Apple Computer: Transformation towards GUI

Analysis and Revised Strategy

presented by

Walter J. Ferrier, Ph.D.

CEO, Thoroughbred Consulting Group

Apple’s Historical Competitive Advantage

• Unique, Proprietary Software

• GUI Interface

• Graphics/desktop publishing software

• WYSIWYG Screen-Printer Interface

• Networking Capabilities

• Multimedia Capabilities

Strategic Group Map Pre-Windows

Price

Premium

Low

Strategic Focus - Differentiation

Broad Narrow

Apple

IBM

Sun

Clones

Compaq

5-Forces Model of Computer Industry

Suppliers• Apple owns O/S • Motorola / RISC Processor• Software Firms want to write for largest installed base

Buyers• Price Sensitive• Mass Merchandisers• Mail Order

Substitutes• Workstations• Palm-tops/ PDA’s

Potential Entrants• Low Entry Barriers• Apple No Longer Protected from Clones

Rivalry

• New Products• More Marketing• Price Cutting• Outsourcing• IBM Compatible Clones• Ability to Differentiate Disappearing

(?)

(-)

(-)

(-)

(-)

Threats to Apple

• Windows 3.0– Narrowed the interface “performance gap”– Cheap clones now almost as good as Mac

• Lack of Application Software– Largest applications vendor is Microsoft– Independent vendors want to write for O/S with

largest installed base

Opportunities

• Attack operating system market for Intel and RISC processors

• Alternative technologies requiring GUIs– Office machines (copiers, FAX, etc.)– PDAs – Telephone switchboards– Home electronics/appliances– Robotics

Apple Weaknesses

• Level of uniqueness is eroding

• Inability to keep pace with R&D spending– IBM’s R&D = $6,644 mil– Apple’s Revenues = $6,309 mil

• Small installed base vs. IBM “compatibles”

• Lack of dominant market share position

• High SG&A to Sales

Strategic Group Map Post-Windows

Price

Premium

Low

Strategic Focus - Differentiation

Broad Narrow

Apple

IBM

Sun

Clones

Compaq

Weakness

Microprocessor VolumeMillions of Units

0102030405060708090

100

Installed Base Units Shipped

Intel

Motorola

Weakness

Apple’s Marketing Costs vs. RivalsSG&A to Sales (%)

0

5

10

15

20

25

30

35

40

SG&A (%)

Apple

IBM

Compaq

Dell

Weakness

Apple Strengths

• Best GUI O/S

• Brand name loyalty

Revised Mission

• To position Apple as the world leader in man-machine interfaces though the development of ergo- and cerebro-nomic software and interface devices required for electronic and electromechanical applications.

Goals

• 20% ROS by 1994

• 40% Share of O/S Market by 1994

• Develop 3 New Interface Devices by 1994

• Achieve full interoperability with– Intel and RISC microprocessors by 1993– Top 4 Software Vendors by 1993

Revised Strategy• Milk Mac

• Target O/S Market– License System 7 - – Pursue “open system” Pink

• Interface Devices– Copiers– Manufacturing Automation– Medical Equipment– Aerospace

Milk Mac

• No new manufacturing and R&D investment in existing hardware products

• Outsource next 3 years’ production to Malaysia:– Send VP Mfg. and 3 Engineers on “Sourcing

Mission”

Benefit: Decrease COGS from 53% to 33%

Target PC O/S Market

• License System 7– Motorola-based clone sales– RISC-based clone sales

• Create new brand: Apple “Core”

Apple Core• “Open system” O/S (a.k.a. Pink)

– not processor specific– head-to-head with Windows– increase installed base– increase ISV applications

• Shift 80% of R&D budget to Core

Benefit: Increase ROS from 5% to 20%(NOTE: O/S production has COGS average 19% percent of sales vs. 66% in hardware manufacturing.)

Interface Software and Devices• Form product development alliances with:

– Canon (copiers)– Sharp/Casio (PDAs)– Northern Telecom (PBXs and cell phones)– Kawasaki (Robotics servers and teach pendants)– Volvo (Automated material carriers)– Honeywell (Avionics and flight control equipment)– GE (Magnetic resonance imaging equipment)

• Devote 20% of R&D budget to new products

Benefit: New interface device products.

Projected Revenues, Costs, and Income(in $ millions)

0

1000

2000

3000

4000

5000

6000

7000

1991 1992 1993 1994

Revenue

COGS

R&D

Net Income