CASE

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This case was prepared by Charles W. L. Hill of the
School of Business, University of Washington, Seattle.
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r--C9-l INTRODUCTION downloads from the iTunes store in 2003, the iPhone
in 2007, and the iPad in 2010. Throughout this pe
riod, Apple had continued improve and refine its line
In 1997, Apple Computer was in deep trouble. The of desktop and laptop computers, producing mod
company that had pioneered the personal computer els that set the standard for the industry in design
market with its easy-to-use Apple II in 1978, and had elegance and ease of use. Apple had also vertically
introduced the first graphical user interface with the integrated forward in to the retail business, opening
Macintosh in 1984, was bleeding red ink. Apple's its first Apple store in 2001. By 2018, the company
worldwide market share in the personal computer had over 500 Apple stores worldwide. The stores
business, which had been fluctuating between 7 and were a phenomenon. The average store generated
9% since 1984, had sunk to 4%. Apple was on track sales per square foot of $5,546 in 2017, the highest in
to lose $378 million on revenues of $7 billion. In the world and almost twice that of second-place
July 1997, the cofounder of the company, Steve Jobs, Tiffany and Co., which had sales per square foot of
who had left Apple in 1985 after being stripped of $2.951.2 To emphasize the broadening product
any operating responsibility, returned as CEO. At an portfolio of the company, Apple had dropped
investor conference, Michael Dell, CEO of Dell Inc., "computer" from its name.
then the world's largest and most successful PC man Apple's successful iPhone and iPad lines had
ufacturer, was asked what Jobs should do as head of made the company a driving force behind an
Apple. Dell quipped "I'd shut it down and give the industrywide shift toward mobile computing and
money back to shareholders."1 cloud services. By early 2018, the company's active,
By 2017, the situation could not look more dif installed base of Macs, iPhones, and iPads reached
ferent. Apple was the world's most valuable company $1.3 billion. Its iCloud cloud storage and
with a market capitalization of over $940 billion. synchronization service, in troduced in October 2011,
Revenues in the financial year ending September had close to a billion users, and Apple Music, its
2017 were $229 billion and net income was $48.4 streaming music service, had 45 million subscribers.
billion. The company had generated $50.8 billion of Services such as Apple Music and premium iCloud
free cash flow in 2017 and was sitting on over $268 were becoming an important source of Apple's
billion in cash and securities on its balance sheet. revenues. Service revenues for 2017 were $30 billion,
Driving the transformation had been a string of and the company believed that it was on track to
game-changing innovations that included the intro generate $48 billion from services in 2020.3 However,
duction of Apple's iPod music player in 2001, music the future was lessclear. In 2011, the driv ing force of
C-106 the company's transformation, founder

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 Case 9 Apple at Fourly C-107

and CEO Steve Jobs, died of cancer. Observers won fortune at Fairchild and Intel. Markkula had no
dered if the company could maintain its innovative plans to get back into business anytime soon, but a
momentum without the creative genius of Jobs at visit to Jobs' garage changed all that. He committed
the helm. Competitors were also snapping at Apple's to investing $92,000 for one-third of the company
heels. Smartphones using Google's Android operat ing and promised that his ultimate investment would be
system were outselling Apple's iPhone by 4.5 to 1 $250,000. Stunned, Jobs and Woz agreed to let him
worldwide in 2017 (although Apple reportedly cap join as a partner. It was a fateful decision. The combi
tured 87'1/i, of all profits from smartphone sales in nation of Woz's technical skills, Jobs' entrepreneurial
2017, despite accounting for just 18% of units sold). zeal and vision, and Markkula's business savvy and
In the tablet market, the iPad captured 28.8% of the connections was a powerful one. Markkula told Jobs
global market in late 2017, down from 60% in 2012. and Woz that neither of them had the experience to
Tablets running the Android operating accounted for run a company. He persuaded them to hire a presi
much of the remainder.4 In April 2012, Google of dent, Michael Scott, who had worked for Markkula
fered its cloud storage and synchronization service, at Fairchild.
Google Drive, in an attempt to create an ecosystem The Apple II was introduced in 1977 at a price of
that rivaled Apple's, intensifying the format war in $1,200. The first version, an integrated computer with
mobile devices and cloud services between the two a Motorola microprocessor, included a keyboard,
rival mobile operating systems. power supply, monitor, and BASIC programming
software. Jobs pushed Woz to design an integrated
machine-he wanted something that was easy to use
r--c9-2 APPLE 1976-1997 and not just a toy for geeks. Jobs also insisted that
the Apple II look good. It had an attractive case and
no visible screws or bolts. This differentiated it from
C9-2a The Early Years most personal computers at the time, which looked
as if they had been assembled by hobbyists at home
Apple's genesis is the stuff of ledged.5 On April Fool's
(as many had).
Day, 1976, two young electronics enthusiasts,
In 1978, Apple started to sell a version of the
Steve Jobs and Steve Wozniak, started a company
Apple II that incorporated something new-a disk
to sell a primitive personal computer that Wozniak
drive. The disk drive enabled third-party developers
had designed. Steve Jobs was 20. Wozniak, or Woz
to w1ite software for the Apple II that could be loaded
as he was commonly called, was five years older.
via floppy disks. Soon programs started to appear,
Woz had designed the computer just for the fun of
among them EasyWriter, a basic word-processing
it. That's what people did in 1976. The idea that
program, and VisiCalc, a spreadsheet. VisiCalc was
somebody would actually want to purchase his
an instant hit, and pulled in a new customer set,
machine had not occurred to Woz, but it did to
business types who could use VisiCalc for financial
Jobs. Jobs per suaded a reluctant Woz to form a
planning and accounting. Since VisiCalc was only
company and sell the machine. The location of the
available for the Apple II, it helped drive demand
company was Jobs' garage. Jobs suggested they call
for the machine.
the company Apple and their first machine the
By 1980, Apple had sold over 100,000 Apple II's,
Apple I. They sold around 200 of them at $666
making the company the leader in the embry onic
each. The price point was set as something of a
personal computer industry. The company had
prank.
successfully executed an IPO, was generating over
The Apple I had several limitations-no case, key
$200 million in sales, and was profitable. With the
board, or power supply being the obvious ones. It also
Apple II series selling well, particularly in the educa
required several hours of laborious assembly by hand.
tion market, Apple introduced its next product, the
By late 1976, Woz was working on a replacement to
Apple III, in the fall of 1980. It was a failure. The
the Apple I, the Apple II.6 In October 1976, with the
computer was filled with bugs and crashed constantly.
Apple II under development, Jobs and Woz were in
The Apple III had been rushed to market. Apple
troduced to Mike Markkula. Only 34, Markkula was
reintroduced a reengineered Apple III in 1981, but
already a retired millionaire, having made a small

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C-108 Case 9 Apple at Fourly

it continued to be outsold by Apple II. Indeed, suc it to IBM. In what turned out to be a masterstroke,
cessive versions of the Apple II family, each an im Gates persuaded IBM to accept a nonexclusive li
provement on the preceding version, continued to be cense for MS-DOS (which IBM called PC-DOS).
produced by the company until 1993. Over two mil To stoke sales, IBM offered a number of
lion Apple II computers were sold. The series became applications for the IBM PC that were sold separately,
a standard in American classrooms, where it was val including versions of VisiCalc and EasyWriter, and a
ued for its intuitive ease-of-use. The Apple II was the series of business programs from Peachtree Software.
mainstay of the company until the late 1980s, when Introduced in 1981, the IBM PC was an instant
an improved version of the Macintosh started to success. Over the next two years, IBM would sell
garner sales. more than 500,000 PCs, seizing market leadership
from Apple. IBM had what Apple lacked-an abil
C9-2b The IBM PC and Its Aftermath ity to sell to corporate America. As sales of the IBM
PC mounted, two things happened. First, indepen dent
Apple's success galvanized the world's largest com software developers started to write program to run
puter company, IBM, to speed up development of its on the IBM PC. These included two applications that
entry into the personal computer market. IBM had a drove adoptions of the IBM PC: word-processing
huge, very profitable mainframe computer business, programs (WordPerfect) and a spreadsheet (Lotus 1-
but it had failed to develop a personal computer de 2-3). Second, the success of IBM gave birth to clone
spite two attempts. To get to market quickly with its manufacturers who made "IBM-compatible" PCs that
third PC project, IBM broke with its established prac also utilized an Intel microprocessor and Microsoft's
tice of using its proprietary technology to build the MS-DOS operating system. The clone makers
PC. Instead, it adopted an "open architecture," pur included Compaq, Tandy, Zenith, Leading Edge, and
chasing the components required to make the IBM Dell.
PC from other manufacturers. These components
included a 16-bit microprocessor from Intel, and an
operating system, MS-DOS, licensed from a small C9-2c The Birth of the Macintosh
Washington State company, Microsoft. By 1980, two other important projects were underway
Microsoft had been in the industry from its incep at Apple: Lisa and the Macintosh. Lisa was originally
tion, writing a version of the BASIC software pro conceived as a high-end business machine, and the
gramming language for the MITS Atari in 1977, the Macintosh as a low-end, portable machine.
first PC ever produced. IBM's desire to license The development of both the Lisa, and ultimately
BASIC brought them to Redmond to talk with the the Macintosh, were influenced by two visits Jobs
company's CEO, Bill Gates. Gates, still in his early paid to Xerox's fabled Palo Alto Research Center
20s, persuaded IBM to adopt a 16-bit processor (PARC) in November and December 1979. Funded
(originally, IBM had been considering a less powerful out of Xerox's successful copier business, PARC had
8-bit processor). He was also instrumental is pushing been set up to do advanced research on office technol
IBM to adopt an open architecture, arguing that IBM ogy. Engineers at PARC had developed a number of
would benefit from the software and peripherals that technologies that were later to become central to per
other compa nies could then make. sonal computers, including a graphical user interface
Initially, IBM was intent on licensing the CP/M (GUI), software programs that were made tangible
operating system, produced by Digital Research, for through on screen icons, a computer mouse that let a
the IBM PC. However, the current version of CP/M user click on and drag on screen objects, and a laser
was designed to work on an 8-bit processor. Gates printer. Jobs was astounded by what he saw at PARC.
had persuaded IBM that it needed a 16-bit proces sor. He decided on the spot that these innovations had to
In a series of quick moves, Gates purchased a 16-bit be incorporated into Apple's machines.
operating system from a local company, Seattle Jobs pushed the Lisa team to implement PARC's
Computer, for $50,000. Gates then hired the lead innovations, but he was reportedly driving people
developer of the operating system, Tim Paterson; on the project nuts with his demands, so president
renamed the system MS-DOS; and offered to license Mike Scott pulled him of the project. Jobs reacted

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 Case 9 Apple at Fourly C-109

by essentially hijacking the Macintosh project, and While the Lisa project suffered several delays,
transforming it into a skunkworks that would put his Jobs pushed the Macintosh team to finish the project
vision into effect. By one account: and beat the Lisa team to market with a better
He hounded the people on the Macintosh project product. Introduced in 1984, the Macintosh captured
to do their best work. He sang their praises, bul attention for its stylish design and utilization of a
lied them unmercifully, and told them they weren't graphical user interface, icons, and a mouse, all of
making a compute1 they were making history. He which made the machine easy to use and were not
promoted the Mac passionately, making people found on any other personal computer at the time.
believe that he was talking about much more than Jobs, ever the perfectionist, again insisted that not a
a piece of office equipment.7 single screw should be visible on the case. He fired a
designer who presented a mockup that had a screw
During this period, Bud Tribble, a software en that could be seen by lifting a handle.
gineer on the Mac project, quipped that Jobs could Early sales were strong; then they faltered. For all
create a "reality distortion field." Jobs insisted that its appeal, the Macintosh lacked important features it
the Mac would ship by early 1982. Tribble knew that had no hard disk drive, only one floppy drive, and
the schedule was unattainable, and when asked why insufficient memory. There were few applications
he didn't point this out to Jobs, he replied: available to run on the machine. The Mac also proved
Steve insists that we're shipping in early 1982 and to be a more difficult machine to develop applications
won't accept answers to the contrary. The best way for than the IBM PC and its clones. Jobs, however,
to describe the situation is a term from Star Trek. seemed oblivious to the problems, and continued to
Steve has a reality distortion field ... In his pres talk about outsized sales projections, even when it
ence, reality is malleable. He can convince anyone was obvious to all around him that they were
of practically anything. It wears off when he's unattainable.
not around, but it makes it hard to have realistic In early 1985, Apple posted its first loss. Aware
schedules.8 that drastic action was necessary, but could not be
taken while Jobs was running the Macintosh divi sion,
Andy Hertzfeld, another engineer on the Macin- Sculley got backing from the board of directors to
tosh project, thought Tribble was exaggerating: strip Jobs of his management role and oversight of
....until I observed Steve in action over the next the Macintosh division. In late 1985, an embit tered
few weeks. The reality distortion field was a Jobs resigned from Apple, sold all of his stock, and
confound ing melange of a charismatic rhetorical left to start another computer company, aptly named
style, an indomitable will, and an eagerness to NeXT.
bend any fact to fit the purpose at hand. If one line
of argument failed to persuade, he would deftly C9-2d Sculley's Apple
switch to another. Sometimes, he would throw you
off balance by sud denly adopting your position as With Jobs gone, Sculley shut down the Lisa line,
his own, without acknowledging that he ever which had done poorly in the market due to a very
thought differently.9 high price point of $10,000. He pushed developers to
fix the problems with the Macintosh. In January 1986,
Around this time Mike Scott left the company af- a new version of the Macintosh, the Mac Plus, was
ter clashes with other executives, including Markkula, introduced. This machine fixed the shortcomings of
who had become chairman. Jobs persuaded John the original Mac, and sales started to grow again.
Sculley to join Apple as CEO. Sculley was the for Apple's domination of the desktop publishing
mer executive vice president of marketing at Pepsi, market helped. Several events came together to make
where he had become famous for launching the Pepsi this happen. Researchers from Xerox PARC formed a
Challenge. Jobs had reportedly asked Sculley, "Do company, Adobe, to develop and commercialize the
you want to sell sugar water for the rest of your life, PostScript page description language. Postscript en
or do you want to change the world?" A Wharton abled the visual display and printing of high-quality
MBA, Sculley had been hired for his marketing savvy, page layouts loaded with graphics (e.g., color charts,
not his technical skills. line drawings, and photos). Apple licensed PostScript

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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional coment at any time if subsequent rights restrictions require it.
C-1 10 Case 9 Apple at Fourly

and used it as the output for its Apple LaserWriter clone, and Sculley backed down.11 Gassee was deeply
printer, which was introduced in 1985. Shortly after distrustful of Microsoft and Bill Gates, and believed
wards, a Seattle company, Aldus, introduced a pro that Gates' probably had an ulterior motive, given
gram called Page Maker for the Mac. Page Maker how his company benefited from the IBM standard.
used Adobe's Post Script page description language Ironically, in 1985, Apple had licensed its
for output. Although Aldus introduced a version of "visual displays" to Microsoft. Reportedly Gates had
Page Maker for MS-DOS in 1986, Apple already had strong armed Sculley, threatening that Microsoft
a lead, and with the Mac's GUI interface appealing to would stop developing crucial applications for the
graphic artists, Apple tightened its hold on the desk Mac unless Apple granted Microsoft the license. At
top publishing segment. Apple's position in desktop the time, Microsoft had launched development of
publishing was further strengthened by the release its own GUI. Called Windows, it mimicked the
Adobe Illustrator in 1987 (a freehand drawing pro look and feel of the Mac operating system, and
gram), and Adobe Photoshop in 1990. Microsoft didn't want to be stopped by a lawsuit
The period between 1986 and 1991 were good from Apple. Several years later, when Apple did
years for Apple. Because it made both hardware file a lawsuit against Microsoft, arguing that
and software, Apple was able to control all aspects Windows 3.1 imi tated the "look and feel" of the
of its computers, offering a complete desktop solu Mac, Microsoft was able to point to the 1985
tion that allowed customers to "plug and play." With license agreement to defend its right to develop
the Apple II series still selling well in the education Windows-a position with which the judge in the
market, and the Mac dominating desktop publish ing, case agreed.
Apple was able to charge a premium price for its
products. Gross margins on the Mac line rose as high
as 55%. In 1990, Apple sales reached $5.6 billion. Its C9-2e Apple in Decline: 1990-1997
global market share, which had fallen rapidly as the By the early 1990s, the prices of IBM compatible
IBM-compatible PC market had grown, stabilized at PCs were declining rapidly. So long as Apple was
8%. The company had a strong balance sheet and was the only company to sell machines that utilized a
the most profitable personal computer manufacturer GUI, its differential appeal gave it an advantage over
in the world. MS-DOS-based PCs, with their clunky text-based
During this period executives at Apple debated interface, and the premium price could be justified.
the merits of licensing the Mac operating system to However, in 1990, Microsoft introduced Windows 3.1,
other computer manufacturers, allowing them to its own GUI that sat on top of MS-DOS, and
make Mac clones. Sculley was in favor of this move. Apple's differential appeal began to erode. Moreover,
So was Microsoft's Bill Gates, who wrote two memos the dramatic growth of the PC market had turned
to Sculley laying out the argument for licensing the Apple into a niche player. Faced with the choice of
Mac OS. Gates argued that the closed architecture writing software to work with an MS-DOS/Windows
of the Macintosh prevented independent investment operating system and an Intel microprocessor, now
in the standard by third parties and put Apple at a the dominant standard found on 90% of all personal
disadvantage versus the IBM PC standard. However, computers, or the Mac OS and a Motorola processo1
several senior executives at Apple were against the li developers logically opted for the dominant standard
censing strategy, arguing that once Apple licensed its (desktop publishing remained an exception to this
intellectual property, it would be difficult to protect rule). Reflecting on this, Dan Eilers, then vice presi
it. In one version of events, senior executives debated dent of strategic planning at Apple, reportedly stated
the decision at a meeting and took a vote on whether "The company was on a glide path to history."12
to license. Given the controversial nature of the deci Sculley, too, thought that the company was in
sion, it was decided that the vote in favor had to be trouble. Apple seemed boxed in its niche. It had a
unanimous. It wasn't-a single executive voted against high cost structure. It spent more on R&D as a per
the licensing decision, and it was never pursued.10 In centage of sales than its rivals (in 1990, Apple spent
another version of events, Jean-Louis Gassee, head of 8% of sales on R&D, Compaq around 4%). Its mi
R&D at Apple, vigorously opposed Sculley's plans to croprocessor supplier, Motorola, lacked the scale of
Intel, which translated into higher costs for Apple.

Copyright 2020 Cengage Learning. All Rights Reserved. May nor be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third pany content may be suppressed from the eBook and/or eChapter(s).
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 Case 9 Apple at Fourly C-1 1 1

Moreover, Apple's small market share made it diffi Windows 95. When it came, it was clear that Apple
cult to recoup the spiraling cost of developing a new was in serious trouble. Windows 95 was a big
operating system, which by 1990 amounted to at least improve ment over Windows 3.1, and it closed the
$500 million. gap between Windows and the Mac. While many
Sculley's game plan to deal with these problems commentators criticized Apple for not licensing the
involved a number of steps.13 First, he appointed Mac OS in the 1980s, when it still had a big lead over
himself chief technology officer in addition to CEO, Microsoft, ironically Bill Gates disagreed. In a 1996
a move that raised some eyebrows given his market interview with Fortune, Gates noted that:
ing background. Second, he committed the company
to bring out a low-cost version of the Macintosh to As Apple has declined, the basic criticism seems
compete with IBM clones. The result was the Mac to be that Apple's strategy of doing a unique hard
Classic, introduced in October 1990 and priced at ware/software combination was doomed to fail.
$999. He also cut prices for the Mac's and Apple II's I disagree. Like all strategies, this one fails if
by 30%. The reward was a 60% increase in sales vol you execute poorly. But the strategy can work, if
ume, but lower gross margins. Third, he cut costs. Apple picks its markets and renews the innovation
The workforce at Apple was reduced by 10%, the in the Macintosh.14
salaries of top managers (including Sculley's) were Spindler responded to Windows 95 by committing
cut by as much as 15%, and Apple shifted much of Apple to develop a next-generation operating system
its manufacturing to subcontractors (for example, for the Macintosh-something that raised questions
the PowerBook was built in Japan, a first for Apple). about the Taligent alliance with IBM. At the end of
Fourth, he called for the company to maintain its 1995, IBM and Apple parted ways, ending Taligent,
tech nological lead by bringing out hit products every which after $500 million in investments had produced
6 to 12 months. The results included the first Apple little.
por table, the PowerBook notebook, which was By then, Spindler had other issues on his mind.
shipped in late 1991 and garnered very favorable The latter half of 1995 proved to be a disaster for
reviews, and the Apple Newton handheld computer, Apple. The company seemed unable to predict de
which bombed. Fifth, Apple entered into an alliance mand for its products. It overestimated demand for its
with IBM, which realized that it had lost its hold on low-end Macintosh Performa computers, and was left
the PC market to companies like Intel, Microsoft, and with excess inventory, while underestimating demand
Dell. for its high-end machines. To compound matters,
The IBM alliance had several elements. One was its new PowerBooks had to be recalled after batter ies
the decision to adopt IBM's Power PC microproces started to catch fire, and a price war in Japan cut
sor architecture, which IBM would also use in its own margins in one of its best markets. As a consequence,
offerings. A second was the establishment of two gross margins slumped. Apple lost $68 million in
joint ventures: Taligent, which had the goal of 1995. Spindler responded by announcing 1,300
creating a new operating system; and Kaleida, to layoffs. He suggested that up to 4,000 might
develop multi media applications. A third was a ultimately go, some 23% of the workforce. 15 That
project to help IBM and Apple machines work better was his last significant act. Gilbert Amelio replaced
together. him in February.
While Sculley's game plan helped to boost the top Amelio, joined Apple from National
line, the bottom line shrunk in 1993 due to a com Semiconduct01; where he had gained a reputation for
bination of low gross margins and continuing high his turnaround skills. He lasted just 17 months. He
costs. In 1994, Sculley left Apple. Michael Spindler, followed through on Spindler's plans to cut headcount
a German engineer who had gained prominence as and stated that Apple would return to its
head of Apple Europe, replaced him. differentiation strategy. His hope was that the new
Spindler finally took the step that had been long Mac operating system would help, but work on that
debated in the company-he decided to license the was in total disarray. He took the decision to scrap
Mac-OS to a handful of companies, allowing them the project after an investment of over $500 million.
to make Mac clones. The Mac-OS would be licensed Instead, Apple purchased NeXT for $425 million.
for $40 a copy. It was too little too late. the industry NeXT was the computer company founded by none
was now waiting for the introduction of Microsoft's other than Steve Jobs after he left

Copyright 2020 Cengage Learning. All Rights Reserved. May nor be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third pany content may be suppressed from the eBook and/or eChapter(s).
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C-1 12 Case 9 Apple at Fourly

Apple. NeXT machines had received strong reviews, monitor-it was the design of the machine itself. A
but had gained no market traction due to a lack of self-contained unit that combined the monitor and
supporting applications. Amelio felt that the NeXT central processing unit in translucent teal and with
OS, a UNIX-based operating system, could be curved lines, the iMac was a bold departure in a world
adapted to run on the Mac. He also hired Jobs as a dominated by putty-colored PC boxes.
consultant, but Jobs was rarely seen at Apple. He was To develop the iMac, Jobs elevated a team of
too busy running Pixar, his computer animation com designers headed by Jonathan Ive, giving them an
pany, which was riding a wave of success after a huge unprecedented say in the development project. Ive's
hit with the animated movie Toy Story.16 team worked closely with engineers, manufacturers,
Amelio's moves did nothing to stop the slide in and marketers, and with Jobs. To understand how to
Apple's fortunes. By mid-1997, market share had make a plastic shell look exciting rather than cheap,
slumped to 3%, from 9% when Amelio took the helm. the designers visited a candy factory to study the
The company booked a loss of $742 million in 1996 finer points of making jellybeans. They spent months
and was on track to lose another $400 million in working with Asian partners designing a sophisti
1997. It was too much for the board. In July 1997, cated process capable of producing millions of iMacs
Amelio was fired. With market share falling, third- a year. The designers also pushed for the internal
party de velopers and distributors were rethinking electronics to be redesigned, to make sure that they
their com mitments to Apple. Without them, the looked good through the thick shell. Apple may have
company would be dead. spent as much as $65 a machine on the casing, com
pared with perhaps $20 for the average PC.17

r--C9-3 THE SECOND COMING Priced at $1,299, iMac sales were strong, with or
ders placed for 100,000 units even before the machine
OF STEVE JOBS was available. Moreover, one-third of iMac purchases
were first-time buyers according to Apple's own
research.18 The iMac line was continually updated,
with faster processors, more memory, and bigger hard
Following Amelio's departure, Steve Jobs was ap drives being added. The product was also soon avail
pointed interim CEO. In April 1998, he took the posi able in many different colors. In 1999, Apple
tion on a permanent basis, while staying on at Pixar followed up the iMac with introduction of the iBook
as CEO. Jobs moved quickly to fix the bleeding. His portable. Aimed at consumers and students, the iBook
first act was to visit Bill Gates and strike a deal with had the same design theme as the iMac and was
Microsoft. Microsoft agreed to invest $150 million in priced aggres sively at $1,599.
Apple and to continue producing Office for the Mac Sales of the iMac and iBook helped push Apple
through until at least 2002. Jobs ended the licensing back into profitability. In 1999, the company earned
deals with the clone makers. He killed slow-selling $420 million on sales of $6.1 billion. In 2000, it made
products, most notably the Apple Newton handheld $611 million on sales of almost $8 billion.
computer, and reduced the number of product lines To keep sales growing, Apple invested in de
from 60 to 4. He also pushed the company into online velopment of a new operating system based on the
distribution, imitating Dell Computer's direct-sales technology acquired from NeXT. After three years
model. While these fixes brought the company time, work by nearly 1,000 software engineers, and a cost
and a favorable reaction from the stock market, they of around $1 billion, the first version of Apple's new
were not enough to generate growth. operating system was introduced in 2001. Known as
OS X, it garnered rave reviews from analysts who saw
the UNIX-based program as offering superior sta
C9-3a New Computer Offerings bility and faster speed than the old Mac OS. OS X
Almost immediately Jobs started to think about a also had an enhanced ability to run multiple pro grams
new product that would embody the spirit of at once, to support multiple users, connected smoothly
Apple. In May 1998, the iMac emerged. The to other devices, and was easier for develop ers to
differentiator for the iMac was not its software, or write applications for. In typical Apple fashion,
its power, or its

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 Case 9 Apple at Fourly C-1 13

OS X also sported a well-designed, intuitively appeal with low market share, translated into another loss for
ing interface. Apple in 2001, leading some to question the perma
To get the installed base of Mac users to upgrade nence of Job's turnaround. However, while Apple's
to OS X, who at the time numbered 25 million, Apple share in its core U.S. market fell to under 3% in 2004,
had to offer applications. The deal with Microsoft en it started to pick up again in 2005, rising to 8.5% by
sured that its popular Office program would be avail 2008 and 17% by 2017. Apple also garnered around 9
able for the OS X. Jobs had assumed that the vote to 10% of the global market for PCs. Driving growth
of confidence by Microsoft would encourage other was the surging popularity of Apple's iPod music
third-party developers to write programs for OS X, player and later, the iPhone and the iPad. These prod
but it didn't always happen. Most significantly, in ucts raised Apple's profile among younger consumers
1998, Adobe refused to develop a Mac version of and had a spillover effect on Mac sales.21
their consumer video-editing program, which was al
ready available for Windows PCs.
Shocked, Jobs directed Apple to start working on
its own applications. The first fruits of this effort
(9-36 Intel Inside, Windows
were two video editing programs, Final Cut Pro for on the Desktop
profes sionals, and iMovie for consumers. Next was Since its inception, Apple had had not used Intel mi
iLife, a bundle of multimedia programs now croprocessors, which had become the industry stan
preinstalled on every Mac, which includes iMovie, dard for microprocessorsfollowing the introduction of
iPhoto, Garage Band, and the iTunes digital jukebox. the IBM PC in 1981. In June 2005, Apple announced
Apple also de veloped its own Web Browser, Safari. that it would do so. Driving the transition was grow
Meanwhile, Apple continued to update its com ing frustration with the performance of the PowerPC
puter lines with eye-catching offerings. In 2001, it chip line made by IBM that Apple had been using for
introduced its Titanium Powerbook G4 notebooks. over a decade. The PowerPC had failed to keep up
These ultralight, fast notebooks featured a clean, with the Intel chips, which were both faster and had
postindustrial look that marked a distinct shift from lower power consumption-something very important
the whimsical look of the iMac and iBook. As with in the portable computer market, where Apple had a
the iMac, Jonathan Ive's design team took the lead in respectable market share.
the products development. A core team of designers The transition to an Intel architecture created
set up a studio in a San Francisco warehouse, far significant risks for Apple. Old applications and OS
away from Apple's main campus. They worked for six X had to be rewritten to run on Intel processors. By
weeks on the basic design, then headed to Asia to Spring 2006, Apple had produced Intel-compatible
negotiate for wides creen flat panel displays and to versions of OS X and its own applications, but many
work with toolmakers.19 The Titanium notebooks other applications had not been rewritten for Intel
were followed by a re designed desktop line that chips. To ease the transition, Apple provided a free
appealed to the compa ny's graphic design software program, Rosetta, that enabled users to run
customers, including elegantly designed, very older applications on Intel-based Macs. Moreover,
widescreen cinema displays. In 2004, Ive's design Apple went a step further by issuing a utility pro
team came out with yet another elegant offering, the gram, Boot Camp, which enabled Mac owners to run
iMac GS computer, which PC Magazine described as Windows XP on their machines.
a "simple stunning all-in-one design.20 This was Reviews of Apple's Intel based machines were
followed in 2008 with the release of yet another favorable, with many reviewers noting the speed im
strong design, the ultrathin MacBook Air, which provement over the older PowerPC Macs. 22 In late
weighed just 3 pounds and was only 0.76 of an 2006, Apple reported that its transition to Intel-based
inch thick at its widest point. architecture was complete, some six months ahead of
For all of Apple's undisputed design excellence, schedule. The move may have helped Apple to close
and the loyalty of its core user base, during the early the price differential that had long existed between
2000s Apple's global market share remained anemic, Windows-based PCs and Apple's offe1ings.
trailing far behind industry leaders Dell, Hewlett According to one analysis, by September 2006,
Packard, and IBM/Lenovo. Weak demand, combined Apple products

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C-1 14 Case 9 Apple at Fourly

were selling at a discount to comparable product of MP3 players that could store and play digital music,
ferings from Dell and Hewlett Packard.23 and the rise of peer-to-peer computer networks such
as Napster, which enabled individuals to efficiently
C9-3c Moving Into Retail swap digital files over the Internet. By the early
2000s, millions of individuals were downloading
In 2001, Apple made another important strategic music files over the Internet without the permission of
shift. The company opened its first retail store. In an copyright holders. For the music industry, this
industry that had long relied upon third-party retail development was devastating. Global sales of music
ers, or direct sales, as in the case of Dell, this shift peaked in 1999 at
seemed risky. One concern was that Apple might en $38.5 billion, falling to $32 billion in 2003. Despite
counter a backlash from Apple's long-standing retail the fall in sales, the International Federation of the
partners. Another was that Apple would never be able Phonographic Industry (IFPI) claimed that demand
to generate the sales volume required to justify ex for music was higher than eve1 but that the decline
pensive retail space; the product line seemed too thin. in sales reflected the fact that "the commercial
However, Apple felt that it was hurt by a lack of retail value of music is being widely devalued by mass
presence. Many computer retailers didn't carry Apple copying and piracy."26
machines, and some of those that did often buried The music industry had tried to counter piracy
Mac displays deep in the store. over the Internet by taking legal action to shut down
From the start, Apple's stores exhibited the the peer-to-peer networks such as Napster, and filing
same stylish design that characterized its products, lawsuits against individuals who made large numbers
with clean lines, attractive displays, and a of music files available over the Internet. Its success
postindustrial feel. Steve Jobs was intimately had been limited, in part because peer-to-peer net
involved in the design process. He noted that "We works offered tremendous utility to consumers. They
spent a lot of time design ing the store, and it were fast, immediate, and enabled consumers to un
deserves to be built perfectly."24 bundle albums, downloading only the tracks they
Customers and analysts were impressed by the wanted while ignoring others. And of course they
product fluency that the employees in Apple stores were free. The music industry was desperate for a
exhibited. They also liked the highlight of many legal alternative to illegal downloading.
stores, a "genius bar" where technical experts helped Then along came the iPod and iTunes. These
customers fix problems with their Apple products. prod ucts were born out of an oversight-in the late
One hallmark of Apple stores is the personal attention 1990s, when consumers were starting to burn their
paid to customers by smiling sales staff, an approach favorite CDs, Macs did not have a CD burner or
reminiscent of upscale retailers like Nordstrom. The software to manage digital music collections.
wide-open interior space, however, did nothing to Realizing the mis take, CEO Steven Jobs ordered
allay the fears of critics that Apple's product portfo lio Apple's software de velopers to create iTunes. The
was too narrow to generate the traffic required to first iTunes program led to the concept of the iPod.
support premium space. If people were going to maintain the bulk of their
The critics couldn't have been more wrong. music collection on a computer, they needed a
Spurred on by booming sales of the iPod, and then portable MP3 player to take music with them. While
the iPhone and iPad, Apple's stores have done excep there were such devices on the market already, they
tionally well. By late 2012, Apple had some 500 could only hold a few dozen songs each.
stores in upscale locations. Sales per square foot are To run the iPod, Apple licensed software from
extraor dinary, averaging $5,546 per store in 2017, PortalPlayer. Apple also learned that Toshiba was
the highest of any retailer in the world.25 building a tiny, 1.8-inch hard drive that could hold
over 1,000 songs. Apple cut a deal with Toshiba,
C9-3d iPod and iTunes giving it exclusive rights to the drive for 18 months.
Meanwhile, Apple focused on designing the user in
In the late 1990s and early 2000s, the music industry terface, the exterior styling, and the synchronization
was grappling with the implications of two new tech software to make it work with the Mac. As with so
nologies; the development of inexpensive, portable many product offerings unveiled since Jobs returned,

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 Case 9 Apple at Fourly C-1 15

the design team led by Jonathan Ive played a pivotal By early 2003, Jobs had all of the major labels
role. The team figured out how to put a layer of clear onboard. Apple launched the online iTunes store in
plastic over the white and black core of an iPod, giv April 2003. Within days it was clear that Apple had
ing it depth of texture. The finish was superior to a major hit on its hands. A million songs were sold
other MP3 players, with no visible screws or obvious in the first week. By the end of 2004, customers were
joins between parts. The serial number of the iPod downloading over 4 million songs per week, which
was not on a sticker, as with most products; it was represented a run rate of more than 200 million a
elegantly etched onto the back of the device. This at year. The reach of iTunes has expanded enormously
tention to detail and design elegance, although not since then. By 2013, the iTunes store had a song
without cost implications, was to turn the iPod into a catalog of 20 million and Apple was seeing 15,000
fashion accessory.27 downloads a minute. In February 2013, Apple
The iPod was unveiled in October 2001 to mixed announced that 25 billion songs had been
reviews. The $399 price was significantly above that downloaded from iTunes.29 By 2017, the iTunes
of competing devices, and since the iPod only worked stores had expanded its offer ings to include 2.2
with Apple computers, it seemed destined to be a million software applications for the iPhone, iPad
niche product. However, initial sales were strong. It and Mac, 25,000 TV shows, and 65,000 films.
turned out that consumers were willing to pay a Early on Steve Jobs stated that Apple was not
premium price for the iPod's huge storage capacity. making much money from iTunes downloads,
Moreove1 Jobs made the call to develop a version of probably only $0.10 a song, but it was making good
the iPod that would be compatible with Windows. margins of sales of the iPod-and sales of the iPod
After it was introduced in mid 2002, sales took off. ballooned after the launch of the iTunes online store.
By this time, Jobs was dealing with a bigger Success such as this attracts competitors. Real
strate gic issue: how to persuade music companies to Networks, Wal-Mart, Yahoo, Napster, Microsoft,
make their music available for legal downloads. Jobs Google and Amazon all set up legal downloading
met with executives from the major labels, persuading services to compete with iTunes. However, iTunes
them that it was in their best interest to support a legal continued to outsell its rivals by a wide margin. In
mu sic download business as an alternative to mid 2012, downloads from iTunes accounted for 64%
widespread illegal downloading. People would pay to of the entire U.S. digital music market and 29% of all
download music over the Internet, he argued. music sold in the United States (including both digital
Although all of the labels were setting up their own and physical formats).30 By late decade competition
online businesses, Jobs felt that since they were had grown to include music streaming services. Here
limited to selling music owned by the parent too Apple led with almost 50 million paying subscrib
companies, demand would be limited, too. A ers in the United States as of March 2018, although
reputable, independent online music retailer What it faced close competition from Spotify (48 million
was needed , and Apple fit the bill. If it was going to subscribers), Pandora (37 million subscribers), and
work, however, every label needed to get on board. Sound Cloud (34 million subscribers).31
Under Jobs' scheme, iTunes files would be
downloaded for $0.99 each. The only portable digital
player that the files could only be stored and played
on was an iPod. Job's argument was that this closed r--C9-4 THE iPHONE AND
world made it easier to protect copyrighted material APP STORE
from unauthorized distribution.
Jobs also met with 20 of the world's top recording
artists, including U2's Bono, Sheryl Crow, and Mick In June 2007, Apple introduced the iPhone. The
Jagger. His pitch to them-digital distribution is go ing iPhone was a smart phone that was also able to
to happen, and the best way to protect your in terests browse the web, take pictures and function as an iPod
is to support a legal online music distribution digital music player. Designed by the team led by
business. Wooed by Jobs, these powerful stakeholders Jonny Ive, the iPhone was differentiated from
encouraged the record companies to take Apple's pro established smart phone offerings by a
posal seriously. 28 revolutionary touch screen that replaced the
traditional mechanical keypad and

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C-1 16 Case 9 Apple at Fourly

allowed users to quickly and easily switch between with their purchase. The device got rave reviews for
functions. As was typical for Apple products, it was its design elegance, ease of use, and compelling touch
elegantly designed and made extensive use of expen screen interface. Apple sold over 250,000 iPhones in
sive materials including a body of brushed alumi num the first two days the device was on the market and it
and a screen made of tough "gorilla glass" from soon became clear that the company had another hit
Corning. Up to this point, most phones had used on its hands.
plastic bodies, and all had plastic screens. Steve Jobs In June 2008, Apple introduced a second ver
reportedly hated the ascetic of plastic and complained sion of its iPhone, the iPhone 3G. Designed to run
that plastic screens were too easily scratched. He in on a faster 3G networks, the new phone also incor
sisted on a glass screen, which had previously been porated GPS functionality. AT&T was again the
rejected because it broke or cracked too easily. exclusive service provider in the United States. How
Designers at Apple had heard about a very strong ever, Apple shifted the business model. Instead of
form of glass Corning had developed, but which was giving a share of service fees to Apple, AT&T agreed
not in manu facture. Jobs reportedly flew out to to pay a subsidy to Apple for each iPhone sold. The
Corning, visited with the CEO, and personally subsidy allowed Apple to drop the price for the
persuaded him to put the material into mass iPhone to as low as $199 for an entry level model.
production.32 Yet again long lines formed outside Apple stores
The iPhone used a version of Apple's OS X oper and in the first three days the iPhone 3G was on the
ating system and the company's Safari web browser. market over 1 million units were sold. By the end
Apple struck a deal with AT&T, under which it was of fiscal 2008, Apple had sold 11.63 million
to be the exclusive provider of wireless service for iPhones (see Exhibit 2).
the iPhone. Under the deal, AT&T would share a One feature of the iPhone 3G that started to gar
percent age of its service fees from iPhone users with ner a lot of attention was the rapid growth in third
Apple (the percentage was rumored to be 30%, but party applications. In July 2008, Apple opened an
neither company would confirm this).
Priced between $599 and $499 depending on the
model, the iPhone was positioned at the high end of
the smart phone market. Some were skeptical that the Exhibit 2 Worldwide iPhone Unit Sales
device would be able to gain share from established
smart phones such as Research in Motion with its
Blackberry, and offerings from Palm, Motorola, and
Nokia, all of which had gained a following among 2007 1.46
business users.
2008 11.63
Steve Jobs announced that the goal was to try and
grab 1% of the total global market for wireless 2009 20.73
phones in the first full year that the iPhone was on the
market. With a total market in excess of 1 billion 2010 39.93
units, most of which were not smart phones, this 2011 72.3
suggested a goal of selling 10 million iPhones in
fiscal 2008 (which ended September 2008). 2012 125.04
There was some disappointment that the iPhone
would use AT&T's slower data network, rather than 2013 150.26
the faster 3G network that was more suited to web 2014 169.22
brows ing. There was also disappointment that the
iPhone did not contain a GPS location finding 2015 231.22
function.
2016 211.88
Despite the high price and perceived limita
tions, early demand for the iPhone was strong with 2017 216.76
long lines forming outside Apple stores on the day
Source: Apple annual l OK Reports
the device was released. Although some consumers
experienced activation problems, most were happy

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 Case 9 Apple at Fourly C-1 17

online store for applications that were written to run

on the iPhone. Known as the App Store, consumers r--C9-5 COMPETITION IN
could download applications through their iTunes ac
count. Some of these apps are free, while others are
THE SMART PHONE
sold, typically for a few dollars. In the first month MARKET
the phone was on the market, more than 60 million
applications were downloaded. Apple keeps 30% of
the proceeds from application sales, letting program When the iPhone was introduced in 2007,it
creators retain the other 70%. Among the top sellers redefined what a smart phone had to look like and do.
were game applications.33 Before the iPhone, smart phones had physical
By the end of 2012, Apple had over 700,00 ap keyboards and small screens. The dominant high end
plications available for download on the App Store. smart phones players, such as Blackberry, sold their
Apple generated $4.9 billion in revenue from App phones to business users. From the outset, Apple
Store downloads in 2012 and in total some 40 billion focused on the consumer and gave them a device that
applications had been downloaded by early 2013. Ac was a phone, computing tool, and fashion accessory
cording to Apple, this has resulted in net payments of rolled into one.
around $7 billion to third party developers since the In 2007, 122 million smartphones were sold
App Store went live in 2008. Of the ten top paid apps world wide. The largest vendor at the time was
of all time, eight were games. The top ten free apps Nokia with 63.5% of the market. The Nokia
in clude Facebook, Pandora Radio, Skype, and phones used the Symbian operating system. While
Google Search.34 As of 2017, the App Store was Symbian had many of the features also found on the
generating over $11 billion in revenue for Apple.35 iPhone, including web browsing, a music player, and
The iPhone 3G was followed by successive new a camera, it lacked the design elegance of the
models, the most recent being the iPhone 8 and iPhone, the connection with iTunes, and a rapidly
X, each of which included more powerful features expanding network of third-party application
and functionality. In 2011 Apple ended its developers. The other major players in 2007 were
exclusive relationship with AT&T when Verizon, Blackberry (with 9.6% of the market), and Microsoft
the largest Windows Mobile (which was used on phones from
various manufactures and had 12% of the market). By
U.S. wireless service provider, started to offer the
late 2008, phones powered by Google's Android
iPhone. Expanded service coverage in the United
operating systems started to reach the market. Like
States, plus surging overseas sales (particularly in
Apple's iOS smart phone operating system, Android
China), helped propel sales of the iPhone, which
was designed for touchscreen mobile devices. How
peaked at 231 million units in 2015. By 2017, Apple
ever, whereas Apple designed and sold a physical
was generating around 62% of its revenue from
phone that ran on iOS, Google adopted a very dif
iPhone sales (see Exhibit 3).
ferent approach-it licensed Android for free to smart

Exhibit 3 Apple Net Sales by Product, 2017

iPhone 141.4 61.7% 216.8

iPad 19.2 8.4% 43.8

Mac 25.9 11.3% 19.3

Services 30.0 13.1%

Other Products 12.9 5.6%

Source: Apple 20 l 7 l OK

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eChapter(s).
Ilona review has deemed that any suppressed content does not matenally affect the overall learning experience. Cengage Learning reserves the right to remove additional coment at any time if subsequent rights restrictions require it.
C-1 1 8 Case 9 Apple at Fourly

phone manufacturers such as Samsung. Android is an bumping along with market share figures in the low
open source operating system, which allows the code single digits Microsoft conceded defeat and exited the
to be freely modified and distributed by device manu smart phone business in 2017. At that point Micro
facturers and wireless carriers. This led to rapid adop soft held onto 0.1% of the global market.37
tion of Android by handset manufacturers who were By 2018, the global smart phone market used just
caught flat-footed by the sudden success of the two operating systems-Android and Apple's iOS.
iPhone and needed a competitive offering of their Apple held onto a 15.6% share, with Android phones
own. capturing the rest. The largest Android phone maker
To further drive adoption of Android, Google es was Samsung, which held onto 23.4% of the market,
tablished its own applications store in 2008. Known followed by Apple and then Huawei with 11.8% of
as Google Play, by 2012 the store had some 700,000 the market.38
apps available for download to Android devices,
about the same number as at the Apple app store.
However, reports suggest that Google earned only
about one quarter of Apple's revenues from app
r--C9-6 THE iPAD
downloads in
2012, or some $1.25 billion, indicating that Apple's
customers were more valuable to third party applica
tion developers. In 2010 Apple introduced its iPad, a revolutionary
The Android operating system started to diffuse tablet computer with a touch screen keyboard, and
very rapidly. In 2010, Android overtook Apple iOS Wi-Fi and 3G wireless service support. Named after
to become the most widely used smartphone plat a device used in the Star Trek TV series, the iPad was
form in the world. In the fourth quarter of 2012, powered by the same iOS operating system found
69.2% of the 216 million smart phones sold on the iPhone, had similar functionality, and could
worldwide ran on Android. Apple had a 22.1% run the same applications. The iPad had the design
share, followed by Blackberry with 3.5% and elegance that was now the hallmark of all Apple's
Microsoft with 2.4%. However, Apple continued products and utilized the same expensive materials as
to capture the bulk of the profits in the industry. the iPhone, including an aluminum case and Gorilla
In the last quarter of 2012 Apple earned 72''/., of glass. The iPad was powerful enough to download
all profits from smart phone sales worldwide. and watch full-length movies on at high resolution,
Samsung, which used Android on its phones, and light enough to slip into a bag.
picked up the rest of the profits. No other device In many ways, the iPad finally fulfilled Jobs'
manufacturer made money on handset sales.36 Driven vision for what a computer should be. According to a
by the widespread appeal of Android and the speech given by Apple co-founder Steve Wozniak in
iPhone, smartphone sales grew rapidly from 122 2011, the iPad was in Job's mind from the beginning.
million in 2007 to 712 million in 2012. Faced Back in 1983, Jobs stated:
with devastating market share losses, in 2011
What we want to do is have an incredibly great
Nokia decided to drop the Symbian operating
computer in a book that you can carry around
system in favor of a new smart phone operating
with you and learn how to use in 20 minutes ...
system from Microsoft. For its part, Microsoft
we really want to do it with a radio link in it so
redesigned its smart phone operating system from the
you don't have to hook up to anything and you're
ground up. In 2012, it introduced its Windows 8
in communication with all of these larger
operating system. Sport ing a radically designed
databases and other computers.39
interface based on "tiles", Windows 8 utilizes a
touchscreen capability and can be used on any In 1983, this was not technically possible, but by
digital device from smart phone to tablet and the 2000s technology had advanced to the point where
personal computer. Microsoft has also es tablished it was feasible. Some early table computers, including
an App Store. By late 2012, Microsoft had 125,000 an offering from Microsoft in 2002, used a stylus as
apps available at its store, less than 20% of an input device. But Job's dismissed any tablet that
those available from Apple and Google's app stores. used a stylus as "a failure." From the start, he wanted
Microsoft Windows 8 phones began appearing at a tablet to be created from scratch using a glass touch
the end of 2012, but market share gains were mini
mal despite positive reviews. After several years of
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 Case 9 Apple at Fourly C-1 19

screen. Work on that idea reportedly happened before to almost 800 million. Although basic iCloud services
the idea of an Apple smartphone. In his words: are free, Apple is charging an annual subscription for
I had this idea about having a glass display, a mul music storage and synchronization services.
titouch display you could type on with your

r--C9-8
fingers. I asked our people about it. And six months
later, they came back with this amazing display.
And I gave it to one of our really brilliant UI guys.
STRATEGIC ISSUES
He got scrolling working and some other things,
and I thought, 'my God, we can build a phone with Apple now found itself in an interesting position. In
this!' So we put the tablet aside, and we went to many ways the company was at the top of its game.
work on the iPhone.40 For over a decade it had set the agenda in the device
sector with a stream of market changing innovations
Introduced in April 2010, the iPad was an imme- including the iPod, iPhone, and iPad. It had estab
diate success. 300,000 iPads were sold on the first lished a thriving ecosystem that encapsulated all of its
day of availability. Sales passed a million units in less devices, cloud services, iTunes, and the growing num
than a month. Between April 2010 and December ber of applications available through the App Store.
2012 Apple sold a total of 98 million iPads. By early After a decade of spectacular revenue and earnings
2013, Apple was selling a 4th generation iPad that growth, Apple was the most valuable company in the
included a high-resolution retina display. world measured by market capitalization.
As with the iPhone, Apple's success led to rapid On the other hand, the company had lost its vi
imitation. Most rivals introduced tablets using a vari sionary, its driving force, and one of the world's great
ant of Google's Android operating system. The most entrepreneurial geniuses. Dead at 56, Steve Jobs had
successful of these was the Galaxy tablet introduced left a creative vacuum that would be hard to fill.
by Samsung five months after the launch of the iPad. Could the company continue to innovate in the post
In the fourth quarter of 2012, Samsung captured 15% Jobs world? The new CEO, Tim Cook, had been
of the global market, while Apple's share dropped COO under Jobs and was widely admired as a
to 44%, down from 52% a year earlier. Another no brilliant op erations manager, but could he keep
table competitor Amazon.com, which captured 12% Apple's creative juices flowing? Johnny Ive still ran
of shipments with its K.jndle Fire tablet (the Fire also Apple's design op eration, and his group still took the
uses a variant of Android). By the fourth quarter of lead on product development efforts, but without Job
2017, Apple's share of the global tablet market had to inspire and push them, and to give them a vision,
declined to 26.6%. Amazon held 15.6% of the market could Ive's team continue to maintain their high
with its Fire tablet, and Samsung had 14%.41 standards?

r--C9-7 iCLOUD
Moreover, rivals were not sitting back. Google
had established an ecosystem similar to Apple's. Its
Android operating system was found on many of
the world's
most successful smart phones and tablets. Its Google
Drive cloud service did all that iCloud did, and arguably
In October 2011 Apple launched its iCloud cloud more. Google's own app store offered just as many
storage, computing, and synchronization service. The appli cations as Apple's. And with the advent of the
service allows customers to store data such as music, Chrome book in 2012, a cheap laptop running on
movies, books, documents and applications on re Google's Chrome operating system, Google was
mote servers. iCloud automatically synchronizes such pushing into the desktop and laptop business as well.
data across all of a subscriber's Apple devices. While Samsung had emerged as the most successful of the
iCloud was not a totally new offering (Apple has had device makers who used Android, and its well-
some form of cloud-based service since 2000) it was designed phones and tablets were a real threat to
the most comprehensive offering yet. iCloud had Apple. Tim Cook had to figure out how to keep these
more than 20 million users within one week of rivals at bay? Moreover, he had to match investors'
launch. By the end of 2012, there were 250 million expectations for continued growth at Apple-not an
subscribers on the service, and by 2016 this number easy thing when you are al ready the world's largest
had swelled digital device company.
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C-120 Case 9 Apple at Fourly

NOTES
'Quoted in Pete Burrows, 13
Andrew Kupfer, "Apple's 24
N. Wingfield, "How Apple's
"Steve Jobs" Magic Kingdom," Plan to Survive and Grow," For Store Strategy Beat the Odds,"
Business Week, February 6, 2006, tune, May 4, 1992, pp. 68-71. B.R. Wall Street Journal, May 17, 2006,
pp. 62-68. Schlender, "Yet Another Strategy p. Bl.
2
Chance Mille1 "Apple again for Apple," Fortune, October 22, 25
Chance Miller, "Apple Again
found to be the world's top re 1990. pp. 81-85. Found to Be the World's top re
tailer in sales per square foot," 14
B. Schlender, "Paradise tailer in sales per square foot,"
9TO5Mac, July 29, 2017. Lost: Apple's Quest for Life After 9TO5Mac, July 29, 2017.
3
Jonny Evans, "The 57 most Death," Fortune, February 1996, 26
IFPI News release. Global
important numbers from Apple's pp. 64-72. Music Sales Down 5% in 2001.
Q4 2017 earnings," Applemust, 15
Jim Carlton, Apple's losses to www.ifpi.org.
November 3, 2017. stretch into 2nd period," Wall 27
Peter Burrows, "The Man
4
Market share data from Street Journal, January 18, 1996, p. Behind Apple's Design magic,"
Statista, 2018. B7. Business Week, September 2005,
5
Much of this section is drawn 16
Peter Burrows, "Dangerous pp. 27-34.
from P. Freiberger and M. Swaine, limbo," Business Week, July 21, 28
N. Wingfield and E. Smith.
Fire in the Valley, New York: 1997, p. 32. "U2's Gig: Help Apple Sell iPods,"
McGraw-Hill, 2000. 17
Peter Burrows, The man Wall Street Journal, October 20,
6
For a detailed history of the behind Apple's design magic," 2004, p. D5. Apple Computer
development of the Apple II see Business Week, September 2005, Press Release, "iTunes Music Store
Steve Weyhrich, Apple II History, pp. 27-34. Downloads Top 150 Million
http://apple2history.org/history 18
A. Reinhardt, "Can Steve Jobs Songs," October 14, 2004.
/ah0l .html. keep his mojo working," Business 29
Hayley Tsukayama, "Apple
7
P. Freiberger and M. Swaine, Week, August 2, 1999, p. 32. Announces 25 Billion iTunes
Fire in the Valley, New York: 19
Peter Burrows, The man be Downloads," The Washington Post,
McGraw-Hill, 2000, p. 357. hind Apple's design magic," February 6, 2013.
8
Andy Hertzfeld, "Reality Business Week, September 2005, 30
Hisham Dahud, "iTunes
Distortion Field," http://www pp. 27-34. DominatesMusicSales,WhilePan
.folklore.org/ProjectView.py?project 20
Apple iMac GS Review, PC dora's Footprint Soars," Hyperbot
=Macintosh. Magazine, on line at http://www.pcmag .com, September 19, 2012 (http://
9
Andy Hertzfeld, "Reality Dis .com/article2/0,1759,1648796,00 www.hypebot.com/hy pebot
tortion Field," http://www.folklore .asp. /2012/09/itunes-dominates-music
. o rg/Project View. py?project 21
Standard & Poor's Industry -sales-while-pandoras-foot print
=Macintosh. Surveys, Computers: Hardware, -soars-study.html).
'°This version of events was "Global Demand for PCs accel 31
Data from Statista.
told to the author by a senior exec erates," December 8, 2005. Mark 32
Doug Aamoth, "A Story
utive who was present in the room Veverka, Wall Street Journal, about Steve Jobs, Steel Balls and
at the time. "Barron's Insight: Apple's Horizon Gorilla Glass," Time, January 11,
11
Jim Carlton, "Playing Catch Brightens," July 23, 2006, p. A4. 2013.
Up-Apple Finally Gives in and Statista, 2018. 33
N. Wingfield, "iPhone Soft
Attempts Cloning," Wall Street 22
Peter Lewis, "Apple's New ware Sales Take off," Wall Street
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12
D. B. Yoffie, "Apple pp. 182-184. 34
Matt Hamblen, "Apple Wins
Computer 1992," Harvard Business 23
Citigroup Global Markets, Top Score for App Store," Comput
School Case, 792-081. "Apple Computer: New Products erworld, January 2, 2013.
Position Apple Well for Holidays,"
September 13, 2006.
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