Apple Inc. & the Mobile Telecommunication Industry PDF

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A strategic analysis of Apple Inc. position within the mobile communications market and ways to create and sustain a competitive advantage....

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Apple Inc. & the Mobile Telecommunication Industry A strategic analysis of Apple Inc. position within the mobile communications market and ways to create and sustain a competitive advantage.

Contents Executive Summary...........................................................................................................................2 Mobile Telephone Market Overview................................................................................................3 VRIO Analysis....................................................................................................................................4 Value......................................................................................................................................4 Rarity.....................................................................................................................................4 Imitability...............................................................................................................................5 Organisation...........................................................................................................................5 Conclusion.............................................................................................................................5 Porter’s Five Forces Analysis.............................................................................................................6 Threat of new entrants..........................................................................................................6 Bargaining power of suppliers................................................................................................6 Bargaining power of buyers...................................................................................................7 Threat of substitutes..............................................................................................................7 Industry competitors..............................................................................................................7 Conclusion.............................................................................................................................7 SWOT Analysis...................................................................................................................................8 Strengths................................................................................................................................8 Weaknesses...........................................................................................................................8 Threats...................................................................................................................................8 Opportunities.........................................................................................................................9 Strategy recommendation..............................................................................................................10 Appendices Appendix 1: Mission Statement...........................................................................................11 Appendix 2: Company Outline.............................................................................................12 Appendix 3: The Current Model (iPhone 4S)........................................................................13 Appendix 4: Market share & profit......................................................................................15 Appendix 5: VRIO Analysis...................................................................................................16 Appendix 6: VRIO Analysis 2................................................................................................17 Appendix 7: Porter’s 5 Forces..............................................................................................18 Appendix 8: Market option matrix.......................................................................................19

Apple Inc. | Executive Summary

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Bibliography....................................................................................................................................20

Executive Summary The mobile telecommunications market, until recently was an assortment of various manufacturers such as Nokia, Siemens, Sony Ericsson, Samsung etc. The market has moved away from the endless number of mobile telephone manufacturers and four major players now control the industry, Samsung, HTC, RIM and Apple. While Apple’s market share has been steady over the past few years, operating profit has increased. The main reason behind the slow growth in market share is due mainly to the high price of the iPhone. By introducing an entry and mid-level iPhone, Apple will exploit an untapped market. Apple would see an increase in market share, gained from new customers who previously would not have bought an iPhone due to price. Apple would also benefit from the enterprise market currently dominated by Research in Motion (RIM), who currently provide the majority of smartphones to business users. This market development strategy is unchartered territory to Apple and could prove very lucrative if the operating system is developed to the needs of businesses as the iPhone’s ease of use would make it preferable to the Blackberry. In the following report, we have conducted internal and external analyses to enable us to formulate a suitable strategy in-line with Apple’s mission statement to allow Apple to create a sustainable competitive advantage. If Apple are able to successfully implement these strategies to increase market share, as the market matures, the iPhone will become a ‘cash cow’, indicated by high market share and low market growth, providing a steady stream of income for Apple.

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Mobile Telephone Market Overview

The mobile telephone market is dominated by a few large firms, the top four being, Research in Motion (RIM), Samsung, HTC and Apple. These four firms represent the majority of smartphone sales in both the UK and USA. Research in motion was the original main competitor to Apple’s iPhone with their line of Blackberry phones, originally aimed at professionals who needed access to emails on the go. Research in motion has now branched out with a wider range of Blackberry phones now aimed at the general public. The Blackberry’s main strengths were the support for Microsoft Exchange Server email systems and Blackberry Messenger™, which allowed Blackberry users to send short messages to each other free of charge as an alternative to current SMS messages. Samsung mainly provide Android based phones to consumers, this operating system is an open source software developed to compete directly with Apple’s iOS and the App Store. The Android software includes an application marketplace similar to the App Store however unlike Apple, software developers do not have their applications scrutinised like those for intended for the App Store and neither Google (developers of Android) nor Samsung take a percentage of app sales. HTC, a Taiwanese manufacturer is a relatively new entrant to the UK ad US market and also base their mobile phones on the Android operating system. Like Apple, they develop touchscreen slate smartphones aimed at the general public. Their large product range and constant new product releases allows HTC to keep a share of the market and compete with the iPhone. Apple have enjoyed growing market share over the past 5 years and each new product release is seen as an upgrade on the previous technology meaning that at any one time, Apple essentially has one mobile telephone in the market, i.e. the latest iPhone, unlike other manufacturers who release new products to sell alongside older models. While some may see this as a disadvantage, there is always huge demand when Apple releases their latest iPhone and previous models of the iPhone still sell strong to ‘late adopters’ who want to own an iPhone but are dissuaded by the high price of the latest model. Appendix 4 shows that while Apple’s iPhone has a respectable market share (behind Samsung), their revenue and operating profit far exceed that of its competitors.

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VRIO Analysis The VRIO framework is an internal strategic analysis tool to determine if a resource gives the firm a competitive advantage. VRIO is an acronym representing, value, rarity, imitability and organisation. These key points are the questions asked in weather a resource provides a competitive advantage. To better understand the concept, appendix 5 contains a diagrammatical representation of the framework. To apply the framework we need to ask: The question of value: Is the firm able to exploit an opportunity or negate a threat with the resource? The question of rarity: Is the resource in the hands of few firms? The question of imitability: Is the resource difficult to imitate or protected by high cost barrier in developing or duplicating the resource? The question of organisation: Is the firm able to exploit the resource?

The resources/competencies that I have analysed are those which I feel are at the core of Apple’s iPhone business and their main strengths compared to their competitors. These competencies are; brand name, hardware, software, ease of use and current compatibility with 3rd party software. Appendix 6 contains the VRIO table for the Apple iPhone and is what the following observations are based on.

Value As we can see all of Apple’s resources are valuable except the iPhones compatibility with 3 rd party applications. Currently, the iPhone does not support certain web interfaces such as the widely used Adobe Flash and the iPhone also requires iTunes (media library software) installed on a PC to be able to synchronise data if the user does not subscribe to the iCloud service. This compatibility issue puts Apple at a competitive disadvantage within the marketplace.

Rarity The iPhone’s brand name and ease of use are in the hands of few other firms and provide Apple with a temporary competitive advantage which could be sustained if they were difficult to imitate such as the brand name. The ease of use stems mainly from the touchscreen interface, compatibility with iTunes and the synchronising ability of the iPhone when connected to iTunes. This can be imitated by other manufacturers as many mobile phones already ship with their own software with these functions, at the present time however, none of these have the ease of use comparable to the iPhone. Apple Inc. | Executive Summary

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Imitability Presently, the brand name, hardware and software are difficult to imitate, this is mainly due to Apple purchasing many of the companies that produce the hardware for the iPhone and also protecting their software (iOS) with numerous patents. Both the brand name and hardware provide Apple with a competitive advantage while the software could if Apple were in a position to exploit it by deregulating the app store and providing greater 3rd party compatibility.

Organisation This asks whether Apple is in a position to exploit the resource and the only areas in which it is unable is their software and 3rd party compatibility. Apple could exploit these by approving more apps for the app store and also providing support for other PC applications such as Windows Media Player and web based content that relies on Adobe Flash.

Conclusion Apple has a sustained advantage with its brand name but could benefit by exploiting the possible competitive advantage by improving their software and increasing compatibility. I think that the temporary advantage due to hardware can become sustained as Apple’s subsidiary companies, who produce their hardware, spend more on R&D and protect their products with patents.

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Porter’s Five Forces Analysis Porter’s five forces, also known as the Porter model of competitive industry structure is an external analysis tool used to determine the attractiveness and long run profitability of an industry. [ CITATION Job10 \l 2057 ]. The five forces that the model analyses are; the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, threat of substitutes and industry competitors. Where these forces are thought to be intense, below average industry performance can be expected. The reason for conducting a Porter’s five forces analysis is to assess the threat to Apple’s market share and profitability and to enable the development of new strategies to ensure Apple have a competitive advantage and retain their market share. To better illustrate the Porter model, appendix 7 contains a diagram outlining the five forces and the factors that determine the strength of these forces.

Threat of new entrants New entrants can raise competition within the mobile phone industry and erode Apple’s market share and profitability. The threat of new entrants is dependent on barriers to entry, with high barriers reducing the threat. At the moment, the mobile telephone market has high entry barriers, arising from economies of scale established by current manufacturers, brand identity and high capital requirements. These barriers are likely to dissuade firms from entering the industry and so the threat of new entrants is likely to be quite low.

Bargaining power of suppliers The majority of mobile telephones consist of very similar, widely available hardware, this lowers the bargaining power of suppliers as the cost of switching supplier for manufacturers is very low. Apple has further managed to mitigate the possibility of rising bargaining power by vertical integration. This means that most of the hardware supplied for the iPhone is either made by subsidiary companies or by external firms that have long term contracts with Apple to produce components. The volumes in which Apple produces their iPhones also mean that the contracts for iPhone components are valuable to a supplier. These factors reduce the bargaining power of suppliers within the industry, especially for Apple.

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Bargaining power of buyers Apple sell both directly to consumers and to network providers such as O2 and 3, this coupled with the brand image of the iPhone means that there are few dominant buyers in the industry. This was not the case originally as Apple decided to only sell the iPhone to consumers and O2 (UK) and AT&T (USA). O2’s exclusivity expired with the release of the iPhone 3GS and became available on all UK networks, reducing the bargaining power of O2 as a buyer.

Threat of substitutes The mobile phone market contains many similar products but only the iPhone has the strong brand name and loyalty required to prevent consumers from switching products. However, the development and production of mobile phones from RIM, Samsung and HTC now closely resemble the iPhone which could increase the threat from substitutes and many customers may now switch to cheaper phones offered by these companies. This will increase the attractiveness of the industry to outside firms, threatening Apple’s market share and profits.

Industr y competitors The mobile phone industry is quite competitive with the majority of market share held between 4 competitors. The products they sell are not too dissimilar, increasing rivalry between the firms, for the moment, certain iPhone features are protected by patent but firms like HTC and Samsung are developing alternatives. Switching cost for the customer is also very low, especially for those on “Pay & Go” tariffs, increasing rivalry within the industry.

Conclusion With low threat from new entrants and minimal bargaining power of suppliers, the industry looks protected from new firms entering the market, however, the threat of customers switching to substitutes should be a concern for Apple and a strategy must be implemented to prevent consumers from switching and damaging Apple’s profit.

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SWOT Analysis

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Strengths Strong brand image Customer loyalty Music capabilities Advanced technology Early adopters/fashionable Opportunities Target marketing of professionals 3rd party software modifications Larger product line Mobile virtual network operator

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Weaknesses 3 party support Limited product line Price Relatively new entrant into market

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Threats Superior hardware in alternatives Open source Android OS Cheaper alternatives Blackberry Messenger

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Strengths Advanced smartphone technology built on the back of the iPod has allowed Apple to establish a strong brand name and tremendous customer loyalty with rival firms and consumers constantly looking at Apple in anticipation of the latest iPhone. Every year Apple release the latest model and it is eagerly anticipated by early adopters, looking for the latest and most fashionable smartphone. The fusion of mobile communication technology and Apple’s iPod has brought two essential gadgets into one, unrivalled in the current market.

Weaknesses While Apple are one of the front runners of the industry, the business does show some weakness. The greatest weakness faced by Apple is the high cost and limited product line, Apple currently only offer 3 mobile telephones, the iPhone 4S, iPhone 4 and iPhone 3GS, priced at £499, £429 and £319 respectively. This high price and the fact that each model iPhone is simply an upgrade on the previous may deter some consumers. The iPhone can be bought from a network provider usually at little or zero cost but accompanied with large expensive contracts.

Threats Cheaper alternatives such as the Samsung Galaxy are luring customers away from Apple, due to the cheaper price, superior hardware and also the Android OS. While the iPhone is an innovative product, the upgrades seen in the iPhone 4S are evolutionary, not revolutionary and are lacking when compared to other smartphones. If Apple is to follow its mission statement and continue to be the leader in technology and innovation, the next iPhone will have to focus on completely upgraded hardware and capabilities within the operating system.

Opportunities Apple Inc. | Executive Summary

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Research In Motion established their Blackberry on the strength of its email capabilities, aimed at professionals who require constant access to work emails when out of the office. Apple has seen rising sales to businesses and with the proper promotion could be in a position to exploit this market. To mitigate the threat of cheaper alternatives, Apple should develop a low cost and a mid-level iPhone to try and capture more consumers. This would remedy the price issues and also provide Apple with a larger product line which can be used to exploit the bottom end of the market. Another possibility for Apple is to establish its own mobile virtual network operator. A MVNO is when a company provides mobile phone services to their customers without having to own network infrastructure such as licensed frequencies on the radio spectrum or cell towers. In return for using the infrastructure, Apple would have to pay a fee proportional to the usage by customers. [ CITATION Mob04 \l 2057 ]. This forward integration would allow Apple to bypass network operators and sell the iPhone on their own network, creating additional revenue in the process.

Strategy recommendation Apple Inc. | Executive Summary

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Apple is in a strong position within the industry, with the highest operating profits in the sector, however, market share is not as high as some rivals and seems to have stagnated over the past year. In order to establish and sustain a competitive advantage, I would recommend two strategies: Firstly, the introduction of entry and mid-level iPhones to target thes...