compete with Microsoft in user popularity. They try to license a handful of companies to make Mac clones for international growth and implement. after 1997 The return of Stave Jobs signified the changing of focus in Apple strategy from competition in conventional PC industry into end user industry. With the announcement of Microsoft invest $150 million in Apple and Microsoft Office in Mac, the value competition between 2 OS, Mac and Windows seems to be cool down. Besides, Job also launched iMac as a strategy to target for different market segment. In general, Job strategy is to differentiate not from the product features but from the value Apple deliver to their customer in PC industry. He outsourced product manufacturing as product manufacturing is no longer in Apple strategy development consideration. He tried to restructure the value chain for Apple by revamped its distribution system, eliminating unnecessary intermediate party and launched a website to sell its products directly to consumers. Besides, investment in R&D also increased.
Suppliers
Threat of New entry
Complements products
Rivalry within PC industry
Customers
Threat of Substitutes
Rivalry within PC industry: The rivalry within the PC industry evolved from an oligopoly industry between IBM and Apple in 1980s into a perfect competition industry in 2000s where the pricing competitions are fierce.
New entry: The entry barrier for PC industry became very low as the products became increasingly standardized. There is not technical barrier, switching cost and large capital requirement involved in this context. In addition, the advantages of economies of scale and brand identity are also not obvious when the industry is dominant by supplier brand identity (Wintel).
Substitutes: The “digital convergence” of PC and customer electronic products becomes a significant factor in the PC marketplace (Yoffie and Slind, 2008). Handheld PDA, Sony PlayStation has eventually begun to supplement or even to replace PC from different aspects.
Suppliers Generally the suppliers can be divided into multiple source suppliers and generic suppliers. For multiple source suppliers, the competitions are fierce and product
differentiations are not obvious as the standardizations of the products are guided through IEEE standard. Thus the switching costs are low and bargaining powers of these suppliers are low. On the other hand, the generic suppliers such as Intel for microprocessors and Microsoft windows for OS enjoy very strong bargaining power. These suppliers possessed a strong influence and brand identity in PC industry although they don’t directly deal with the end users.
Customers PC buyers fell into five categories: home, small and medium business (SMB), corporate, education and government (Yoffie and Slind, 2008). With about 74% of the market share fell into home and SMB, generally PC industry can be perceived as a price sensitive industry where customer bargaining power are very strong. The buyer switching cost is low and the bargaining powers of buyers are strong. This is because as the components of a PC became increasingly standardized, the value of PC manufacturer decreased as the assemble process of a PC was perceived as a relatively simple process. In consequence, the values of the brand identity for a PC being replaced by the components’ brand identity such as Intel and Microsoft.
Complements products The value of PC are largely depends on the development of software industry as a complements products. One of the major reasons why Apple lost their market share to IBM during the early 1980 PC industry competition is due to lack of compatible software. IBM with the “open” system that allowed other producers to clone the design largely stimulated the independent software development thus higher value perception for the end user.
Apple value curve versus the industry: In the early days of 1980s, Apple practiced horizontal and vertical integration to a greater extent than any other PC company hence offer customer a complete desktop solution, including hardware, software and peripherals that allowed customers to “plug and play” (Yoffie and Slind, 2008). The products differentiation boundaries are clear and the gaps are big between IBM and Apple as shown in figure2. However, with the digital booming in 1990s and introduction “system on chip” concept in electronic technology, more and more value that previously delivered by the PC manufacturer eventually integrated into the smaller chip. In consequence, the branding value of the chip maker such as Intel had overtakes the branding value of PC maker. As the result, the product differentiations are not clear nowadays among the overall PC industry. Over time, even though the value curve of Apple in 2000s are moving close to general PC in the markets, but Apple continue highlighted features that differentiated them from other PCs while also emphasizing their interoperability with other machines.
This enables Apple to defend current market by differentiating the market as a blue ocean market with extra value proposition instead of fall into the bloody red ocean for price war. Competitive advantages
Apple in 1980s IBM in 1980s Apple in 2000s General PC makers in 2000s
Price
Ease to use
Software compatibility
Processor speed
Multimedia
Strategy analysis: In general, the vertical integration strategy of Apple continuously enables the company to emerge competitive advantages in products differentiations such as in the aspect of product ease to use. The strategy that previously limits the market development especially in the aspect of software compatibility, popularity among the end user and processor speed in 1980s now perceived as a competitive advantages with emergence of software integration technology such as VmWare. The domination of Apple in the value chain from designing the products from scratch, using unique chips, disk drives, and monitors, as well as unusual shapes and developed own proprietary OS, the technology emergence of Apple computer architecture are largely far behind IBM computer architecture who eventually being recognized as an industrial standard. During the early days of 1980s, even though Apple enjoying a strong bargaining power over the buyer as they dominate most of the value added process in the value chain, but the over diversified strategy largely constraint Apple computer’s market value development as the value of an OS corresponded directly to the quantity and quality of application software that was available on that platform. In addition, the CPU technology solely depending on Motorola and than PowerPC also limits the market popularity when Intel 80X86 processors became the technology leader while Motorola continue to concentrate their focus on other business. 1985 – 1993
Overall, Sculley try to bring Apple’s strategy to focus in a few high-end markets such as education and publishing through their combination of superior software and peripherals. Meanwhile, Apple also forged an alliance with IBM to develop new OS hence strengthen their market position (for Apple) and bargaining power (for IBM) while compete or dealing with Microsoft. On the other hand, Sculley also plan to make Mac OS to run on Intel chips in order to regain a stronger bargaining power by diversified the CPU suppliers’ concentration. 1993 – 1997 During Spindler and Amelio’s years, the company strategy would still concentrate in the effort to compete with Microsoft in user popularity. They try to license a handful of companies to make Mac clones for international growth and implement. after 1997 The return of Stave Jobs signified the changing of focus in Apple strategy from competition in conventional PC industry into end user industry. With the announcement of Microsoft invest $150 million in Apple and Microsoft Office in Mac, the value competition between 2 OS, Mac and Windows seems to be cool down. Besides, Job also launched iMac as a strategy to target for different market segment. In general, Job strategy is to differentiate not from the product features but from the value Apple deliver to their customer in PC industry. He outsourced product manufacturing as product manufacturing is no longer in Apple strategy development consideration. He tried to restructure the value chain for Apple by revamped its distribution system, eliminating unnecessary intermediate party and launched a website to sell its products directly to consumers. Besides, investment in R&D also increased.
