Apple Inc. Case Analysis

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Threat of New Entrants: When Apple first began in the early 1980’s, the threat of new entrants was significant. PCs were a relatively new commodity with little distinction, few competitors, and no government regulation, and although initial R&D was complex, assembly was simple. Unsurprisingly, new firms emerged quickly and forced Apple to differentiate its product over time. This push continued through the years, and ultimately, Apple was forced to create more innovative, unique, and quality products—a dynamic favorable to both Apple and the industry. At the same time, the industry’s dominant players were becoming established, reducing the threat of new entrants and solidifying Apple’s position. Bargaining Power of Suppliers: To build a PC, a firm requires software and a set of physical components. In the early 70s and 80s, PC makers produced many of the products by using widely available supplies; and thus, bargaining power of suppliers was low. Later, Apple realized that their PCs needed a couple specific components to be successful--Microsoft’s operating system and Intel microprocessors. This brought their supplier’s bargaining power to a moderately high level, and placed Apple at the mercy of its suppliers. Threat of Substitute Products or Services: Few significant substitutes existed for PCs until the “digital convergence” of PC and CE products (ie: smartphones, music machines). To combat this threat, Apple took advantage of the shift and produced and profited off their own “substitutes”. Therefore, it was ultimately a favorable dynamic for Apple, who saw a drastic increase in their market value during the iPhone and iPod phenomenon of 2007 onward (Exhibit1a and Exhibit2). Bargaining Power of Buyers: In the early 1980s, PC buyers had low price sensitivity--only the educated rich had reason to buy a PC, but In the 90s, more people developed a need. These buyers were price sensitive, so they had more bargaining power. This forced Apple to make profitable...
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