5 The Product

Strengths Apple has always stuck to what it does best. It has always been first and foremost a

device maker. Its strength has always been in its unique ability to combine technical prowess and beautiful design, the iPod, developed in barely 9 months, being a prime example. Even the launch

in 2001 of both an online channel, the iTunes Store (9 months before the iPod was launched) and

a retail channel, the Apple Stores, were primarily  aimed at selling more of its Mac PCs. With the back to back launch in 2007 and 2008 of the iPhone and the App Store, Apple still maintained a

first-mover advantage, simply because it was the only one among its peers to offer what its

customers wanted, that is not only a mobile device to play their music and run their apps on but

also a channel to download them. Exceeding Expectations Like its peers, Apple always knew what customers wanted. Unlike them, thanks to its unique strength in product development (of

both products and services), it was always able to come up with products which exceeded their customers' expectations. To this end, witness also the speed with which it has brilliantly integrated

the latest technologies into its products (AI, M chips, AR/VR,...), ahead of its competitors

iPhone At the outset, Apple knew that it could make a high-end multi-purpose smartphone which would combine  a music streaming player with the iPod, a miniaturized PC with a Wifi or 4G connection and Unix operating system, and a wireless mobile phone. To command premium pricing, it would add value that would be perceived as substantial by the customer by upgrading the iPhone with the latest technologies. The upgrades would be introduced at breakneck speed, every year. Its iOS 16 iOS is in its 16th version and its 2022 iPhone 14 model runs on an 15B transistor chip that has 15 times the transistor count of the A7 chip launched in 2013

Macs and iPads After seeing annual sales stagnate at $25B 5 years running until 2019, Mac sales

finally took off, reaching $40B of sales in 2022. This was due in large part to the new Mx series

chips the Macs were equipped with. Likewise for iPads, with revenue reaching $30B in 2022

Wearables, Home, Accessories The explosive growth of a revamped Apple Watch and Airpods in 2019 will persist until 2022. The Apple Watch is expected to increase from 75 million units sold today to 115 million by 2022. The Airpods are forecasted to increase from 33 million units sold to 158 million. In FY 2022, the caterogy's sales more than doubled to $41B from $17B in 2018

Services

Internet of Things In April 2021, Apple launched its FMCA (Find My Certification Assistant)

app, to open up its Find My network technology to 3rd-Party companies. The app allows them

to create accessories that communicate with Apple devices, using its MFi technology

9 The Core Excellence

Apple's core excellence is its developer platform. It is in fact three platforms in one: the software

engineering platform, the hardware engineering platform, and integrating both together, the

user interface platform

The Software Engineering Platform

At the time of its inception, to attract the most talented developers, Apple's developer platform

had to fulfill 3 requirements as well as provide all of the software tools they would need

The Requirements:

1st Requirement It had to be easy to use. Just as it chose Unix for its simplicity to develop its

computers' operating system, the MacOS, Apple did likewise for its developer platform. It relies

on merely 2 programming languages and 2 repositories of tools, also known as "frameworks", to

help developers develop their customers' end-user applications. The 2 languages are Objective-C

and its more simplified version Swift. The 2 frameworks are Cocoa originally conceived for its

PCs and Cocoa Touch for its mobile devices, beginning with the iPhone

2nd Requirement It had to be "cross-platform" so that developers adept at other programming

languages, whether it is Java, Python, Ruby, etc,..., could also use it. Apple's platform is connected

to all of the frameworks which are most commonly used by developers

3rd Requirement It had to provide an outlet for developers to sell their apps. The creation of

the App Store in 2008 is such an outlet. Since its founding, it has generated $100B of gross

revenue

The Software Tools

Coding Tools Its Swift web application framework is connected to 12 other frameworks

and its Objective-C framework is connected to 7 other frameworks

Testing Tools Its framework to test software, TeamCity, is connected to 10 other frameworks. Its

software version control and release framework, Xcode,  is connected to 8 other frameworks. Its

software performance control framework, Pingdom, is connected to 40 other frameworks

Application Development Tools It is through the Sentry error detection framework that

Apple's developer platform is connected to the much broader developer network. The following

is a sample of some 70 frameworks it is connected to: languages (Java/Javascript, Python, PhP,

Ruby on Rails), operating systems (Matcha, LambdaNative), interactive applications (node.js,

angularJS), AI applications (Nanonets, Swift AI), cloud applications (Apache OpenWhisk),

web applications (Vapor, AnyChart), user interface applications (Material, Render),

AR/VR/3D applications (Amazon Sumerian)

The Hardware Engineering Platform (2007 vs 2022)

Apple rightly chose to focus on only a few technologies, in fact 3, that would allow it to maintain its

wide lead over its rivals. These 3 technologies are i) optical technologies behind its AI facial recognition

TrueDepth camera, ii) SoC chipset technologies with a chipcount on the iPhone that increased from 1B in

2013 to 15B transistors in 2023 on the iPhone 14 chipset, iii) network technologies in 5G, even 6G

Optical Technologies The first iPhone, launched in 2007 had a single-lens 2 megapixel (MP) camera. The

2022 model, the iPhone 14 Pro, has 1 48 MP camera at f/1.78 aperture, 1 ultra wide 12 MP camera at

f/2.2 aperture, 1 12 MP telephoto lens at f/1.78 aperture, 1 12 MP telephoto lens at f/2.8, all running on

a neural engine chip capable of making 5000 adjustments per second and of capturing low light  vision.

As shown below, the telephoto camera, used for portraits, equipped with Apple's proprietary TrueDepth

camera system  and Face ID AI facial recognition software, is able to capture 30 000 invisible dots to create

a depth map of your face. The LiDAR Scanner on the 2022 iPhone 14 Pro and iPad Pro run the latest

Augmented Reality (AR) applications used to map "room-scale" objects as far as 5 meters away

Processing Chip The CPU chip which equipped the first iPhone in 2007 had a clockspeed of 0.412 Ghz, was a

32-bit processor and 90 nm in size. End 2022, the A16 Bionic chip on its iPhone 14 Pro has a clockspeed of

3.46 GhZ on its performance cores and 2.02GhZ on its energy-efficient cores, is a 64-bit processor, is 5nm

in size and has an AI neural engine.  Other than the increase in the number of transistors (from 1B on the

A4 to 16B on the A16 and of transistor nodes ("gates") using extreme ultra violet (EUV) lithophotography nanotechnology machines to engrave them on a silicon die of 88 square millimeters, the main innovation

of the last 3 years has been in the use i) of programmable chips (FGPA and ASIC), ii) of machine learning accelerator chips (Apple's "AMX blocks") added onto the CPU and GPU chips, iii) of an AI neural engine

to properly allocate workloads to the best suited chip to achieve speed and lowest power consumption

Network Technologies As part of its strategy to design in-house key critical technologies, Apple acquired Dialog's power management chip business end 2018. Regarding the highly strategic 5G wireless modem, Apple first bought out, in 7/2019,  Intel's 5G modem business, taking ownership of key patents and bringing in 2200 engineers. Then, in 12/2019, it struck a 6-year agreement with Qualcomm to co-develop a 5G modem, combining Intel's and Qualcomm's Snapdragon technologies. Beg 2021, Apple began recruitment of telecom engineers to develop 6G

The User Interface Platform (2007 vs 2022)

With the iPhone's two signature user interfaces, the touch screen and its natural language (NLP) voice assistant Siri, Apple has shown its unrivaled mastery of the entire technology innovation process, in product development and in business development. With the touch screen, which was invented in the late 60s, its innovation insight was i) to develop the product, the iPhone and its iOS operating software to accomodate the touch screen instead of the other way around, then ii) to develop the product's business, by finding the leading channel partner, AT&T, to distribute it at scale. It recently did the same with 2 other technology inventions from the 70s, natural language voice recognition with Siri and facial recognition with TrueDepth

2 The Partnerships

Channel Partnerships In the span of a few years in the early 80s, in spite of having a (slightly) superior product in its Apple II PC to the IBM PC, Apple lost out to IBM, at a time when the

PC Market was growing at 40% a year. It made the 3 following mistakes. Price: the first mistake

Apple made was to starve the very popular Apple II and sell instead a succession of new

products (Apple III, Lisa, Macintosh), which, tho' innovative,  turned out to be so costly they

had to be priced at 5 times the acceptable market price. Product: its strength being in hardware,

it stubbornly refused to partner with Adobe in user software (today's apps) where it was weak.

This forced its channel partners to turn to IBM whose IBM PC was not only priced low but

could also run on all operating systems (OS), including Apple's. Channel: This time around, in

2004, a major distributor, Cingular (later acquired by AT&T), impressed by the success of the

iPod, came knocking to ask Apple to make what was to become the iPhone. A more mature Jobs

more carefully listened before accepting and by doing so, had clinched access, literally overnight,

to AT&T's very large subscriber base of some 100M mobile phone users

Technology Partnerships Unbelievable as this may sound, Apple, a PC maker, did not know

how to make mobilephones. This explains why, at AT&T's prodding, it accepted to team up with Motorola to make a cellphone, the Rokr pictured below, with an iPod built in. Forged too hastily,

the alliance with Motorola broke up shortly thereafter, not without Apple acquiring in the

meantime the know-how to design and manufacture a mobilephone, integrating its capabilities

into its iPhone. Porter was right: doing better is not enough, doing differently is the key to success

Industry Partnerships Technology Apple chose to defer to the best industry standards

to achieve a level playing field in both performance and cost for its products. Product

It was only by building on this very solid base, that it was able to develop its differentiation

strategy with a distinct market offering at the higher-end of the market, leveraging its

uncommon excellence in product development, Market then marketing and delivering it

to a mass market. Technology Inventions vs Product Innovation Most technologies, such as

Voice Recognition (VR) and Facial Recognition (FR), are technical inventions awaiting

decade-long industry standardization (IEEE). Integrating the technologies as a first step,

most products are business innovations, using not just 1 P (product) but all 4 Ps (product,

price, place and promotion) to innovate across the entire product-market-channel value chain

1 The Insight, The Opportunity, The Strategy:

The insight came from the first iPod, launched in 2001. It was the successful miniaturization

of the music player's two key electronic components normally found in computers, the 1.8 inch

hard  drive and the logic board containing 2 chips (CPU and Audio), which convinced Apple that

it could pack not just 2 but all of of a computer's components into a palm-sized device. On this insight, Apple went on to make the iPhone, introducing it in 2007. A teardown of the first

generation iPhone will show that it contained at least 6 chips soldered on the logic board: a

wireless network (1), CPU (2), GPU (3), audio (4), touch sensor (5) and display (6) chip. With

exceptional foresight, Apple also made sure that the iPhone's operating system would carry

all communication protocols and media formats, which were in the process of becoming

fully digitized. The Product The iPhone's differentiated feature  was that it would be a 2-in-1

app-based hand-held device, the phone being just one of the apps. "Monetization" would

come as much from the sale of the phone as from the sale of apps. The Platform This is how

it came to have its own marketing channel by creating its iTunes, then its App Store

platforms to sell its apps (the platform became a key extension of the product)

The Reality Check To turn that insight into a viable business opportunity, Apple had to

develop its marketing strategy around the 4 Ps and its competitive strategy around the 5-Forces:

Success:  Do differently

(the 1st iPhone, released in 2007)

The touchscreen was an essential design feature which Steve Jobs believed would further strengthen Apple's competitive advantage over Blackberry. It was intially meant to equip a tablet, what was to become the iPad, which Jobs was also developing. Watch above Jobs' keynote introducingg the iPhone in 2007

Failure:  Do better

(the Motorola Rokr, released in 2005)

The iTunes app and the iPod hardware were a bit too hastily added to a Motorola mobilephone

7 The Strategy

Firmly positioned at the higher-end, Apple's business strategy is to be the market leader, rather

than the market follower, across all stages of the value chain:

Channel Leadership Build up an integrated distribution channel which could seamlessly

cross-sell between its online and offline stores. The first Apple store was opened in 2001, the

iTunes store also in 2001 and the online App store in 2008. The computer programs of both

online websites, or platforms as they are now called, were written in off the shelf Open Source

application and web programming languages

Product and Brand Leadership Equip all products with a Unix-based operating system and a Risc-based CPU chip. Both the OS's and the chip's software were also coded in Open source languages. All of Apple's products were to be designed for ease-of-use, exceptional aesthetics and

to contain the latest breakthrough technologies (i.e. its AI apps in facial recognition Face ID

and in speech recognition Siri, and in 2020, the latest AR/VR and 5G technologies)

Market Leadership Position the iPhone at the higher-end but price it at the lower-end to

penetrate the market. It took Apple 6 years to acquire a large enough base of new customers, to

whom it would sell cumulatively some 300 million iPhone handsets between 2007 and 2013. It

took another 6 years for Apple to turn its new customers into loyal customers, creating its own replacement market

Industry Leadership Design in-house the products to guarantee the highest quality its

demanding customers expect but subcontract production to keep costs low. Innovate at

breakneck speed to reduce the product lifecycle to a year. Apple has deliberately chosen to

design itself its products and chips, which are nonetheless based on standards

followed by the industry as a whole. It achieves scale i) upstream from the massive volume

of the lower-value parts and components produced by the industry as a whole which go into

the final product, ii) downstream from the higher-value production of the final product

itself, i.e. high performance chips by TSMC, FP assembly by Foxconn, AI integration at home

Digital Leadership Apple's Cloud platforms are designed to give visitors a unique interactive

digital experience. They are what is now commonly known as digital experience platforms or DXP

4 The Management Team

The CEO Steve Jobs became a much more mature and well-rounded businessman by the time he

returned to Apple in 1997, considerably expanding his skills in product development to marketing

and distribution, honed at Pixar, his previous firm (it didn't hurt either to have a wife who had a

perfect business pedigree). A proof of this change was the decision he took to open up the Mac PCs

and later on iTunes to Windows and Intel chips to potentially reach out to the hundreds of millions

of non-customers he stubbornly shunned 12 years before during his first stint at Apple. He

also became a much better manager of people, surrounding himself with a very diverse group of

young and talented functional executives, without whom Apple's complete transformation from

PC maker to the digital company it is today may perhaps never have materialized.

The Management Team Steve Jobs built up a formidable management team, not only on the

technical side but also on the business side, in 6 key areas. The sales function was substantially

strengthened under Jobs's de facto COO, Tim Cook, who oversaw education sales, channel sales,

iPhone sales, and the online stores, all of which represented one and the same market offering.

The operations and fulfillment function was headed by a young Jeff Williams. The marketing

function was under the responsability of Phil Schiller. The Internet services business (the iTunes

and App store) was put under Eddy Cue. The Apple Store was run by Ron Johnson. The finance

function was managed by Peter Oppenheimer. Jobs and Cook applied the Jack Welch rule

whereby you must not only ensure stability and longetivity within your top management

ranks but also personally look after the 500 key people who help you run the company

The All Important  Sales Function Price Positioning In 2014, Apple introduced a new

iPhone model equipped with a 2B transistor-strong chip, the A8, pricing it at $600 on average,

3 times more than the level of the last 6 years but in line with what its closest competitors

charged and with what its targeted customers were willing to pay for. Because of the risk of

customer rejection of the new iPhone's price hike, it developed a new 3-pronged strategy.

Product in order to maintain its lead over its competitors, it would increase the transistor count

of its chips by a billion transistors every year (the latest A15 Bionic chip on its iPhone 14 has

15B transistors). Place In order to increase unit sales, it would execute a much more agressive

"sales push" strategy in its then 400 Apple stores, with the objective of generating more

purchases from its 350 million annual store visitors. Today, in 2023, Apple has 500 million

visitors visiting annually its 500 Apple stores. Price Points To not lose real demand at the lower

price points, Apple continues to sell older iPhones, going as far back as the 2014 iPhone 6

model, and for as long as they'd still meet its very high network (at least 4G), Ai (at least Touch

ID), and chip (at least A8) performance standards while still generating sufficient sales volume

to realize scale on the older models and scope in combination with the newer models

The Sales Objective Apple is confident it will reach its objective to increase overall revenue by

2022. End 2020, it introduced an entirely revamped line of its devices, enhanced by the latest

AR/VR and 5G technologies (the iPhone 12, iPad Air, Apple Watch 6, Mac M1). In Services,

Apple is positioning itself for the revolution that is taking place in the trillion dollar Media & Entertainment (M&E) industry. Leveraging their unique competitive advantage in video

streaming technology, new entrants now hold 25% of the TV market. In this context, Apple

has succeeded in growing its subscriber base in streaming to 935M, even if 825M of them buy

3rd-party subscriptions rather than its own on its App Store.  Another new source of revenue,

at $3.5 B of sales, is its Apple Ad business, where it places ads in its App Store and in January 2023,

in its till now untapped Apple Maps. Its Google Search Referral business brings in another $19B a

year of revenue. Apple's 2022 revenue from services doubled to $74B at a 71% Gross Margin  vs 2018

3 The Financing

Thanks to the success of the iPod, the iTunes store and its Macs, Apple had the cash cow it needed

to finance between 2004 and 2007 the development of the iPhone, which by 2011, 4 years after

its introduction, accounted for half of Apple's revenue

12 The Growth Machine

The Target Market Apple has targeted what it calls "Apps & Services" as its next major source

of growth, which is forecast to generate $72B of annual revenue by 2022 or twice its 2019 level

(last twelve months or LTM). For each dollar of revenue it would generate from its Apps and

Services business, Apple is expected to generate an additional dollar of revenue from its iPhone.

For the iPhone, with its 90%+ penetration rate in the business market, would be used as the traffic builder to sell its new apps and services market offering. In FY 2022, apps & services sales hit $78B

Putting the best people in charge As shown on the org chart above, to drive what is really a

dual-track growth, Apple has put two of its ablest executives in charge: Eddy Cue and Susan

Prescott, respectively to run the consumer business and the enterprise business. Both can rely on

3 highly experienced sales & marketing executives in Tim Cook, the CEO, Phil Schiller in

marketing and Angela Ahrendts and her successor Deidre O'Brien in consumer and retail sales

The Consumer and Professional Markets In the consumer market, the major drivers are subscription-based applications (Netflix, HBO Now, Tinder, Spotify, Pandora) for adults and

games (Honor of Kings, Monster Strike,...) for a younger audience. In the professional market,

the App store has also garnered some 20 million developers, who have sold since its creation in

2008 some $100 billion of cumulative revenue

The Business Market In the business market, Apple has partnered with the major IT companies

in order to crack into the Fortune 500 market. Among the most talked about partnerships are the following: Salesforce.com in CRM and sales, Cisco in networking, IBM in big data, Accenture and Deloitte in digital transformation, SAP in ERP, GE in Industrial IoT. The flowchart below shows

that Apple will act as the Mobile provider and its partners as the Cloud, Data Analytics and

Network providers. Both are engaged in the latest AI technologies

8 The Ideal Product

Apple succeeded in designing what marketers call the "ideal product" which neither its

customers nor its competitors thought possible to make, that is 16 years ago. Here too, as the

attached article will show, it took them 4 painstaking years before they came up with the final

design of the iPhone in 2007

11 Customer Trust

As a business, the question one should perhaps ask following the Facebook-Cambridge Analytica

scandal is why Facebook, a company whom we thought would protect our privacy, would sell our

very personal data to third-parties, in order to make a quick buck. Trust, not the product, is what

makes customers buy and want to come back

10 The Threat of Substitutes

Of the 5 forces of Porter's model, it is perhaps the threat of substitutes coming from competitors,

incumbents and challengers alike, which is perhaps the most important. Apple's iTunes

transactional revenue model has struggled against newcomer Spotify's subscription model, even if

Apple Music, introduced recently to fight off Spotify, is gaining traction. Thanks to its Apple Ad offering which it includes in all of its subscription apps (App Store,...), Apple's adoption of the

mixed ad/subscription revenue model is now complete

15 Internet TV and Fintech Strategies

In both trillion dollar markets which are TV and Payment, Apple provides 4 key apps customers can easily download on their devices to watch TV and make mobile payments. Regarding TV, the free Apple TV app allows customers to subscribe on an online platform via the App Store to both 3rd-party channels and its

own Apple TV+ channel. Regarding mobile payments, the free Apple Pay app allows customers to make payments with 3rd-party credit cards and with its own credit card, the Apple Card

Apple's Streaming Strategy (Apple TV and Apple TV+)

As we describe under point 14, with the Internet becoming the sole physical network to air content,

the tradtional TV networks (CBS, Liberty Media,..) can no longer charge a subscription premium for

use of their once exclusive proprietary networks. Likewise, upstarts like Netflix have been able

to enter the TV market almost free of charge, the Internet being free. With this barrier to entry

lifted, competition has shifted to providing content

Apple's Fintech Strategy (Apple Pay + Apple Card)

As with its Apple TV and Apple TV+ dual offering, Apple will use Apple Pay to carry 3rd-party credit cards, such as Visa and Mastercard as well as the Apple Card. In both cases, Apple will earn both processing

fees on the 3rd-party credit cards and interest income on its Apple Card, on the sale not only of

3rd-party products but also of its own products (which Apple Card holders can buy in installments)

14 The Business Model for Streaming

The Streaming Market Streaming, which is the airing of TV over the Internet, represented

until 10 years ago a segment of the broader TV market, with a market share of 20% to

the 80% held by the traditional TV and Cable TV networks. The dominance of these

traditional TV networks can be attributed to 2 major barriers to entry they managed

to erect and maintain, albeit at a very high cost (financed almost solely by debt), for

nearly 20 years, from 1990 to 2010. The first barrier was their proprietary physical

networks used for the distribution of their content, which were deemed superior, at least

compared to a much less powerful and slower Internet at the time, still mostly run on

3G for most of their viewers through their Wifi connections. The second barrier involved

the production of their content. Their dominance over both the distribution and

production of content was achieved through a wave of mergers and acquisitions, to

vertically integrate their operations into a handful of so-called multi-system operators

or MSO's, i.e. Disney with ABC, Paramount with CBS, Comcast with NBC,...

But the advent and generalization of 4G in the early 2010s, which made the Internet

into a far superior and quasi-free physical network, not only lifted a major barrier for

upstarts to enter the market, but also forced the incumbents, the major TV networks,

to join it. 2007 was a watershed date. The first iPhone was launched. Netflix,

able to use the Internet practically for free to air their content (which they still had

to purchase from the majors), changed its entire business model to streaming. The

Internet became the dominant distribution channel for content. Then in 2013, Netflix

created its own movie studio, lifting the second barrier, the production of content.

To the extent that 3 previously distinct networks (phone, TV, Internet) now run on

one and the same computer network, the Internet, all of TV is now entirely streamed,

that is aired solely through the Internet

Mini-Case: Netflix We tend to forget that Netflix came on the scene at the same time,

as a first-mover, as Amazon and Google in the mid- to late 90s. As a subscription DVD

by mail rental service provider, like Amazon in online book sales, its competitive advantage

over the "brick and mortar" stores was based on what we can now call the 4 fundamentals

of eCommerce: i) wide and deep assortment (maximizing library utilization to maximize

inventory turnover, is a key metric), ii) personalized merchandising using its proprietary

software to make customer recommmendations, based on subscriber ratings and history (minimizing churn, that is customer turnover, is a key metric), iii) scalable business

model (maximizing the revenue to cost ratio and return on capital employed is a key metric),

iv) easy to navigate website to maximize customer satisfaction. In 1999, its first full year

of operations, it had 107K DVD subscribers. But over the next 3 years, as membership

rose exponentially to reach in 2002 807k subscribers, still all DVD, it succeeded in raising

from PE firms and an IPO a total of $210M, possibly with the intention to use it to finance

the development of a streaming business. In January 2007, its streaming platform went live.

In 2011, its base reached 20M streaming subscribers, half of whom also had a DVD subscription. In 2012, the transition from DVD subscription to streaming subscription

was complete. In 2013, to be less dependent on the film studios for its content but also to

adapt to its younger, more global and more culturally diverse and inclusive audience (2/3

of its subscribers are non-US) who prefer to stream on the Internet than to watch TV, it

decided to become a movie studio of its own. The success was immediate, as its base

increased from 33M subscribers in 2013 to 167M in 2019 (and to 230M end 2022):

Apple's 935M Streaming Subscribers Apple's 2 major streaming services, Apple TV+ and

Apple Music, still hold a modest subscriber base: 25M to Netflix's 230M, 80M to Spotify's

200M. The remaining 825M are those it sells 3rd-Party subscriptions to on the App Store, i.e. for Disney+, Parmount+, HBO Max, and online gaming sites,...

13 The Business Model for the Chinese Market

There is the strategy one needs to define for the company's activity. Then, there is the business model one needs to develop for each market one serves in order to execute that strategy. To us, the

best approach to business modeling is to develop the marketing mix's 4 Ps. With the help of

digital technology, the goal is to create a unique customer experience. In 5 steps, we have:

In China, Apple lost sales volume and market share in 2019, 2020. Chinese consumers made

a massive switch to what were in fact iPhone clones, made by their local champions, Huawei,

Xiaomi, Oppo. These 3 Chinese upstarts executed brilliantly the 4 Ps, better than Apple did.

However, the market disruptor in China was not Huawei but a rather discreet newcomer, Oppo.

It pushed aside both its domestic and foreign rivals to gain the number one spot with 40% of the chinese market with its Oppo and Vivo brands. It followed a classic textbook strategy, by tapping

into a vast market its competitors somehow shunned, the rural market (650M people). To service

it, it aggressively built up what has become a retail network of 200,000 stores across the country. From this beach head, Oppo moved into the urban market (also 650M people), by upgrading its product offering to meet the needs of higher-income customers. In hindsight, whether Apple

could have opened its Apple stores more agressively across China, in both the rural and urban

areas in order to preempt the encroachment of Oppo on its own turf at the higher-end of the

market remains a question mark. There are 2 other players who are not to be underestimated:

Lenovo and Tecno

After a 2-year lull in sales in 2019 and 2020 hovering at $40B a year, Apple finally bounced

back in 2021, as it witnessed an increase of 70% in sales. Product: it is the new iPhone 12, far

superior to its rivals' smartphones, which is behind the success. Price, Promotion, and Place: the

biggest challenge for Apple is to ensure further growth of the high-end market segment it is in,

by luring customers from the mid- to lower-tier segments. Pricing, distribution partner markup

and financing and new Apple Store openings will be key decisions it will make. Greater China

bounced back, increasing by 70% to $68B in 2021 against prior year and to $74B in 2022

Marketing

& Digital

(Market)

Innovation

& Design

(Product)

Sales, Operations

& Cloud

(Channel)

Strategy

& Structure

(Resources)

CEO Tim Cook COO Jeff Williams

Business & Executive Development

CEO Office: Phil Schiller, Luca Maestri

Big Data

Business Organization

John Giannandrea

AI strategy

Strategy: Marketing Tech, AI, Data Analytics/Business Intelligence, Digital Costing, Privacy & Security

Operations: Workflow (activity), RPA (transaction), Collaboration (teams), Universal Ledger (accounting)

Administration: eSignature/OCR, Document Classification Automation (ML), Speech to Text, ERP)

Legal (direct tax & audit, smart contracts), Treasury (CBDC, Fintech), Gen AI (ChatGPT)

Alan Dye

Design Strategy

Katherine Adams

Legal & IP

Lisa Jackson

ESG

Kristin Huguet Quayle

Public Relations

David Smoley

Data Analytics

strategy

John Ternus

Hardware

Engineering

Johny Srouji

Hardware

Technologies

Cloud & 5G

Hardware Platform

AI Apps

Data Analytics,

Marketing tech

AI Apps

Network

Apps & Services

AI Apps

Smartphone

iOS

iPhone, Tablets,

Apple Watch

16 Price versus Value

Apple's stock reached an all-time high to about $56 per share on October 1, 2018. Overall end

Sep 2018 fiscal year sales reached $265B, an increase of 15% over the previous year, with operating

income increasing by the same percentage. As both graphs of Apple and Netflix below show, in

spite of stellar results, technology stocks plunged somewhat unexplicably by 30% to 40% in Q4 2018,

only to regain the following quarter 80% of its peak Q3 2018 value. Thus, Apple did the right thing by choosing not to be distracted by the 3-month speculative window capital markets like to play in, as in Q4, 2018. It preferred to focus on the long-term fundamentals of the business. No better metric than its annual spending in R&D over  a 3-year strategic horizon reflects this commitment, which increased from $8B in 2015, to $10B-$11.5B in 2016/17, to $14.2B in 2018, to $18.8B in 2020. As of October 2022, Apple's stock price hit $148 per share, a more than 4-fold increase compared to its 2015 price

(both Apple share prices are on a 4-for-1 stock split basis of Aug 2020)

2. Competitive Strategy (Porter's 5 Forces)

3. Business Model

4. Marketing Strategy

(Kotler's 4 Ps)

5. Customer Experience

Mary Demby, CIO

IT strategy

U. Thyagarajan

Internet strategy

6 The Positioning

Apple's recent problems in China, which it has corrected, go to show that positioning one's

offering in the marketplace involves both a product as well as a price positioning, relative to

both its customers and its competitors:

Product Positioning Playing on its unique strength as a developer of high quality products, Apple

deliberately chose to position itself at the higher-end of the market. It took Apple no less than

4 painstaking years to develop the iPhone and another 5 years to push Blackberry out of the

market. As Alfred Sloan would have said, the strategy was to sell to those Blackberry customers

in the lower-end segment willing to pay a little more for the additional quality offered by

Apple in the higher-end segment

Price Positioning The worst decision a firm can make is to price its offering out of the market,

above the customer perceived price, in other words to price the offer  above what its customers

think it is really worth. As shown below on the graph on the right, this overpricing may explain

what happened with the iPhone in China, where Apple witnessed from 2016 to 2019 a

continuous decline in both sales and market share. In September 2019, it finally reduced the

price of its entry model iPhone XR and iPhone 11 to $600 as well as offered a further $100 to

$200 trade-in discount for older models and Android phones and possibly increased channel

partner margins. Radically revamping this pricing policy alone was not enough to reverse the

decline in sales. It was only by also substantially  enhancing the quality of the iPhone 12, its

customer perceived value, that its sales grew again and at double digit rates. As described in

more detail in point 13, Apple's product/price overhaul was a success, as sales in China

once more grew by 70% from $40B in 2020 to $68B in 2021 and to $74B in 2022

Absolute vs Relative Growth Just as Blackberry must have realized too late when in May 2011

its sales suddenly tanked while iPhone sales skyrocketed, Apple must also have had a brief

moment of panic when it saw its sales decrease from $52B in 2018 to $44B in 2019 then to

$40B in 2020, while Huawei's sales of what were in fact iPhone clones shot up. In absolute

terms, Apple grew prior to 2019, but in relative terms, Huawei grew even more than them.

(Unlike Blackberry who resisted change, Apple bounced back in 2021 with a spate of new products, resulting in

a 70% increase in revenue in China to $68B in 2021 against $40B the year before)

Netflix

Apple

Apple TV App

Digital TV

Apple Podcasts, Apple Books

Licensing

(i.e. Google)

Siri & AI

in-device

Maps

in-device

Apple Care

in-device

App Store, Apple Search Ads

Apple TV 4K,

Siri Remote

Homepod, Homepod Mini,

Smart HomeKit

Beats Wireless Headphones (1)

Airpods Pro 3

9/2022

Apple Watch Series 8

9/2022

Macbook Air with M2 chip 6/2022

iPad 2021

iPhone 14

9/2022

APPLE'S

ORG CHART

Operations

Products

Services

developer.apple

mfi.apple (IoT)

Wearables, Home & Accessories

Apple's 4 Ps Strategy in Fintech

Apple's Cross-Selling Strategy: Indirect Channel Partners

Apple Direct

Retail

Channels

Apple Direct

Sales Force

Apple Indirect

Wholesalers

Apple Indirect

Retailers

Apple Indirect

Enterprise Partnerships

Markets

Consumer,

Business

(Industrial, Commercial)

Government,

Community,

Non-Profit

Developer

CHINA'S URBAN MARKET

CHINA'S RURAL MARKET

Apple 4 Ps Strategy in China: Place

(Oppo's strategy focused first on the rural market, overlooked by the market leaders)

Huawei P20

40 MP main sensor,

no AI neural engine

no quad-sensor

Oppo R17

20 MP main sensor

no AI neural engine

no quad-sensor

Xiaomi  Mi CC9

27 MP main sensor

no AI neural engine

no quad-sensor

Apple knew that the AI camera chips it was developing in-house would blow its Chinese Clone competitors out of the water. In 2019 and 2020, as the Chinese were showcasing models with a higher pixel count generated by non-AI chips, Apple quietly developed an entirely new camera system run by :

i) Software: an AI neural engine called Deep Fusion, which allows the camera to take multiple shots then select the one with the perfect focus, all in a couple of milliseconds

ii) Hardware: a new sensor, called the quad-sensor which was designed to pack in more pixels on the sensor (one of its iPhone 14 Pro cameras has 48 megapixels).

Sales of the iPhone 12, equipped with this new camera system, increased by 70% in 2021 versus previous year models

How Apple Won The Camera War in 2021

In 2019, Huawei's iPhone clones had 38% of the Chinese smartphone market to Apple's 6%.

In 2021, Apple reversed course to avoid Blackberry's fate (see point 13 for more)

2007-2013 Apple elbows out Blackberry

2017-2019 Apple is overtaken by Huawei

(1) Apple's New Accessories Strategy: Downstream, Apple's ACCESSORIES (Beats headphones, Airpods, the $5000 Pro Display, $1000 Pro Stand, the iPad Pro's $300 Magic Keyboard and $129 Pencil, the $30-$150 MagSafe USB-C chargers, the Airplay, the Homepod and HomeKit, the $500 Hermés Watch wristband,..) have become a standalone high growth and highly profitable  multi-billion dollar business SBU. Apple also takes a cut on all 3rd-party accessories. Upstream, it also has 2 SERVICE REPAIR programs to sell its parts (independent and self-service)

Health & Fitness

Platform

Healthcare

Platform?

Apple Watch

(Apple Glasses?)

Apple's Cross-Selling Strategy: Apple Watch & Verticals

Airplay

Co-Branding

(Hermes, Nike, Edition)

Other

Luxury Markets?

Current Offering

Strategic Initiatives

Media Bundle

(September 2020)

Fintech Bundle

(contactless,

credit card loans,

buy-now-pay-later, trade-in)

Trade-in

Instalment

Promotional Pricing

Tor Myhren

Martech strategy

Martech & Advertising

Business Fundamentals

Kevan Parekh

Finance & Risk

Tim Cook &

Deirdre O'brien

HR & Org

Manager's Digital Toolkit

Craig Federighi

OS & Developer

Software Platform

Product

Strategy

Jeff Williams

Product SBUs

Eddy Cue

Service SBUs

Phil Schiller

including

Apple Ad strategy

Product Profitability

Face ID 30000 dot face map

TrueDepth Camera System

LIDAR Scanner for AR apps

Design & User Interface

   AI Visual Recognition

All Apple Silicon chips are now powered by AI neural engines on all of Apple's devices

Apple Watch S6 chip

mnano CPU

neural engine

5G chips from Qualcomm

True Depth camera system

Face ID sofware

LiDAR Scanner with Augmented Reality (AR)

iPhone 13

CPU

neural engine

Security chip

U1 Chip (right)  the chip uses Ultra-wideband (UWB) technology which allows for close range (1cm) localization and high penetration radar, at low-power. Medical monitoring is a future application (UWB can read through the human body). 5G Chip (left) Apple acquired Intel's 5G Modem Chip business (to replace Qualcomm's or to develop 6G?)

Online Stores: Apple.com

App Store

Apple One

and dedicated sites (search ads,...)

Security & Privacy

(right) the security hardware (T2 Chip) and the Privacy software protect users from device and app tracking (Safari, Maps, App Store,....)

Touch Screen & Printed Electronics

There are 3 thin films sprinkled by evaporation with conductive materials (metal): the Touch panel , OLED display and Sensor chip that connects to the Operating System. They are glued or "laminated" with an adhesive called OCA. On top is the Gorilla Glass

Apple: prior to its 4-for-1 stock split on August 28, 2020

IoT U1

Security

neural engine

BNPL

Apple Card

Apple Cash

Apple Pay

2 years after acquiring Mobeewave, at its June 2002 WWDC event, Apple launches its Apple Pay Later offering. Its Fintech makeover is now complete:

. Credit (Apple Card and apple Pay Later

. Money Transfer (Apple Cash)

. Mobile Payment (Apple Pay)

Digital Transformation

AI

ONE

NETWORK

Business Market

Susan Prescott

Apple's 4 Ps Strategy In Internet TV

Touch panel

OLED Display

Touch Panel Sensor Chip

Sabih Kahn

Supply Chain

(175 suppliers, 25 SKUs, Distr. & Data Centers)

Manufacturing

(Strategic parts  manufactured  in

TW, JP, SK, US, GER

& FPs assembled in

CN, IN, VN)

US Relocation Strategy

(Advanced Manufacturing Fund)

Worldwide Sales

Business Strategy

Tim Cook &

Adrian Perica

Competitive Strategy,

M&A (4 Ps, 5 Forces)

Isabel Ge Mahe

Greater China

Strategic Initiatives

EV, healthcare,...

Business Profitability

Greg "Joz" Joswiak

Marketing Strategy

(4 Ps, 5 Forces)

Marketing Operations

(Campaigns, PLC)

Marketing Communications

Profit Contribution

Marketing Strategy

Business Responsability

Customer Satisfaction

App Store Reset

Consumer Market & Retail

replacing end-of-life

CableTV

Broadcast TV

MOBILE

Apple

Apple

Protective "Gorilla" glass

All other layers are electro-magnetic films

Apple's Cash Flow Metrics since 2007 in billions of dollars     

                 Op. Cash Flow (CF)        Cash*                  Sales

2007                      $5.5                    $15.4                   $24.0  Launch of 1st IPhone in June 2007. Financed by iTunes//iPod/Macs CF

2013                    $53.7                    $81.6                  $170.9  Blackberry files for bankruptcy. The iPhone becomes Apple's main cash cow

2022                  $122.2                 $269.2                  $394.3  * after stock buybacks of $90B (buybacks since 2013 total $550B)

MARKET SHARE 2009

Smartphones (Unix OS, 4G, Internet apps):

Blackberry 19%

iPhone 14%  (2 yrs after launch)

Android 4%

Handsets (3G, phone only)

Nokia (Symbian then Windows OS) 38%

Other (Windows OS) 9%

MARKET SHARE 2013

Smartphones (grew at 21% CAGR 2009-2013)

Blackberry 4% (files for bankruptcy)

iPhone 18%

Android 66%

Handsets:

Nokia(Windows OS) 4%

THE

INTERNET

iPhone 12

20 MP main sensor

AI neural engine

quad-sensor

Market

Customers

(Millennials

& Gen Z's)

Non-Customers

in the Total Addressable Market (TAM)

Product

Content

(film, games, NFTs, shorts,...)

Related Merchandising

(the Disney model)

Place

Platform

(Streaming, Metaverse....)

App-based

Price

Subscription

Ad-sharing

Promotion

Plan

Bundles

(content bundles, MSO bundles)

Data Analytics

(recommendations,

ChatGPT?)

4 Ps

(demographics)

5 Forces

(differentiation)

Customer Engagement

Customer Delivery

SBU Strategic Business Unit

Apple Case Study

Services

Platform

Tim Cook

Apple Offering

Mobile

ONE

DEVICE

ONE

CHANNEL

STreaming

ONE

CONTENT

Producer

Distributor

Telcos

TV & Cable TV

Yesterday

(Many Channels, Many Networks

Today

(One Channel, One Network)

TV

Video

Wired

Phone

Inter-

net

The Multi-Billion User Base With more than a billion iPhone users who must go on the App Store to buy 3rd-party apps, Apple didn't have to build up from scratch a base of new customers in the streaming market. Apple was part of the multi-billion user club, the MSOs (telcos, TV networks) and the FAANGs (Facebook, Amazon,.) through whom upstarts like Netflix and Spotify had to go to sell their streaming services. It's only when these upstarts reach a critical mass audience of about 200M subscribers that they can

afford to reverse the bargaining power in their favor. As the tables turned, Apple did cut its commision rate by half to 15% on these

big ticket items, knowing that any loss of revenue from the rate cut would be more than offset by a jump in revenue brought about by

the boom in the gaming and streaming markets. But it knows that the dam having been breached, the App Store must be revamped

or replaced altogher

Threat As Opportunity To preempt the dwindling role of the App Store, Apple came up with an offensive strategy and a defensive

sttrategy. Offensive Strategy in Streaming It had to accelerate the build-up of its streaming business along 3 objectives: i) the me-too streaming products had to reflect Apple's high-end positioning (Apple TV+), ii) subscriptions had to be quite cheap ($6.99 a month for Apple TV+), iii) viewership must reach at least 200M (Netflix has 230M). This is why Tim Cook was willing to pay top dollar to buy himself into Sports Streaming, acquiring the rights to air Major League Baseball and Major League Soccer on Apple TV+. Other deals are in the works. Defensive Strategy for the App Store Apple dragged out of his retirement Phil Schiller to help it reverse the erosion in revenue on the App Store. Schiller has done just that. He has cut on a case by case basis the commission rate from 30% to 15% on the most exposed apps (Epic's) and aggressively developed Apple's Apple Ad business on the App Store, with a further extension to Apple Maps. The Untapped Market Strategy Apple's streaming strategy is a typical case of cleverly moving into an untapped yet very sizable market which incumbents, out of hubris, tend to almost always overlook. That market is the Sports Streaming market as opposed to the overly crowded Entertaiment Streaming market (just as Netflix saw the potential of the Entertainment Streaming market everyone else didn't see or didn't want to see)

Streaming Market

Deirdre O'Brien

Eddy Cue

Tim Cook

Customer Profitability

Cable

TV

Wire-

less

Internet

analog network

digital network

(Internet)

Streaming

Video

Voice,

Text

Voice,

Text

Pics,

Text

The Internet network has replaced what were previously 5 distinct physical networks, generating substantial savings in both capital and operating costs

But these savings were not passed on to the end-user. Instead they were diverted to pay down the substantial debt  the MSO's accumulated  to vertically integrate their content distribution and production operations. They achieved as a result enormous pricing power, which allowed them to charge higher subscription and advertising fees on their users and advertisers

Market Demographics

But due to the demographic shift to Millennials and Gen Zs, their viewers have begun over the last couple of years, to switch to streaming

The Entertainment Streaming Market

Netflix has a head start, having begun to vertically integrate its streaming operations by moving into movie production in 2013

As for the MSO's, after spending the last 20 years paying down their substantial debt, they must now downsize, as we saw recently with Disney, Netflix's most formidable competitor

The Sports Streaming Market

Apple recently paid top dollar to win the rights to air Major League Baseball on Apple TV+. More deals are in the works

Barrier To Entry

The barrier to enter the TV market has radically shifted from ownership of the proprietary physical network to ownership of content. Content is king

content

Comptetitive Strategy

Using Porter's 5-Forces model, 2 metrics which can greatly help a firm choose the right generic competitive strategy  (quality, cost or niche) are Market Share Growth and Profit Contribution (Market share * % Product Margin):

Market Share Growth

A firm either gains, maintains, or loses market share:

A firm gains market share when its growth rate is greater than that of the market. This reflects superior performance. This was the case of the iPhone at first between Jan 2007 and Dec 2010, when it attracted most of the new customers entering the market and then between Jan 2011 and Sep 2013, when it also drained most of the market's existing customers, mainly Blackberry's customers who switched over in droves to what they perceived as a far superior product that was the iPhone

A firm maintains market share when its growth rate is the same as that of the market. This reflects average performance. This was the case of Blackberry between Jan 2007 and Dec 2010, when it still had to itself most of the smartphone market, which it created with the launch of its Pearl 8100 back in 2001. It was never really challenged for 6 years until Apple came  on board in June 2007 with the iPhone. Blackberry's mistake was to look at the iPhone's relative market share, which being more recent, was bound to be much smaller than Blackberry's. What it should have looked at was the iPhone's relative market share growth, which increased exponentially over time. The key metric is the market for new customers or first-time buyers, where Apple had the biggest market share

A firm loses market share when its growth rate is lower than that of the market. This reflects poor performance. This was the case of Blackberry between Jan 2011 and Sep 2013, when its customers switched over in droves to the iPhone. The 2010 iPhone 4 was now equipped with the latest technologies which Blackberry could have easily integrated into its own products (Siri, Touch ID, Retina Display, billion transistor CPU chip,...) but stubbornly refused to.

To paraphrase Peter Drucker on innovation, Apple worked on tomorrow's products, Blackberry worked on yesterday's products

Profit Contribution

Using Peter Drucker's Business Diagnosis tool, a forerunner of Activity-Based Costing, profit contribution assumes that to be successful, a product must

achieve both high market share and high operating margin. To avoid margin distortions, costs must be regrouped by activities as measured by time spent.

It is activities, not sales volume, which "drive" costs (it would take the same 5 minutes to fill a $5M sales order as it would to fill a $500 order):

A high profit contribution reflects quantitatively both high market share and high product margin ("scale and scope"), and qualitatively high market adoption

and customer trust (understanding the demographics is key). Only thru innovation can you achieve both goals. Apple has done it with its iPhone

An average profit contribution reflects a lack of innovation on the part of the market leader. Blackberry, we saw, was in this position between 2007 and 2010

A low profit contribution reflects low market share and and low % margin. This was the case of Blackberry between 2011 and 2013, before its bankruptcy

Marketing Strategy

The strategy entailed i) finding the right product/market/channel fit to best serve the largest possible  number of customers, ii) building  a customer-focused organization, iii) securing the financing to provide the staying power to execute the action plan.  Apple was lucky not only to have in its highly profitable iTunes and iPod products the cash cow for the financing but also to have in both products' large customer base a readily receptive market for the iPhone. In AT&T, the largest wireless distributor in the US at the time, it found the ideal channel partner.

Product Life Cycle

Using the 4 Ps as remodeled by Kotler, a very helpful metric for developing a firm's marketing and action plans is the Product Life Cycle (PLC):

Growth Stage This is the early, introductory stage when the market gains traction, as customers become aware and begin to adop the product. The iPhone

entered the smartphome market with its iPhone at that high growth stage at the right time, in 6/2007, when there was a shift to a younger demographic

group of new customers. At the same time, existing customers, who had been using Blackberry at work over the previous 6 years, immediately saw the

superiority of the iPhone. But only until 4G came into full bloom beginning 2011, did customers make the switch, a massive one, to the iPhone

Maturity Stage At this stage, existing customers making up the bulk of the market, await a superior, more innovative replacement product to what they've been

served. This was the case of Blackberry between June 2007 and Dec 2010, when it stubbornly refused to take on the iPhone with a better product. We

clearly see that at maturity, there must be continuous product replacement by the market leader. Apple understood this, Blackberry didn't

Decline Stage At this stage, between Jan 2011 and Sep 2013, both new customers, which now made up most of the market and existing customers,

formerly Blackberry's, had switched to the iPhone. As we see here, in the real world, all 3 stages of the PLC tend to overlap

Apple Vision Pro

6/2023

Apple Vision Pro

R1 chip

Haptic

neural engine

iPhone 14 Pro

Vision

neural engine

1. Strategy

Corporate Services Luca Maestri

IST, Internet Security, Real Estate & Development, Caffe Macs, Claris, ChatGPT

                      Table of Contents

From Insight to Strategy:

1. The Insight, The Opportunity, The Strategy

People and Money:

2. The Partnerships

3. The Financing

4. The Management Team

The Product/Market/Channel Fit:

5. The Product

6. The Positioning

7. The Strategy

8. The Ideal Product

9. The Core Excellence

10. The Threat of Substitutes

The Customer:

11. Customer Trust

12. The Growth Machine

13. The Business Model for China

14. The Business Model for Streaming

15. Internet TV and Fintech Strategies

16. Price versus Value