Apple Case Study

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IBS Center for Management Research

Apple’s App Store: Strengthening the iPhone’s Competitive Position
This case was written by V. Namratha Prasad, under the direction of S.S. George, IBS Center for Management Research. It was compiled from published sources, and is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation.

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Group J: April 2011-July 2011

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Apple’s App Store: Strengthening the
iPhone’s Competitive Position
“With the amount of downloads they've had since the App Store launched last July, it must be one of the fastest rising businesses since the launch of the internet.”1 - David Rowan, Editor of the technology magazine, Wired UK, in April 2009. “Phone differentiation used to be about radios and antennas and things like that. We think, going forward, the phone of the future will be differentiated by software.”2 -Steve Jobs, CEO of Apple Inc., in August 2008.

INTRODUCTION
In July 2009, a press release from Apple Inc. (Apple) stated that about 1.5 billion applications (apps) for the Apple iPhone had been sold from its App Store, within a year of its launch. This was considered quite an achievement considering the fact that Apple‘s highly popular ‗iTunes Music Store‘ had only managed to sell about 70 million songs in its first year, and had reached sales of a billion only after three years. The App Store, available in over 77 countries, offered 65,000+ apps, created by over 100,000 developers (See Exhibit I for the growth in the availability of iPhone apps over time). Apple‘s CEO, Steve Jobs (Jobs) said, ―The App Store is like nothing the industry has ever seen before in both scale and quality. With 1.5 billion apps downloaded, it is going to be very hard for others to catch up.‖3

Apple, established in the late 1970s, was known for manufacturing technologically superior computer products. In 2001, Apple introduced a digital music player called the iPod that transformed the music industry. The stupendous success enjoyed by the iPod not only provided Apple with a new source of revenue, but also enabled it to become a major player in the consumer electronics industry.

In 2007, when Apple announced that it planned to introduce the iPhone, the product launch became one of the most anticipated in history. The iPhone was universally acknowledged to be a technically superior product that was not only a phone, a music player, and an internet browser, but also a computer. Within a few months of its launch, the iPhone became the third best-selling smartphone4 in the world.

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Luke Bainbridge, ―iPhone Apps Are Changing the World of Software and the Way We Work and Play,‖ www.guardian.co.uk, April 12, 2009.
Claudine Beaumont, ―Apple‘s Jobs Confirms iPhone ‗Kill Switch‘,‖ www.telegraph.co.uk, August 11, 2008.
Christian Zibreg, ―Another IPhone Record: 1.5 Billion App Store Downloads in the First Full Year of Operation,‖ www.geek.com, July 14, 2009.
Although there is no industry standard definition, the term ‗smartphone‘ refers to mobile phones with several advanced capabilities, often with PC-like functionality. 1
License to use for MBA-Distance Learning
Group J: April 2011-July 2011

Apple’s App Store: Strengthening the iPhone’s Competitive Position

In the initial stages, Apple did not realize the potential of apps in growing the market for the iPhone. However, once unauthorized apps started to become popular, Apple decided to provide an iPhone Software Development Kit (SDK)5 and gave additional support to encourage developers to create...
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