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Apple Computer Corporate and Business Strategy
powerful brand names such as Dell and Compaq to no name cloners, it is reasonable to conclude that the industry has reached a certain saturation point. This accompanied by several structural barriers to entry make it highly unfeasible for new companies to enter the market unless significant consolidation or exit occurs within the incumbent group. Economies of scale, learning curve advantages, access to distribution channels, and relationship specific investments into direct sales channels all make the threat of entry highly unlikely. (See Exhibit 8)
Currently, substitutes are becoming more of a realized threat to the industry as they become closer in functionality to the PC. With the ability of PDAs, WebTV, and SmartPhones to handle email, word processing, communication, and other ancillary functions, the demand for a bulky home desktop or laptop computer is being flanked. One could argue that these some of these devices are complements to the PC an one should pursue a differentiation strategy that incorporates these devices into a product offering such as Apple’s strategy. Nevertheless, as computer technology continues to evolve and bandwidth increases, a PDA may soon be able to duplicate most of the functions inherent to the PC. (See Exhibit 8)
Supplier power is relatively high in this industry. Two major components are a computer’s operating system and CPU. These two components are supplied by their respective industries that are more consolidated than the PC industry. Intel and AMD own over 80% of the CPU market and Microsoft owns 90% of the operating system market. There are few substitutes for these input devices. Firms make relationship specific investments that creating extensive switching costs if a change were to be made in the choice of operating system or CPU chip. Although these firms pose little to no threat of forward integration, they can charge PC manufacturers premiums due to their market dominance. (See Exhibit 8)
Buyer power is relatively low to medium in the PC industry. Because firms make relationship specific investments by choosing to adopt a OS and CPU chip, they are forced to maintain long lasting relationships with their suppliers. The PC industry is more fragmented than the OS and CPU industries and PC manufacturers pose little threat in their ability to backward integrate. Apple has already accomplished this feat with its own proprietary OS. Because price elasticity is high for the PC industry, and increase in price will adversely affect sales and profit for PC manufacturers. This exerts downward pressure on component prices.
The key success factors associated with this industry can be generalized into rapid technological innovation. Technological innovation has consistently stimulated the demand for more powerful products in the areas of performance (computing speed), reliability, and data storage. The proliferation of the Internet has also been a major factor affecting PC adoption rates. Likewise, a steady and continual flow of complementary products that enhance the “computing experience” also [next page]