Degree of differentiation is another factor that needs to be considered when analyzing Apple Computer, Inc. This is the area which gave Apple a significant advantage over competitors in the 80s early 90s. Since both hardware and software architecture from Apple is proprietary, the company was able to differentiate its product mix from IBM compatible machines like Dell, Compaq, and Gateway. Apple, as a result, was able to have less direct rivalry.
Threat of Substitutes
Generally, the threat of substitution exists when the price change of a substitute product significantly impacts the demand of another product. In this case, the threat became even more evident when PC makers like Dell and Gateway reduced their pricing in effort to maintain market share.
Undoubtedly, the threat of substitutes is the most devastating to Apple. From the beginning, Apple had insisted on keeping its computer architecture proprietary. That, along with its user friendly design of its product mix, gave them the necessary leverage to charge a considerable premium over their competitors for a machine with similar functions and performance. Nevertheless, Microsoft Windows, the operating system that is in direct competition with Macintosh’s Mac OS, was IBM compatible and can be used on any PC system. As the number of PC users and manufacturers continue to grow, Apple’s presence in the personal computer market had gradually diminished. In addition, as functionalities and performance between PC and Apple continue to converge since the days of OS/2, consumers are finding PCs to be perfect substitution to Macintosh. Third party programmers had also shifted their focus toward windows programming, leaving Mac users with fewer choices in selecting software applications.
Buyer Power
Buyer has necessary power to impact producing industry. When buyer power is stronger than the supplier power, it creates a phenomenon where there are many suppliers and few buyers. This lets the buyer to have a strong influence of setting the market price. When the education market chose Apple for their computer needs back in the 80s and early 90s, the buyer power was concentrated with a significant market share in that sector. But this relationship was unsustainable as many schools and universities were phasing out their Macs over IBM compatible machines with Microsoft Windows operating system. Since Apple didn’t standardize its line of products with the computer industry, it was able to retain certain level of control over pricing.
Supplier Power
Although it may seem otherwise, manufacturing companies only had partial influence over the supplier power. Porter framework explains that bargaining power of suppliers is high when the switching cost from one supplier is high; this is the case for the PC market. Because a producing industry requires material and supplies, this establishes an integral relationship between the industry and the firms that provide the raw material necessary to create the final product. For Apple, the company believes that software availability had always been the biggest deciding factor for consumers in PC purchase. Since Apple was the only maker of hardware using the Mac OS, and Mac OS had only a minority market share in the computer market, Apple’s performance depends heavily on having a concentrated line of suppliers and powerful and loyal group of customers.
Barriers to Entry
Apple's proprietary hardware and software architecture serves as a barrier to new entrants. It was able to command a premium based on factors like the ease of use as well as the implementation of graphical user interface. Consequently, in the education market, Apple had a significant presence through consistent target marketing, discounts, and top-notch customer service. But when Microsoft introduced Windows operating system starting with Windows 3.1, the functionalities and performance between Mac OS and Windows OS began to converge slowly. Besides the software platform standard, Apple was having difficulties distinguishing its own operating system with Microsoft. This resulted in weak financial performance in the next several years for Apple, until 1997 when Steve Job took over as CEO of the company.
Future of Apple Computer
For years industry experts have been using Michael Porters five forces to examine various aspects of their industries. Apple has indeed been successful in differentiating its line of product with IBM compatible machines. The introduction of iMac is a very good example. Consider the popularity of this line from Apple in its inception. At this time, all PCs that are sold in the market have similar physical appearance - grey tower, grey monitor, and grey keyboard. They were neither attractive in design nor user friendly. Part of the reason why iMac drew such a wide range of audience was its aesthetic appearance and user friendly design. Of course the introduction of Mac OS X was also another factor that had attributed to iMac’s success.
References
Croll, A.J, Croll, D.B. & Croll G.P. Case 12: Apple Computer Inc., (2000): Here We go
Again. Cases in Strategic Management and Business Policy. Upper Saddle River, New
Jersey: Pearson Prentice Hall.
