Apple

Introduction

Apple, a long time competitor in the personal computer market, has in the past taken a back seat to their rivals, and was even was on the verge of bankruptcy. The problem for Apple was their paradigm - if an innovation did not come from within Apple, they did not want to know about it. When Apple made a paradigm shift in the mid-nineties their business changed and prospered. Apple brought in inventions from outside the company, they redesigned their supply chain and forged very unusual partnerships to gain a competitive edge. Will they be able to maintain this edge against major competitors who are keen to knock Apple off its towering tree with product developments and strategic alliances of their own? Will Apple's closed mindedness creep back in, and see them repeat costly mistakes from the past and lose their advantage? Using the framework provided by Wells (1998) three strategies are recommended that focus on technology, marketing and the development of the iTunes element of the business to maintain and develop Apple's competitive advantage in the digital entertainment market.

Slicing up the Apple - the Perceiving stage

In the perceiving stage of the strategic thinking process Wells (1998, p.90) suggests that there are 6 stakeholders to consider - customers, competitors, strategic partners, providers of complementary products, suppliers and distributors.

We examined several key stakeholders below and found that while Apple has several major competitors in the digital entertainment market it has developed relationships with its competitors so that they are also suppliers.

Customers

The customers of the Apple iPod are people who want to enjoy the benefits of the latest technology in digital music players. When he introduced the product in October 2001 Steve Jobs the CEO of Apple was quoted as saying, "With iPod, Apple has invented a whole new category of digital music player that lets you put your entire music collection in your pocket and listen to it wherever you go," (Kleinschmit 2005)

Apple went further than other companies in creating iTunes software to complement its iPod MP3 player so that users could access Apples' iTunes online Music Store. This was something that none of the other makers of MP3 players had been able to achieve. Tim Kleeman (interview, 2006), director of Apple retail outlets in Adelaide, expressed the view that Apple had came up with the total solution: the digital player and the online music store; and that Apple had scored a coup in securing agreements with the 5 largest music companies to create iTunes. Today over two million music and video tracks are available online with iTunes to satisfy every musical taste, as well as short films and TV programmes (Golderman & Connolly 2006).

The newer versions of the iPod have video capacities (Foust, Symonds, Grow & Katzenberg 2006) while the iPod HiFi can replace the traditional home music system (Lewis 2006). The genius of Apple has been to develop the iPod product range so that there is something for everyone.

Competitors

The iPod dominates the MP3 player market with 74% market share. It's unsurprising therefore that Apple has big name competitors working hard to increase their market share.

Microsoft has been developing software to go together with hardware designed by companies like Phillips, Samsung and Creative (TechWhackNews 2005) and is reputed to be working to create an online store to vie with iTunes (Levy 2006).

Sony has a well-established position in the portable digital audio player market and like Apple have developed a range of products to meet the needs of a diverse customer market. "We believe we're in a unique position as an entertainment company. As digital technologies converge, we're evolving to combine portable audio and entertainment. If someone wants to play games, listen to music, or watch a movie, we offer that in one device. If they want to make a call, take a photo, and listen to music, we do that too. So we're going to continue to pursue what we've always pursued: identifying consumer lifestyles and making products that work for them"(Fast company.com 2005).

Creative has developed its Zen range of products to compete with the Apple iPod range. Creative has recognised the importance of creating a concept design however does not have the marketing dollars of Apple to promote its product (Fast company com 2005). Its approach has been to offer extra features such as a personal organiser, recorder, FM tuner & more video capacity in its Zen Vision for example (Marsal 2005). In the highly litigious world of technology patents Creative are also taking on Apple in the courts (BBC News 2005).

Other companies such as Dell with its Pocket DJ, Innodesign with iRiver and Archos with the Gmini 400 have created specialised products to rival the iPod products. (Fast company. com 2005). Rio had been a serious contender to Apple when they developed a mini-hard-drive player, the Nitrus, a year before Apple released iPod and then developed the Carbon to compete with Apple's hugely successful iPod mini. However, Rio was ultimately unable to compete with the resources of Apple and Sony in developing the sophisticated range of products required to stay in this fast-expanding market.

Napster software is the main rival to the iTunes software application to download music from the internet. Napster's software enabled peer-to-peer (P2P) networking through a central directory but was forced to shut down after a court ruled that Napster was breaching copyright in July 2001. The Napster 2.0 was released in 2004 and is easily the main competitor to iTunes for online music services. Yahoo! Music, RealPlayer Music Store, Rhapsody and MTV.com are smaller competitors according to a study conducted by Peter Cohen (2005).

The battleground has moved to the total home entertainment package. Microsoft's Windows Media Centre and Apple's iLife suite are leading the way. According to Tim Kleeman (interview, 2006) Sony, Microsoft and Apple are locked into a race to develop a 'killer product' that will integrate all the technologies into a digital home entertainment centre.

Strategic Partners

Apple has formed strategic alliances with companies like Nike to develop the technology to monitor exercise and listen to music with a sensor device that is fitted into Nike sport shoes (Kahney 2006); another example is iTunes and mobile

...