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Apple, Inc. 2014 and the Global Smartphone Industry

 

Learning Objectives
 
•         The dynamics of industries and customers change over time and its implications for strategic actions •         The nature of sustainable competitive advantage •         The timing of strategic moves

•         Multisided business platforms
•         The challenge of reinvigorating competitive advantage through innovation •         The role of technology standards in competitiveness •         Role of the CEO as chief strategic thinker and manager  

 
 
Introduction
 
Despite beating market projections for fiscal first quarter (Q1) results 2014, Apple, Inc. headquartered in Cupertino, California, disappointed industry analysts and Apple watchers when it reported iPhone sales grew at a 7% rate, falling short of Wall Street expectations of a 15% increase.1 Apple's supremacy as the top dog in the fiercely contested high technology consumer electronics industry, especially in the U.S. was under attack. Since 2011, Apple was constantly losing ground to the Android operating system in the battle for smartphone supremacy at home and abroad.2 Analysts were looking for Tim Cook, Apple’s CEO to quickly act to prevent further market erosion and stem the advances of competitors.3  

Apple was one of the most innovative companies of all times under Steve Jobs’ leadership introducing game changing products and services across an array of industries.  Chief among the game changing products was the iPhone. Never before did one firm change the competitive dynamics so drastically in so many industries from computers, mobile phones, music, tablets, movies, photography, electronic components, newspapers and print media, as well as other industries.  

Eric Schmidt, Google's CEO, who once served on Apple's board of directors challenged Apple's lead in smartphones and tablets by offering the Android operating system (OS) free or at minimal charge to smartphone manufactures. Google’s open system approach of giving its Android OS away free of charge was a sharp contrast with Apple’s closed system, curated approach for its iOS (Operating System) used only in Apple devices.   

Walter Isaacson commissioned to write Job’s autobiography, interviewed Jobs. Isaacson wanting to know if Jobs made a strategic and costly mistake by keeping the Mac operating system a closed system, unlike Microsoft’s Windows operating system that was available to computer manufactures at a minimal cost. Eventually the open system’s Windows became the dominant OS capturing 98% of the global personal computer (PC) market. Open versus closed system approaches were a matter of great debate in the digital age.  Schmidt interviewed for the Jobs’ book, commented: “Steve has a particular way that he wants to run Apple, it’s the same as it was twenty years ago, which is that Apple is a brilliant innovator of closed systems.4  

Schmidt later commented that, “The benefit of closed systems is control. But Google has a specific belief that open is the better approach, because it leads to more options and competition and consumer choice.”  Bill Gates weighing in on the discussion agreed with Schmidt, arguing that, “Competition among a variety of devices and manufacturers leads to greater consumer choice and more innovation.”5  

In response to Schmidt’s comment Jobs stated:
 
Google says we exert more control than they do, that we are closed and they are open. Well look at the results-Android’s a mess. It has different screen sizes and versions, over a hundred permutations.... I like being responsible for the whole user experience…We do not do it for the money. We do it because we want to make great products, not crap like Android.6  

Apple was the most profitable company in the high technology industry. Its profit for the fiscal year ended September 2013 were triple Google's 2013 earnings and $9 billion more than its nearest competitor, Samsung Electronics. The profit and revenue...