Apple Inc. has become a world leader by building its empire around strong competitive advantages that it was able to maintain against fierce competition. One of the most valuable is the company’s customer base, loyal to the culture and the brand. On the operations side, Apple can also count on high profit margins thanks to its efficient supply chain, worldwide presence of its distribution system and retail structure (iTunes, App Store, etc.). Moreover, a continuous focus on innovation and R&D gives the company the advantage of constantly proposing products combining elegant design, simplicity and performance. Also, while offering narrow product lines simplifying consumers’ decisions, Apple has an important competitive advantage by always bringing complementary devices, software, and content part of a “Digital Hub” strategy. Personal computers (PC) segment remains an important component of Apple’s strategy. Even with a declining interest from consumers to the profit of tablets and smartphones, this industry has very high rivalry with new technologies and important developments like the ARM design expected to enter the PC market in 2012.
However, Apple anticipated this change and invested in two ARM design companies. Furthermore, it is not facing a sole big competitor as market leader changed many times in recent years, but the company does not have a strong presence in emerging countries that represents high potential markets. Looking at the profit margins in the industry, Apple is able to operate a much efficient level, due to its extremely successful positioning in high-end PC market and effective cost control. On the other hand, standardization of components might be viewed as an unfavorable development. Also, Apple secured a partnership with a powerful and very competitive brand (Intel) for its microprocessors, but finds itself at risk because of little bargaining power. Moreover, even if it has hedged its position with iWork, the company still depends on the cooperation of Microsoft for its independent software. Nevertheless, it’s computers present stronger differentiation than competitors in terms of operating system, design, apps, and complementarity with other products, helping to create brand awareness.
As a result and considering an increasing market share since 2004 and the relatively low enthusiasm for Windows 8, dynamics of the PC market continue to be favorable. As for the iPod, Apple is facing much more difficulties with the sustainability of its position. After presenting innovative designs one after the other, the product seems on the declining phase of its lifecycle. Moreover, sales have been cannibalized since the introduction of the iPhone as it offers an interesting substitute for customers looking for devices providing all in one features. Moreover, the rise of Internet radios threatens the influence of iTunes software, Apple’s major competitive advantage in the MP3 market. In the smartphones segment, Apple has the advantage of offering a simple model selection combined to an attractive App Store. However, we note a convergence of competitors and technology, associated with aggressive plans in launching new products. Also, the company starts losing favors of carriers and user complaints are at their highest. Competitors surely jumped on the opportunity window and capitalized, with the example of Samsung becoming the volume leader in 2011.
Inevitably, Apple’s competitive position in that market continues to erode and the future seems strewn with pitfalls. In the tablets segment, is still ahead of competition in terms of margins and filed patents. However, competitors like Microsoft are coming with new products/OS and there is a strong established competition by Samsung and Google, able to grasp an estimated 54.7% market share (an increase of 20.6% over the last two years) with competitive prices. The tablets market still has important growth potential (56.5% estimated increase in sales over last year) but new players like Amazon will also claim their share. Thus, the iPad will at best consolidate its position. My advice for Tim Cook would be to continue to change the “rule of the game”.
The company needs to capitalize on new markets by being a first mover and keeping focus on the “Digital Hub” strategy, starting with TV/entertainment markets. Moreover, improvement and innovation (e.g. ARM) for iPhone and iPad should be a priority, as these products represent roughly 70% of total sales while competitors continue to grab significant market shares. Finally, the CEO should be careful from the dependence on its major suppliers and has to improve its presence outside the U.S., especially in Asia and Emerging Markets as they represent high growth potential markets.