Apple's business model, values, and knowledge coordination strategy
This paper discusses the question of how Apple makes money, primarily from an economic point of view. As Apple competes in an industry characterized by monopolistic competition, the main issues are how Apple diversifies enough to earn monopoly rents on its products, and how it uses economies of scale to control costs.
Apple's iconic product innovation and market dominance strategies
Apple continues to create an entirely new level of disruptive innovation in the areas of MP3, smartphone and tablet PCs by continually fueling new ecosystems of musical and video content while revolutionizing the hardware experience. The continual evolution of the iPad is today re-ordering the structure of the PC market and with it, enterprise computing (Apple Investor Relations, 2012). Just as the iPod and iPhone are revolutionizing music delivery it is feasible to assume that that iPad and follow-on tablet PCs will also bring the same level of rapid change into enterprise computing. Apple has redefined the concept of the platform as the competitive force in stable and emerging, high growth markets (Deck, 1997). This focus on ecosystem-driven profitability however is ripe for disruptive innovation at the individual customer experience and device level. The intent of this analysis is to look at how a more powerful customer experience strategy at the device level can reorder the table PC market, using the Porter Five Forces Model as the frame of reference for this transformation (Porter, 2008).
Ecosystems Aren't Enough Anymore
Apple, as of this writing in December 2012, faces a multitude of threats. Their operating systems are under attack from Google and the Android operating system. The Apple iTunes ecosystem, which at one time generated nearly 30% of all profits for the company is increasingly under attack from free services including Spotify that have very unique, all-you-can-listen-to business models that are making iTunes outdated and expensive (Apple Investor Relations, 2012). iTunes did revolutionize music and video distribution and also showed that scalability across devices could be accomplished relatively quickly from a platform standpoint as well (Deck, 1997). Figure 1, Apple Product and Services Ecosystem, taken from a filing the company made with the Securities and Exchange Commission (SEC) highlights how the iTunes ecosystem works (Apple Investor Relations, 2012).
Creating Competitive Advantages Through New Product Development
The transformation of many diverse forms of customer, supplier, internal development, and research & development (R&D) insights into a consistent and productive platform for product development is key to long-term competitive growth. The reliance on advanced frameworks for organizing these diverse sources of innovation into taxonomies that can eventually be used to fuel new products is often called the New Product Development (NPD) process. As every company has a unique, highly differentiated and often highly customized business model, the same holds true for the NPD process. Companies over time define the NPD process to align with their unique technological and market strengths. Comparing the NPD process at Salesforce, the leading provider of SaaS-based CRM software versus Apple makes this point clearly. Salesforce is known for very rapid product releases of the CRM applications and exceptionally quick updates. Conversely, Apple is known for being slow and deliberate in their user experience design criterion and extremely secretive about their NPD process. Both companies are market leaders in their fields, one in a digital product and the other, in a physical product. As is the case with any 21rst century product, both have electronics and software heavily embedded within each of them. The digital product, which is Salesforces' CRM application, has a much more accelerated product development and testing cycle associated with it, as the company is aggressively pursuing market share against large, entrenched rivals. Conversely, Apple on the hardware side of businesses is often creating their own new markets through efficient use of intellectual capital and innovative, user experience-based designs. Both companies are market leaders in large part due to the success of their continual execution of their NPD processes and strategies.