PCs and iPad: How did Apple address the competitive landscape

This post is an adaptation of one of the reports for the Advanced Strategy Management class last summer. It is divided in parts because is long.  Thanks to Rodrigo Blancas for his perspective of his favourite toy, you are already a technology expert!

PART I

1. Introduction: Apple and iPad

Apple Inc. is an American multinational corporation that needs little presentation. Since it’s starting in a garage in Cupertino California in April 1976, Apple has developed and offered consumer electronics products and software emphasising design and innovation for creative consumers. Nowadays, its product portfolio includes personal computers, laptops, iPod, iPhone and iPad to mention some of them, and operates 284 retail stores in ten countries as well as an online store with 2,500 temporary full time employees worldwide. Apple stated annual sales of $42.91 billion in the 2009 fiscal year, and has became the most admired company in the World in the last 3 years. Its market cap has exceeded that of Microsoft for the first time since 1989.

The iPad is Apple’s most recent product. It is the new bet to change the way the consumer manages all its entertainment, work and communication without having to carry a whole computer. The concept of “tablet computer” is not new, but it basically became popular through Apple’s proposal. Apple’s strategy is trying to change the rules of the game of computers mixing it with the proven successful iPod strategy. Apple’s focus aims to operate under an ecosystem strategy where the consumer is expected to be dependent on Apple’s content and software. Apple would provide the books, movies, music and games with enough quality to reinforce the brand philosophy and loyalty even when the hardware may not be the best offer in the market when compared with other suppliers’ tablets. The business is turning from hardware to content offer, and the iPad is the new gate to access the consumer and lock him in the content controlled, authorised and sold by Apple. The iPad has been a tremendous success selling more than 4 million iPads in the first 120 days after its release.

2. PC Market Overview

The PC market is the biggest segment of the Computer Hardware market (48% of all sales) and comprises Desktop and Portable Computers; where the latter includes Laptop and Netbooks computers. Some analysts believe that  now Smartphones and Tablet PCs must be included within the Portable Computers market. It is important to mention that Portable Computers accounted in 2009 for 62% of all PCs revenues, which shows a clear decline in Desktop Computers sales.

Netbooks can be defined as small, light and inexpensive portables designed for basic computing and Internet access for mobile users. They may also be used for accessing Web-based applications and are marketed as stand-alone portables” [Key Note, Computer Hardware Market Report, 2010, pg.5]. In the last year, Netbooks have presented an important growth (71% [Gartner, 2010]), being the only segment within the PCs market in a high performance activity. According to Euromonitor, Netbooks now represent approximately 48% of all Portable Computers sales. Netbooks sales have been driven by the increase in the interest for mobile computing and by the access to internet via WiFi spots.

Looking into the future, the PCs market is forecasted to grow by 22.7% from 2010 to 2014, being the segment with biggest growth figures within the Computer Hardware market. PCs growth will be driven by portable computers which will be driven by new technological customers’ needs such as miniaturisation, mobility and cloud computing.

3. Managerial Justification: Trends and Competition

The main objective is to analyse the strategy that Apple created in order to proactively address the Personal Computer (PC) Industry’s competitive landscape with its new product iPad. For the past 3 years, the PC Industry has experienced its highest level of competition due to the large number of players in the market and the difficult economic environment.

In addition, consumer trends are pointing towards new and more mobile ways of computing, and more importantly, to communicate. These new trends are suggesting that general consumers are now seeking for mainstream communication and entertainment in a single and portable device, rather than more content creation activities. That are the tablets for, consumption over creation.

There has always been a Gap between the traditional Laptops and Smartphones that, currently, Netbooks are barely meeting. Considering this gap, since Netbooks started to grow considerably, PCs manufactures have been involved in a price war for all potable PCs that run on Windows OS. Apple has never entered this price war, maintaining their cheapest PC above $1,000.

Starting 2010, Apple held the 4th position in the PC market share, accounting for 4% of the total sales. Apple products (iPod, Mac Computers, etc) have always been positioned into the market as premium products. Mac computers competitive advantage has never relied on a price strategy, but in a differentiation focused on reliability, design and performance. Since Apple’s strategy to achieve growth and address competition has never been a reduction in prices, they have to turn again and specially during the economic downturn, towards innovation. By creating value-added products that solve problems to consumers in a unique manner, Apple will strategically position itself into the PC Market.

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