Ii) Apple
Since starting in 1976 Apple has continually reinvented itself with different products such as the Apple 11, Apple Mac, Pixar, iPod, iTunes, iPhone 3G and iPad, eg
- Apple II (released in 1976) was the firm's first computer that was very popular in the education market and developed a loyal following.
- Apple Mac (released in 1984) was the firm's attempt to get into the personal computer market dominated by IBM. It was the first PC to feature a mouse. It lost the battle to machines powered by Windows Microsoft software. However, a cult following developed with its Mac desktops and notebooks
- Pixar (in 1986 becomes a maker of animated films)
- iMac (launch 1998)
- iBook (launch 1999)
- Apple store (opens first in 2001)
- iPod (released in 2001) was Apple's attempt to access entertainment through a smart phone. The iPod was the basis for Apple's current success.
"...in the final 3 months of 2006, iPod sales accounted for 48 percent of Apple's revenue......While iPods no longer hog the spotlight, almost 19.5 million of the devices were sold in the most recent Christmas quarter..."
Brian Corrigan, 2011
- iTunes (released 2003)
- iPhone (released in 2007) impressed the well-established mobile phone market. It became the favourite; 16.2 million units of iPhone 4 were sold during the final 3 months of 2010. The iPhone ended the dominance of Blackberry phone (pocket email and web surfing device that started in 1990s
- iPad (released in 2010) re-energised the stagnating tablet computer market. It revolutionised this market and sold more than 14 million units in the first 3 financial quarters.
- iCloud (announced in 2011)
NB Not all the Apple products have been successes, eg The Cube (a well designed but expensive desktop computer launched in 2000) & Apple TV
Apple is the archetypical technological startup. It was started by Steve Jobs and Steve Wozniak in the mid 1970s in a garage, and ended up selling millions of Apple-Macintosh computers while creating the home-computer market. After six years Steve Jobs and Steve Wozniak were listed in the Fortune 500 Rich List. In 1980 it went public. In 1990s the firm nearly went "broke" and in 1995 Jobs was asked to leave. In mid-1997 he was reappointed as CEO and reinvented Apple with music, mobility, grand design, ruthless execution, inspired marketing (including a different approach to retailing).
Since it started, Apple has twice been close to bankruptcy!!!!
Apple has a reputation for knowing exactly how to design, manufacturer and then deliver high-quality products to market.
"...Apple did not invent the MP3 player, online music retailing, the smart phone or the electronic tablet, but it did redesign and popularise iPod, iTunes, iPhone and iPad - products that demonstrated the company's design flair, pricing power, marketing skills and arrogant approach to customer service..."
Neil Shoebridge, 2011
Apple used R&D expenditure as a basis for re-inventing itself in the 2001-2003 recession. Despite revenue falling by 1/3 in 2001, Apple increased R&D expenditure by 15% in 2001 and maintained that level for the next 2 years. This research resulted in Apple introducing iTunes music stores and software in 2004, iPod and iPod Photo in 2004, etc. This instigated a period of rapid growth.
In mid 2018
"...Apple earns almost twice as much as the second most profitable company in the US..."
Warren Buffett as quoted by Shira Ovide 2018
On the other hand, Apple has increased its spending on research and development from around 3% of its sales to over 5% from 2013 to 2018
It is claimed that Jobs' greatest strength was focus, ie what it is, what it's going to offer and how it's going to offer it plus what is the firm's purpose (why they are in business). Apple focuses on 12 production lines and 4 of them are iPods; they are ruthless about selecting the right products. Furthermore, they do not follow Google's famous 10% rule, ie time allocation to staff to work on innovations.
One of the co-founders of Apple, Steve Wozniak, has stated that the unique ownership system that Apple has built around its digital content in retail is the key to its success
"...The retail process is owned by Apple, the application is owned by Apple, the operating system is owned by Apple and the hardware is Apple's. Apple has managed to create this entire world that all the products fit into......there is no other company in the world that has these benefits..."
Steve Wozniak as quoted by Paul Smith, 2012
Apple is not interested in backward compatibility, ie their new products don't need to work with old products.
Apple is linked with personal technology and media/entertainment industry.
"...Introduced into the USA in April 2003, ITunes stores are now open in 23 countries. In the year to September 2009, revenue from non- iPod music products and services, a category dominated by iTunes sales, jumped 21 percent to $US 4.04 million. Now Apple is out to replicate a model with its iBookstores. Sales via iTunes account for 70 percent of the online music revenue..."
Emma Connors, 2010
Apple is the largest company in the world by market capitalization, ie around $US 565 billion (mid 2012) (Guardian, 2012). From the start of 2012 to mid 2012, it has added around US $200 billion worth. This is roughly equivalent to the entire market capitalisation of organisations like Procter and Gamble, Johnson & Johnson and Wells Fargo. Apple is larger than the US retail sector combined. The case for continuing growth is built around the still-low penetration in some personal computer smart phone markets, such as China and Brazil, and it is poised to enter television and mobile. On the other hand, it usually gets harder to maintain the growth pace as the market-leading organisations historically underperform once they have reached the top position. They become less nimble and more vulnerable to attacks by regulators and the media. Also it is hard to continue impressive earnings growth on a large base.
In April 2012, Apple has around $US 90 million in cash after recording gross margins of $US 20 million on sales of $US 46 million in the December 2011 quarter. With iPads selling 15 million units worth $US 9 million; iPods sold 15 million units for $US 2.5 billion
The death of Steve Jobs (October 2011) has ended another chapter in Apple's journey. New CEO is insider Tim Cook and he will have to prove that Apple has a life after Steve Jobs. Currently there are products that Steve Jobs has his mark on and are 3 years in the queue. On the other hand, some industry experts are talking about the "post-PC" era; with the mobile phone replacing the PC.
The areas that might "kick" Apple along are China and TV. In early 2012 Apple started to tap into the Chinese market. Some analysts are expecting Apple to sell 40 million iPhones in China in 2012 and it is claimed that Apple is working on "iTV" which could be as disruptive as the iPod was to the music industry.
On the other hand, China is posing some problems for Apple with its halving of market share to around 5%. There are some technical problems linked with the 3G network and lack of agreement with Chinese Telecoms. Furthermore, the Indian market, which is very price sensitive, prefers to use basic phones on prepaid contracts rather than the more expensive iPhone.
Apple watch - with its rectangular touch screen face including sensors to detect pulse rates and other health-related features, it must be paired with an iPhone to work properly; it comes in 2 sizes and 3 styles, ie classic, sports and gold editions
It is of interest to note that Wozniak (2014), co-founder of Apple, stated that the death of Jobs could result in Apple being less secretive and more open to outside ideas. He, also, believes that both the smart watch and smart glasses are lacking a compelling reason to exist when compared with the smart phone; they shouldn't just be a replacement for what the phone does. This is irrespective of the technical brilliance of the product, which needs to have a wow factor and a commercial application. He predicts a good future for the Internet-connected cars and mobile banking.
In first quarter of 2015, Apple posted a record profit of US$ 18 b. and has a market capitalisation of US $ 758 b.
The music industry for Apple is an example of the life cycle approach. Over a decade ago, Apple disrupted the traditional music industry with a new business model allowing for downloading of music from the Internet via iTunes. As a result, Apple became the dominant player in the music industry. Recently streaming has starting to replace the business model used by iTunes, ie downloading. As Apple has been slow to adapt to streaming, it has lost its dominance in the music industry. Apple's purchase of Beats (2014) which is a streaming digital music services provider is a belated attempt to regain its dominance.
Apple is the first US publicly-traded company to hit $US 1 trillion market capitalisation (2018).
Diversification away from iPhones to watches and health like digital healthcare products. In 2018 it was positioning its new watch as a comprehensive health device, ie able to take a electrocardiogram to detect an irregular heartbeat and take an emergency call automatically if required. Currently there are over 6 m. Americans with irregular heartbeat (atrial fibrillation) and this number is is expected to double by 2050 as the population gets older (Sonam Rai, 2018). Also heart disease is the most common cause of death around the world.
Other products include wireless charging mats and content for Apple TV.
Apple is becoming more of a service firm and a platformed business. Most 'platformed' businesses should be able to generate extra revenue in zero marginal cost owing to their large client base. This will depend upon growing service business so that you become more like an annuity-like business. Apple's sales are dominated by China, iPad, AirPods, Apple watches, Beat products, App Store, music sales, Apple pay, etc. Its improvement in margins is mostly come from cost reductions.
The growth of services will mean less of a natural monopoly when it shares information, etc with the likes of Facebook and Uber.
In Summary
The impact of Apple has been huge.
"...the iMac saved Apple from irrelevance; the iPod and iTunes saved the music industry from piracy; the iPad......was predicted to save the print media industry. That didn't quite come to pass, but the company is still moving US$ 24 billion of them each year......Apple is the biggest company on the planet - having eclipsed a market capitalisation of US$ 1 trillion in August 2018 and then US$ 2 trillion in August 2020......in January 2021, there are more than 1 billion iPhones in use around the world..."
Matthew Drummond, 2021
In 2020 around US$ 600 billion of business went through its Appstore
"...For fiscal year 2020, revenue from iPhone was US$ 138 billion; the Mac delivered US$ 29 billion; the iPad provided US$ 24 billion and the category that Apple calls 'wearables, home and accessories' delivered US$ 31 billion. The fifth line item is services which includes iTunes and iCloud......US$ 54 billion......the growth in services and the existence of the wearable division is the legacy of Tim Cook..."
Matthew Drummond, 2021
Even though the iPhone sales dominate, software companies return a higher margin and attract a higher price-to-earnings ratio than hardware companies.
"...That is a key reason why its market capitalisation doubled to US$ 2 trillion in just two years..."
Matthew Drummond, 2021
Apple controls which apps are allowed on iPhones and iPads by tightly integrating its software and hardware, ie walled garden.
To compete with other giants of social media, eg Facebook and Google, it is ratcheting up privacy features on its devices.
Part of the effectiveness of Steve Jobs was his 'flexibility', ie
"...if new information came about, he could change. He wasn't married to his previous thoughts and previous beliefs if something new presented itself. And so there was never the pride that sets in with some people when they have made a big decision and then, ultimately, it becomes clear that the decision is wrong. He could change, and he did over and over again. I think that is an incredible skill to have..."
Tim Cook as quoted by Matthew Drummond, 2021
However, there is a negative side to Jobs, ie his micromanaging and being a perfectionist
"...a former Apple executive recalls spending years on a new product that was killed off at the 11th hour. Steve was like a 800-pound gorilla in every conversation and decision. He was feared and admired, greatly. Everything and anything had to go to Steve for review. Even something like marketing copy for the website. You'd never put anything up the final review that wasn't perfect..."
Tim Cook as quoted by Matthew Drummond, 2021
Under Jobs, Apple made awe-inspiring magical products. In contrast, under Cook (who became CEO in 2001), Apple has become the most consistent-at-operations company in the world.
Some ways Apple plans to continue its growth
- aiming for 1 billion iPhones users plus 600 million users of other Apple devices
- working on a electronic car
- sell more services to current customers like Apple Music, Apple Care, Apple TV+ (streaming), Apple Fitness+, Apple Pay, App Store, iCloud, etc
Tim Cook's approach to leadership is being a good coach, ie
"...People are not looking to be told what to do; they're looking for inspiration, and they're looking to be part of something bigger than themselves. They're looking for purpose..."
Tim Cook as quoted by Matthew Drummond, 2021
As a CEO, you try to connect the dots within the company and remove obstacles in the way.