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Under the direction of Steve Jobs, Apple has been at the forefront of the digital portable music device industry with the iPod. The company is blazing a path in the all inclusive Smartphone sector as well with the iPhone. The design is truly elegant, yet simple looking and simple to use.
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Apple is the first and only handset manufacturer to have a contract with a cellular service provider that gives the manufacturer a portion of the revenues generated by the phone’s service plan. This stream of revenue will increase when Apple and Verizon begin doing business with one another. Really? So you’ll get the same deal when you DROP exclusivity with AT&T? Wasn’t the primary reason that you got this unprecedented revenue stream/line in to the (AT&T) carrier’s customer due to the EXCLUSIVITY element? (only AT&T carried/accessed the iPhone)? So Verizon will pay the same $/same deal and AT&T will continue to pay the same deal for a NON-EXCLUSIVE arrangement? Seems unlikely. You (Apple) will be trading-off/forgoing this (AT&T/exclusivity-based carrier revenue for some other benefit? Leading to what revenue streams? This may seem a minor point but this is what I want you all to be able to think through/anticipate and think about how you’d start to quantify (even though you don’t have that type of info in this care/reasonably available)?
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Apple only hoped to capture 1% of the Smartphone market with the release of the iPhone, and today they hold roughly 14% (Business Week) What market? US? Europe? Asia?
- Apple benefits from a high level of brand recognition and awareness for its products. The company is able to leverage its brand image to distinguish its product offering and stimulate sales. Apple’s strong brand image permits it to charge a premium price for its products, giving the company an edge over competitors.
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Apple has experienced a robust financial performance in the past few years. The company’s revenues rose to 32,479 million in 2008 from 6,207 million in 2003. Margins (as the biggest single indicator of brand equity/loyalty/strength)?
- Apple recognizes that continual investment in research and development is critical to the development of innovative products such as the iPhone. The company continues to capitalize on the convergence of mobile communications and digital consumer electronics by refining the iPhone and other products.
- What about the iPad?
Background
I’m sure that this is interesting but not very inviting to the eye.
The latest cell phones, which in the beginning were merely mobile telephones, are increasingly becoming Smart phones, with integrated texting and e-mail capabilities, built-in cameras, global positioning systems (GPS), Internet, video, software applications, music download and playing capabilities, and even computing capabilities. This integration of hardware and software into one mobile device is transforming the entire mobile-telecom industry. Current market players, representing hardware makers, software developers, and network carriers, are facing new opportunities and challenges during this transformation. Hardware players must integrate the latest features into one mobile, fast, and easy-to-use device while controlling costs, though even today (early 2010), mobile music devices such as Apple’s iPod, still sell in increasing numbers. Software players, including those who provide operating systems and music download applications, must choose either proprietary coding or open-source coding to ensure compatibility with the latest smart phones. Network carriers face many challenges: upgrading (at great cost) existing infrastructure to provide broadband capability so customers can quickly download software and music; ensuring the broadband upgrades do not reduce carriers to mere utilities or commodities; and choosing hardware and software offerings to customers. Previously, network carriers had the strongest position in the industry, but the integration of hardware and software likely means the other players will require a share of the revenues and profits, as seen with the Apple iPhone and AT&T contract. With this background in mind, investors must decide which company or companies will profit and survive in the transforming mobile-telecom industry.
Analysis
Possible Value Chains:
*Smartphone content includes: phone, text, video, music, camera, GPS, e-mail, Internet access, applications, etc.
Strengths:
- Revenue sharing program advantageous for AT&T
- Apple’s brand equity (loyalty, awareness, associations)
- AT&T’s 3G network
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Largest number of available applications for customers Important why?
Weaknesses:
- Botched iPhone sales forecasts lead to overload of AT&T’s network
- Customer dissatisfaction with AT&T
- Health of Steve Jobs and uncertainty about future leadership of Apple
Strengths:
- RIM holds second largest percentage of market share in 2009
- Strength of Verizon’s network coverage (largest 3G network)
- Compatible with corporate e-mail interfaces
Weaknesses:
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RIM losing market share to Apple and Google Hmmmm? Sez who (particularly relevant as this is not my perception – my perception is that RIM and Apple have/are taking share from ‘others’?
- Slower 3G network
- Small presence in international market due to lack of substantial GSM technology
Strengths:
- Google phone unlocked and can be taken to any service provider
- Google brand equity (“Google it”)
- Google’s Android software expected to rise in market share
Weaknesses:
- Pending lawsuit regarding patent infringement by Apple
- New to the Smartphone market
- T-Mobile market share slipping
Strengths:
- Verizon U.S. network
- Google services available on Smartphone
Weaknesses:
- Android platform cannot sync with iTunes or Microsoft e-mail accounts
- Lack of applications for customers
Strengths:
- Verizon currently updating network to 4G which will allow customers faster data services
- iPhone available to customers who are unhappy with other service providers
- Synergy created by customer loyalty to Apple and Verizon
- Increased customer service satisfaction because Apple – a leader in customer satisfaction – handles all iPhone issues
- Verizon’s cutting edge 4G international technology (LTE)
Weaknesses:
- LOSS OF REVENUE when there is no carrier exclusivity or when Verizon fails to bite on the same deal that AT&T took initially. Verizon passed on it the first time – why would they bite now?
- for Verizon network to be overwhelmed by new iPhone users
- Steve Jobs’ health
- LTE not yet in place and Apple is likely to delay a contract with Verizon until it is
Next Steps
- Keep up on the progress of Verizon’s new LTE 4G mobile network
- Begin working on what type of contract terms Apple will have with both AT&T and Verizon in regards to the revenue sharing
- Begin marketing the release of the iPhone on the Verizon network
References
Farzad, Roben. (2010, February). AT&T’s iProblem. Business Week, February 15, 2010, 34-40.
Boom in the bust. (March 7, 2009). The Economist. 69-70