The Transformation of Apple's Business Model

Case Code: BSTR212 Case Length: 16 Pages Period: 1997-2005 Pub Date: 2006 Teaching Note: Not Available

Price: Rs.300 Organization: Apple Inc. Industry: Information Technology Countries: US Themes: Leadership, Turnaround Strategies

Abstract Case Intro 1 Case Intro 2 Excerpts

Excerpts

Apple - Changing Leadership

Immediately after Jobs left, Sculley started working on reducing overheads, controlling costs and rationalizing product lines in Apple. Sculley planned to use Apple's capabilities in graphics and design to make the company a leader in desktop publishing. Apple's revenues increased to US$ 5.6 billion by 1990 and its worldwide market share reached 8%. Due to superior capabilities of subsequent products like Macintosh Plus (launched in 1986), Macintosh II (launched in 1987), Macintosh SE 30 (launched in 1989) Apple could charge premium prices. Due to the Mac's superior capabilities, premium prices could be charged for it. The problem was that with IBM slashing prices aggressively, Apple's products appeared overpriced. Apple did not want to reduce prices as it firmly believed that its products were of high quality. However, by October 1990, Apple came out with Mac Classic, a computer priced at US$ 999. In 1989, Apple introduced a portable Mac, which was not well received in the market, and in 1991 it came up with better version of the same in association with Sony...

Jobs Becomes CEO

The Board of Directors of Apple replaced Amelio with Jobs, who assumed the role of interim CEO in September 1997. At this juncture, Yoffie commented, 'There were no hit products, and it became a dull company. They were just doing the same thing, making incremental improvements.

Now everybody is waiting with bated breath for what Steve Jobs is going to do next, and the hope is, it's going to be something great, insanely great. And sometimes it is, and sometimes it's not." After returning to Apple, Jobs formed a core group of seven executives, five of whom were from NeXT.

To revamp the board, Jobs brought in Larry Ellison, the CEO of Oracle, Bill Campbell, CEO of Intuit and Jerry York, the former CFO of IBM. Only two of the directors under Amelio's leadership were on the board.

At that time, Apple had more than 15 product lines and was losing focus on its core businesses...

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...

Exhibits

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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