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/ 17
Robin Chapman, Robert E. Hoskisson, Gail Christian
Arizona State University
As one of the most well-known and respected companies
in the world, Apple Inc. was one of the few companies
to emerge from the recession stronger than ever. By
spring 2011, Apple had an array of impressive products
including the iPad, iPhone, iPod shuffle, iPod nano,
iPod touch, iPod classic, Apple TV, MacBook, MacBook
Pro, MacBook Air, Mac mini, iMac, and MacPro.' Apple
was also the only company to maintain its status as No.
1 for innovativeness on Fortune’s list of the World’s
Most Admired Companies in both pre-recession
2007 and post-recession 2011. In addition, Apple was
named the World’s Most Admired Company overall
in 2011 by Fortune, a position it has held since 2008.”
March 2011, Fast Company also named Apple its
Most Innovative Company. According to editor Robert
Safian, “In putting together this month's special package
on the 2011 Most Innovative Companies, we really had
no choice: Apple had to be No. 1.” With net sales (in
millions) of $37,491, $42,905, and $65,225 in 2008, 2009,
and 2010, respectively, Apple's stream of innovative
products supported Steve Jobs’ philosophy that if you
make something “really great, then everybody will want
to use it” (see Exhibit 1)
Although Apple started in 1976 as a computer
business, much of Apple’s success has been attributed
to its music- and video-related products and the
iPhone. According to Steve Jobs, Apple's charismatic
former CEO and co-founder, “This will go down in
history as a turning point for the music industry. This
is landmark stuff. I can’t overestimate it!” Jobs was
referring to the April 2003 debut of Apple’s iTunes
Online Music Store, the first legal online music
service to have agreements with the five major record
labels at that time. Although initially available only
to Macintosh users, iTunes sold more than 1 million
songs by the end of its first week in operation. Not only
did iTunes change the nature of the music industry,
it also added greatly to Apple’s revenues by way of
promoting the purchase of the iPod—a portable digital
that could store downloaded iTunes
music device
bear)
Apple Inc.: K aur kU
MMU
songs. As Apple quickly became known as a compa,
that made innovative consumer electronics pr
instead of just a company that made comp;
changed its name in 2007 from “Apple Computer
to “Apple Inc.” Jobs said, “The Mac, iPod, Apple 1
and iPhone. Only one of those is a computer. So we're
changing the name.
‘Apple's focus on innovation has helped it maintain
a competitive advantage and marketing prowess over
other industry players that have historically been much
stronger than Apple? However, Apple must continue to
beat the competition on a number of levels. iTunes faces
stiff competition from new and existing online music an¢
video download services. The iPod, iPad, Apple TV, and
iPhone all face the threat of lower-priced rivals and possible
substitutes.
Then, on January 17, 2011, Apple was faced »
additional challenge when Steve Jobs han
of the company to chief operating officer Timothy D.
Cook, with the announcement of another medical leave
This would be his third medical leave in less than six
years. For the time, Jobs retained the title of CEO, but
Cook handled day-to-day operations at the comp:
Jobs did not share his reason for leaving the compar
or tell his employees when he might return. Diagnoseé
with a rare form of pancreatic cancer in 2004, Jobs
took an undisclosed leave of absence that yea
treatment. In 2009 he took a six-month leave to underge
a liver transplant at the Methodist University Hospi!
Transplant Institute in Memphis, Altho
absences did not interrupt Apple's run of successes, Wilh
Jobs’ August 24, 2011 announcement that he is retiring
the new question becomes, “What happens to a moder"
company whose innovations and inspirations at S°
closely tied to the vision of one leader when that leader
influence is in decline?”
led contro!
To understand how Apple became a leader
innovation and how closely Steve Jobs is associated Wi
Apple and its many achievements, it is necessary €#
examine Apple's history Exhibit 1 Apple Inc. Selected Financial Data
2010
‘Earnings per common share:
Basic
Diluted
Cach dividends declared per common share
‘Shares used in computing earnings per share
Basic
Diluted
909,461
924,712
Total cash, cash equivalents and marketable
securities $51,011
Total assets $ 75,183,
otal long-term obligations (a) $ 5531
Total liabilities $ 27,392
‘otal shareholders’ equity $ 47.791
(a) The Compeny did not have any long-term debt durin
eerred revenue,
‘Apple Inc. Annual Report 2010,
Early Company History
On April 1, 1976, Steve Jobs and Stephen Wozniak
began the partnership that would eventually become
Apple Computer. Both electronics gurus, Jobs and
Wozniak had known each other since high school and
had worked together previously on other projects.
early 1976, Wozniak had been working on c
video monitors with computers. His idea was to invent
user-friendly computer that ordinary consumers could
buy. Wozniak, who worked for Hewlett-Packard (HP) at
the time, decided to approach his employer with his idea.
HP, however, did not see a future for personal computers
(PCs) and soundly rebuffed him. At that point, Steve
Jobs told his friend Wozniak that they should go into
business together and sell computers themselves, ;
Their first computer, the Apple 1, was built in Jobs’
Parents’ garage. Known as a “kit computer,” the original
Apple consisted merely of a circuit board and did not
even have an exterior casing, It was intended to be sold
‘0 hobbyists only. Jobs called the computer an °A
in honor of his days working at an orchard while se H
¢alightenment—and because neither he nor Wozniak
could come up with a better name." The Apple ee
mixed responses from hobbyists, and the aoe geet
Was time to expand the market for persiint ear
by building a more attractive and useful machine,
Apple II® (see Exhibit 2).
Globe: © Jan RySavy/iStackphoto.com
(ln mitions,
De LLRs
Coto)
Er Ee cud
$ 24,578
$3,495
2006
$19,315
$1,989
5
5
5
404
393
°
$
5
s
226
27
o
893,016 | 981,592 | 864,595 244,058
907,005 | 902,139 | 89,292 877,526
$33,992 | $24,490 | $15,386 | $10,110
$47,501 | $36,171 | $24,878 | $17,205
$ 3,502 | $ 1,745 s6e7 | $395
$15,861 | $13,974 | $10347 | $ 7,221
$31,640 | $22,297 | $14,531 | $ 9,984
19 the five years ended September 25, 2010, Long-term obligations exclides nan-curent
Growth
After taking on new partners to fund expansion plans,
the company officially became Apple Computer, Inc. in
early 1977." Within months, the recapitalized company
introduced the Apple Il, the first computer to come with
a sleek plastic casing and color graphics."* Annual sales
increased dramatically to $10 million, and the company
began to grow quickly in size, adding thousands of
employees." On December 12, 1980, Apple became a
public company. On the first day of trading, its share
price increased from an initial $22 offering to $29.
By the end of the year, Apple reached $100 million in
annual sales.'* The fledgling company, however, soon
faced some experienced competition
In 1981, IBM released its first personal computer:
IBM’s sheer size ensured its domination of the young
PC market. Steve Jobs realized that Apple would have
to move fast in order to remain a viable company. Over
the next few years, the company released several new
computer models, most notably the Apple Ill and the
Lisa, Neither of these models sold particularly well
In 1983, Jobs recruited Pepsi-Cola CEO John Sculley
as Apple's president and CEO. Jobs hoped that this
change would bring more structure and organization
to the young company." Apple's biggest computer
achievement, the Macintosh (Mac), was released.
After initially opposing it, Jobs had personally taken
‘on the task of developing the Mac, which became the Port 4: Cases
Exhibit 2 Select Apple Product Releases
1976 [Applet
1977 | Apple i
1980 | Apple i
1983 | Lisa
1984 | Macintosh Graphical User Interface (GU)
1986 | Macintosh Plus
1987 | Macintosh i
1991 | Macintosh Quadra Powerflook 100
1994 | PowerMac 6100
1997 | PowerBook G3
1998 | iMac
1999 | iBook
‘Tunes
2001 ‘| iovo
iPod
iLife suite
2003 | iTunes 4 (online muse store w/200,000
downloadable songs)
2004
‘Pod Photo
2005
MacBook
2006 | Mac mini
Apple TV
2007 | Phone
‘Phone 3G
2008 | iPod classic (120 G8)
2009 | iPhone 36S
iPhone 4
2010 | ipod
2011 | ipod
‘Source: htp://mwn spple-istory com.
first PC featuring a graphical interface and a mou
for navigation. Apple first presented the now-famous
‘Macintosh computer with a riveting January 1984 Super
Bowl commercial. The memorable commercial featured
an Orwellian 1984 world filed with stoic human zombies,
all watching a large-screen image of “Big Brother,” A.
young woman rushes into the room and dramatically
destroys the screen. Apple used this 1984 imagery to
depict IBM's computer dominance being destroyed by
the new Macintosh.” With features that made the Mac
easy to use for publishing and a marketing strategy
that concentrated on universities, the new computer
pushing Apple's fiscal 1984 54
sold very well p
1 mn!
unprecedented $1.5 bi
Shake-Up
By 1985, however, Jobs and Sculley beyan to 4
over the direction they wanted the company 1,
‘After Jobs’ attempt to remove Sculley failed, j,
Apple in May to start his own new busines,
Computers, Meanwhile, Microolt bene
e's poor negotiation of a contract that cleare
Re Balai, versions of the Windows o,
system to use graphical user interface (GUI) 1
lar to that of the Mac. With this agreement
had effectively lost exclusive rights to its inte
design?”
Tn 1990, Microsoft released Windows 3.0, the fry
universal software that could run on nearly every pc
regardless of the manufacturer. Although App
worldwide sales had reached $7 billion by 199;
soon found itself fighting an uphill battle agains
movement toward standardized software. More and m
businesses and consumers wanted compatible opera
systems, but the Macintosh still ran exclusively on
OS, a system not available to other computers. By 19
Apple's board of directors replaced Sculley as CEO. Apple
moved through two CEOs over the next five years
During this time, Apple partnered with IBM
and Motorola to produce the PowerPC chip
the company’s new line of PowerMacs, allow
it to outperform computers powered by In
microprocessors.®® Despite this and Apple's
to reorganize, losses mounted in 1996 and 1997
December 1996, Apple acquired NeXT with the pi
of using its technology as the basis for a new oper
system. After being gone for more than a decade, Jobs
returned to the company he had co-founded with
Wozniak.
Jobs’ Return
One of the first problems Steve Jobs moved to fix was th
ongoing dispute between Apple and Microsoft over th
idows graphical user interface (GUI). Microsoft n°
only paid an undisclosed amount to Apple, but also me
its Office 98 suite compatible with Macintoshes.” 9S
then proceeded to change the company’s sales sts!
in 1997 to encompass direct sales—both online an bY
Phone. In a flurry of product releases, Apple introues!
the new generation of PowerMacs, PowerBooks #4
the highly anticipated iMac and iBook, which were
expensive computers aimed at the low-end comput
market, After an entire year without showing 3
the first quarter of 1998
Quarters for Apple.”
began three years of PR Exhibit 3 iPod Products
iPod shuffle
Pere sen
wearable music player has
buttons, and VoiceOver
Pee Re hole
playlist you're listening to,
esd
Capability
Music, audiobooks,
podcasts
Battery life"**
Audio playback
Up to 15 hours
Colors
Includes
Earphones, iPod shuffle
USB Cable
Capacity and price****
268 $49
Size
1.14 x 1.24 x 0.34 inches
(29 x 31.6 x 8.7 mm)
including clip
Weight
0.44 ounce (12.5 grams)
iPod nano
SMSC et eee
Perea seer ee
CORN a Sete
OE stn) cyt
pedometer, clip, and more,
muy
Music, audiobooks,
podcasts, photos, FM radio,
pedometer, Nike + iPod
support**
Audio playback
Up to 24 hours
Apple Store Exclusive color
aes
Earphones, USB cable
8GB $149
16GB $179
A portion of the proceeds
from every ¢ "purchase
will go to the Global Fund to
fight AIDS in Africa
1.48 x 1.61 x 0.35 inches
(37.5 x 40.9 x 8.78 mm)
including clip
0.74 ounces (21.1 grams)
iPod classic
mc eet)
SCM COREL
Read
eu
Music, movies, TV shows,
videos, audiobooks,
podcasts, photos
Audio playback
Up to 36 hours
Video Playback
Up to 6 hours
Earphones, dock adapter,
USB cable
160GB $249
4.1x2.4x 0.41 inches
(103.5 x 61.8 x 10.5 mm)
4.9 ounces (140 grams)
iPod touch
DO BUR
Oe
Pees aa Rd
ee Meat hurd
Pea ica
Learn more
Music, movies, TV shows,
videos, games, applications,
ebooks, audiobooks,
podcasts, photos, Safari
web browser, email, Maps,
FaceTime,* HD video
recording and editing,
Nike + iPod support built in
Audio playback
Up to 40 hours
Video playback
Up to 7 hours
Earphones, USB cable
8GB $229
32GB $299
64GB $399
4.4 x 2.3 x 0.28 inches
(111 x 58.9 x 7.2 mm)
3.56 ounces (101 grams)
(Continued) Exhibit 3 iPod Products (Continued)
iPod shuffle
iPod touch
iPod nano
s Charge time About 4 hours
About 3 hours About 3 hours About shows (2-hour fast charge
(2-hour fest charge (1 S-chour fast charge (hour fast charg! oom)
to 80%) ; to 80%) Bey.
Display 3.5-inch (diagonal)
2.5-inch (diagonal color LCD
inch (ai ol
eed with LED backlight
Multi-Touch display
widescreen
Multi-Touch display
Navigation
Multi-Touch display
Clickable controls with Multi-Touch display Click Wheel ‘tad
VoiweOver button |
Dock a
iPod shuffle USB cable Dock connector, stereo Dock connector, stereo ah Ae tor, stereo. |
minijack minijack “ble
JSB through
‘Pod shuffle USB cable USB through dock USB through dock USB through dock
‘connector; audio through connector; component and | connector; component and
headphone jack composite video through composite video through |
dock connector (with AV dock connector (with AV
cables, sold separately); cables, sold separately);
| audio through headphone | _ audio through headphone
jack jack
ee |
802.11b/g/n Wi-Fi (802.110
2.4GHz only), Nike + iPod
support built in, Maps
location-based service,
Bluetooth 2.1 + EDR |
5
AAC (B10 320 Kbps), ‘Audio formats supported: | AAC (8 to 320 Kbps), Audio formats supported
Protected AAC (from iTunes | AAC (8 to 320 Kbps), Protected AAC (from iTunes | AAC (8 to 320 Kbps)
Store), MP3 (8 to 320 Kbps), | Protected AAC (from Store), MP3 (16 to 320 Kbps), | Protected AAC (from
MP3 VBR, Audible (formats | iTunes Store), HE-AAC, MP3 VBR, Audible (formats | iTunes Store), HE-AAC.
2,3, 4, Audible Enhanced MP3 (8 to 320 Kbps), MP3 | 2, 3, and 4), Apple Lossless, | MP3 (8 to 320 Kbps), MP3
Audio, AAX, and AAX+), VBR, Audible (formats 2, | WAV, and AIFF VBR, Audible (formats 2,
‘Apple Lossless, AIFF, and | 3, 4, Audible Enhanced DP ciclo enhanced
way Audio, AAX, and AAX+), te ri fe
‘acne eat yf Audio, AAX, and AAX*)
Anplé Loatven Aang Apple Lossless, AIFF, and
Wav
Photo support |
Synes iPod-viewable photos | Syncs iPod- F é
in JPEG, BMP, GIF, TIFF, in JPEG, ce eee cur cr. FF
PSD (Mac only), and PNG sti ty in 5 3 n
eee FAD. only), and PNG PSD (Mac only), and PNG
formats Exhibit 3 iPod Products (Continued)
iPod shuffle
Video support
iPod nano
More Information
+ * Sold separately
+ "GB = 1 billion bytes; actual formatted capaciy less.
+ Available on Tunes. Title availabilty subject to change,
Source: Apple, ne. Annual Report 2010,
PP P
Jobs stated that he wanted to transform the company
by making the Mac “the hub of [the consumers’]
igital lifestyle.” To do this, Apple introduced iLife
in 2002, a software suite including applications such
as iPhoto, iMovie, iTunes, and eventually the iPod.
With the advent of Napster and peer-to-peer music
sharing, Apple saw a way to capitalize on the emerging
trend of cheap music downloads by creating a legal
online music distribution network. iTunes would be
the key to exploiting this market. Once downloaded
by way of iTunes, music could then be transferred
only to an iPod (due to encryption). With iTunes,
Apple revolutionized the distribution of music and
hoped to do the same with the distribution of movies
on demand. Similar strategies were planned for the
iPhone in the mobile or smartphone industry segments
and for Apple TV in the mobile media and set-top box
industry segments
id-t- melee
H.264 video up to 720p, 30
frames per second, Main
Profile level 3.1 with AAC-
LC audio up to 160 Kbps,
48kHz, stereo audio in .m4v,
mp4, and mov file formats;
MPEG-4 video, up to 2.5
Mbps, 640 by 480 pixels, 30,
frames per second, Simple
Profile with AAC-LC audio
Up to 160 Kbps per channel,
ABkH2, stereo audio in Ay,
mp4, and .mov file formats;
Motion JPEG (M-JPEG) up
to 35 Mbps, 1280 by 720
pixels, 30 frames per second,
audio in ulaw, PCM stereo
audio in avi file format
H.264 video, up to 1.5
Mbps, 640 by 480 pixels,
30 frames per second, Low-
Complexity version of the
H.264 Baseline Profile with
AAC-LC audio up to 160
Kbps, 48kHz, stereo audio
in.m4v, mp4, and mov file
formats; H.264 video, up
10 2.5 Mbps, 640 by 480
pixels, 30 frames per second,
Baseline Profile up to Level
3.0 with AAC-LC audio up
to 160 Kbps, 48kH2, stereo
audio in m4v, mp4, and
mov file formats; MPEG-4
Video, up to 2.5 Mbps, 640
by 480 pixels, 30 frames per
second, Simple Profile with
AACLC audio up to 160
Kbps, 48kHz, stereo audio
in .m4y, mp4, and mov file
formats
+ * FaceTime requires fourth-generation iPod touch or iPhone 4 and a Wi-Fi connection for both caller and recpient.
‘+ = Rechargeable batteries have a limited number of charge cycles and may eventually need to be replaced (cee vn. apple com/support/ipod/service/
battery). Battery Ife and number of charge cycles vary by use and settings. See win apple.com/batteries for more information
iTunes: Apple‘’s Online
Music Store
Apple ventured into the market of legal downloads with
the introduction of its ‘Tunes Music Store.** By 2011, the
iTunes Store provided customers in 23 countries with
music, movies, HDTV shows, apps, games, podcasts,
audiobooks, and ways to connect with artists and friends
via Ping (Apple’s own social network
offers downloads at a specified price without requiring
a subscription or monthly fees.’ Originally offered
exclusively on Apple's own Mac, iTunes can now be
installed on PCs, iPhones, iPods, iPads, and Apple TV.
In addition, the iTunes Store provides customers with
ndations from fellow fans, celebrity playlists,
recommendations from iTunes based on previous
purchases, a free single of the week, and the option of
subscribing to iTunes newsletters.
or music). iTunes Part 4 Cases
iTunes offers its users a selection of more than 13
million songs, with new songs continually added” from
just about every genre of music. Users can perform a
search by type of music, artist name, or title of track or
album. Each song available can be previewed without
making a purchase. The purchase prices are $0.69, $0.99,
0r$1.29, Through iTunes U, users can download lectures
discussions, language lessons, and other opportunities
for learning for free from leading universities, museums,
and other institutions,
‘Once songs are downloaded, they are stored as a
digital music library. As this collection grows, this list
of songs can be arranged in many different ways. Songs
can be arranged by personal rating, artist, or genre. Thi
feature allows for a customizable playlist. In addition,
the iTunes Store includes Apple's App Store and
iBookstore. Gift certificates are also available in different
denominations and can be sent electronically.
Aspreviously mentioned, in its first week ofexistence,
the number of downloads from iTunes surpassed the 1
million mark, This feat is amazing considering that at
the time of iTunes’ introduction, the download service
was available only for the Mac, and less than 5 percent
of US computer users had Macs. When iTunes became
available for use on the PC, sales increased even more
rapidly. iTunes PC downloads reached the 1 million
mark in three days, less than half the time it took for the
Mac version. But the success of iTunes is not measured,
in number of downloads sold per day or week, as it is
also used as a means to boost the sales of iPods, iPhones,
iPads, and Apple TVs.
iTunes, iPod, iPhone, iPad,
and Apple wW
iTunes and iPod
For music lovers, the iPod is the greatest invention since
the Sony Walkman. There are currently four different
iPod styles: the iPod shuffle, iPod classic, iPod nano,
and iPod touch. iPod owners can purchase accessories
such as armbands, radio remotes, and universal docks
to make using the iPod even more enjoyable. While
others seek to simply duplicate the complementary
and innovative relationships between iPod and iTunes,
‘Apple continues to innovate with new products such as
the iPad and updated versions of existing products such
as the iPhone and Apple TV.”
iPhone
In the first quarter of 2007, Apple launched its
“revolutionary” product, the iPhone. The iPhone
combined three concepts popular with consumers: a
mobile phone, a wide-screen iPod, and an Internet
device. Apple bragged that its iPhone
new user interface based on a ly
an eth display and pioneering software” th
ia ald esol vith just their fingers Apple sag
1 million iPhones within three months of making this
product available to consumers.
Asothercompanies tocreateproductscomparable
othe hone, Apple was busy creating innovative feature
to imake the iPhone more powerful, easier to use, ang
Trore appealing to users. In 2010, the iPhone surpased
personal computers as Apple’s largest product line wi
perepone and related products representing 39 perce
Weta revenues that year.” By December 2010, sles of
the iPhone had grown by 87 percent year-over-year,
tutpacing the growth inthe global smartphone market
70 percent year-over-year" (ee Exhibit 4).
‘The iPhone 4 was introduced in 2010, with new
features including the Ad processor, video calling, high
tefinition video recording and editing, two camera
(one in front facing the user and one on the back), and
the ability to multitask (run third-party applications,
or “apps,” and switch between them instantly without
slowing performance or draining the battery). In
addition, the App Store on iTunes offered more than
350,000 mobile apps for downloading, many of which
were free. Apple referred to the iPhone 4 as “the biggest
thing to happen to iPhone since iPhone.”
‘The next “biggest thing” is the iPhone 5, which is
rumored to be scheduled for launch sometime between
late 2011 and early 2012, The launches of the iPhone
3G, 3GS, and 4 were announced in this manner. As the
anticipation builds for the new product, speculations
about new features include a curved metal-lad back,
which would look similar to the original iPhone, and
larger four-inch screen2®
communication
had “an entirely
Apple TV
In addition to the iPhone, Apple introduced the Apple TV
in 2007. With this product, Apple intended to revolutionize
the Internet video industry, as it did with the musi
download industry. Users could download movies and TY
shows via the iT'unes online service or via YouTube aswel
as view digital photos and home videos. Some negative
hype claimed that the Apple TV would be a flop just ike
the Apple Ill and the Power Mac Cube, Some of the features
that made the first edition unpopular included the followin
Users were not able to download a movie fom
iTunes directly to their TVs; they had to download!
to their computers first.
@ It required an HDTV, but the movies that could be
downloaded were of such low resolution that
picture looked fuzzy and old-fashioned
@ Ithad no DVD drive 14 Apple inc. Net Sales by Procyct
and related products and services (d)
related products and services (e)
and other hardware (f)
‘Sonar, service and ethernet sales (a)
Total net sales,
Ie eet Bi ac, Mac Po aa amr proc ne
Renae, Wadbco Arona acc te presen
|W rcutes revere recognized fm iPad sales. verv
Souee Apple Inc. Annual Report 2010
Steve Jobs announced at the Macworld Conference
& Expo in January 2008 that the upgraded version of
Apple TY would allow owners to order movies directly
from the TY rather than having to download them to
their computers.”” Jobs said, “Apple TV was designed
to be an accessory for iTunes and your computer. It
was not what people wanted. We learned what people
wanted was movies, movies, movies.
By 2011, Apple had redesigned Apple TV with a
focus on providing the kind of entertainment that wo
Appeal to the masses, Smaller in size by 80 percent it
built-in power supply, was energy efficient, and stayed
cool without a fan. Everything (movies, TV shows,
Photos, and music) streamed wirelessly to Apple TV
Features included d HD movies,
often on the same day they came out on DVD; instant
TV show rentals; direct access to a Netflix account fron
an HDTY; access to Internet content such as YouTube
Videos, HD podcasts, Flickr photos, and MobileMe
filleries; and access to an iTunes library. In addition,
With a free remote app from the App Store the pee
TV could be controlled by an iPhone, iPad, or iPod
touch. With AirPlay, music, photos, and vid ,
Streamed from an iPhone, iPad, and iPod touch to Apps
TV. Ata price of $99, the future of the new Apple
looked promising.”
nstant access to SD a
Jeos could be
$e echt Tunes Stor sales, Po wervices, anc Apple branded andthe party Pod accessories
9 ciate revere recogrians fom ‘Phone sales, caver agreements, services, and Apple-branded and thr: party Phone scesnories.
1d Apple braced and third party Pad accesories
1D rchates sates of duplays, wireless conmectvity and networking tokitions and other hardware accessories
{@ rctaten sels of Apple-branced operating system and application sohware, thr party sofware, Mac arc internat ser
re rere sere nt et En)
Eo cod
2009
iPad
Tablets had been around for approximately 20 years
before the iPad was introduced in 2010, but the new Apple
iPad had many more innovative features and capabilities
than any of its predecessors. The iPad was considered a
completely new portable computing modlel, and from the
beginning, Apple wanted to show consumers that it
more than just a “newfangled tablet”; it was a new approach
to mobile computing and a great productivity device
The iPad had a touchscreen display that measured
ately 10 inches, and a number of functions
approxi
such as g
checking e-mail, and serving as an e-reader for books,
\ mobile keyboard and
es, music, videos, accessing the Internet,
magazines, and newspapers."
keyboard dock
The iBook’s application for purchasing
allowed users to do work on it similar
to a laptop.
and storing e-books was also introduced." Ln addition,
Apple used its own processor for the device.
Although some analysts were skeptical inthe
beginning about who the target customer was for
this new tablet, it was eventually concluded that “the
customer is everyone who likes cool technology." The
iPad was named Best Tablet on PCWorld magazine's list
of the Best Products of 2010, and sales of the iPad soared
Apple sold
to approximately $5 billion the first year."
300,000 devices on the first day Amid much hype and anticipation, the iPad 2
was launched in March 2011. It was thinner than the
original iPad and offered upgrades such as a new AF
chip that provided faster graphics processing and
general performance; dual cameras for video chat,
HD video recording, and stills; an improved design
incorporating internal magnets for the Smart Cover
accessory; 3G versions available on AT&T and Verizon
Wireless; improved AirPlay features; and the ability
to support HDMI output via an optional adapter."
The iPad 2 was named Editor's Choice for tablets by
PCWorld and was widely considered the benchmark
tablet to beat, with a “top-notch seamless design paired
with a robust app store.”
One key component that must be in place to have
good media content for the iPod, iPhone, Apple TV, and
iPad products is the relationship that Apple has with
each of its media and phone service suppliers.
Service Suppliers
iTunes
By 2007, iTunes had agreements with all four major
record labels (the now merged Sony BMG, as well as
EMI, Universal, and Warner Bros.) as well as more
‘than 200 independent labels. These agreements allowed
iTunes to sell the music owned by these labels and pay
the record label each time a song was downloaded. This
deal was considered a reseller agreement, meaning that
Apple was not licensing content from these labels, but
rather buying it wholesale and reselling it to consumers.
Apple was allowed to keep its share, while the portion
the label received was divided among many parties
including artists, producers, and publishers. Labels
earned approximately 70 cents per song sold on iTunes.
‘This figure may seem small, but it was still greater than
losing money to the millions of illegal downloads that
nearly crippled the music industry at that time.
The revenues for record labels dropped in 2006
and 2007 due to tough market conditions, and Apple
introduced a strategy to help increase revenues by at least
a small percentage. It contracted with EMI to make its
entire catalog available to iTunes’ users in two formats:
the traditional download option, which included the
FairPlay digital rights management (DRM) software
and DRM-free versions. The DRM software limited the
number of times a song could be copied, which decreased
the quality of the song. The DRM-free versions would
deliver greater quality music but would require a higher
price tag. Tunes started the DRM-free songs at $1.29 per
song versus the traditional $0.99 per song.
DRM software was developed to protect music
from unlimited copying and piracy. After the DRM
were removed from the EMI son,
restrictio . BS, the
Fraustry was able to obtain hard data on how rein,
DRM restrictions from legally purchased music aj,8
piracy. According to Bill Rosenplatt, DRM special,
present of GiantSteps Media Technology sre
Pike statistics show that there's no effect on pirac,
since DRM did not discourage piracy, it was.
considered to be simply a nuisance to the user. je.)
companies that were previously extremely cautig,,
About selling their music on iTunes became extrem,
interested in obtaining access to iTunes’ millions o¢
customers, In January 2009, Apple announced that
four major music labels (Universal Music Group, Sony
BMG, Warner Music Group, and EMI) and thousand,
of independent labels would offer music in iTunes Pus
which was Apple’s DRM-free format." In addition
companies such as Amazon and Netflix that compete
with Apple in the sales of music and videos have
taken advantage of Apple's customer base by offering
applications for their products and services for use on
‘Apple devices through the App Store.
The App Store
The App Store, opened in 2008, offers software
applications for the iPhone, iPod touch, and iPad that
are created by third-party software developers. The
number of apps available surpassed 100,000 by the endf
2009, and by spring 2011 there were more than 350,000
apps available. Many apps are free to users, others cst
relatively small amounts, and thousands of new appsare
added monthly. The App Store has been a significant
source of revenue for Apple, which charges a fee of 30
percent of the sales of third-party apps.”
On February 15, 2011, Apple announced a new
subscription plan for “all publishers of content
based apps on the App Store, including magazines
newspapers, video, music, etc.”** Publishers have
the ability to determine subscriptions to be week!
monthly, bimonthly, quarterly, biannual, or annvel
The subscription is paid at the time the customer places
the order and subscriptions are managed through tht
user's iTunes account, Personal information provide!
by customers through the App Store is sent to the
Publisher and is subject to the publisher's privacy pol)
not Apple's.
Apple will use the same billing system current!
used for apps and in-app purchases for the subscription
service, which means Apple will charge publishers
percent of the revenue. Publishers, however, can Wi
fees for existing subscribers and can advertise a™
Sell subscriptions outside the App Store on comp”!
Web sites. In these cases, customer information is"
exchanged through Apple and, as stated by Steve 1 “the publisher keeps 100 percent [of the profits] and
Apple earns nothing.” Subscriptions purchased outeide
ofthe app must also be made available within the app
the same or lower price. ae
Under the new plan, publishers will no longer have
the ability to use the application to send users outside
of the app to purchase content or subscriptions, For
example, Amazon will be required to change its Kindle
app, which sends users to a “mobile version of the
Kindle Store Web site” for purchases.” Other services,
including Netflix, Rhapsody, Spotify, and Hulu Plu
will also lose 30 percent of in-app subscription sales,
which could lead to higher prices for customers. Since
Apple continues to dominate the smartphone and fast-
growing tablet markets, switching to a different platform
such as Android does not currently appear feasible.*
Most magazine publishers have balked at the idea
of giving up 30 percent of their profits to Apple and
have chosen to sell single issues of selected titles instead.
However, on April 11, 2011, Bloomberg L.P. agreed to
thenew terms and Bloomberg Businessweek subscriptions
became available on the iTunes Store.” In return for
the 30 percent of each subscription sold on iTunes, the
publisher will gain access to the readers who purchased
iPads in 2010 (14.8 million potential subscribers) and
to the 40 to 50 million (or more) who are anticipated to
purchase an iPad or iPad 2 in 2011.”
Following is the Wall Street Journal list of publishers
who have and have not agreed to Apple's terms as of
April 11, 2011:"
Have agreed:
Bloomberg Businessweek: $2.99 per month
Elle: $2.99 per month or $18.00 per year
Popular Science: $14.99 per year
Maxim: N/A
Have not agreed:
‘Time Inc., publisher of Time, Fortune, People, Sports
Mlustrated, and others.
@ Condé Nast, publisher of Vogue, The New Yorker,
Vanity Fair, and others i"
® Hearst Corp., publisher of Esquire, Cosmopolitan,
Harper's Bazaar, and others.
Some publishers are waiting to see if the terms of
the new plan will be modified before accepting, and all
publishers are waiting to see if the terms can be Eee
According to Philippe Guelton, executive vice Pe st
chief operating officer at Hachette F ipacchi N a S
(publisher of Elle), “This is a work in progress. I don’
think this is something that is set in stone ither for usor
for Apple. I'd rather work with them to improve It over
time than just sit on the sidelines.
Apple TV
Apple did not have an easy time finalizing contra
movie studios that would allow Apple to sell movi
iTunes for use on the iPod and Apple TV, Not only were
the studios concerned about losing significant revenues
from the sales of DVDs and Blu-ray discs, but some
studios urged Apple to require a watermark on digital
video for it to play on its devices. Their concern was
heightened given the pirating experienced in the music
download business. One movie studio executive said,
“Our position is, if you want our content, you have to
protect our business.” Apple, however, responded that it
trusted its consumers not to play pirated movies."
The limited number of movie downloads available
on iTunes would significantly diminish the success of
Apple TV. Thus, Apple’s CEO was persistent in his
negotiations with the movie studios. Jobs announced
at the Macworld Expo in 2008 that Apple had reached
agreement with the following major studios: Twentieth
Century Fox, The Walt Disney Studios, Warner Bros.,
Paramount, Sony Pictures Entertainment, MGM,
Lionsgate, and New Line Cinema.“ Despite NBC's issues,
with Apple concerning TV shows, Universal Pictures,
(owned by NBC and General Electric) agreed to allow
Apple to rent its movies via iTunes.
‘The original supplier agreement between Apple
and the movie studios was that new movies would not,
be available for rent until 30 days after the DVD was
distributed. Within a 24-hour period, customers would be
able to watch a film as many timesas they wanted once the
movie was started. Movies that were downloaded but not,
started would not be available for viewing after 30 days.
By 2011, thousands of releases from every major
Hollywood studio, along with select TV s
all the networks, were available on iTunes for rent
or purchase in standard or high definition and were
available for streaming on Macs or PCs, iPhones, iPads,
iPod touch, or television via Apple TV."
ows from.
iPhone
Cingular was selected as the exclusive wireless carrier
for the iPhone because, according to Steve Jobs, Cingular
vas the best and most popular carrier in the US,”
ogether, these companies developed the Visual Voicemail
feature that allowed users to listen to selected voicemails
rather than having to listen to all messages in succession.
After the agreement was made between Cingular and Apple
and the iPhone was introduced, Cingular was acquired by
AT&T and iPhone owners were required to sign a two-year
service agreement with ATS&’T® After numerous complaints
that AT&T was the only service provider available to
iPhone users in the US, Apple made its iPhone available
through Verizon Wireless in February 2011.”
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