Apple Computer Inc.

Apple Inc.

Apple Computer, founded on April Fool's Day of 1976, has been through many challenges and has created an image for itself that is like no other company. Steve Jobs and Steve Wozniak, the original founders of the company, had freshly dropped out of college to pursue work on their first computer circuit board. From there, they partnered up with the business savvy A.C. "Mike" Markkula Jr., and launched a successful product into the PC world.

Q1: From the beginning, Apple Computer had some big competitive advantages against its rivals. Jobs wanted to bring an easy-to-use computer to the market and that's just what they did. The Apple computer was the first of the kind and it dramatically boosted the PC industry. By 1980, more than 100,000 Apple II's were sold and Apple had become the industry leader in the PC market.

Another competitive advantage was that Apple made its hardware components from "scratch" meaning it designed unique drives, chips, processors, and other peripherals that gave the Mac a unique image with a sense of technical stylishness. This out-of-the-box thinking allowed Apple to also sell its products at a premium compared to other PC manufacturers and gave Apple a higher profit margin. The higher profit margin gave Apple added room for price fluctuation meaning they could compete better with lower pricing, and extra cash on the side for increased R&D. This research and development is the force behind keeping Apple ahead of the technology race.

Q2: Five Forces Analysis

Threat of New Entry

There were a small handful of major competitors in the PC industry that controlled about 55% of all worldwide shipments. The major four (not including Apple) were HP, Dell, Acer, and Lenovo and they controlled large amounts of capital in order to compete with one another. These large economies of scale discouraged new entry and startup capital investments were hefty. Many other smaller companies built custom versions of PC's that accounted for about 30% of the market share in 2009. In the personal computer market there are basically two main operating systems offered on personal computers: Microsoft's Windows and Apple's Mac OS X. A new company would have to create competitive software that is one step ahead of the rapidly changing technological advancements within the computer software market. Another barrier to entry may be legal patents on hardware making it harder to acquire certain components for manufacturing.

Threat of Substitutes

About 10 years ago, substitutes to the PC market may have been writing letters, game consoles, books, encyclopedias, and television. CD players and some small mp3 players were also a possible substitute to listening to music on the PC. In 2010, substitutes for the PC have become numerous. Netbooks, tablets, e-readers, smartphones, advanced gaming consoles, and internet-ready televisions are the major substitutes to owning a PC/laptop. The threat of substitutes has increased greatly in the past 10 years, creating a huge challenge for traditional PC companies and forcing them to diversify into other electronic categories. Smartphone technology has outpaced other technologies after the introduction of the iPhone.

Buyer Power

Apple has focused on differentiating its Mac and other peripheral devices from mainstream PC companies. If a buyer doesn't want to purchase a Windows or Intel product (Wintel) there aren't any other substitutes besides the Mac and its operating system. In this way, Apple has indirectly created a niche for itself and users will spend that little extra to avoid mainstream developments whether they feel intimate about the Apple brand or not. Buyers have a relatively low buyer power because the vast number of buyers makes it difficult for one particular group to demand lower prices. Apple products are dominated by Apple "enthusiasts" who will pay the price that the company determines. Due to the incapability of buying in massive amounts, individual buyers have a very low buyer power. Larger