Question

E-Business Strategy and Business Model

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determine the past, present, and likely future of the apple.Inc industry and the apple,Inc's track record with that industry. Use the different models like SWOT, PEST, Porters model to understand the market environment.

Answer 1

Apple, Inc.’s Mission As found on the company’s website, Apple, Inc.’s mission is the following: Apple designs Macs, the best personal computers in the world, along with OS X, iLife, iWork and professional software. Apple leads the digital music revolution with its iPods and iTunes online store. Apple has reinvented the mobile phone with its revolutionary iPhone and App Store, and is defining the future of mobile media and computing devices with iPad((Apple, Inc., 2012). Apple, Inc.’s Values As found on the company’s website, Apple, Inc.’s values are as follows: • We believe that we’re on the face of the Earth to make great products. • We believe in the simple, not the complex. • We believe that we need to own and control the primary technologies behind the products we make. • We participate only in markets where we can make a significant contribution. • We believe in saying no to thousands of projects so that we can really focus on the few that are truly important and meaningful to us. • We believe in deep collaboration and cross-pollination of our groups, which allow us to innovate in a way that others cannot. • We don’t settle for anything less than excellence in every group in the company, and we have the self-honesty to admit when we’re wrong and courage to change. (Apple, Inc., 2012). Apple, Inc.’s Business Strategy and Goals As seen in the company’s vision, mission, and values, Apple In. has a clear strategy and set of goals. Apple, Inc. defined their strategy and goals in their last annual report as the following: The Company is committed to bringing the best user experience to its customers through its innovative hardware, software, peripherals, and services. The Company’s business strategy leverages its unique ability to design and develop its own operating systems, hardware, application software, and services to provide its customers new products and solutions with superior ease-of-use, seamless integration, and innovative design. The company believes continual investment in research and development and marketing and advertising is critical to the development and sale of innovative products and technologies. As part of its strategy, the Company continues to expand its platform for the discovery and delivery of third-party digital content and applications through the iTunes Store. As part of the iTunes Store, the company’s App Store and iBook store allow customers to discover and download applications and books through either a Mac or Windows-based computer or through “iOS devices,” namely iPhone, iPad and iPod touch. In January 2011, the Company opened the Mac App Store to allow customers to easily discover, download and install applications for their Macs. The company also supports a The Innovative Success that is Apple, Inc. 4 community for the development of third-party software and hardware products and digital content that complement the Company’s offerings. The Company’s strategy also includes expanding its distribution network to effectively reach more customers and provide them with a high-quality sales and post-sales support experience.”(Apple’s Annual Report, 2011). Now that Apple Inc.’s strategy and goals have been shown, a look at what effects the decisions of the executive staff in regards to the general environment is needed.

According to the Apple Inc. annual report, Apple is engaged in “designing, manufacturing and marketing mobile communication and media devices, personal computers, and portable digital music players and sells a variety of related software, services” (2011). The company had been previously known as Apple Computer Inc.; however, Apple Inc. removed the word “Computer” in 2007 to reflect the company’s focus towards consumer electronics and digital distribution (Apple, Inc., 2012). Apple Inc. now is in the computer hardware, computer software, consumer electronics, and digital distribution industries (Apple, Inc., 2012). In these industries, the key factor is undoubtedly technology. The popularity of technological innovation can help a top company by creating competitive advantages, but also bring more competitors to the market. Most of the products in the industry are based on technological innovation. Companies in these industries have to introduce new products or services frequently due to there being numerous active competitors. Besides leadership that can address the strategy which creates the competitive advantage of a company, investing in research and development (R&D) is also very important. The product lifecircle in these industries is shorter than any products from other industries (Gross, 2012). One product can be out-of-date in less than one year without an improvement from technology (Gross, 2012). All that facts show that technological innovation is a key aspect of the industries that Apple, Inc. is in. Due to the constant growth of technology, the industries that Apple is in are some of the most unpredictable industries nowadays. Before 2007, there was no touch screen phone that people could use by hand and Apple, with its technology, changed the definition of a smartphone with the introduction of their first iPhone (Copeland, 2010). Furthermore, Sony had created the first portable music player in 1979 and then more than eleven years later, the Japanese company changed the music industry again by introducing a Discman in 1990 (Bertolucci, 2009). A mere eleven years after the introduction of the Discman, Apple made a big change in the industry with the first generation of iPods (Bertolucci, 2009). It shows that through technology, an industry can change very quickly and no one can know what will be the next level of technology or the next great technological breakthrough. In these industries, several different strategic groups exist. Due to the popularity of technology and the supply chain, most of the products in the industry can be provided globally; therefore, price is the most frequent aspect to analyze strategic group in the industry (Hess, 2006). Besides price, technology companies can define their core value by targeting different levels of customers, such as consumer or business customers (Hess, 2006). They also can develop their strategy based on their core product, such as digital or physical asset (Hess, 2006).Following a The Innovative Success that is Apple, Inc. 6 strategic group analysis, Apple targets to consumers in the high-tech market, providing both digital and physical assets (Fast Company, 2011). The company defines itself as a high class technology company by setting a premium price to most other competitive products (Apple, Inc., 2012). This high-tech company not only sells hardware, but also develops its own software to support its line of products (AppleInsiderstaff, 2007). In short, Apple Inc.’s strategy in the industry is clearly welldefined and this helps the company stand out from other competitors. The Target Market/Customers There is no point to having great products if there is no target market for those products. Apple, Inc. focuses on marketing to people with a few different characteristics. Middle and upper class income people are a primary focus for Apple because these demographics are usually willing to pay slightly more for “a better user experience” because $500 for a laptop is not a stretch for them (www.patentlyapple.com, 2010). Obviously, technological innovators like Apple are going to focus on people who like to have fun with technology; Apple’s extensive line of entry level devices and tools is beginning to appeal to people of all ages and not just the coveted 18 to 34 year old demographic that seems to be thoroughly enthralled by the company and its products (www.patentlyapple.com, 2010). Thanks to iPods and iTunes (and their impressive compatibility with all other Apple products), Apple is able to target music enthusiasts from a large age demographic (www.patenltyapple.com, 2010). Additionally, thanks to their cutting-edge technology, Apple is also able to target professionals that work in media and design (www.patentlyapple.com, 2010). While Apple’s prices are generally higher (a new iPhone could be $800 or a new iPad almost $2000), they are able to appeal to people of all ages and demographics due to their reputation of impressive technological breakthroughs, while still managing to focus on targeting the customers that were just discussed.

Why Apple Will Win The iPhone, iPad, and all the other I-products will keep leading the world's media product wants. Apple is the No.1 wealthiest company in the world now(at least in regards to the fact that they get the most cash on hand show in their balance sheet) (Apple, Inc., 2012). These products have helped to create an Apple empire in the history of business. Apple, Inc. grows faster than any other company. The rate of their revenue increase is over 50% in the most recent three to four years; sometimes the revenue increases even double this number (Apple, Inc., 2012). Apple's previous CEO, Steve Jobs, nor Apple’s current CEO, Tim Cook, has not done anything wrong to slowdown this amazing growth. Apple just keeps hitting new records. The third quarter of 2010 saw the company hit 15.7 billion in revenue; a mere year later, that revenue almost doubled when it reached 28.57 for the same quarter (Fast Company, 2011). This is exceptionally impressive in regards to a revenue increase during a non-holiday season. Meanwhile, Apple Inc.’s cash reserves managed to total more than the entire net worth of many small countries, as well as the U.S. Treasury’s (Fast Company, 2011).All the Apple products did well in sales in regards to their own markets (refer to exhibit 5).

Financial Analysis of Apple, Inc. Growth Ratio Apple’s financial performance has continued to strengthen over the second quarter of 2012. The revenue increased by 23% from $28.6 billion to $35 billion over the year-ago quarter. (Morningstar, 2012)Apple came in third place behind Dell, Inc. and Hewlett-Packard Co. in the US pc market with 12 percent market share. In the tablet market and smart phone market, Apple is the leader in market share and in volume with 29% market share in the smartphone market and 61.5 % market share in tablet market. (Refer exhibit 3) (Gartner, 2012). Valuation and Financial Strength ratio Apple Inc. currently has the lower Price-to-Earnings ratio of 14.5 compared to the industry standard of 15.7 and the S&P 500 average of 15.3 (Gartner, 2012). This indicates that Apple is less of a “risky” investment than other companies in the computer hardware industry and other firms in the market value weighted index. Furthermore, Apple has a current ratio of 1.6, which is equal with the industry and higher than S&P 500 ratio of 1.3 (Gartner, 2012). The current ratio indicates Apple’s assets that can be converted into cash are good enough to cover its short-term obligation. The Quick ratio of 1.5 will be a support indicator to prove Apple’s liquidity because the quick ratio also tells the ability of terminating a company short-term obligation by its current assets exclusion of inventory (Morningstar, 2012). The long term debt to equity ratio shows that Apple is not carry any long-term debt, that means Apple has a proportionate equity base and the ability of mobilized capital

Profitability Ratios Apple’s gross profit margin ratio of 44.11 is higher than the industry average of 43.5 and the S&P 500 of 39.41 (Morningstar, 2012). The fact is Apple owns several retail stores which help Apple allocate its selling and administration expense effectively and cut off the discount fee to wholesalers or distributors. Moreover, Apple’s product is following the premium pricing strategy that could be a factor in the higher gross profit margin ratio. The net profit ratio of Apple, Inc. is 26.97, representing the same with the industry average ratio of 26.38

Management Effectiveness Apple’s inventory turnover of 82.7 is higher than the industry average of 81.3 and the S&P 500 of 12.1 because of its strong sales (Morningstar, 2012). Apple has the power of making people excited about their new launching product. Apple is one of the firms that is efficient at using their assets in generating sales with the high assets turnover of 1.1 regarding their pricing strategy and high profit margin (refer to exhibit 10)(Morningstar, 2012). Balance Sheet and Summary Examination of the balance sheet shows Apple to be fairly strong financially. Apple’s balance sheet is very liquid as many of its assets can be readily converted to cash; Apple’s cash and cash equivalent increased by $110 billion (Apple, Inc., 2012). Apple holds over 60% of its assets in cash and market securities (Apple, Inc, 2012). To a technology company like Apple, liquidity is important because Apple is able to react quickly to opportunities and market changes. Apple declared to pay their dividends$2.65/share or $ 2.5billion/ quarter; they last offered a dividend in 1995 (Yoffie, 2012). Apple will also repurchase $10 billion of its shares over three years (Yoffie, 2012). Stock repurchases will help Apple inflate their earnings per share because it will reduce the number of shares that are outstanding (Yoffie, 2012). Apple is one of the most profitable companies in the world as it has a strong financial position and is managed effectively and efficiently (refer exhibit 14) (Yoffie, 2012).The company’s balance sheet can also be found at the end of this report. TOWS Analysis of Apple, Inc. Like any other company, Apple, Inc. does have threats, opportunities, weaknesses, and strengths. A further analysis of the company from a firm’s point of view by evaluating their strengths and weaknesses and then an industry point of view by evaluating their threats and opportunities will help to better understand the company as a whole. Strengths: Apple’s financial position Apple has a strong financial position with total assets of 162.90 billion (Yoffie, 2012). Apple has become number one in worldwide capital market. Apple is the company that holds the largest cash in hand up to $116 billion (Yoffie, 2012). We can examine more closely Apple’s key ratio in exhibit 12 in order to more clearly see that Apple does not have any capital debt. They are strong enough to invest more in R&D to maintain their leading position and their gross profit margin is an impressive 46 % (Yoffie, 2012). Product differentiation Apple’s strength is in its differentiated products. Apple’s computer operating system is highly secured and is not subject to viruses and hackers which tend to affect the Windows software of Microsoft (Kan, 2012). Furthermore, Apple’s products are designed to address the concerns about consumers’ lifestyles which make the graphic system and design of Apple’s products superior to their rivals’ products in the same market segment (Nudd, 2011). While Apple Inc.’s software is different from other competitors, its products’ hardware is also in the upper class. All Apple’s products are made of high quality material, such as aluminum, combined with comfortable designs The Innovative Success that is Apple, Inc. 16 (Nudd, 2011). All of these features in their vast array of products make customers feel that they have a valuable product when they have an Apple, Inc. product

Threats Rising of Google Android and other operating system After the first Android smartphone was introduced in October 2008, Google’s operating system has become more and more popular. By the end of 2010, Android had become the leading smartphone platform in the world (Simonsen, 2012). Different designs, cheaper prices, and easy modifications are some features that make customers prefer the Android to iOS devices (Simonsen, 2012). In other realms of technology, the giant of the technology industry, Microsoft, has also shown some recent ambition by introducing new operating systems such as Windows 8, Windows RT, and Windows phone 8 while spending big money in marketing in order to capture more of a market share in the industry (Simonsen, 2012). According to Andy Rubin, The Innovative Success that is Apple, Inc. 18 father of the Android, there are 900,000 Android devices that are being activated each and every day (Simonsen, 2012). Additionally, Microsoft has been spending big money on its marketing campaign to promote their new operating system, approximately 1.5-1.8 billion U.S dollars (Einstein, 2012). All of this shows that Apple’s smart products will be faced with very strong competitive in their market.

This TOWS evaluation and the reasoning for these strategy suggestions can be summed up by the following: TOWS analysis

Weaknesses • Executive changing • Protective strategy • Product security Strengths • Financial • Differentiation • Marketing- Brand name and image • Retail Strategy • Manufacturing hardware & software • Digital Asset

Opportunities • Uncover market • Loyal customer • Develop high quality product • Develop product for business segment • Focus on customer service and retail store • Improve customer experience • Develop new products Threatens • Android & others • Tech-Innovation • Supply system • Re-value top management • Develop new products • Produce high quality product • Focus on quality management • Focus on R&D

The Changing of Leadership and Apple’s Future: Steve Jobs was a legend as CEO of Apple, Inc. Jobs lead Apple to become the most profitable company in the world when it was on the verge of bankruptcy. Apple posted a $25,922 million profit in 2011 fiscal year, reversing the loss of $1 billion in 1997, a year before Jobs took back over at Apple (Apple, Inc., 2012) The new CEO, Tim Cook, had more pressures and challenges when he took over Jobs’ place to maintain Apple’s top position in the technological perspective. Apple, under the Jobs era, was following the blue ocean strategy successfully and “simply seems to understand what will get people excited about its products” (How Tim Cook, 2012).Steve Jobs was more focused on innovation and the quality of product. Tim Cook is different; he is more focused on protecting the already existing Business Model which Jobs left behind and tries to take all possible steps to protect it from intruders (How Tim Cook, 2012). People wondered about the future of Apple without Jobs. It has been a year from the point that Jobs left and Tim Cook has proven that Apple’s operation is effective with expansions in sales volumes and market shares despite not producing enough product at all times to meet the demand of the customers.