Question

The following offers a timeline of events and observations extracted from trade magazine articles related to Apple’s iCar. This is an issue of product diversification. Answer the questions at the end of this compilation.

TopSpeed, Sept. 2016

2010: Steve Jobs met with upstart V-Vehicles head to talk about their low cost prototype and materials and design.

2012: From the Apple v. Samsung trial: Apple considered “making a camera, making a car, crazy stuff.”

2013: NY Times: Apple’s founder Steve Jobs would have liked to take on Detroit with the Apple Car.

2015: Dodge Caravans carrying LiDar sensor technology, vehicles which were leased by Apple, were spotted driving in Bay Area. Apple says that the cars are to explore mapping technology, not to develop driverless technology.

2015: Business Insider: Apple is already designing a car that would give Tesla “a run for its money”

2015: Wall Street Journal: Apple is secretly building an electric car with several hundred employees. Called Project Titan, the completion date is set for 2019.

2016: Reports surface that Apple is building a team poached from potential rivals. The experts hail from the automotive design, battery technology, autonomous vehicles, and robotics fields. A short list includes former employees from Tesla, Mercedes-Benz, General Motors, and Ford, as well as Google, Autoliv, Concept Systems, MIT Motorsports, and others.

2016: On the autonomous side of things, Apple has invested heavily in Didi Chuxing, a Chinese ride hailing service similar to Uber. It’s believed the investment could provide Apple with copious driving data – the sort needed for autonomous car development.

2016: Top speed: On the interior of Apple car: That means passengers get stuff like augmented reality features for entertainment, sightseeing, and general information (nearby restaurants, charging station locations, etc.). There should also be exceptionally deep smartphone integration, with the Apple iCar’s onboard systems picking up preferences in music, lighting, and climate control settings. Think of the Apple iCar as a direct extension of the iPhone, plus all the benefits of a fully assimilated living space. Everything will be customizable, and the user interface will be 100 percent automated (after the initial set-up process, of course). Interior cameras will allow you to conduct conference calls while on the move. A standard Wi-Fi hotspot is a given.

TopGear, July 2015

Apple’s products are traditionally beautifully built and designed, satisfying, and easy to use. And cars are increasingly complex and user-hostile:

-Touch screens are unresponsive

-Graphics are hideous

-Connections to phone randomly fail

-Voice activation is ineffective

-Menus are counterintuitive

Moreover, competitors seem to solve one problem but then more their ambitious apps fail. Apple also has a cash pile ($90B) which makes the potential foray affordable as they could get the car and a factory for $12B.

For most electronic stuff except big computers, manufacturing is already subcontracted to locally owned and run plants in China. They have talked to Magna Steyr Austria who manufactured BMW’s first gen X3 and current Countryman, Chrysler’s Voyager, and Mercedes’ G class. Off-the shelf suppliers also exist for powertrains, suspensions, driver-assist systems

However, Apple is not an evangelist like Tesla which strives to end the grip of petroleum, Google, which claims that self-driving cars will reduce traffic accidents, or BMW, which claims that the new mobility is only way to survive. Also, profit margins are small in the industry and the business model may require extra effort. For example, the Tesla and BMW business models stretch into consumers’ lives.

CNBC Oct. 2016

Apple is rumored to be in talks with McLaren. LeEco, a Chinese tech giant in smartphones, cloud, streaming, and virtual reality is in a partnership with Aston Martin.

“Someday cars will just be one more device, not a big thing like owning a house like it was 30 or 40 years ago."

Self-driving vehicles will depend heavily on training data for algorithms. Apple has the sophisticated location technology, developed thru smartphones, which already supports Lyft and Uber. Google, Uber, and Tesla are the most well-known competitors here.

Most popular sensors are getting much cheaper – the technology is getting closer - and large ecosystem investments in energy storage also bring the e-car closer. Apple has battery technologies which are different from Tesla’s (prismatic vs. cylindrical) but are suited to autos developed in parallel with cell phones.

Cybersecurity is also more important in an auto when there is more software in it. Microsoft’s automobile software may monitor the car from anywhere, allow autopayment of tolls, and get automatic software updates. Both Apple and Microsoft have taken a strong stance on data encryption. Facial recognition to identify drivers is also a technology that is emerging. Apple also has CarPlay: a 2nd entertainment screen in car

NYTimes, The Street Aug. 2017

Apple Inc. may have gotten a bit too ambitious in its haste to not miss out on the self-driving car race, and now the tech giant has scaled back its efforts to break into the market. The company had first hoped to build an Apple-branded autonomous vehicle on its own, but due to a series of disagreements between executives and confusion about the project's goals, Apple ultimately decided it would focus on the underlying technology used to power self-driving cars, The New York Times reported on Tuesday, Aug. 22, citing sources close to the situation. Apple plans to test the autonomous vehicle technology in a self-driving shuttle service that will ferry employees around the company's Palo Alto, Calif., campus -- an effort called PAIL, for Palo Alto Infinite Loop, according to the Times.

The moves echo comments made by Apple CEO Tim Cook earlier this month and in June, when he said the company was working on a "large project" focused around autonomous systems. Cook has called autonomous vehicles the "mother of all" artificial intelligence projects, which suggested Apple might be building its own car, but on the company's latest earnings call, he made it seem like Apple is reconsidering that idea.

Autonomous systems can be used in a variety of ways, and a vehicle is only one," Cook said on the call with investors. "There are many different areas of it, and I don't want to go any further with that."

Apple is joining an already crowded market populated by rivals including Alphabet Inc.'s Waymo, Tesla Inc. and Uber Technologies Inc. Waymo is widely considered to be the front-runner among companies developing autonomous technology. Apple's technology is said to be at the stage where Google's self-driving car efforts were three years ago, Business Insider reported, citing sources familiar with the situation. The tech giant plans to target the ride-hailing industry with its autonomous systems but isn't trying to overtake Uber, Business Insider noted.

Project Titan, the internal code name given to Apple's car project, has been in the works since 2014. Apple staffed up the project heavily, primarily with veteran engineers who had expertise in constructing cars, the Times noted. The team hoped to disrupt the traditional automobile experience, not just with autonomous technology but by introducing things such as motorized doors that open and close silently and the possibility of building spherical, globelike steering wheels. Engineers also thought about ways to redesign Lidar sensors, the core technology that basically acts as the eyes for a self-driving car, by using lasers that scan and analyze the car's surroundings. Apple reportedly wanted to redesign the Lidar sensors, which typically protrude in a cone shape from the top of a car. Other ideas involved adding augmented reality features to a car's dashboard.

A few years into the project, however, it began to hit some speed bumps. Steve Zadesky, a 16-year Apple veteran who oversaw Project Titan, quit the project in January 2016, after a series of disagreements with Apple design cheif Jony Ive. Zadesky wanted to focus on a semi-autonomous car that would have self-driving capabilities but would allow the driver to resume control of the car, while Apple design chief Jony Ive pushed for a fully autonomous car that would let Apple control the entire end-to-end experience. The project is now overseen by longtime Apple executive Bob Mansfield and has reshifted its focus toward building autonomous technology. Apple has been spotted testing its self-driving technology on a fleet of Lexus RX450h SUVs in California, not long after it was granted a test permit by the California Department of Motor Vehicles.

Analysts and experts have said it would make more sense for Apple to scale back its ambitions, lest it risk tapping into the self-driving car race too late. Building an entire car comes with its own challenges, not limited to forming relationships with dealerships, which can be complicated, said Bob O'Donnell, chief analyst at TECHnalysis Research LLC.

"All of those kinds of things are what they probably started to realize would be more challenging," O'Donnell said. "Whereas actual software and tech they were probably making good progress on and said, 'Look, we've got all this work and how should we leverage it?' It's not at all hard to draw the story where that's the case.

MacWorld Oct. 2017:

The most logical outcome? Project Titan "is likely to be a transportation platform - not a car, but the entire experience" Milunovich remarked. It's an interesting idea; if cars in the future can drive themselves, what will the occupants be doing? It's likely that passengers will require some form of entertainment, communications and apps to keep them occupied - something Apple provides with its other devices. With all that on offer, the car will also require Wi-Fi, broadband connectivity, navigation information and its own operating system - all of which the company offers. Combine that with rumors of an upcoming Siri-enabled smart speaker to rival Amazon's hugely popular Alexa-powered Echo. It's not hard to imagine a future where Siri controls and operates your car, providing you with an iOS-like user interface to interact with.

Seeking Alpha, Apr. 2017

Apple lacks growth and innovation while Tesla lacks financial stability. Apple’s growth opportunities are in automotive, virtual reality, and mixed virtual reality. It is currently using its cash to buy back stock at all-time high prices. Shareholders may like this but are there better uses of cash? Tesla is overpriced but an acquisition by Apple merely trades one overvalued stock for another.

Sept. 6, 2016: Samsung Note’s problems: bursting into flames. Apple’s stock price rises from 105 to 145 in a period of a year. But it sustains only 3% growth over the period. Smartphones could be obsolete in 12-15 years due to wearables.

Apple, Inc.

Product Net sales, $million

2017 2016 2015

iPhone 141,319 136,700 155,041

iPad 19,222 20,628 23,227

Mac 25,850 22,831 25,471

Services 29,980 24,348 19,909

Other products 12,863 11,132 10,067

Total 229,234 215,639 233,715

Source: Nov. 2017 10-K report

QUESTIONS: (Why do firms engage in product diversification strategies?)

Q1. Outline Apple’s strengths and weaknesses

Q2. Outline Apple’s opportunities and threats

Q3. What is the justification for an “iCar-related” product diversification strategy at Apple? (You should find a justification in each of the SWOT elements – strengths, weaknesses, opportunities, and threats.)

Q4. Would you consider Apple’s diversification strategy be related or unrelated diversification?

Answer 1

Introduction

Diversification:- Diversification is a tool that helps companies in growing it is a stratergy that helps a company to enter into new business sectors it currently doesn't operate in. Reaching out to more customers, catering more industries and therefore generating more revenue and in control of more sectors and areas.

Benifits of Diversification of Business-

1) Risk Aversion:-

Businesses usually engage in diversification to reduce the dependancy on one sector or source of income and thereby reducing the overall risk that the company faces in the long/short run.

2) Market Share:-

Diversification has a direct impact on the market share of a company. It helps tap uncatered markets and expand customer base therefore helping in generating more sales and profit maximisation of all the stake holders.

3) Lower Costs:-

Diversification can also help in reducing per unit costs. Sometimes the components used across different product ranges ie the inputs are the same, therefore it allows companies and large corporate houses higher bargaining power thereby reducing the per unit and overall costs that are incurred by the firm and enhances the cycle in which payment needs to be done to the vendors also.

Answer to Q1&Q3)

SWOT as a term generally refers to the Strengths, Weakness, Threats and Opportunities that a company has in the near future and helps them in evaluating themselves and the current situations so as to plan properly and implement changes that help in reduced threats and there overall impact on the company as a whole. It is a widespread technique that has been followed across several companies to reduce there costs and assess there diversification stratergy.

In the above case study, of apple the following are the highlighted strengths and weakness:-

Strengths:-

• The core strength of Apple is the fact that it is the leading giant of technology. It has a lot of know how into the technological space and self driven cars would generally be driven by excessive use of such technology

• Brand Value of Apple is a big attractor. Not many wouldn't know the success of all Apple products due to the fact that it has built its value over a period of time even speculation of a car by Apple adds goosebumps to the buyers mind because he starts expecting the best considering the brand value

• It already has a great hands on experience on fields such as in car entertainment, Maps and Navigation,Algorithims, Augmented Reality etc that would help it in developing a self driven car. These are the ideal features that any self driven Car would have.

• Apple is also a very Financially sound company and is riding high on cash pile. This would mean that it has a lot of operating capital which would serve key importance in such a high profile launch.

• Apple has a strong hold on chinese suppliers that would be an add on to keep costs as low as possible

Weakness-

• Apple has no prior experience in launching an automobile and therefore would find it tough finding players that are ready to sell vehicles let alone the fact that this vehicle is only planned to be an E-Vehicle
• The resignation of  Steve Zadesky, a 16-year Apple veteran who oversaw Project Titan, who quit the project in January 2016 highlights the fact, that the company is not flexible in its approach and is very rigid to the fact that it wants a fully automatic vehicle and this might not be practicle in the long run.
• Apple is very slow in developing the technology required for a fully automatic vehicle.

Answer to Q2&Q3):-

Opportunities:-

• Apple has quite a brandname in innovative tech products if it is able to tap the automotive market space, being the brand that has a lot of know how about augmented reality, maps, in house entertainment, sensors etc it would attract huge profits for the company
• Low cost e-cars would allow for integration of a lot of third party and other payment related apps thus making cars more of an eco system than just a car. This is a big opportunity which is yet untapped by other players

Threats:-

• Automotive is an unexplored area and more so fully automatic cars are hard to pull off failure would lead to bad brand name take an example of samsung and battery issues no brand has permanent brand value. Apple could end up making a blunder if it fails to deliver the hype already created by media agencies.

• Profit margins in such an industry are generally low.

• The maket space for e cars is already very crowded with Tesla being the leader Apple lacks innovation in this space and is very rigid on full automation that takes the human aspect out of the car which many people might not readily accept.

Answer to Q4)

Diversification has many types two of them being related or unrelated diversification. Related meaning such areas or business sectors in which a company already holds its operations in. While on the other hand unrelated refers to a diversification into a new area. It could be a subjective term having a few grey areas as well.

Just in this case in which though the company is engaged in telecomunications and other such gadgets, and is entering automobile which would generally be an unrelated sector, but still the technology it is trying to implement is generally linked to what it is currently using therefore this could be a partial situation