This is not cheese versus Apple. We are not proposing to replace the famous metaphor for what we want in life. This is not about Washington’s Apples; this is about Silicon Valley’s Apple. Unlike Steve Jobs’ annually predictable blue jeans and black T-shirt till last year, Apple has changed its products and services ever so often. From the revolutionary personal computers of 1970s to the very recent iPod and iTunes, Apple has never looked back. In the good old days, when the world was round, life was simple and the businesses so easy to understand: General Motors sold cars, Pfizer sold medicines, McDonald’s sold burgers, Coca Cola sold what-else, Kraft sold real cheese (not the metaphor), and Apple sold personal computers. Press fast-forward. Today, as Apple marches ahead in its technology and design journey, competitors and commentators keep searching for the answer: who (or rather, what) moves Apple?
Apple Computer, Inc. is a Silicon Valley company whose core business is computer technologies. The company designs, manufactures, and markets personal computers and related software, services, peripherals, and networking solutions. Apple is known for its innovative and well-designed hardware and software. Its products and services (Refer Table-1) include the iTunes Music Store, which is an online distribution service of third-party music.
APPLE’S PANOPLY OF PRODUCTS
|Hardware products||Software products|
|eMac||Final Cut Studio|
|iMac||Final Cut Pro|
|MacBook Pro||Mac OS X|
Apple reported the highest revenue and earnings in the company’s history in December 2005, by posting a $430 million quarterly profit on increased revenues of $3.68 billion. Year-over-year (YOY) growth was also the best for 2005. The company shipped 1,236,000 Mac units and 6,451,000 iPods during the quarter, representing 48% growth in Macs and 220% growth in iPods over the previous year’s quarter, thereby recording a revenue-growth of 68% and net profit growth of 384%! Apple’s annual revenues for the financial year 2005 were $13.93 billion, while it clocked a profit of $1.34 billion – both of which were new records in the company’s history.
Apple’s phenomenal growth was possible because of its continuous thrust on innovation, resulting in a range of products like Mac OS X v10.2 Jaguar, ‘Switchers’, iPods, iMacs and iBooks. These innovative products have attracted new customers and are in great demand. The demand for iPods exceeded its supply! For instance, in October 2001, 1 million iPod Nanos were sold in the 17 days between the device’s debut and the end of that quarter. The videos purchased and downloaded by customers from Apple’s iTunes Music Store, which had about 3,000 music videos, were more than 2 million songs, over 1,000 independent labels, Pixar and Disney short films, and popular TV shows. According to Peter Oppenheimer, Senior VP and CFO of Apple, the company sold 6.45 million iPods in total in the fourth quarter of 2005.
Apple offered the TV shows at $1.99 per episode, while music videos and short films were also sold at $1.99 each. By February 2006, about 1 billion songs were sold on the Apple iTunes digital music store. Also, compared to 2004, Apple’s desktop sales in 2005, increased by 56%, while notebook sales increased by 41%. Clearly Apple’s physical and financial achievements are the result of its deep commitment to continuous innovation-led business strategy.
The highly competitive market for personal computers and related software, and peripheral products is characterized by rapid technological advances in both hardware and software. The main competitive factor is innovation in products and services.
Apple’s Innovation-Based Business Strategy
Rapid technological advances have increased the capabilities and use of personal computers, thereby triggering frequent innovation of new products. Apple stays ahead of competition because of its emphasis on innovation-based business strategy since its inception. Over the years, Apple has continuously invested in research and development (R&D) to design and develop new products and peripherals.
Apple maintains competitive advantage by effectively integrating an entire solution, including the hardware (iPod), software (iTunes), and distribution of third-party digital content (iTunes Music Store). The company has succeeded in implementing innovation-driven growth strategy despite persistently difficult economic environment in the beginning of the millennium. According to Steve Jobs, CEO, Apple Computers, “This is the direct result of our focus on innovation and the immense talent and creativity at Apple. We could not be more excited about the new products we’re working on for 2006.”1
Apple’s Intellectual Property Focus
The core competency of Apple is its capability to innovate continuously, which was systematically facilitated by investment in R&D. Apple’s R&D expenditures totalled $534 million, $489 million, and $471 million in 2005, 2004, and 2003, respectively. Apple’s continuous investment in R&D provides returns because the company protects its innovations through patents. The company takes stringent action against those who infringe upon their intellectual property rights. For instance, Apple has recently accused Iops, a minor Korean portable music player manufacturer of MP3 player models, Iops Jock and Iops Z3, of illegally copying the design of its mega-selling iPod music player. According to Apple, Jock and Z3 models resemble the exterior design and case colors of the iPod Mini, especially, the layout of a display screen and a round-shaped control button on the front panel. Apple has lodged a complaint with Iops demanding Iops to stop selling the two products and compensate Apple for their lost sales.
Apple currently holds patents and copyrights relating to certain aspects of its computer systems, iPods, peripherals and software. In addition, the company has registered, and applied for registering of trademarks and service marks in the U.S., and a number of foreign countries for its “Apple,” logo, “Macintosh,” “iPod,” “iTunes,” “iTunes Music Store,” and numerous other trademarks and service marks.
Apple-Cart of Innovation
Apple has 143 recently published patents, and already has a stockpile of 1,943 patents. In February 2006, the US Patent and Trademark Office (USPTO) granted Apple a patent related to touchscreen technology, which it had applied for on January 31, 2005. The patent, relating to different types of touchscreen technology like touch pad and touch-sensing technology, could be applied on Apple’s numerous products such as iPod, iMac, iBook, MacBook, and PowerBooks. Apple’s iPod is supposed to be one of the first products to get this technology. According to Apple, the US patent process is a very tedious one but Apple would continue to pursue all its patent applications.
According to ThinkSecret, an online magazine, Apple is now developing a button-less iPod video player, which has a 3.5 inch diagonal display with Touchscreen technology. This video player would have a bigger and wider display screen for watching the video content, and users could control the video player by just using the screen. ThinkSecret also claim that Apple had developed this product long before, but was just waiting for the grant of patent to release the product into the market to avoid any unwarranted litigations, as witnessed by it in the past. Apple is also reported to be working with a couple of companies in developing the digital click wheel display technology. Apple expects to retain the exclusive usage rights of this technology for a definite span of time, and market it effectively to capture market share.
Apple’s success of iPod was because of several factors such as on-screen menu, its distinctive click wheel and general trendiness. iPod has catapulted Apple on the top of the digital music market and earned it immense popularity. iPod contributes about 75% of all MP3 players sold in the U.S. Since iPod’s launch, Apple has sold more than 21.8 million iPods; 18.1 million iPods were sold in 2004 alone.
In October 2005, Apple filed for two patent applications related to iTunes. The first patent application is titled “Method and system for sharing playlists.” The invention relates to graphical user interfaces (GUI) that help users share or view a playlist, perform different search queries, sampling, listening, buying items listed in a playlist, or notified to the user through publication of the playlist. The second patent application titled “Method and system for configurable automatic media selection,” relates to Party Shuffle.2 In January 2006, Apple surprised the market by shifting from IBM’s PowerPC chips to the Intel platform, and by launching the Intel powered Apple iMac and MacBook Pro.
Leveraging Intellectual Property for Competitive Edge
Apple’s success story is an outstanding example of deep commitment to innovation. Each innovation is a differentiator. Customers’ perception of a company improves with every innovation. Most companies who focus on innovation and inventions have excellent returns on their investments in R&D. Comparisons prove that innovators are the industry leaders, whether the comparison is apples and apples, or ‘Apple’ and oranges.
1. “Apple Reports Fourth Quarter Results,” www.apple.com, October 11, 2005.
2. The Party Shuffle feature creates a dynamic playlist, similar to shuffle play, from either the entire library or a specific playlist. Upcoming songs could be reviewed to reorder or remove. The user or a guest could add songs to the mix at any time. The favourite random picks could be always saved in a personal playlist. The user could use Party Shuffle when listening only to music, so that the playlist was always full, and had good tunes.
References & Bibliography
1. Perton, Marc, “Apple Files for Patent on Wide Laptop Touchpad,” www.engadget.com, March 2, 2006.
2. Sushubh, “Apple Might Soon Offer Complete Films for Download on iTunes,” www.news.techwhack.com, February 26, 2006.
3. Ankur, “Intel Based Mac Mini and iBook Might be Next,” www.news.techwhack.com, February 25, 2006.
4. Sushubh, “Apple Working on Button Less Touchscreen Enabled iPod?” www.news.techwhack.com, February 12, 2006.
5. “Apple Unveils New 1GB iPod Nano at $149,” www.apple.com, February 7, 2006.
6. Sushubh, “Touchscreen Technology on Apple Products Coming Soon?” www.news.techwhack.com, February 4, 2006.
7. Silverthorne, Sean, “Using the Law to Strategic Advantage,” HBS Working Knowledge, www.hbswk.hbs.edu, December 12, 2005.
8. “Apple Expenses, R&D Climb in 2005,” www.macnn.com, December 1, 2005.
9. “Apple Files Two Patent Applications Relating to iTunes Playlists and Party Shuffle,” www.macsimumnews.com, October 27, 2005.
10. Krazit, Tom, “Update: Apple Earnings Set Records,” www.computerworld.com, October 11, 2005.
11. “Microsoft Beats Apple on Patent Covering iPod Technology,” www.financialexpress.com, August 15, 2005.
12. Fried, Ina, “Microsoft, Apple in iPod Patent Tussle,” www.news.com.com, August 12, 2005.
13. Kheit, John, “Apple Granted Patent for Tablet Mac,” www.macobserver.com, May 10, 2005.
14. Katz, Ryan, “Apple Patent Watch,” www.thinksecret.com, May 4, 2005.
15. Smith, Tony, “Euro Filing Reveals Apple ‘hand-held computer,’” www.theregister.co.uk, August 13, 2004.
16. Orlowski, Andrew, “Apple Builds Wireless Hi-Fi Bridge with Pocket Router,” www.theregister.co.uk, June 7, 2004.
17. Mainelli, Tom, “Apple Unveils Online Music Service,” www.pcworld.com, April 28, 2003.
18. Jin-seo, Cho, “Apple Out to Protect iPod Design, US Giant Tells Korean Firm to Stop Making Similar Models or Face Lawsuit.”