Apples iPad - Microeconomics - Case Study Example

Microeconomics Term Paper: Apple’s iPad Microeconomics Term Paper: Apple’s iPad With over 30% of Internet users owning a tablet, it is easy to forget that these are still the early days of digital publishing. Yet, it was only 3 years ago that Apple unveiled the iPad and dramatically altered the digital landscape. We are spoiled with choices these days, with an abundance of pc tablets on the market meeting every digital need we could desire. I do not think, however, that any tech savvy individual would disagree as to whom was the mother of this popular pc format – Apples iPad. The iPad is the perfect model of a successful immersion into an unknown market, as well as an excellent guide as how to cunningly dominate the market position and delay attempts at competition successfully entering into the market. When Apple originally announced the iPad, critics and skeptics endlessly discussed how it was purely a product for Apple fan boys and early adapters – a very niche market (Bajarin, 2012, p. 24). History certainly attests differently to this – with millions of iPads sold since its initial launch – it is obvious that the target market stretched beyond that. To whom was the iPad targeted towards then? According to the late Steve Jobs, the iPad is designed for the media-focused generation of today (Travalos, 2013). That target is an audience that desires to view pictures and movies, listen to music, and surf the web from a versatile and mobile device, with a screen large enough to fully enjoy said media. As the Apple company famously markets, “A computer for the rest of us” (Travlos, 2013). This strategy has been proven incredibly successful, as Apple has turned what was considered to be a niche, luxury product, into what many computer users consider a necessity. The iPads successful launch can be directly attributed to the many years of strategic planning taking place prior to the launch. Apple had been working on a mobile tablet since the early 80s, with Steve Jobs even saying “...strategy is really simple. What we want to do is we want to put an incredibly great computer in a book that you can carry around with you and learn how to use in 20 minutes ...” (Travlos, 2013). This dream of Jobs would not come to fruition until 2010. However, with the seed planted 20 years prior, the buildup was effective. What Apple was effectively doing was creating a demand for a product whose main purpose was not yet fully realized. Come the second quarter of 2010, customers were lining up outside Apple stores to purchase a product that had no proven track record in terms of usefulness. In this way, Apple joined the exclusive club of companies that create demand for a specific good or service purely based on superb marketing and effective company culture. The launch of the iPad can certainly be considered a success, with over 3 million units sold in the first 2 months (Bajarin, 2012). This success continues today, with iPad (all generations) having sold over 50 million units and currently dominating over 60% of the tablet computer market share. Today, there are scores of tablet computers to choose from – with prices ranging from $100 to over $1000. Yet, for a company with no competition in which to compare their price with, Apple had to figuratively shoot in the dark with their pricing scheme. The most similar product on the market at that current time was the net book PC, mostly produced by Microsoft. When Apple decided to launch the iPad at a modest $499, most critics, such as PC Advisor, complemented the pricing, having estimated a higher entry price point (Bajarin, 2012). With Apple recognizing this good entry point, they established a platform that would not only allow them to achieve success, but maintain it to this day. Because Apple controls such a large market share, their pricing is still considered the model which others companies launch their tablet to. It is quite common to hear about the features of other tables touted in terms of how it compares with the iPad. In this regard, the pricing and product specification set by Apple appears to be model for other companies. For example, after the iPad Mini was released and priced at an affordable $329, an influx of small or mini tablet pcs also flooded the market, with the Toshiba Excite, Asus Nexus, and HP Slate all pricing competitively lower. Yet, even though the pricing is lower, other companies merely scratch the surface of Apples market share (Bajarin, 2012). Apple is able to completely dominate the market for several reasons – all well planned and extremely effective, and all showing a strong case of how to use the principles of microeconomics to ones advantage. Firstly, in addition to its price advantage, Apple has the advantage of being able to sell its merchandise through its own stores. Because there is no middleman, there is no slice taken out of its profit margin. Furthermore, it gives customers a platform with which to play around on the devices, yet cleverly not including competitors as an option, as other electronic shops would have to do. The environment itself is not some crowded Best Buy type store with greasy display models that do not work half the time. Apple prides itself on consistently opening spacious, modern stores with plenty of display products available and a highly trained team of staff. This alone certainly entices potential customers into the stores. Secondly, Apples profit margin from the iPad is astounding. During 2010, tablet computers generated $9.6 billion in revenues, yet of this figure, the iPad generated $9.5 billion. This means that all the competitors combined generated a paltry $34 million for the entire year (Kozlowski, 2012). Although this figure has changed significantly today, it still emphatically shows who planted the initial flag in this market. With a long-term future in mind, Apple has manipulated its relationships with manufacturers and suppliers over the last decade to arrive at its current position: Apple products are manufactured with high quality materials at a low price, generating a high profit margin. Price elasticity is at play here, when consider Apple’s ability to operate at such a high level and retain high profits. Even though the market for tablet computers is still relatively new, and the demand of the product has certainly not reached the level of the mobile phone market, there is still great excitement in the air. Apple has found a way to determine the price elasticity of its product based on perceived demand in the markets that it serves. This has enabled them to change prices of their products when releasing a new model based on the fluctuations that have been observed in recent quarters. The negative elasticity of the iPad product has certainly contributed to Apple’s bottom line by allowing them to meet the demands of a growing market by providing a quality product at a pricing point that enables them to achieve maximum profitability. Thirdly, Apple has mastered its manufacturing process. When a new technology arrives, you often see it on many platforms simultaneously. For example, LCD technology, when it became popular, was found on many brands of televisions. This is a standard pattern that repeats itself due to the fact that it takes a huge investment to perfect or innovate a new technology. What Apple does is completely different. They rely on their massive bank capital in order to pioneer the technology exclusively. Using this process, Apple is given exclusive technology with which they have complete control over. Not only is it more advanced in a particular market than competitors, but it can be manufactured inexpensively and quickly too, owing to the ongoing pipeline and preemptive planning that they have created. The technology that allows them to create retina displays, more responsive touch screens, aluminum bodies, brighter displays, thinner devices, and more, are the same factors that allow them to increase their profit margin. Apple ran with an ad campaign in 2012 stating that the iPad was “Resolutionary”. This might be a made up word, but the ideas behind it are certainly true. Ipad has revolutionized the mobile pc market with a product that offers the highest quality features from their packaging to the revolutionary resolution of the display. Fourthly, the developers at Apple crave the very product that they created. This might seem like a strange thing to say, but it explains the mentality of Apples development team. Most other companies, when developing a new technological product, focus first on the technological and specifications side of the product, then on whether or not people would really want to use it or not. There are many examples of this economic principle, but one only needs to look to the mobile phone market. There are scores of phones that made it to the market promising the latest technology and fastest processor, but have not been popular purely because they did not entice the consumer with an all round package that they truly wanted. Apples engineers, on the other hand, do not create because they can, but rather because they need. Steve Jobs was the lead user of Apple products and even maintained that his ideas for new products would come from needing a new device – and would therefore have it invented (Bajarin, 2012). This way of thinking is one of the reasons why thousands line up for days before the release of new Apple products, thinking that not only do they want it, but they need it too. Finally, Apple keeps things simple. This relates directly to their products, which are prided on being user-friendly, easy to learn, and uncomplicated. This is what drove Apples interface designs since the 80s and this is what still drives those designs today. It is almost like a slogan under the Apple logo – all products have to be intuitive. This is all the more impressive as technology advances and the task of keeping things simple is not so simple anymore. Furthermore, in the general scope of their products, Apple continues to follow their slogan of keeping things simple – they have quite a limited product range. Many marketing analysts would argue that this is a weak point, as consumers prefer choice (Kozlowski, 2013). This certainly is true in many situations, yet this seems not to be Apples case. They have 2 iPad models, iPad and iPad mini, and the specific knowledge held of these products is much greater than in an electronics store assistant is required to have a broad knowledge of over 20 models. Furthermore, by selling only a few models, Apple is minimizing the decision making process of the customer. Although the typical customer enjoys choice, they do not want a myriad of similar options that distinguish themselves via slightly different specifications. The majority of iPad users are not tech-savvy, and by offering 2 types of iPads, Apple is minimizing the complicated buying process and focusing on simplicity, quite successfully, as seen in the chart below: It is fairly undoubted and obvious that other companies have and are having such a hard time competing in this market. One factor that cannot be discounted in this is that iPad’s have a very large head start. This is true not only in releasing their physical hardware, but also with their operating system as well. Apple has been perfecting their operating system for the better part of 28 years now – that is plenty of time to work out kinks and focus on a smooth user-friendly experience – and that is exactly what they have done. Most competitors are starting from scratch when it comes to developing an OS, let alone developing the hardware too. They certainly will perfect this in the near future, but the problem lies in that by that time Apple will have moved beyond their iPad 4 and has a head start on the next technological innovation. Furthermore, the iPad, perhaps because of the head start and popularity, has already experienced global adoption into the educational and corporate markets. In 2012, Apple updated iTunes and iBooks, two of Apples most popular software, to tailor towards school and educational use. Shortly after, a study conducted by Houghton Mifflin Harcourt found that 78% of students who used an iPad tested in the proficient or advanced level, whilst only 59% of those whom did not have an ipad did (Kozlowski, 2013). This is clearly a growing market for Apple, and last year Apple CEO, Tim Cook said “ The adoption rate of iPad in education is something Ive never seen from any technology product in history. Usually education tends to be a fairly conservative institution in terms of buying, or K-12 does, and were not seeing that at all on the iPad” (Kozlowski, 2013). The enterprise market has also been taken over by the iPad. In a study conducted in 2012, it was found that 94% of Fortune 500 companies had tested the iPad in their corporate environment. In fact, Apple has tailor made specific apps to fit the needs of certain companies, ranging from accounting software to schedule planning. This is certainly proving a successful strategy, as recently the Fortune 500 company CES announced their distribution of 14,000 iPads to employees. Apple has successfully mastered the concept of supply and demand, a basic tenant of microeconomics. By determining the needs of educational institutions, companies, and individuals around the world, they have successfully saturated the market with useful products at a price that others are willing to pay. The iPad has firmly seated itself as the global leader amongst tablet pcs. More than that, it is the model in which other companies based their pricing, features, distribution methods, and even size. Yet continually the iPad seems to win in terms of market share. At the end of 2010, the year the iPad was launched, Apple controlled over 90% of the market share. Today, they control a smooth 70% (Bajarin, 2012). Analysts notice that this is following a similar trend to the iPod. With the iPod, Apple also revolutionized the way we interact with media and technology, and similarly they controlled the market during their launch and subsequent years. As a matter of fact, iPod is still the leading seller in the mp3 device market. That represents a 10-year dominance. The iPad is not much different. It was an innovative device released in a market that was disorganized or nonexistent, it was simple, it was needed, it was well made, it was well thought out, and it was meticulously planned for many years in the future. One of the key successes to business is the ability to adapt to the market. Companies that value their future do precisely this. Apple, however, is not an adapter, but rather an innovator. They have proven this with their computers, iPods, and of course the iPad – and in the hopes of an exciting user experience, will continue to do this for many more years. As we conclude, it is important to review the important economic principles guiding the tech market today. There is a dearth of products invading the marketplace for everything from televisions to computers to kitchen gadgets. To be competitive and maintain profitability, companies are wise to focus on certain product niches that set them apart from the competition. Apple has successfully done that in many arenas, particularly with the iPad. By perfecting the manufacturing process, creating product innovations before their competitors, and properly pricing its product, Apple has firmly seated itself in first place in the tablet market. For this to continue, the company would be wise to remember what go them to this point. They cannot rest easy, but must constantly be examining the market for points of interest that affect their product. References Apple iPad Mini Announced, Starts at $329. Feedburner. Gadetician, 23 Oct. 2012. Bajarin, T. (2012). My top trends for 2013. PCMAG, 26 June 2013, 22-26. Bajarin, T. (2012). Six reasons why Apple is successful. Time, 7 May 2012, 48-50. Travlos, D. (2012). Apple: Eight reasons why the iPad will dominate the tablet category. Forbes, 30 Nov. Kozlowski, M. (2013). Feature: Why e-reader and tables companies fail. Good eReader Ebooks Publicshing and Comic News RSS. Read More