The Transformation of Apple's Business Model

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Case Details:

Case Code : BSTR212
Case Length : 16 Pages
Pages Period : 1997-2005
Organization : Apple Computer Inc.
Pub Date : 2006
Teaching Note :Not Available
Countries : US
Industry : Media/PC

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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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The Transformation

According to Jobs, "The great thing is that Apple's DNA hasn't changed, the place where Apple has been standing for the last two decades is exactly where computer technology and the consumer electronics markets are converging.

So it's not like we're having to cross the river to go somewhere else; the other side of the river is coming to us." From being a manufacturer of PCs, Apple has slowly moved on to consumer devices. Analysts say the transition has been smooth. After the release of iPod, Apple ceased to be a hardware/software manufacturer - it stepped into the domain of consumer electronics. With the launch of iTunes Music Store, Apple became a media company. Richard Doherty, Analyst, Envisioneering Group said, "In the consumer electronics world, there's always talk now about Apple, the way people used to talk about Sony. At the water cooler or in board rooms, they're asking, 'What is Apple doing next?' or 'How do we stay out of their way?'"

The Road Ahead

After the introduction of iPod, the revenues of Apple grew from US$ 5.3 billion in 2001 to US$ 13.9 billion in 2005. During the same period, the share price of Apple rose 305% from less than US$ 10 to over US$ 40.

According to IDC, Apple's share in the US PC market was 4% in the first half of 2005, after being in the 2.5% to 3.7% range for several years. Of the total 4.5 million computers Apple sold in 2005; one million were to Windows users who had switched over to Mac. Analysts cited the 'halo effect' created by iPod as one of the reasons for the switchover. According to Charlie Wolf, Analyst, Needham & Company, "The strength of Apple's performance in 2006 will depend on how well they convert Windows users to the Mac." Apple could not leverage the early lead it had generated in the PC business by keeping the operating system proprietary. This gave Microsoft and Intel the opportunity to go forward and capture market share...


Exhibit I: Apple's Ten Year Financial Summary (1996-2005)
Exhibit II: Apple - Five Year Financial Highlights (2001-05)
Exhibit III: New Products From Apple
Exhibit IV: Apple's Share Price (1996-2005)

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