Teaching Note

TEACHING NOTE

Apple (in 2013): How to Sustain a

Competitive Advantage?
Structure of the Case

The case begins with a vignette of current CEO Tim Cook looking for time to reflect on both the
pressing demands of his job and the longer-term prospects of Apple. As part of the vignette, a
summary of some of Apple’s accomplishments following Steve Jobs’ return in 1997 is provided.
The long-term outlook of Apple without Steve Jobs is a relevant concern, as reinforced by a
reference to Apple’s falling market capitalization (see Case Exhibit 1).

The next section of the case provides a history of Apple Inc. (AAPL). The origins of Apple begin
with Steve Jobs and Steve Wozniak founding Apple Computer, Inc. after Steve Jobs sold his
Volkswagen to build computers in his garage. By 1980, Apple had released three improved
versions of personal computers and launched a successful IPO that made Steve Jobs and
Wozniak millionaires. In 1981, IBM entered the personal computer industry, and by 1982 its
open architecture and partnership with Microsoft (software) and Intel (processor) were becoming
the industry standard. In 1984, Apple responded with the Macintosh computer, whose
introduction to the world came as part of a memorable Super Bowl commercial (see additional
resources). The graphic design of the Macintosh shaped later computer interfaces with
Microsoft’s imitation in Windows 3.0 in 1990.

As part of its growth, Apple brought in professional managers, and in 1983 John Sculley, a
marketing guru, was hired. John Sculley and Steve Jobs initially worked well together, but the
two began to diverge; a power struggle erupted over the future of Apple, resulting in Steve Jobs’
public firing by Apple’s board of directors in favor of making John Sculley CEO. The leadership
of John Sculley at Apple represented a time of decline at the company as competition increased
and Apple lost focus. This set the stage for Steve Jobs’ return.

By 1996, Apple revenues had fallen, and the company announced layoffs of 30 percent of its
work force. A new CEO (Gilbert Amelio) bought NeXT software that Steve Jobs founded after
leaving Apple, and brought in Steve Jobs as a part-time advisor. (Note: While away from Apple,
Steve Jobs also became involved with Pixar animation in what has to be among the best
investments ever, as Disney bought Pixar for $7.4 billion in 2006.) In 1997, Apple experienced
its worst performance ever; Steve Jobs returned as CEO and orchestrated one of the greatest
corporate turnarounds in history.

Steve Jobs began by focusing the company and discontinuing several products, ending
relationships with smaller stores, and outsourcing production. He also switched the platform of

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Apple’s operating system to UNIX, which enabled Apple to adopt Intel processors and run both
the Apple and Microsoft operating systems. This coincided with an alliance with Microsoft that
involved a $150 million investment and development of Microsoft Office for the Macintosh.

Another change Steve Jobs instituted was a renewed focus on design and the appointment of
Jonathan Ive as Apple’s chief designer. This coincided with a renewed focus on Apple’s brand
identity and the launch of Apple’s “Think Different” advertising campaign (see additional
resources). The campaign did not feature any Apple products, and the case includes an interview
that suggests Steve Jobs was waiting “for the next big thing.” Additionally, the focus on
outsourcing coincided with Tim Cook being hired in 1998 as Senior Vice President of worldwide
operations. By 2007, Tim Cook’s role at Apple increased, and he became Chief Operating
Officer.

From this background, the case transitions to a discussion of Apple’s culture that emphasized
attracting employees who wanted to “change the world.” Apple developed a rebel culture, which
was symbolized by flying over its Macintosh building a pirate flag with a rainbow-colored Apple
eye patch. This culture also helped to differentiate Apple in the marketplace, and it developed an
almost cult-like following among customers who bought Apple products. Under Steve Jobs’
leadership, Apple began to deliver innovative products to serve these customers.

A key theme of Apple’s history is innovation, and this was reestablished with the iPod in 2001,
which coincided with Apple starting its own retail stores. However, the MP3 player did not really
take off until the introduction of iTunes, which complemented the iPod and enabled consumers
to download individual songs legally. By 2010, millions of iPods had been sold and over 10
billion songs downloaded.

The iPod was followed by the iPhone in 2007 in a partnership with AT&T to “bring the Internet
to your pocket.” In 2008, the updated iPhone 3G was introduced and sold in record numbers. The
brilliance of the iPhone was that it combined a phone, watch, digital camera, and GPS into a
single device that sold at a premium, but still less than the price of separate products.

In 2010, the iPad was the next innovation, and created a market for a product that crossed a
phone with a laptop computer. The iPad also presented increased competition for Amazon’s
Kindle electronic book, and iTunes was expanded from music to enable downloading movies and
books. Apple reached agreements with all the major book publishers (with the exception of
Random House) that allowed publishers to set prices, with Apple retaining 30 percent of the sale
price. This differed from Amazon’s pricing model and resulted in a Justice Department
investigation on price fixing.

Steve Jobs died in October 2011, and Tim Cook became CEO. Tim Cook’s personality is starkly
different from that of Steve Jobs. His selection as an inside, relay succession signaled that no
large changes would be expected. This is reflected in Apple largely releasing derivatives of
existing products (e.g., iPhone 5S and 5C, the iPad mini). As of the end of 2013, Apple had not
introduced another innovative product line. Two possible product offerings that Apple is rumored
to be developing are an Apple television set to follow its Apple TV box, and a smart watch.

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The content of the case now shifts from Apple to a discussion of its primary competitors that
include exhibits with financial information. For the sake of brevity, the review of competitors is
provided in the following bullets. (Note: More detail on Apple’s primary competitors can be
found in the suggested questions.)
 Amazon.com: Directly competes with Apple’s iTunes and tablet computers.
 BlackBerry: Revolutionized cell phones in 2002, but by 2013 it remains not much more
than a shell of its former self following the introduction of the iPhone.
 Facebook: Social networking website that has partnered with HTC in developing a
phone. Apple does not have its own social networking but offers other firms’ applications
on iTunes.
 Google: Initially a web search firm, Google has rapidly expanded into multiple areas.
Seeing the trend to mobile computing as a threat to its primary revenue stream of
advertising, Google provides its Android operating system to phone developers for free.
Google also purchased Motorola in 2011 and planned to release products with hardware
designed for its software. Google is also developing inexpensive Chromebook laptops, as
well as Chromecast, a device similar to the current Apple TV box.
 Microsoft: Perhaps the firm most affected by the shift to mobile computing, Microsoft
appears to be playing catch-up. It has acquired Nokia to increase adoption of its operating
systems on phones and released its Surface tablet computer. Microsoft has also opened its
own retail stores.
 Samsung: In 2012, Samsung became the global smartphone leader by employing a
different strategy than Apple. Relying on Google’s Android software, Samsung has
introduced multiple products, including more than 26 phones and tablets with screen
sizes varying from 3 to 10 inches. This has enabled Samsung to saturate the market with
lower-cost products to meet different needs, and has resulted in intense competition and
legal battles.

The case concludes with a discussion that Apple’s competitive advantage is based on
differentiated products, brand loyalty, and seamless product design. However, Apple’s success
has invited increased competition and Tim Cook knows he needs to chart a path to continued
growth. The case suggests this could come from introducing less-expensive products, developing
another revolutionary product, or expanding Apple’s presence in emerging markets. This
highlights that the short-term competitive pressures are compounded by the need for Apple to
decide how it will compete in the long term.

Suggested Questions

Analysis: Focus on External and/or Internal Environments

The case is tailor-made for class discussion since students will be familiar with the companies
and their products. An effective way to have students gain an appreciation for the strategic
decisions that the case covers is to have different students or teams perform a SWOT analysis of
the primary competitors: Apple, Amazon, Google, and Microsoft. In class, this discussion can
lead to insights into how technology change and the convergence of markets have increased
competition between technology firms.

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1. Perform a SWOT analysis for Apple.

2. Perform a SWOT analysis for Amazon.
3. Perform a SWOT analysis for Google.
4. Perform a SWOT analysis for Microsoft.

NOTE: It is recommended that a SWOT analysis be linked with Question 8: Considering the
internal and external environment for your assigned firm (e.g., Apple, Amazon, Google, and
Microsoft), develop alternatives for how it can adapt to increased competition.

Formulation: Focus on Business, Corporate, and/or Global Strategy

5. Summarize Apple’s product segments, and suggest where it can pursue continued
growth.
6. What does Apple’s selection of Tim Cook as Steve Jobs’ successor signal about the
company’s future strategy?

Implementation: Focus on Recommendations and How to Execute Them

7. Identify the top challenges that Tim Cook faces and how he should address them.
8. Considering the internal and external environment for your assigned firm (e.g., Apple,
Amazon, Google, and Microsoft), develop alternatives for how it can adapt to increased
competition.

Analysis: Focus on External and/or Internal Environments

1. Perform a SWOT analysis for Apple.

Strengths
 Executive talent—Apple has a deep bench with expertise in industrial design, product
development, computer software, and marketing. Jonathan Ive is perhaps the best-known
industrial designer in the world.
 Cult-like customer base—Apple customers are fiercely loyal.
 Patented operating system—The iOS is the brain behind the Apple device ecosystem and
is perhaps the company’s most highly valued asset.
 Apple ecosystem—Apple surrounds its core products with a system of complements (such
as iTunes) that increase their overall value. For example, Apple’s iCloud allows data to be
stored remotely, backed up, and shared between multiple devices over the Internet, rather
than uploading through a computer, and this creates customer switching costs.
 Brand recognition—Apple is one of the most highly valued and widely recognized
corporate brands.
 Retail outlets—Though analysts were initially skeptical when Apple opened its own retail
outlets, Apple Stores have been very successful and are known for their unique
environment and expert service.
 Strong company financials and cash reserves—Apple’s retail success has permitted it to
build an enviable financial portfolio, providing it with ample cash for future investments.

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Weaknesses
 Loss of Steve Jobs—Despite the company’s deep executive bench, it is not clear whether
Apple can continue to produce newly disruptive devices without its iconic leader.
 Loss of other key talent—Apple lost Ron Johnson, the previous head of Apple Stores, to
JCPenney, and other Apple important employees followed him. Other firms are likely to
try to poach additional executives from Apple’s ranks.
 Corporate governance—Apple has been heavily criticized for its lack of transparency
regarding its succession plan for Jobs. Apple’s board is relatively small and had very
close personal connections with Jobs, which some argued limited its members’
willingness to exercise appropriate oversight. Pressure for governance reform is likely to
continue, if not increase, in the post-Jobs era
 High cost of products—Apple’s differentiation strategy makes it easier for competitors to
compete on cost to gain market share

Opportunities
 Apple TV?—There are multiple indications that Apple may be planning to produce a fully
integrated, flat-panel TV with 3D capabilities.
 Mobile advertising—Other sources project that the mobile advertising industry will grow
significantly, and Apple has launched a new iAds unit to compete with Google.
 Pocket gaming—The iPod Touch represents a significant threat to PlayStation and
Nintendo portable gaming devices.
 Consumer market trends—Generation X and younger generations are tech savvy and will
continue to demand new and improved technology devices. If Apple does not provide
them, any number of competitors will.
 Expansion of application offerings—Apple products become more useful as more
applications are created to run on them. Application sales have the potential to continue
to grow and create a great deal of the revenue.

Threats
 Antitrust investigations—Apple’s dominance of the mobile device market and the
integrated and proprietary ecosystem has led to increased complaints from competitors.
Additionally, Apple’s launch of its iAds unit reportedly captured the attention of U.S.
antitrust regulators.
 Allegations of labor abuse in China—Apple remains reliant on its suppliers for most
production, and its increased success has increased visibility on worker conditions in the
Chinese plants where Apple’s devices are made.
 Competition—Apple, Amazon, Google, and Microsoft are increasingly blurring the
boundaries between their respective markets, leading these technology powerhouses into
direct competition (for example, the iPhone versus the Google Android, or iTunes versus
Amazon.com).
 Rapid industry change—The technology industry is constantly growing and changing,
with new companies or competitors able to completely take over a market in a short
amount of time.
 Legal concerns—Ongoing lawsuits with various competitors, including countersuits with
Samsung on patent infringement.

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2. Perform a SWOT analysis for Amazon.

Strengths
 Brand—Amazon is synonymous with online purchases, and it has a reputation for good
customer service.
 Low-cost, wide product selection—Amazon has a wide selection of goods, is reliable and
convenient, and it offers low prices with fast shipping.
 Efficient logistics and distribution—Amazon has warehouses that have been
geographically placed to focus on efficiency and keeping costs low. For example,
Amazon has placed a distribution center inside P&G factories, see:
http://www.foxbusiness.com/industries/2013/10/15/wsj-pg-others-share-warehouse-
space-with-amazon/.

Weaknesses
 Low margins—Amazon sells its best-selling Kindle devices near cost to gain market
share and anticipates revenues from people buying content for the devices from Amazon.
 Negative publicity—Amazon has been criticized for not collecting sales tax and for work
conditions in its warehouses.
 Third-party merchants—Many of the products sold on Amazon are by other retailers, but
Amazon’s reputation is hurt when customers have bad experiences.

Opportunities
 Additional branded products—Amazon could release additional products under its brand.
 Economies of scope—Amazon can use its IT skills to generate consulting revenue and
excess server capacity to provide cloud computing services.
 Amazon Prime—Amazon has the potential to convert most of its customers from a
transaction business model to a subscription model with more consistent revenue.

Threats
 Online security—Amazon stores shoppers’ personal information, such as payment
information, make it a target for hackers.
 Competition—Apple, Amazon, Google, and Microsoft are increasingly blurring the
boundaries between their respective markets, leading these technology powerhouses into
direct competition (for example, the iPhone versus the Google Android, or iTunes versus
Amazon.com).
 Tax legislation—Amazon will likely have to start collecting sales tax and could face
different tax rates between states, counties, and cities.

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3. Perform a SWOT analysis for Google.

Strengths
 Brand—Google is synonymous with online search.
 Market share—Google dominates online search on desktops, and is gaining market share
both with its Chrome Internet browser and with its Android mobile operating system.
This is reinforced by Google offering these services for free and having revenues come
from advertising.
 Culture of innovation—Google employees spend 20 percent of work on issues that they
find interesting, making Google able to develop new products and enter markets quickly
with a focus on succeeding or failing fast to avoid losses.
 Acquisitions—Google has integrated YouTube and other assets to expand its interaction
with customers and enable advertising.

Weaknesses
 Over-dependence on advertising revenues—By providing a lot of its services for free,
Google receives over 90 percent of its revenues from online and mobile advertising.
 Lack of strategy—While Google’s non-advertising revenue was up 72.3 percent in 2013
(Google 10K, 2013), it hasn’t communicated any plans on how to significantly monetize
other products, such as maps, Gmail, and Google Docs.
 Employee retention—Google has recently lost some top executives to competitors, such
as Sheryl Sandberg to Facebook and Marissa Mayer to Yahoo.
 Zombie products—Google has a number of products with relatively low market share,
including media content through Google Play, and social networking with Google+.

Opportunities
 Create branded products—Google’s attempts at making its own hardware (phones) have
failed in the past, although its acquisition of Motorola may help with hardware.
 Expanding access—Worldwide, only 34.3 percent of people are Internet users, suggesting
there are approximately 4.5 billion potential Google customers as the Internet becomes
more available throughout the world.
 Growing mobile market—A clear leader in mobile search has not emerged yet, and
mobile has recently overtaken personal computers.

Threats
 Regulation—Google faces increased scrutiny from governments, with Europe currently
investigating antitrust violations, and a $500 million settlement with the Department of
Justice. There are also increased concerns around data privacy.
 Customer change—Google customers have minimal switching costs, and the company is
vulnerable to changes in consumer preferences toward Internet access and entertainment.
 Web security and infrastructure risks—Security breaches, hacks, and Internet outages and
blockages pose risks to Google’s reputation and revenue. In addition, certain hacks and
breaches may expose Google to criminal and civil litigation (Google 10K, 2013).

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4. Perform a SWOT analysis for Microsoft.

Strengths
 Strong financials—Microsoft has a large amount of cash on hand and high profitability
for its operating systems.
 Business standard—Microsoft still has a 90 percent market share in new computer
operating systems, and businesses worldwide largely use its Office Suite for word
processing and e-mail.
 Patents—Microsoft has an unrivaled portfolio of patents, with 17,000+ U.S. patents.
 Gaming hardware—Xbox gained the lead in global game console sales after the release
of Kinect, which allows users to play video games without a controller and download TV
shows and movies.

Weaknesses
 Management and culture—This challenge is reflected in Steve Ballmer’s announced
retirement without a clear successor. Microsoft’s board seems to recognize the firm’s
culture has contributed to its fading strength, as it maintained a focus on business
customers at the expense of a rapidly growing personal consumption market.
 Innovation—Microsoft has executed a late arrival product development strategy with
lower product acceptance (e.g., Zune music player, Bing Internet search, Windows
phones).
 Diminishing brand—Microsoft is not viewed as “cool,” with other technology companies
having more favorable brand images (e.g., the Mac vs. PC advertising campaign).

Opportunities
 Emerging markets—PC sales are still growing in China, the world’s largest PC market.
 Product bundling:
o Office 365 integrates Bing into Microsoft’s highly adopted suite of business
software, increasing usage, adoption, and opportunities for displaying ads, which
represents an opportunity to steal search engine market share from Google.
o A seamless integration of Skype into Windows and Office presents a clear
opportunity.
 Branded products—Microsoft has released its Surface tablet, and its acquisition of Nokia
offers the potential for better Windows phones.

Threats
 Competition—Apple, Amazon, Google, and Microsoft are increasingly blurring the
boundaries between their respective markets, leading these technology powerhouses into
direct competition (for example, the iPhone versus the Google Android, or iTunes versus
Amazon.com).
 Mobile gaming—Xbox console sales are threatened as users play more inexpensive
games on mobile devices.
 Diminishing PC demand—consumer electronics have shifted to mobile devices where
Microsoft has struggled.

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 Generation shift—customers are increasingly being exposed to and gaining familiarity in

non-Microsoft software.

Formulation: Focus on Business, Corporate, and/or Global Strategy

5. Summarize Apple’s product segments and suggest where it can pursue continued growth.

Based on information in the case, Apple’s product ecosystem includes the following:
 Macintosh (1984): desktop and portable computers and related peripherals
 iPod (2001): a line of portable digital music and media players
 iTunes (2002): a service that allows customers to purchase and download digital content
and applications, including the App Store and iBookstore
 iPhone (2007): a combination mobile phone, iPod, and Internet communications device
 iPad (2010): a multipurpose mobile device used for activities such as web browsing, e-
mail, photos, video, music, e-books, and games

The Macintosh consistently achieves 10–20 percent market share and provides a foundation for
Apple sales over time; see Exhibit 1 later in these pages. The introduction of the iPod in 2001
preceded the rise in Apple’s stock (see Case Exhibit 4) that coincides more closely to the
introduction of iTunes that provides an advantage with a closed marketplace for making
purchases only with Apple devices. iTunes music sales have joined Macintosh as an important
continuing revenue stream.

Following iTunes, several additional products were introduced, with the iPhone and iPad both
being more expensive and capable. In this product line, the iPod represents the entry product and
iTunes a complement that increases customer switching costs. This is reflected in reduced sales
of iPods as the market becomes saturated and customers move on to iPhones and iPads.
Currently, iPhone sales are falling, with an increasing percentage of sales from iPads. However,
iPads face increasing competition, and Apple is losing market share. This has corresponded with
the fall in its stock price as new products have failed to maintain growth.

To maintain sales growth, Apple faces two primary options:

1) Develop a new product that will create as much revenue as the iPhone.

The potential contenders are an Apple television set or a smart watch. An Apple television could
be a product priced at several hundred dollars, but Apple has run into problems reaching
agreements with cable television firms, and consumers do not replace TVs as frequently as they
update their mobile devices. A smart watch that includes exercise monitoring and the ability to
read texts without taking out a phone could likely be priced around one hundred dollars.

2) Create less expensive versions of existing products and pursue sales in emerging markets.

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Apple has begun multiproduct releases with the iPhone 5S and 5C, and it has introduced a lower-
priced iPad mini. It is unclear the impact that offering less expensive/capable products will have
on Apple’s brand and whether these products will gain acceptance in emerging markets.

Exhibit 1 Technology Firm Product Sales

Source: Asymco (Dec 2012): http://www.asymco.com/2012/12/03/samsung-electronics-product-

line-revenues-and-operating-income-in-context/.

6. What does Apple’s selection of Tim Cook as Steve Jobs’ successor signal about the
company’s future strategy?

Tim Cook was internally promoted to COO and then groomed to assume the position of CEO
once Steve Jobs stepped down. This represents a relay succession. Selecting an internal as
opposed to external CEO generally signifies a desire to maintain strategic continuity and has
several potential advantages, including a successor:
 Being familiar with the firm’s past history.
 Having established relationships with key stakeholders.
 Being known and trusted by the firm’s employees.

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The degree of continuity created by internal succession depends on the nature of the top
management team (directors and senior-level managers). Internal CEOs with homogeneous top
management teams tend to be associated with the highest level of strategic stability. Meanwhile,
internal CEOs with heterogeneous top management teams tend to encourage strategic continuity
with innovation. In this context, the selection of Tim Cook as an inside successor therefore
signals the desire to maintain Apple’s current strategy with continued innovation.

The combination of Tim Cook with Jonathan Ive and other executives at Apple has the potential
to achieve both strategic continuity and innovation. However, that potential has not been
realized, and several executives have left Apple. For example, Ron Johnson, an executive
overseeing Apple’s retail stores, left Apple in an ill-fated stint as JCPenney’s CEO, see:
http://www.businessinsider.com/the-jcpenney-disaster-timeline-how-ex-apple-guru-ron-johnson-
is-destroying-the-company-2012-6.

Implementation: Focus on Recommendations and How to Execute Them

7. Identify the top challenges that Tim Cook faces and how he should address them.

The challenges that Tim Cook faces fall into several categories, including:

 Maintain Apple’s ability to innovate.

Most analysts agree that Apple will continue to perform well in the short term.
Incremental improvements in the current product lineup will provide strong revenue
streams for many years, even without another technological breakthrough. However,
there is a legitimate concern that the Apple of the future will not be the maverick it is
today.

Steve Jobs had an extreme appreciation for beauty in design, intuitive insight into
customer emotions, and a cult-like ability to motivate employees. Tim Cook, on the other
hand, is characterized as an “operational genius”—quite capable of running the company
efficiently but lacking a creative vision. Insiders comment that Apple lost its creative
tension while Tim Cook ran the company before Steve Jobs’ death, with a focus on
playing it safe. While it is possible that Tim Cook may become less risk-averse now that
he is CEO in his own right, revolutionary organizations typically become less innovative
and more bureaucratic when visionary leaders are replaced (e.g., Dell, Disney, Ford).

How to address? Cook must learn to trust his own leadership instincts and take calculated risks
to keep Apple moving forward. Jobs did his best to ensure a lasting legacy of innovation by
working with Cook and other senior managers to establish Apple University, a systemized
approach to capturing and teaching the company’s unique management style to future
generations of leaders.

 Retain Apple’s top executives and grow other talented employees.

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Without a clear vision, there is a risk that more of Apple’s senior executives might cash in
their stock options and depart for leadership positions at other companies. As mentioned
earlier, Ron Johnson, previously head of Apple retail, left to become CEO of JCPenney.
As these respected people leave, other employees will likely follow them. For example,
other Apple employees that left for JCPenney include Michael Kramer (Chief Operating
Officer), Daniel Walker (Chief Talent Officer), and Kristen Blum (Chief Technology
Officer).

How to address? Tim Cook must avoid abusing the power of his position and appear as if he is
trying to replace Steve Jobs, which would diminish his influence. Cook would do better to appeal
to a sense of duty in a shared legacy where managers need to do their part to keep Steve Jobs’
vision alive.

NOTE: Additional areas are discussed in Question 8 for Apple in the following text.

8. Considering the internal and external environment for your assigned firm (e.g., Apple,
Amazon, Google, and Microsoft), develop alternatives for how it can adapt to increased
competition.

The direction of the discussion in class can go multiple ways. Still, as each of these firms
continues to seek revenue growth, the competition among them will only intensify as they seek
to increase revenue. This relates to multimarket competition and the formation and dissolution of
alliances. The case mentions that Apple and Microsoft cooperated, and the increased competition
between Apple and Google can explain iOS recently dropping Google Maps. Similarly, Amazon
has partnered with Google to use its Android operating system on its Kindle tablets. At the same
time, the points of competition between the profiled firms should be clear:
 Apple’s iAds encroach on Google’s primary revenue stream from advertising.
 Apple’s iPad is a direct threat to Microsoft’s operating system sales.
 Apple’s iTunes and iPad are a direct threat to Amazon.com digital sales and Kindle.
 Amazon.com and its Kindle are a direct threat to Apple’s iTunes and iPad.
 Google’s Android is a direct threat to Apple’s iOS and its mobile devices, and this is
compounded with its partnership with Samsung and its acquisition of Motorola.
 Google’s Chrome, Google Docs, and Gmail are a direct threat to Microsoft’s Office Suite.
 Microsoft’s Surface tablet and Windows 8 and its acquisition of Nokia place it on a
collision course with Apple.
 Microsoft’s Bing search engine is a direct threat to Google’s revenue stream from
advertising.

In addition to these points, some likely alternatives exist for the profiled firms, which are
discussed next:

Apple

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 Leverage brand loyalty—Apple currently has one of the most loyal customer groups in
the technology market. People wait in lines for days in order to purchase the newest
Apple product. Apple needs to leverage this from just iPhones and iPads into their Macs
and Apple TV. The average Apple user has three Apple devices; increasing that to four or
five through computer and television sales would open up massive revenue streams for
the company.
 Enhance innovation capabilities—Apple should encourage employees to spend 20
percent of their work time on pet projects, as Google does, to foster innovation.
 Market expansion—Apple has a significant opportunity to expand from being a
consumer-driven business to serving a broader range of markets and market segments.
Apple can focus on those rapidly growing smartphone/tablet markets, such as China and
India that have a large and expanding base of affluent customers.
 Vertical integration—Apple could focus on controlling or diversifying their supply chain
using their strong financial position and large cash reserves. This would allow Apple to
vertically integrate so it can ensure ready supplies of key inputs and create further market
barriers for competitors. For example, Apple made news when it announced that it was
bringing production of some Macintosh models to the U.S. (See
http://appleinsider.com/articles/13/11/04/apple-to-open-us-manufacturing-facility-in-
mesa-arizona.)

Amazon

 Services—Leverage its strengths in IT and server infrastructure by expanding into

business consulting and services. For example, Amazon recently beat IBM and overcame
a protest to win a CIA contract to develop a private cloud (see
http://www.forbes.com/sites/benkepes/2013/10/29/ibm-capitulates-amazon-gains-cia-
contract/.)
 Branded products—Amazon could release additional products under its brand.

Google

 Increase Android adoption—Mobile computing and therefore advertising will only grow,
and as Android devices continue to outsell Apple, the adoption of Google+ and other
products will increase. Additionally, this will help attract application developers to
Android, and the products from this development will complement devices running
Android.
 Diversify revenue—Google needs to diversify its revenue and become less dependent on
advertising. Google’s innovative culture will likely enable it to move into new market
segments, but the firm needs to come up with strategies to earn revenue from these
efforts.

Microsoft

 Change culture—Microsoft needs to overhaul the firm’s culture so it is more innovative

and able to respond to changing consumer preferences. Future opportunities lie in more

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Teaching Note

powerful personal computing on smaller and smaller devices, or in areas outside

Microsoft’s traditional strengths.
 Focus on mobile—Consumer adoption of Microsoft devices is likely hindered by fewer
apps than either Apple or Android. Microsoft needs to introduce an incentive system to
get developers on board in creating apps for mobile devices running Windows 8. A
separate SWOT analysis that focuses on explaining Microsoft’s development of its
Surface tablet can be found at http://gbr.pepperdine.edu/2013/09/microsoft-surface-tablet.

Recent Updates

 Activist Investors: The large cash stockpile that Apple has amassed has attracted activist
investors, including Carl Icahn, who want the cash returned to investors in the form of
dividends or expanded stock buyback programs. A December 2013 article in Forbes
considers what would happen if Apple abandons its premium price strategy (see
http://www.forbes.com/sites/markrogowsky/2013/12/11/what-if-apple-cut-prices-by-
100/).

 Supplier Accountability: A recurring theme related to Apple involves the work conditions
of its suppliers. Apple has instituted a Supplier Code of Conduct and audits (see
http://www.apple.com/supplierresponsibility/accountability.html). However, problems
remain. In December 2013, a 15-year-old worker who used false identification papers
died of pneumonia at an Apple supplier that produces Apple’s iPhone FC (see
http://www.nytimes.com/2013/12/11/technology/worker-deaths-raise-questions-at-an-
apple-contractor-in-china.html?hpw&rref=business&_r=0). The responsibility of Apple
for its suppliers, the effectiveness of its supplier conduct system, and likely consumer
responses represent a good topic for class discussion.

 Apple TV: The 2011 biography on Steve Jobs stated that Jobs supposedly solved the
television interface concept for a dedicated Apple television set. Rumors of progress were
fueled following Apple’s acquisition of PrimeSense, the company behind the technology
of Microsoft’s Kinect motion control sensor for its Xbox. An article reviewing the
development of Apple TV appears on MacRumors (see
http://www.macrumors.com/roundup/apple-tv/).

 Apple Culture: The culture of Apple has been in flux Steve Jobs’ death. Consistently
named a “best place to work” under Jobs’ leadership, there are now increasing employee
complaints (see http://www.businessinsider.com/what-apple-employees-dont-like-2013-
12). One way Apple tried to adjust its culture and maintain innovation was by starting
Apple University in 2008 (see
http://appleinsider.com/articles/11/10/06/apple_university_revealed_as_plan_to_teach_ex
ecutives_to_think_like_steve_jobs).

Case Strategic Financial Analysis (SFA)

Financial analysis spreadsheets for this case can be found in Connect.

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McGraw-Hill Education.
Teaching Note

Additional Resources

1. https://www.youtube.com/watch?v=R706isyDrqI (1:00). Apple’s 1984 Super Bowl

commercial introducing the Macintosh computer.
2. https://www.youtube.com/watch?v=SswMzUWOiJg (1:10). Apple’s “Think Different”
commercial released following Steve Job’s return to Apple in 1997.
3. For background on how difficult Steve Jobs was to deal with, here is a description of the
story behind how Apple’s “Think Different” commercial was developed in a December
2011 Forbes article (see http://www.forbes.com/sites/onmarketing/2011/12/14/the-real-
story-behind-apples-think-different-campaign/).
4. Steve Jobs through the Years.
http://online.wsj.com/video/steve-jobs-through-the-years/779F0E04-56B8-44BB-B1F5-
3B95FF22C4B3.html (9:39). August 24, 2011.This is a Wall Street Journal review of
Steve Jobs’ career on the day he announced his resignation as CEO.
5. https://www.youtube.com/watch?v=UOaxGXoHUq4 (11:08). Tim Cook’s first interview
(December 2012) following his becoming CEO on Rock Center with Tim Williams that
also introduces Apple’s retail stores and discusses the challenge of Apple continuing to be
successful without Steve Jobs. In addition, the interview covers potential missteps,
including Apple Maps, and increasing competition from Samsung among others.
6. A description of Samsung’s product strategy (June 2013) (see
http://www.wired.com/gadgetlab/2013/06/samsungs-product-strategy/).

15
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McGraw-Hill Education.