HISTORICAL BACKGROUND

The Story of Apple Inc. is very much similar to a movie that is charged with powerful drama and unexpected turns. Apple Computers Inc. is considered to be one of the oldest personal computer makers in the world. The company was formed by Steven Jobs and Stephen Wozniak in 1976, when the first designs for its models were made in Jobs’ garage. Jobs was then a freshman, and he dropped college in order to focus on the making of a new computer and the establishment of the company. Apple’s success is one of fastest in history as in 1982, Apple became the first personal computer maker to make more than $1 billion in sales. For the generation of the early 1980s, the war in the PC world was between two giants, Apple and IBM, and most of the bets went to Apple with its innovative products and powerful designing. Since the industry was still in the early phases, Apple soon suffered a number of problems, and eventually, Jobs was relieved of his duties as he refused to change his rigid marketing mentality. The company’s performance improved until the early 1990s when once again, it lost market share and even suffered losses for several years. As a matter of fact, many experts expected that between 1995 and 1997, Apple could even simply seize to exist. In 1998, Steve Jobs was contacted to become a new CEO to revitalize the devastated company. Since then, Apple has turned back to profitability, and although the company is out of the danger zone, its ability to retain its lost leadership in the PC world is still doubted.

MACRO ENVIRONMENT

Demographics Environment: Since the late 1980s, Apple has basically been paying less attention to its demographic market. Instead of targeting every potential PC buyer in the market, the company eventually focused more on professionals in their twenties and above. The typical Apple user in 1997 was a professional designer or publisher, most probably in his late 20s or mid-30s. Today, however, Apple is taking a new route, and with its new iMac model, it is targeting the youngest customers in addition to keeping its professional adults.

Economic Environment: The growth of PC makers and Apple in specific depend heavily on economic growth. In the 1980s, fast economic growth demanding and allowing computerization of the workplace created big opportunities for growth. Today, economic growth is stimulating the computerization of homes, and Apple is looking forward to take a big share in this potential market. Still, Apple’s growth is more dependent than that of other PC makers on economic growth because the company focuses on educational and professional fields where budgets are set up according to economic conditions.

Technological Environment: Apple’s technological environment is a very hostile and volatile one. In the 1980s, PCs were still newcomers to the office. In the 1990s, they have become a must in every house, and eventually, the average PC has evolved from being a capital product into becoming a popular consumer product, all because of the continuously changing technological environment. Apple has always been dependent on technology, and innovation has continuously played an integral role in the history of the company. The problem, however, is that during the 1980s, Apple lost vision of this environment. For example, in 1985, Steve Jobs refused to share the know-how of Apple’s operating system whereas competitors did the opposite. As a result, technology shifted to IBM operating systems and Apple became the exception rather than the rule as this restriction continued through the mid-1990s. In fact, in 1993, 70% of all software developers in the US were developing software that worked on Apple machines. Today, there are only 20%, and the result is that in comparison to competing PCs, Apple machines have relatively much fewer software options. This is the gap that Apple’s management is trying to resolve today, and to correct the situation, in 1998, the company invited software developers to share technology with Apple.

The limitations of the technological environment on Apple are very obvious. An Apple computer for the average PC user is seen like some vehicle from another planet. In other words, it might be a fascinating thing, but it is not something that many people will spend money to buy. Rather, they prefer the mainstream technology that is based on Intel and Microsoft, and by which most of the firms in the industry abide.

Political Environment: The political environment became substantially important for Apple in the mid-1990s when the company became officially involved in the lawsuit against Microsoft. Together with Sun Microsystems, Netscape and others, Apple accused Microsoft of monopolist and anti-competitive strategies and behaviors. Apple remains entangled in this case until today, and even though Microsoft seems to have lost the case, it is not yet clear whether Apple will benefit from such a legal victory.

Cultural Environment: It is not hard to compare the IBM-Apple competition of the 1980s to the Pepsi-Coke war. However, by the end of the 1980s, the personal computer culture in the US had changed in many ways, and Apple found itself confined to the cultural images that it created for itself. Thus, Apple became the computer of the professional publishers, designers and artists. Apple became so strongly related to this cultural positioning that in the 1990s, its market share dropped from 16% in 1992 down to less than 4% in 1997 as new buyers were generally average users who needed simple technology and who were scared by Apple’s sophisticated impression. Today, Apple is trying to reverse this situation, and its iMac series introduced in 1998 was aimed at appealing to the simpler user.

MICRO ENVIRONMENT

Company: Apple had been living a leadership crisis since the mid-1980s when its visionary leader, Steve Jobs was fired due to strategic conflicts on the board of directors. Continuous internal conflicts harmed the morale in the company, and by 1997, the company’s board of directors constituted mostly of new comers who had little knowledge of or affiliation with Apple. This farther added to the crisis of the company, making it almost leaderless. Morale was further hit when the company laid off several thousand employees in 1993, 1995 and 1997 in the hope of cutting down costs. Additional layoffs were made in 1998.

Financial Environment: The computer maker that was the first to hit the $1 billion limit in 1983 was incurring losses at an average of $100 million every quarter starting 1993. This situation continued through 1996, when the company had to write off $750 million worth inventory, and rumors about the insolvency and possibility of bankruptcy were heard then. Apple stocks dropped from a high $52 per share in 1993 to a low $30 in 1996. Much of the instability of the share resulted from the fact that board members were selling thousands of their shares as they feared more losses in their investments.

Marketing Intermediaries: Apple has employed various types of marketing intermediaries to distribute and maintain its products in the market. Apple started to rely heavily on PC stores in the 1990s, but its options eventually declined as the availability of software became more scarce than before. In 1998, the company became aware that direct online selling was worth considering, especially as competitors were achieving market share growth through this method. Nonetheless, this did not force Apple to shift from its traditional method in the educational market where it focuses heavily on reaching college centers and labs to purchase Apple computers for their departments and student use.

Suppliers: Apple’s worst scenario on the micro environment level happened with its suppliers. Suppliers for computer makers are of two types. There are the hardware suppliers and the software suppliers, and in both cases, Apple failed to keep good relations between 1984 and 1998. The major cause of conflict was that Apple refused to share its operating system know-how with suppliers. Thus, hardware makers preferred to serve other companies that had the Microsoft and IBM systems on first. This made Apple suffer severe shortages for several years. The same happened with software developers. For software developers, sharing operating system design makes them do their work faster, but with Apple, this was impossible due to the company’s protective strategy. Accordingly, the number of software developers willing to develop software and programs for Apple declined sharply in the early 1990s, dropping from 70% to 20% of all software developers. Since 1998, Apple has reversed its strategy and has invited software developers to cooperate with its engineers in order to increase the programs and products that can operate on Apple computers. At the same time, the company has improved its relations with hardware developers hoping to reduce the differences between PC and Apple hardware needs in the market. For example, Apple has now introduced a universal bus in its machines that will allow them to accept various sorts of hardware.

Apple’s most problematic supplier is Microsoft Inc. Apple’s worst performance in the market resulted from the development of Windows95 as the landmark in the industry. The problem further became more complicated for Apple when its technological needs were ignored by Microsoft. Today, the two companies are trying to cooperate more closely, but they are still hooked up in legal problems arising from Microsoft’s monopolistic tactics that caused damage to competition in general and Apple in specific.

Customers: One of the problems at Apple was that it continuously changed the definition of its target market. In the early 1980s, any business was a potential buyer. In the mid and late 1980s, Apple’s customers were professional artists, publishers and designers. In the early 1990s, Apple’s customers became even more professional people. In 1998, Apple’s customers were redefined once again. This redefinition was achieved through the introduction of the iMac series whose target market were young and simplicity-seeking users who served the internet. The iMac, therefore, was designed for any person who did not know much or even anything about computers, a person who was concerned about simplicity, and who wanted to use the Internet frequently. But at the same time, the other models did not give up Apple’s obsession with design and graphics, although the problem remains in finding sufficient software and programs to run on these machines.

Competitors: In the 1970s and the early 1980s, Apple’s main competitor was IBM. Apple missed the opportunity when IBM shared its technology with its suppliers, and accordingly, IBM became the reference in the industry, setting the standards for both software and hardware. Other competitors started to join the market very soon, and by the mid-1990s, Compaq and Dell were considered the major competitors for Apple computers.

COMPETITIVE ANALYSIS

Customer Satisfaction & Retention: Apple’s ability to maintain the loyalty of its customers relies heavily on its innovative technology as well as on the fact that its technology is tailored to meet the needs of its professional customers. Indeed, despite the loss of market share over the years, Apple’s core customers, specifically designers and publishers have remained loyal to the company and its products.

Apple’s major problem is in gaining new customers. It is very difficult for a computer that is supported with few programs and software packages to attract the attention of young and general-use customers. Similarly, it is very difficult to convince households of spending more money on a computer that they can use for less purposes. This has been the main dilemma of competitiveness for Apple throughout the 1990s.

The iMac series was aimed at attracting new customers and at the same time maintaining the company’s image. Computers in this series were thus priced at an average of $1200 to $1300. But at the same time, customer satisfaction was jeopardized as the computers in this series did not have floppy drivers on them, mainly because, as Steve Jobs argued, people are less dependent on floppy disks than ever. For a computer user, this is a threat at present, particularly that adding this feature would cost the customer about $150 whereas adding it to a PC will cost less than $30.

Thus, even though Apple is trying to change the product and brand perceptions in the market, the fact remains that Apple computers are still more expensive than competitor products in the market.

Apple also tried to focus on new needs of customers, most importantly the Internet. The iMac stands for Internet-Mac, but again, Apple made a big mistake with respect to the internet connection. The iMac computers have sophisticated dial-up network systems, and accordingly, they work perfectly with very few connections but can be very frustrating with others.

Analysts in the industry agree on one thing: Apple is still lacking real contact with its customers. In fact, Apple is believed to be ahead of the market, supplying products with features that are not yet needed or that may never be needed. This continues to remain Apple’s most serious flaw and problem, and resolution might take much more than simply willing to change. It might also require the sacrificing of Apple’s philosophy of secrecy about its technology, thus involving more developers and suppliers in sharing and developing Apple’s technology.

Competitors: Apple operates in a number of fields in the computer industry. The home market is one area where Apple is trying to survive. Its market share was down from 14.7% in 1994 to 3% in 1996. Today, the company maintains a share of about 6% but this is still far from the 17% that Dell and Compaq are competing for.

In the education market, Apple even faces much more stress since this is one of the most profitable segments in the industry. In 1994, Apple’s market share was a leading 47%, followed by 8.5% for IBM and 4.3% for Dell. In 1997, the situation was changing as Compaq grasped 13.2% and Dell 10.7% of the market, mostly at the expense of Apple which held only 27.2% of the market. Competition in this segment continues to be harsher today as spending has declined.

The business and corporate sector has also witnessed the decline of Apple. In 1994, Compaq led the market with 14.2%, followed by IBM at 10.1% and Apple at 6.4%. By the end of 1997, however, Apple’s share had dropped to 1.4% only. Today, Apple’s share is hardly above 2.5%, mostly in the publishing and graphic design fields. However, as the web design business booms, Apple should be able to increase its share to 6%, but yet, its competitors are also holding similar targets in mind.

Strategies: Observing the positioning of Apple shows how dramatic the fluctuations of the company had been throughout its history. In the early 1980s, it was a potential leader, then it became a challenger, eventually a follower, and finally a nicher. What Apple is trying to do today is to get out of the nicher position and challenge once again for better positions. The management does not hide its plans for leadership, but this remains a very remote objective to achieve.

Apple is now trying to change its image in the market. It is focusing on three main issues:

Pricing: Apple is trying to convince the public that Apple is not more expensive than other machines. The iMac was a suitable product for such a strategy, but then, the company was eight months late in launching it. Accordingly, by the time the product was launched, other competitors had already lowered their prices and the iMac was no longer an attractive catch in the market. Problems in delays usually resulting from failure of suppliers to deliver have to be resolved.

Widening User Base: Apple is trying to make its machines usable for everybody, not only for a limited target market. Success, however, depends on the company’s ability to understand its customers. This was not very obvious in the revolutionary iMac series when the modem installed was slower than what most customers demand, when internet dial-up connections were very inconvenient, and when software availability was still uncertain.

Product Leadership: Apple, more than any other competitor, has always delivered innovative products in the markets. The problem is that it is not infrequent for these innovations to be unnecessary, thus costing the company a lot for nothing. The iMac, with its revolutionary transparent structure and with the fusion of all components in the monitor is an excellent innovation, but its flaws are serious disadvantages that shun customers away.

SWOT ANALYSIS

Strengths:

• Company is very technologically oriented.
• Company’s experience in the fields of publishing and design is very substantial.
• Company spends heavily on human resources (only $100 million in 1997, but relatively to sales, much higher than competitors do).

Weaknesses:

• Company’s finances remain weak and limited.
• Employee morale remains uncertain as a result of continuous downsizing and slashing of operations.
• Company’s leadership is still divided by conflicts and lack of focus.

Opportunities:

• Company enjoys higher customer loyalty than most competitors.
• Company has the opportunity to fuse innovation with convenience, thus appealing to households and businesses at the same time through new products.
• Company enjoys leadership in a number of niche markets which enables it to expand its market share and profitability without suffering serious competition.
• Company has new opportunities in the Internet business field.

Threats

• Lack of leadership in the company is still hindering its integration and stability.
• Financial weakness is reducing investment opportunities and weakening most operations.
• Company’s lack of harmony with customers is the potentials of achieving future objectives.
• Company’s lack of collaboration with suppliers has made its products less appealing in the market, and distributors are offering less shelving space for Apple computers than ever.