APPLE INC.

Explore Apple’s successful businessmodel and identify the possible

threats to this iconic brand !

Agenda of discussion

APPLE INC. - Brief Company history APPLE INC. – Vision Statement Apple’s online business model Apple’s online business model- how much safe it is? Apple – always brings innovation in Technology Apple’s strategic imperative Apple’s splendid financial performance Strategic comparison with competitors Apple’s evolution-A journey to retain its leadership position Apple: What do Investors think? Apple: strategic challenge to retail its brand image

APPLE INC. - Brief Company history

Apple Inc. , formerly known as Apple Computer, Inc., was founded in 1976 and is headquartered in Cupertino, California. Apple Inc. designs, manufactures and markets a range of personal computers, mobile communication and media devices, and portable digital music players. Apple sells a variety of third-party Mac, iPhone, iPad and iPod-compatible products. Leadership team: Co-founder and CEO - Steve Jobs and COO - Tim Cook . Target market: The Company sells to consumers, small and mid-sized businesses, education, enterprise, government and creative markets. Apple’s worldwide presence : As of September 25, 2010, Apple had 317 retail stores, including 233 stores in the United States and 84 stores internationally. Apple – an iconic brand : Apple is now one of the most valuable companies in the world.

APPLE INC. – Vision Statement

Vision Statement :

“Apple is committed to bringing the best personal computing experience to students, educators, creative professionals and consumers around the world through its innovative hardware, software and Internet offerings”

With Strict adherence to top quality commitment and innovation over the last decade, Apple has transformed itself from a niche computer company into an integrated consumer electronics and media distribution powerhouse.

Apple’s online business model

Strong in-house supply chain : Apple makes everything in-house, and hosts services to completely anticipate and accommodate every possible need of the users of its devices. Simple and elegant solutions :Their main goal is to provide elegant and simple solutions for all of their users’ needs, and to provide a unique experience for all users. Introduction of iTunes jukebox and iPod : In 2001, Apple introduces iTunes digital jukebox software in early 2001, followed by the iPod and its 6.5. ounce design that “fit in your pocket”. Introduction of iTunes online music store in early 2003 – This defined the company’sability to define a workable business model for downloading music. Arrival of iPhone : 2007 was a key year for Apple; the company introduced the iPhone . App Store – major breakthrough : A major advancement came in 2009 when Apple introduced their App Store, at the same time the iPhone 3G was introduced to the market. New products to strengthen App Store : When the iPad and iPod touch were introduced in 2010, Apps Store downloads soared off the charts topping fifteen billion Drive for continuous innovation and product updates : Continuous evolution of IPod and iTunes dramatically increase the sales figures – IPod sales figure reached 275 million by the end of 2010 and songs download from iTunes rose to 10 billion by 2010

Apple’s online business model- Continue …

Partner with Random House, Inc., the largest trade book publisher in the US, to offera full catalog of 17,000 ebooks available on Apple’s iBookstore. Release of iCloud service : which is a breakthrough set of free new cloud services designed to work seamlessly with applications on the iPhone, iPad, iPod touch, Mac or PCto automatically and wirelessly . All of these developments reflect the company’s shift of emphasis to mobile electronic devices from personal computers. They continue to develop and host a robust platform that is capable of delivering third-party digital content and applications .

Apple’s key competitive advantages lie in their combination of hardware and software, in their content gate-keeper strategy embodied in iTunes, and in their successful retail strategy.

Apple’s online business model- how much safe it is?

Apple’s intense focus on vertical integration - this integration may prevent partnerships, meaning that Apple could be missing out on opportunities for further innovation by collaborating with other companies. Threat from open source products: The wall Apple has built around itself can actually be to its disadvantage when other players, such as Android who benefits from open innovation, come into the picture. Apple’s strategy of strict product control can cause them to be viewed as overly controlling – they may potentially miss out on opportunities to work with talented, innovative developers due to their reliance on limited coding languages. Fixing pricing with the restriction that pricing must be the same in-app as elsewhere - manymagazine applications cost almost as much as a printed copy, and consumers are not appealing to this concept. Apple is not sharing data with collaborator: Apple will not share consumer data, meaning the magazine publishers have no market intelligence about the people who are buying theirdigital magazines.

Apple – always retains Technology leadership

Technology leadership on whole supply chain: All the components including hardware, the operating systems, and the developer tools are designed by Apple , and they’re alldesigned to work together seamlessly -- creating an easier, more intuitive experience so developers can focus on making great apps. Company’s complete ecosystem for developer and users - electronic mobile equipment consists of the iPod, iPhone, and iPad ; line of Macs, which includes desktops, laptops, accessories, and a few small-scale servers ; software applications, such as iLife, iWork, Safari, Aperture, Final Cut Pro, and Logic Studio. Xcode developer tools are used to create Mac OSX and iOS apps, while iOS is the world’smost advanced mobile platform. The iOS SDK and Xcode tools make it possible to create robust applications that will set the bar for the next generation of mobile applications. Apple Mac OS X is an advanced operating system, built upon a proven UNIX foundation. iCloud- Apple’s newest online service is iTunes in the Cloud , will provide new ways to get music, apps, and books from one device to another -- wirelessly and without syncing.

Apple’s strategic imperative

Apple’s strategic imperative : It is based on their goal of providing an exceptional,value-added experience to customers. Why Apple attracts millions of people to their stores worldwide each year? Answer is : Apple provides an amazing retail experience for its customers. Target to stay head in competition : The company prides themselves on always staying at least two years ahead of the competition. Managing core competency : Apple views its software, not hardware, as its greatest value proposition and the one thing that keeps its competitors at bay. Apple’s retail chain strategy: Apple does not compete on price. Opening its own retail channel allows Apple to differentiate its products from commodity PCs and to reinforce the Apple experience, which is core to its user value proposition. Efficient supply chain management and manufacturing processes : This drives such volume that Apple keeps its margins well above 30% whereas competitors are lucky if they can get 10% margins. Key competitive advantage: providing the ultimate experience for users and consumers; and this has become their key competitive advantage.

Apple’s splendid financial Performance!

Splendid performance during this global recession : Apple came through the global recession with increased sales and profits in fiscal 2010, with overall sales up by more than 50%. Tremendous increase in revenue and profit : In the first quarter of 2011, Apple reported record revenues and profits and its cash on hand grew to more than $60 billion. Apple saw a tremendous increase in revenue between 2006 and 2010, climbing from $19 billion to $65 billion by the end of 2010, representing a 36% increase over the five-year period. Net income also rose from $2.5 billion in 2006 to $13.5 billion in 2010 .

Apple Revenue and Net Income: 2006-2010

Apple’s splendid financial Performance- Continue …

Company financial and investment status: The company has $27 billion in cash and short-term investments, another $33 billion in long-term investments, generated $16.5 billion in free cash flows in fiscal 2010, and it carries no debt. Apple’s operating expenses increased from $3.1 billion in 2006 to $7.3 billion in 2010, operating income rose sharply from $2.5 billion to $18.4 billion. Reduced the percentage of sales devoted to income tax expense : Most impressively, the company has been able to reduce the percentage of sales devoted to income tax expense from 8.93% to 6.94%. Gross profit figures, which rose from $5.6 billion in 2006 to $25.7 billion in 2010 Return on assets also rose steadily from 13.83% in 2006 to 22.84% in 2010. The number of Apple employees increased from 17,787 in 2006 to 49,400 in 2010. Stock quotes also rose dramatically from $75.00 per share in 2006 to its most recent quote of $373.80 per share on July 18, 2011

Strategic comparison with competitors

Description Apple Google HP RIM

Company’s Market cap ( Millions ) $259,907 $188,707 $92,656 $39,503

Revenue growth percentage ( %) 52.02%, 23.98% 10.02% 33.13%

Net profit increased ( In % ) 22.36% 29.01% 6.8% 17.5%

( Source : Revenue Growth : Hoovers, 2011 ; Market Data as on 2010 records: Net profit Increased for HP and RIM in approximate figure taken from the graph below )

Source : Hoovers 2011 : 2010 Apple Net Profit and Competitor Comparison

Apple’s price per earnings ratio in 2010 was 17.39, with the industry median being 17.12. Google was the leader in the price per earnings ratio at 23.20, with Apple close behind, and HP and RIM trailing well behind Apple.

Apple’s evolution- A journey to retain its leadership position

Over the past decade, Apple has been extremely successful with their online business model - Innovation is at the core of their success. Emergence as a digital convergence company :One of their key innovative successes was theintegration of their iTunes platform strategy with their overall vision of the company as a “digital convergence company”. Access to iTunes platform: They realized that content was critical to making their platforms successful, and in order to gather more content, they needed to allow developers access to their platforms. So they granted access to the iTunes desktop software in a very controlled manner. A first mover advantage with its App Store: allowed for simple distribution, access, and download capabilities directly to the iPhone. Apple continues to leverage their market dominance and favorable brand name to keep their apps prices low. Many of the apps distributed via the App Store are actually free or pricedat under a dollar. Distribution of third-part applications : With the Mac Application Store, Apple can now distribute third-party applications directly to consumers. With all these strategic actions , Apple has transformed itself from a niche computer company into an integrated consumer electronics and media distribution powerhouse.

Apple: What do Investors think?

Despite having a full decade of continuous successes under its belt, there is still the Potential for things to go awry. Concern about protecting brand image It is important to pay attention to the intangibles associated with the Apple brand; if anything tarnishes the Apple brand, it could quickly undo what it took the last decade for the company to accomplish Worry of Investor: Investors are right to be concerned about the potential of Steve Jobs' permanent departure from Apple. . Apple's success during the last decade is largelyattributable to the leadership of Steve Jobs, and his long-term absence would potentially deal a heavy blow to the company. Much dependence on a single product: A final concern lies in the fact that nearly 30% of Apple's revenue comes from the iPhone line, and that number could rise to nearly 50% by 2012. This is putting a lot of eggs in one basket -- especially in a business that is as competitive as consumer electronics.

Apple: strategic challenges toretail its brand image

Apple is successful in creating a “economic moat”. It has achieved this success through a combination of product innovation, strategic foresight, and careful management of its brand image. Even though Apple has been successful in creating their “economic moat,” customers still rely heavily upon Apple’s brand image. The success of iTunes can be attributed to Apple’s innovative thinking around starting an online music store and developing a mobile music player. But if the brand becomes tarnished in any way, it is hard to predict what may happen to the growing success of Apple, Inc.