Apple Inc.

A Global Business Case Study

(I could talk about this for hours)

By Victoria Huxtable

BCom Dip Ed COGE

Apple Overview

Apple Overview

Who is Jonathan Schwartz? What about Larry Ellison, Olli-Pekka Kallasvuo, Steve Ballmer or Eric E Schmidt?Perhaps you’ve heard of Steven Jobs?

Apple OverviewSteven P. Jobs - CEO and co-founder of Apple Computer Inc (with Steve Wozniak) in 1976 (Jobs and Woz)2007 name changed to Apple Inc.Steve Jobs 132nd on Forbes Rich List ($5.7 billion)What is it about Steve Jobs and Apple that has this man and his company trumpeted as the technology industry’s answer to the Terminator?

Apple Origins

Apple’s Origins:

Jobs and Woz - 20 something college drop outs, founded Apple Computer on April Fools Day 1976.

Worked out of Jobs’ garage and built computer circuit board named Apple I

Sales reached 200 in first few months

Formal business plan sets goal to increase sales to $500 million in 10 years.(REASONS FOR EXPANSION: INCREASE SALES)

Apple’s Origins:

New partner - Mike Markkula Jr (millionaire recently retired from Intel)Attracted venture capital Woz - tech geniusJobs - visionary seeking to “change the world through technology”Apple moves from Jobs' garage to a building in Cupertino Calif (current global HQ in Silicon Valley)

Apple’s Global Expansion

Apple’s Global ExpansionApple II launched in 1977.In only its second year, sales increased tenfoldDealer network grown to over 300.Unveiling at first West Coast Computer Fair (largest booth and projection). Markkula walks floor to sign up dealers.1979 Apple employs 250 people working in 4 buildings

Apple’s Global ExpansionBy December 1980, Apple was the industry leader.Apple II’s business ready platform containing “VisiCalc” contributed to its successApple launched a successful IPO (Initial Public Offering).IPO generated more money than any IPO since Ford Motor Company in 1956 Apple facilities occupy more than half a million square feet in the US and Europe.Apple employee count breaks 1000800 independent retailers in US + Canada, plus 1000 abroad.

Apple’s Falling Market Share

IBM entered PC market in 1981, fundamentally changing Apple’s position.IBMs were able to be cloned by other producers and used DOS operating system (OS)IBM = open systemApple = private and closedInterestingly, Apple experienced sharp fall in market share (6.2% in 1982)Yet Apple’s revenue continued to grow in 1982 (a “billion dollar (sales) party was thrown for employees in 1982)

Introducing the Apple Macintosh

The Macintosh was hailed a breakthrough PC in terms of ease of use, industrial design and technical elegance.This was greatly needed as the company was in crisis in 1983-84, with net income falling 17%.Apple became a household name in the third quarter of SuperBowl XVIII when it aired the enormously popular 1984 ad promoting the upcoming release of the Macintosh Click on image

Introducing the Apple Macintosh

Steve Jobs was responsible for developing the Mac (and Lisa) computersProduction was based on the VERTICAL INTEGRATION model Apple facilitates all aspects of its hardware and creates its own operating system that is pre-installed on all Macs.This is in contrast to IBM PC compatiblesFirst PC to feature mouse and graphical user interface.

Job’s NeXT Step

Macintosh not entirely successfulNet income was down by 17%, despite launch of the Macintosh and Lisa (a disaster and eventually discontinued in 1985) in PCs in January 1984.

Jobs’ NeXT Step

Jobs’ leadership at the Macintosh project was short-lived. After an internal power struggle with new CEO John Sculley (ex Pepsi man), Jobs angrily resigned from Apple in 1985, went on to found NeXT, another computer company, and did not return until 1997.

1985-1997 Sculley (1985-1993)

Desktop publishing and educationApple into the corporate worldDesktop publishing (Aldus Pagemaker)Networking and connectivity1990 market share stabilised at 8%Education market actually 50% market shareApple customers “love their Macs”vs IBM users “put up with” their machinesApple and IBM formed a JOINT VENTURE to create a new OS and other software.

1985-1997 M Spindler and G Amelio (1993-1997)

Reinvigorate core markets (education K-12 and desktop publishing) as market share was 60% and 80%Scrapped Sculley’s plan to put Mac OS on Intel chips ($500 mill)Apple would LICENSE a handful of companies to make Mac clones ($50 per copy of a MacOS license)Spindler lost momentum (140 corporate buyers would not consider buying a Mac)$69 mill loss and more layoffsAmelio lost $1.6 billion, worldwide market share went from 6-3%

The second coming of Steve Jobs (1997-present)

• Yes the allusion to Jesus is deliberate!

The Apple Turnaround

Jobs Ended licensing plan to an abrupt end (clones were 20% of Mac sales, and value of Mac fell 11%)Focus on Microsoft Office for the MaciMac launched 1998 (plug and play peripherals) - sold 6 million in 3 years (300 million PCs sold in same time)Re-energize Apple’s image (Jobs retained role as CEO of his company Pixar to this end)

Apple’s Turnaround

Shortly after Mr. Jobs returned to Apple in 1997 as part of the company's acquisition of NeXT,Dell's founder and chairman, Michael Dell, was asked at a technology conference what might be done to fix Apple, then deeply troubled financially.

(Michael Dell - pictured)

Apple’s Turnaround

"What would I do?" Mr. Dell said to an audience of several thousand information technology managers.

"I'd shut it down and give the money back to the shareholders."

Steve Jobs’ Email

Mr. Jobs sent a brief e-mail message to Apple employees, soon after, which read: "Team, it turned out that Michael Dell

wasn't perfect at predicting the future. Based on today's stock market close,

Apple is worth more than Dell. Stocks go up and down, and things may be different tomorrow, but I thought it was worth a moment of reflection today. Steve."

Lessons from Apple’s Marketing

Interbrand Study (2008) Ranks Apple's Brand as 24th most valuable in the world.Coca - Cola remained the #1 global brand.IBM traded places with Microsoft to rise from #3 to #2. Nokia (#5), Intel (#7), Google (#10), HP (#12), Cisco (#17), Samsung (#21), and Oracle (#23) are the other tech companies ahead of Apple in the rankings.

Perceptions of Apple

Apple has enjoyed since founding in 1976 a prominence out of proportion to its modest share of the PC marketLeaders have cultivated the image that Apple is hip, stylish and humane - “the computer for the rest of us”1984 ad promised a machine that would liberate mankind from the tyranny of large, impersonal computer companies

Perceptions of Apple

“We started out to get a computer in the hands of everyday people, and we succeeded beyond our wildest dreams.”—Steve Jobs

Apple’s Marketing Lessons

Make the product kingQuality products that offer customers exceptional value.Macintosh has a significantly longer life-span than PC's is testament to Apple's commitment to qualityQuality and innovation waned after the departure of Jobs and Woz for a decade Apple's turnaround is largely owing to the return of innovative products like the iMac and iPod.

Apple’s Marketing LessonsMake the customer king

Apple customers have tremendous brand loyalty. Mac users (Mac Marines) would protest to journalists who wrote derogatory articles about the iPod’s shorter than expected battery life that many journalists would avoid writing about Apple's struggles altogether. Mac User Groups were vocal in their attempt to keep Apple executives focused on quality when they perceived the company was lowering its standards. Apple patrons feel as if they are part of a community - the result of the "us against them" mentality. Customers are loyal and have a sense of independence and an anti-establishment perspective.

Apple’s Marketing Lessons

Break the marketing mouldCompany mottoJobs did away with “Big Box” storesOpened 1st retail store in Virginia in 2001June 2008 - 215 storesGlobal chains (Australia, Canada, China, Italy, Japan, UK)Retail strategy a huge success - the “Nordstrom of technology”

1997 Macworld Expo Conference that Apple would be selling Microsoft 5% of the company for a $150 million, and be working with their archrival on new projects (Microsoft)

Apple’s Marketing Lessons

Other observed features of Apple’s marketing:

Product Placement (Sex in the City)Celebrity endorsement (U2, Madonna, Seinfeld is rumoured to be next big celebrity in “Get a Mac” advert)High level of secrecy/active rumour millNo “hard sell” - the products sell themselves, emphasis on experiencing Apple productsPivotal role of Apple Stores

STANDARDISEDZen look and feel of stores (stainless steel, granite, wood)

Apple’s Marketing Lessons

Other observed features of Apple’s marketing - the Apple Store

Glass staircase suspended from roofGenius Bar - son-in-law for hireTraining/classesAll amounting to the attractive Apple design factors (Designs that turn heads), ease of use (it just works), security (114000 viruses - not on a Mac), high quality bundled software (awesome out of the box)

iPod and iPhone halo effectThe halo effect is disputed, though there is strong evidence for its existence.iPhone and iPod are many consumers first exposure to Apple, leading them to purchase other Apple productsTechnology debuts in Oceania before USAIt’s a great test market - as Australians are early adopters98% of population has access to 3G networkIn the USA it’s more like 20% (NY, Boston, LA and San Francisco are the major 3G hubs)

Appstore

Originally, Apple had planned on establishing a Venture Capital fund to promote iPhone AppsTaken off guard by a hundred thousand or so downloads of the kit on Day 1Surprised that there were 15000 for sale by the time iPhone was launched.Must deliver customer valueI am Rich - Ruby picture pulled ($999.99) 70% revenue to Apple Developers, 30% to AppleExamples Shazam, Mi Do Mi

Employment Relations1981 - Loan- to Loan Program for employees (each Apple employee can borrow an Apple II to use at home, then after a year was theirs to keep) - provides an insight into the Apple philosophyApple (an anti-establishment company) nurtures talents so that great things could be accomplished. Rules were things meant to be broken, as symbolized by the pirate flag Jobs raised before team meetings.In retrospect, Apple's mistake wasn't bringing on a new CEO in 1983 to help manage the company's growth.. .the mistake was bringing in a CEO who wasn't a good fit with the company culture.

Employment RelationsApple is really “Apple-centric” in its staffing.Approx 50% of Apple store staff come from pre-exiting stores (such as the US and UK for the Sydney store)Positions at the Apple store are part time initiallyIn retrospect, Apple's mistake wasn't bringing on a new CEO in 1983 to help manage the company's growth.. .the mistake was bringing in a CEO who wasn't a good fit with the company culture.21,600 employees work at AppleTalented senior executives and product managers who share a common vision for what the company is about. One of Jobs' talents is hiring and grooming talented people who are committed to executing that vision.

Employment RelationsThe majority of Apple's employees have been located in the United States but Apple has substantial manufacturing, sales, marketing, and support organisations worldwide, and some engineering operations in Paris and Tokyo.Training for Apple stores occurs at Cupertino HQApple celebrates diverse experience and backgrounds - focuses on finding the best talentApple seeks certain personality types and those enthusiastic about technologyDaily and quarterly staff briefings

Employment Relations

• Cupertino HQ employs in the following areas:– Engineering– Marketing– Sales– Legal– HR– AppleCare

Employment Relations

• Marketing advertises as follows: “prompting the competition to emulate us. As the only company that designs the hardware, the software, and the operating system, we stand alone in our ability to innovate beyond the status quo.”

• Part of what drives this innovation is our challenging and creative environment and the fierce dedication and talent of our team. In marketing, you have the unique opportunity to work on revolutionary products from concept to launch with the best creative minds in the industry.

OperationsAMR Research released its fifth-annual "Supply Chain Top 25" list, and leading the supply chain pack this year is Apple. "Apple is No. 1 in 2008, signifying an epic shift away from the 20th-century production-efficiency mentality to a new era of value based on ideas, design and content," notes the AMR Research report.

The iconic iPod and iPhone maker took the top spot due to "an intoxicating mix of brilliant industrial design, transcendent software interfaces and consumable goods that are purely digital," write AMR's Tony Friscia, Kevin O’Marah, Debra Hofman and Joe Souza in the report.

Operations

"The mechanical and financial benefits of this approach include extremely high inventory turns, minimal material or capacity limitations to growth, and excellent margins." Apple’s "outstanding" financials proved impressive in all the categories AMR used to calculate

the Top 25 rankings. AMR determines the top supply chains by analyzing a combination of corporate financial measures, inventory data, and peer company and AMR analyst opinion.

Accounting and FinanceApple is deliberately vague and conservative when talking about their financials, so revealing this info is rather extraordinary. Analysts and pundits have constantly criticised Apple for poor corporate governance by not breaking out their revenue streams more clearly.

For example, how many Mac Pros Apple sells? No one knows, and Apple won't tell. There is a lot of info on iPhone deferred sales and income however, due to GAAP (Generally Accepted Accounting Principles) rules.All Apple’s pricing is set in Cupertino and remains same until new release.Takes into account exchange rates, size in market, potential sales

Accounting and Finance

The non-GAAP financial results are truly stunning. By eliminating subscription (of iPhones) accounting, adjusted sales for the quarter were $11.68 billion, 48% higher than the reported revenue of $7.9 billion, while adjusted income was $2.44 billion, 115% higher than the reported income;

Jobs - “If this isn’t stunning, I don’t know what is — all due to the incredible success of the iPhone 3G.”2008 revenues at Apple Inc. totaled $32.5B, while annual earnings equaled $5.36 per share.Quarter 1 2009, Apple reports $1.78 a share in earnings, beating analysts forecasts.

iTunes store

Free download of iTunes system for Mac and PC (loss leader)Key element of the iPod systemLaunched in April 2003From 99cents/song5 major record labels - guards INTELLECTUAL PROPERTY of artistsBy mid-2007, users had downloaded 500 mill copies of the Windows version of iTunesBy June 2008, sold 5 billion songs - a galvanic impact on iPod sales

Legal Issues

VBST in BC Canada - trademark dispute with Apple

Matter is on-going

Click here to see more about the issue

Legal Issues

Beatles owns Apple MusicApple Inc. has reached an agreement with Apple Corps Ltd., the record label started by The Beatles in 1968, concerning the use of the name "Apple" and related logos.

iPhone - Regulation Issues in China

“The two big ones we just didn’t have a chance to get closed were Russia and China… and I think you’ll see those happen later this year… we have to get through the regulatory bodies in China, which we’re in the process of doing, and I think later on this year you’ll hear some announcements. 70 countries is a lot of countries and we’re launching 22 of the biggest on July 11th 2008” - Jobs 2007

Environment/Green Apple

Apple has unveiled the Green MacBoookThe new MacBook family embodies Apple’s continuing environmental commitment. Each new MacBook is designed with the following features to reduce its environmental footprint:

Environment/Green Apple

Arsenic-free glass Mercury-free LED-backlit display Brominated flame retardant-free internal componentsPVC-free internal cablesHighly recyclable aluminium and glass enclosureUp to 41 percent smaller packagingSee Greenpeace’s criticisms of Apple

• Thank you! • (This is how Steve

Jobs closed a press conference in 2005 to stop further questions about his health)

www.getbusinesssmart.com.au