The Transformation of Apple's Business Model

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Case Details:

Case Code : BSTR212
Case Length : 21 Pages
Pages Period : 1996-2006
Organization : Voltas Ltd.
Pub Date : 2006
Teaching Note :Not Available
Countries : India
Industry : Diversified

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Your typical corporate CIO must be wondering, "Why aren't there some nice new exciting applications for me?" Nothing has really changed in his world, while on the consumer side there's all this cool new stuff like iTunes and the iPod and iPhoto and iMovie. That's where the real innovation is now, and Apple is driving it."¹

- Bill Joy, Co-Founder and Former Chief Scientist at Sun Microsystems, in 2005.

"Now, obviously, the company is doing much better since Jobs returned to the CEO job; but having said that, it has not yet reached the value that it was in the early 1990s."²

- David Yoffie (Yoffie), the Max and Doris Starr Professor of International Business Administration, Harvard Business School, in 2004.

Introduction

For the fourth quarter ended September 2005, US-based Apple Computer Inc. (Apple), reported its highest quarterly earnings ever. Its revenues in this quarter were US$ 3.68 billion and profits stood at US$430 million.

Apple generated total revenues of US$ 13.93 billion for the financial year 2005, showing annual growth of 68%, while net profits worked out to US$ 1.34 billion. The year 2005 went down in history as Apple's best year since its inception. Commenting on the results, Steve Jobs (Jobs), CEO, Apple said, "We're thrilled to have concluded the best year in Apple's history. This is the direct result of our focus on innovation, and the immense talent and creativity at Apple. We could not be more excited about the new products we're working on for 2006."³ The fourth quarter of 2005 marked the 10th consecutive quarter of record iPod sales. For the first quarter of fiscal 2006, Apple was expecting to achieve total revenues of US$ 4.7 billion.

This performance was in sharp contrast to Apple's position, a decade earlier. In the 1990s, Apple changed three⁴ CEOs in the four years between 1993 and 1997, and the company went through several reorganizations. In the financial year 1997, the company posted a loss of US$ 1,045 million and its shares were trading at all-time lows. In 1997, Steve Jobs rejoined⁵ the company and came up with several plans to revive its fortunes.

These included the launch of iMac⁶ in 1998, revamping the company's inventory system and opening new retail stores. Starting in 2001, Apple opened several retail stores across the US to overcome the problem of inadequate marketing for Apple's products at third party retail outlets. In the early 2000s, the music industry was facing lot of problems due to rampant piracy. In April 2003, Apple launched an Internet-based music selling initiative called iTunes.

The company was successful in commercializing the concept, and changed the way world listened to music. Following its entry into the music industry, Apple introduced innovation like d. The success of iPod was phenomenal.

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1] Schlender, Brent, "How Big Can Apple Get," Fortune, February 21, 2005.

2] Silverthrone, Sean, "Where does Apple Go from Here?" HBS Working Knowledge, February 02, 2004.

3] "Apple Reports Fourth Quarter Results," www.apple.com, October 11, 2005.

4] The CEOs were John Sculley (1985-93), Mike Spindler (1993-96), Gil Amelio (1996-97), and Steve Jobs (1997-)

5] Jobs was one of the founders of Apple. In 1985, after an internal power struggle, Jobs was stripped of his duties as Vice-president and the head of the Macintosh division by the Board of Directors, after which he resigned from Apple. However, he remained Chairman, but resigned later. He came back to Apple in 1997 and became interim CEO in 1998, assuming charge as CEO in 2000.

6] Macintosh was under development since 1979 and attracted Jobs'attention in 1981. The Mac team was trying to keep the price low but the then CEO Sculley priced it at US$ 2,495. The Mac was launched in January 1984, and was appreciated by the users. The machine proved to be highly revolutionary as it was designed based on the GUI. Jobs initiated iMac project after rejoining Apple. The project was completed in 10 months.