Apple Is Expanding Its Distribution Channels

Apple is Expanding its Distribution Channels Cliff Edwards of Business Week harped on conflicts with existing retailers such as CompUSA and Sears, quoting CompUSA’s Lawrence N. Mondry, who declared, â€Å"When you choose to compete with your retailers, clearly that’s not a comfortable situation. † Mondry could have been describing the experience Mac buyers had when they stepped into most CompUSA stores. It was even worse at Sears. Realizing that they were being held over a barrel by big retailers that were used to calling the shots with computer OEMs and frequently provided a horrible purchasing environment for Apple products, the company did what it had to and took control of distribution. Apple retail stores would give the company the opportunity to â€Å"leapfrog† past dependence on other retailers. Daniel T. Niles of Lehman Brothers also saw the possibilities, telling MacWorld, â€Å"Apple has the ability to start attracting new customers with the launch of their higher-end retail store strategy. You can’t mention the surge in Mac sales without touching on the â€Å"Halo Effect† of the iPod. Apple made the iTunes/iPod combination available for Windows users. That move created several new distribution opportunities for Apple. First, it gave Windows users the opportunity to try Apple products without having to take the frightening plunge into the world of Macintosh. Apple finally had ac cess to a vast pool of Windows users it had previously been unable to touch. Second, it opened up a secondary market for iPod accessories and tie-ins. Had the iPod only been available for Macintosh users, a secondary market would have developed, but it would have been much, much smaller. Apple would never have been able to strike deals with auto manufacturers, for example. The connector on the bottom of every iPod (except the shuffle) became the point of entry to an incredible array of third-party products, and as that market grew, the iPod rapidly became the de facto standard portable multimedia device. Third, it gave the iTunes Store a tremendous head start. While a digital music store is handy in itself, none of the previously-existing stores had made much of a dent in consumer behavior. They didn’t operate particularly well with Windows-based MP3 players, and they didn’t offer broad enough music libraries. Apple struck deals with all the major labels and created a store that provided an easy, addictingly-convenient interface and seamless integration with the iPod. As the universe of purchased iPods grew, so did the market for the iTunes Store. The integration of iPod and iTunes also created a gestalt effect as Apple moved beyond music. Just as the Apple retail stores bypassed middlemen, the iTunes/iPod combination created a direct link between Apple and its customers. As Apple adds more capabilities to the iTunes Store, and does the same with the iPod, the two should continue to energize each other, provided Apple rolls out the right kinds of features. In 2001 Apple Computer has been taken a decision to open a series of retail stores that would display their entire line of Apple computer products, software and peripherals. Part of the decision, Apple's declining share of the computer market. Now the company has opened over 130 stores, including in Japan, Canada and the UK. It's latest annual report states that they will continue capital expenditures for retail operations, indicating that they have a long-term strategy for opening more stores. Apple Computer Store Products Hardware: It includes, iMac, Mac Mini, iBook, Mac Book, Mac Book Pro, iPod, Apple Cinema Displays, Airport Cards, iSight, Apple accessories etc. These are purchased from the Apple Store Online or by the phone. Apple Software: It includes iLife, iWork application bundles, Mac OS X, DVD Studio Pro, FinalCut Pro, and other miscellaneous Apple software titles. Third Party Software: It is made for Mac OS X, such as productivity software, design software, utilities, games much everything new that has been released for Mac OS X. Select Third Party Accessories: In this Apple ranges starts from Apple notebooks and iPod sleeves to speakers, printers, scanners, memory upgrades, and digital cameras. In Apple Store there are two types, those are: Retail store Online store The Apple Store, Regent Street, London, UK, is part of a chain of retail stores owned and operated by Apple Inc. , dealing in computers and consumer electronics. As of April 2008, Apple has opened 209 stores, including 181 in 37 US states, 15 in the UK (14 in England, 1 in Scotland), seven in Japan, and 4 in Canada. Recently, Apple opened its first store in continental Europe, in Rome in Italy. In 2008, Apple will be opening 3 Australian stores, 1 located in Melbourne and 2 in Sydney. This store is the first Apple Store in Europe. It opened in autumn 2004 Will Apple's stainless steel architecture have to take a background to the historic buildings of other countries? In Japan, Apple uses English almost exclusively. But other countries may not embrace English, preferring to see their own language used in store signage. Apple will have to balance the cost of constructing a store, recruiting a suitable staff, and operating the store against the potential revenues, which in turns depends upon the registered Macintosh community, median income, currency trends and general retailing environment–just like at home! Apple’s centralized and extremely consumer oriented approach to mobile software distribution is revolutionary My argument is that it’s revolutionary in the same way the iPod and iTunes were revolutionary. Basically, the formula is similar to why Apple succeeded w/ the iPod and iTunes despite competition from manufacturers like Sony, ancient models for music distribution, and technology inept publishers Apple’s Solution: take the carriers out of the picture and give the developers a low cost or zero cost distribution channel Jobs began Apple's turnaround with the 2001 introduction of the iPod, which defined and then dominated the portable-music-player market—and which became central to the resuscitation of Apple's computer line. The Mac, once derided as a toy, today is the best personal computer on the planet, period. And the iPhone is the best smart phone. Nothing else comes close. As of the third quarter of 2008, Apple's iPhone was outselling the Research in MotionBlackBerry, even though the iPhone had been in the market for only 15 months. When measured by revenues, Apple has become the world's third-largest mobile-phone maker, behind Nokia and Samsung. All this is happening just as mobile devices are poised to become the most important computing platform. same or similar products. Strategic management, horizontal integration is a theory of ownership and control. It is a strategy used by a business or corporation that seeks to sell one type of product in numerous markets. To get this market coverage, several small subsidiary companies are created. Each markets the product to a different market segment or to a different geographical area. This is sometimes referred to as the horizontal integration of marketing. The horizontal integration of production is where a firm has plants in several locations producing similar products. Apple is leader on the MP3 player market. Dynamic approach: history of a firm can explain its leader position. In my example, Apple innovates with its couple iPod+iTunes and keeps the leadership since Some points of its strategy are astonishing because they look similar as Apple strategy for PC. Apple doesn't want to licence its own DRM, so if you want buy a song on internet for your iPod you have to go to the iTunesMuciStore and to listen this song directly on a MP3 player you must have an iPod (some consumers lodge a complaint against Apple). So, Apple does the same thing for its MP3 player than the computers about twenty years ago. Short term Apple wins but the market increases and we can't know how this leadership will progress and if Apple would change its strategy. The theory of games can help us to understand this choice and the risks. Installed firms are Stackelberg leader on the market, the potential entrance adapt its quantity. (Bain, J. (1968) Apple Inc. and its wholly owned subsidiaries design, manufacture, and market personal computers, portable digital music players, and mobile communication devices, and sell various related software, services, peripherals, and networking solutions. The company sells its products worldwide through its online stores, its retail stores, its direct sales force, and third-party wholesalers, resellers, and value-added resellers. In addition, it sells various third-party Macintosh, iPod, and iPhone compatible products, including application software, printers, storage devices, speakers, headphones, and various other accessories and peripherals through its online and retail stores, and digital content through the iTunes Store. The company sells its products to consumer, small and mid-sized business, education, enterprise, government, and creative customers. As of December 27, 2008, it had 251 retail stores. Apple Inc. , formerly known as Apple Computer, Inc. , was founded in 1976. The company is headquartered in Cupertino, California Company Background Apple Inc. and its wholly-owned subsidiaries (collectively â€Å"Apple† or the â€Å"Company†) design, manufacture, and market personal computers, portable digital music players, and mobile communication devices and sell a variety f related software, services, peripherals, and networking solutions. The Company sells its products worldwide through its online stores, its retail stores, its direct sales force, and third-party wholesalers, resellers, and value-added resellers. In addition, the Company sells a variety of third-party Macintosh ® (â€Å"Mac†), iPod ® and iPhoneâ„ ¢ compatible products, including application software, pri nters, storage devices, speakers, headphones, and various other accessories and peripherals through its online and retail stores, and digital content through the iTunes Store ®. The Company sells to consumer, small and mid-sized business (â€Å"SMB†), education, enterprise, government, and creative customers. The Company’s fiscal year is the 52 or 53-week period that ends on the last Saturday of September. Unless otherwise stated, all information presented in this Form 10-K is based on the Company’s fiscal calendar. Business Strategy The Company is committed to bringing the best personal computing, portable digital music and mobile communication experience to consumers, students, educators, businesses, and government agencies through its innovative hardware, software, peripherals, services, and Internet offerings. The Company’s business strategy leverages its unique ability to design and develop its own operating system, hardware, application software, and services to provide its customers new products and solutions with superior ease-of-use, seamless integration, and innovative industrial design. The Company believes continual investment in research and development is critical to the development and enhancement of innovative products and technologies. In addition to evolving its personal computers and related solutions, the Company continues to capitalize on the convergence of the personal computer, digital consumer electronics and mobile communications by creating and refining innovations, such as the iPod, iPhone, iTunes Store, and Apple TV ®. The Company desires to support a community for the development of third-party products that complement the Company’s offerings through its developer programs. The Company offers various third-party software applications and hardware accessories for Mac ® computers, iPods and iPhones through its retail and online stores, as well as software applications for the iPhone platform through its iTunes ® App Store. The Company’s strategy also includes expanding its distribution network to effectively reach more of its targeted customers and provide them with a high-quality sales and post-sales support experience. Consumer and Small and Mid-Sized Business The Company believes a high-quality buying experience with knowledgeable salespersons who can convey the value of the Company’s products and services greatly enhances its ability to attract and retain customers. The Company sells many of its products and resells certain third-party products in most of its major markets directly to consumers and businesses through its retail and online stores. The Company has also invested in programs to enhance reseller sales, including the Apple Sales Consultant Program, which places Apple employees and contractors at selected third-party reseller locations. The Company believes providing direct contact with its targeted customers is an efficient way to demonstrate the advantages of its Mac computers and other products over those of its competitors. At the end of fiscal 2008, the Company had opened a total of 247 retail stores, including 205 stores in the U. S. and a total of 42 stores internationally. The Company has typically located its stores at high-traffic locations in quality shopping malls and urban shopping districts. A goal of the Company’s retail business is to expand its installed base through sales to customers who currently do not already own the Company’s products. By operating its own stores and locating them in desirable high-traffic locations, the Company is better positioned to control the customer buying experience and attract new customers. The stores are designed to simplify and enhance the presentation and marketing of the Company’s products and related solutions. To that end, retail store configurations have evolved into various sizes in order to accommodate market-specific demands. The stores employ experienced and knowledgeable personnel who provide product advice, service, and training. The stores offer a wide selection of third-party hardware, software, and various other accessory products and peripherals selected to complement the Company’s own products. Business Organization The Company manages its business primarily on a geographic basis. The Company’s reportable operating segments consist of the Americas, Europe, Japan, and Retail. The Americas, Europe, and Japan reportable segments do not include activities related to the Retail segment. The Americas segment includes both North and South America. The Europe segment includes European countries as well as the Middle East and Africa. The Retail segment operates Apple-owned retail stores in the U. S. and in international markets. Each reportable geographic operating segment and the Retail operating segment provide similar hardware and software products and similar services. Further information regarding the Company’s operating segments may be found in Part II, The Company has signed multi-year agreements with various cellular network carriers authorizing them to distribute and provide cellular network services for iPhone 3G in over 70 countries. These agreements are generally not exclusive with a specific carrier, except in the U. S. , U. K. , France, Germany, Spain, Ireland, and certain other countries. The Company expects to ship iPhone 3G in over 70 countries by the end of calendar year 2008. Markets and Distribution The Company’s customers are primarily in the consumer, SMB, education, enterprise, government, and creative markets. The Company distributes its products through wholesalers, resellers, national and regional retailers, and cataloguers. No individual customer accounted for more than 10% of net sales in 2008, 2007, or 2006. The Company also sells many of its products and resells certain third-party products in most of its major markets directly to customers through its own sales force and retail and online stores. Significant portions of the Company’s Mac computers, iPods, iPhones, logic boards, and other assembled products are manufactured by outsourcing partners, primarily in various parts of Asia. A significant concentration of this outsourced manufacturing is currently performed by only a few of the Company’s outsourcing partners, often in single locations. Certain of these outsourcing partners are the sole-sourced suppliers of components and manufacturing outsourcing for many of the Company’s key products, including but not limited to final assembly of substantially all of the Company’s portable Mac computers, iPods, iPhones and most of the Company’s iMacs. Although the Company works closely with its outsourcing partners on manufacturing schedules, the Company’s operating results could be adversely affected if its outsourcing partners were unable to meet their production commitments. The Company’s purchase commitments typically cover its requirements for periods ranging from 30 to 150 days. Foreign and Domestic Operations and Geographic Data The U. S. represents the Company’s largest geographic marketplace. Approximately 57% of the Company’s net sales in 2008 came from sales to customers inside the U. S. Final assembly of the Company’s products is currently performed in the Company’s manufacturing facility in Ireland, and by external vendors in California, the Republic of Korea (â€Å"Korea†), the People’s Republic of China (â€Å"China†) and the Czech Republic. Currently, the supply and manufacture of many critical components is performed by sole-sourced third-party vendors in the U. S. , China, Japan, Korea, Malaysia, Philippines, Taiwan, Thailand, and Singapore. Sole-sourced third-party vendors in China perform final assembly of substantially all of the Company’s portable products, including MacBook Pro, MacBook, MacBook Air, iPods, iPhone, and most of the Company’s iMacs. Margins on sales of the Company’s products in foreign countries, and on sales of products that include components obtained from foreign suppliers, can be adversely affected by foreign currency exchange rate fluctuations and by international trade regulations, including tariffs and antidumping penalties. The Company’s operations and performance depend significantly on worldwide economic conditions Global markets for personal computers, digital music devices, mobile communication devices, and related peripherals and services are highly competitive and subject to rapid technological change. If the Company is unable to compete effectively in these markets, its financial condition and operating results could be materially adversely affected. The Company competes in global markets that are highly competitive and characterized by aggressive price cutting, with its resulting downward pressure on gross margins, frequent introduction of new products, short product life cycles, evolving industry standards, continual improvement in product price/performance characteristics, rapid adoption of technological and product advancements by competitors, and price sensitivity on the part of consumers. The Company’s ability to compete successfully depends heavily on its ability to ensure a continuing and timely introduction of new innovative products and technologies to the marketplace. The Company believes it is unique in that it designs and develops nearly the entire solution for its personal computers, consumer electronics, and mobile communication devices, including the hardware, operating system, several software applications, and related services. As a result, the Company must make significant investments in research and development and as such, the Company currently holds a significant number of patents and copyrights and has registered and/or has applied to register numerous patents, trademarks and service marks. By contrast, many of the Company’s competitors seek to compete primarily through aggressive pricing and very low cost structures. If the Company is unable to continue to develop and sell innovative new products with attractive margins or if other companies To remain competitive and stimulate customer demand, the Company must successfully manage frequent product introductions and transitions. Due to the highly volatile and competitive nature of the personal computer, consumer electronics and mobile communication industries, the Company must continually introduce new products and technologies, enhance existing products, and effectively stimulate customer demand for new and upgraded products. The success of new product introductions depends on a number of factors, including timely and successful product development, market acceptance, the Company’s ability to manage the risks associated with new products and production ramp issues, the availability of application software for new products, the effective management of purchase commitments and inventory levels in line with anticipated product demand, the availability of products in appropriate quantities and costs to meet anticipated demand, and the risk that new products may have quality or other defects in the early stages of introduction. Accordingly, the Company cannot determine in advance the ultimate effect of new product introductions and transitions on its financial condition and operating results. The Company’s success depends largely on its ability to attract and retain key personnel. Much of the Company’s future success depends on the continued service and availability of skilled personnel, including its CEO, its executive team and key employees in technical, marketing and staff positions. Experienced personnel in the technology industry are in high demand and competition for their talents is intense, especially in the Silicon Valley, where most of the Company’s key employees are located. The Company has relied on equity awards as one means for recruiting and retaining this highly skilled talent. Accounting regulations requiring the expensing of stock options have resulted in increased stock-based compensation expense, which has caused the Company to reduce the number of stock-based awards issued to employees and could negatively impact the Company’s ability to attract and retain key personnel. Additionally, significant adverse volatility in the Company’s stock price could result in a stock option’s exercise price exceeding the underlying stock’s market value or a significant deterioration in the value of restricted stock units (â€Å"RSUs†) granted, thus lessening the The Company’s business is subject to the risks of international operations. The Company derives a large and growing portion of its revenue and earnings from its international operations. As a result, its financial condition and operating results could be significantly affected by risks associated with international activities, including economic and labor conditions, political instability, tax laws (including U. S. taxes on foreign subsidiaries), and changes in the value of the U. S. dollar versus local currencies. Margins on sales of the Company’s products in foreign countries, and on sales of products that include components obtained from foreign suppliers, could be materially adversely affected by foreign currency exchange rate fluctuations and by international trade regulations, including tariffs and antidumping penalties. The Company’s primary exposure to movements in foreign currency exchange rates relate to non-U. S. dollar denominated sales in Europe, Japan, Australia, Canada, and certain parts of Asia, as well as non-U. S. dollar denominated operating expenses incurred throughout the world. Weakening of foreign currencies relative to the U. S. dollar will adversely affect the U. S. dollar value of the Company’s foreign currency-denominated sales and earnings, and generally will lead the Company to raise international pricing, potentially reducing demand for the Company’s products. In some circumstances, due to competition or other reasons, the Company may decide not to raise local prices to the full extent of the dollar’s strengthening, or at all, which would adversely affect the U. S. dollar value of the Company’s foreign currency denominated sales and earnings. Conversely, a strengthening of foreign currencies, while generally beneficial to the Company’s foreign currency-denominated sales and earnings, could cause the Company to reduce international pricing, thereby limiting the benefit. As strengthening of foreign currencies may also increase the Company’s cost of product components denominated in those currencies. The Company has used derivative instruments, such as foreign exchange forward and option positions, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. The Company’s retail business has required and will continue to require a substantial investment and commitment of resources and is subject to numerous risks and uncertainties. Through September 27, 2008, the Company had opened 247 retail stores. The Company’s retail stores have required substantial fixed investment in equipment and leasehold improvements, information systems, inventory, and personnel. The Company also has entered into substantial operating lease commitments for retail space with terms ranging from 5 to 20 years, the majority of which are for 10 years. Certain stores have been designed and built to serve as high-profile venues to promote brand awareness and serve as vehicles for corporate sales and marketing activities. Because of their unique design elements, locations and size, these stores require substantially more investment than the Company’s more typical retail stores. Due to the high fixed cost structure associated with the Retail segment, a decline in sales or the closure or poor performance of individual or multiple stores could result in significant lease termination costs, write-offs of equipment and leasehold improvements, and severance costs that could have a material adverse effect on the Company’s financial condition and operating results. The Company’s headquarters are located in Cupertino, California. The Company has a manufacturing facility in Cork, Ireland. As of September 27, 2008, the Company leased approximately 4. 2 million square feet of space, primarily in the U. S. and to a lesser extent, in Europe, Japan, Canada, and the Asia Pacific region. The major facility leases are generally for terms of 3 to 20 years and generally provide renewal options for terms of 1 to 5 additional years. Leased space includes approximately 1. 8 million square feet of retail space, a majority of which is in the U. S. Lease terms for reta il space range from 5 to 20 years, the majority of which are for 10 years, and often contain multi-year renewal options. As of September 27, 2008, the Company owned a 367,000 square-foot manufacturing facility in Cork, Ireland that also housed a customer support call center. The Company also owned 805,000 square feet of facilities in Sacramento, California that include warehousing and distribution operations, as well as a customer support call center. In addition, the Company owned approximately 2. 3 million square feet of facilities for research and development and corporate functions in Cupertino, California, including approximately 1. 0 million square feet purchased in 2007 and 2006 for the future development of the Company’s second corporate campus in Cupertino, California, and approximately 107,000 square feet for a data center in Newark, California. Outside the U. S. , the Company owned additional facilities totaling approximately 129,000 square feet as of September 27, 2008. The Company believes its existing facilities and equipment are well maintained and in good operating condition. The Company has invested in internal capacity and strategic relationships with outside manufacturing vendors, and therefore believes it has adequate manufacturing capacity for the foreseeable future. The Company continues to make investments in capital equipment as needed to meet anticipated demand for its products. Globalization, Technology, and E-business are all major factors influencing today's business world. They influence many of our business related decisions on a daily basis. Some of these decisions could be deciding to use a computer to order a new desk from Singapore or using your cell phone to make a conference call in India. Even Apple's management functions are not immune to these critical factors. Apple began selling personal computers produced in the garage of one of the founders in 1976. They were incorporated in 1977. Apple's first important product, the Apple II, personal computer was released in 1977 and by 1982 sales had increased to over $750 million. (Kimmel, 1998). It was clear that globalization played a big part in this success. Globalization is becoming a must have for large organizations to excel above their competition. With that being said globalization has been influential to Apple's revenue. According to Apple, their â€Å"international sales accounted for 43 percent of the quarter's revenue† (Dowling, 2005), this is continuing to rise. The rise in revenue is a result of excellent management and planning. Because of the need to go international, Apple created a strategic plan to go forward in the direction of globalization. This type of globalization will involve countries with different needs and different markets. For instance, planning a marketing scheme must involve the different variables that apply for each market. When planning globally, company structure must be taken into consideration. With that being said organization and control go hand in hand Steve Jobs came back once again as the CEO of Apple in 1997. This time he had a new game plan, and Apple started to focus on the digital lifestyle of consumers. This proved to be Apple’s most successful business strategy to date because a once ineffective company now had ruled the computer world. In 2005, Apple announced that it would start using Intel-based chips to run Macintosh computers. In April 2006, Apple announced Boot Camp, which allows users of Intel-based Macs to boot either Mac or Windows OS. This functionality allows users who may need both OSs to own just one machine to run both, albeit not simultaneously