Apple’s Profitable but Risky Strategy.
Read the extract below and answer the questions that follow.
Apple’s Profitable but Risky Strategy
When Apple’s Chief Executive – Steven Jobs – launched the Apple iPod in 2001 and the iPhone in 2007, he
made a significant shift in the company’s strategy from the relatively safe market of innovative, premium-
priced computers into the highly competitive markets of consumer electronics.
Founded in 1976, Apple built its early reputation on innovative personal computers that were particularly easy
for customers to use and as a result was priced higher than those of competitors. The inspiration for this
strategy came from a visit by the founders of the company – Steven Jobs and Steven Wozniack – to the Palo
Alto research laboratories of the Xerox Company in 1979. They observed that Xerox had developed an early
version of a computer interface screen with the drop-down menus that are widely used today on all personal
computers. Most computers in the late 19705 still used complicated technical interfaces for even simple tasks
like typing – still called ’word-processing’ at the time. Jobs and Wozniack took the concept back to Apple and
developed their own computer – the Apple Macintosh (Mac) – that used this consumer-friendly interface. The
Macintosh was launched in 1984. However, Apple did not sell to, or share the software with, rival companies.
Over the next few years, this non-co-operation strategy turned out to be a major weakness for Apple.
Battle with Microsoft
Although the Mac had some initial success, its software was threatened by the introduction of Windows 1.0
from the rival company Microsoft, whose chief executive was the well-known Bill Gates. Microsoft’s strategy
was to make this software widely available to other computer manufacturers for a licence fee – quite unlike
Apple. A legal dispute arose between Apple and Microsoft because Windows had many on-screen similarities
to the Apple product. Eventually, Microsoft signed an agreement with Apple saying that it would not use Mac
technology in Windows 1.0. Microsoft retained the right to develop its own interface software similar to the
original Xerox concept. Coupled with Microsoft’s willingness to distribute Windows freely to computer
manufacturers, the legal agreement allowed Microsoft to develop alternative technology that had the same
on-screen result. The result is history. By 1990, Microsoft had developed and distributed a version of Windows
that would run on virtually all IBM-compatible personal computers. Apple’s strategy of keeping its software
exclusive was a major strategic mistake. The company was determined to avoid the same error when it came to
the launch of the iPod and, in a more subtle way, with the later introduction ofthe iPhone.
Apple’s move into consumer electronics
Around the year 2000, Apple identified a new strategic management opportunity to exploit the growing
worldwide market in personal electronic devices – CD players, MP3 music players, digital cameras, etc. It would
launch its own Apple versions of these products to add high-value, user-friendly software. Resulting products
included iMovie for digital cameras and iDVD for DVD-players. But the product that really took off was the iPod
the personal music player that stored hundred s of CDs. And unlike the launch of its first personal computer,
Apple sought industry co-operation rather than keeping the product to itself. Launched in late 2001, the iPod
was followed by the iTunes Music Store in 2003 in the USA and 2004 in Europe – the Music Store being a most
important and innovatory development. iTunes was essentially an agreement with the world’s five leading
record companies to allow legal downloading of music tracks using the internet for 99 cents each. This was a
major coup for Apple – it had persuaded the record companies to adopt a different approach to the problem of
music piracy. At the time, this revolutionary agreement was unique to Apple and was due to the negotiating
skills of Steve Jobs, the Apple chief executive, and his network of contacts in the industry.