Business of Apple - Coursework Example

Apple Table of Contents I. Draft Report II. Introduction III. Situation Analysis External Environmental Analysis Porter’s Five Forces PESTLE AnalysisInternal Analysis SWOT Analysis III. Proposed Solutions References I. Draft Report Apple has a truly formidable business providing mobile computing and communications products and services, as well as digital content, software, and apps to its customers all over the world, in an ecosystem that is hard to match in the world of tech. Its market valuation makes it among the top companies in the world, and the biggest name in technology. That said, it is not completely immune from emerging threats, among them a threat to the viability of its music and digital content businesses, the iTunes platform. The threats are coming from subscription-based streaming services from the likes of Pandora and Spotify, which is a direct challenge to the download for a fee model of Apple iTunes. This is a big problem potentially for Apple because the new firms can tank iTunes music revenues, and seriously undermine Apple’s business model. The proposed solutions therefore rely on leveraging the formidable strengths and assets of Apple, including its large cash hoard and its venerable name, to come up with alternatives to Spotify in order to check the latter’s rise and to shore up Apple’s revenues in music subscription sales. This solution leverages key strengths, and also leverages emerging trends in cloud computing and the benefits to be had from harnessing technological progress in cloud computing. This report makes use of external environmental analytical frameworks such as PESTLE and Porter’s Five Forces frameworks, as well as a SWOT analysis, to properly assess the extent of the market problem and Apple’s condition relative to the external market challenge (Hunt 2011; Goldman 2010; Ausick 2013; Google Finance 2014; Schaefer 2014; Hinks 2014; McDuling 2014). II. Introduction Apple needs no introduction. The maker of the iPhone and the iPad is the most influential and the biggest name in technology, and its smartphone business and the ecosystem of apps, software, music and other digital content is the biggest in the world in terms of revenues and traction in the premium markets all over the world. The company is described as being in the business of providing both portable devices and computing devices for mobile communication and personal computing, together with the digital content, platform and apps that go with the hardware. Apart from the iPhone and the iPad, the company is also the maker of the Mac and the Apple TV platforms, together with software such as iOS and OS X, and iCloud. Content is aggregated via iTunes and the App Store. With a market capitalization of $ 661.67 billion, Google is the biggest tech firm on the planet, and one of the most profitable if not the most profitable (Google 2014; Schaefer 2014; Hinks 2014; McDuling 2014; Allan 2014). The cloud computing rush in general is shaping up to be a long-term threat to Apple and its services offerings, especially iTunes. The competition has come to dominate streaming music, for instance, in the form of competitors like Spotify and Pandora. If Apple does not address this, it is at risk of totally losing out in the cloud and of eventually losing revenues from its traditional iTunes services, where consumers pay to download songs. In the emerging model, consumers pay a small flat fee, of about $10 dollars a month, in exchange for unlimited streaming of vast libraries of music. This subscription model and Internet radio models threaten to marginalize Apple and its revenues in music and other digital content (Hunt 2011; Goldman 2010; Ausick 2013). III. Situation Analysis A. External Environmental Analysis 1. Porter’s Five Forces In terms of the bargaining power of buyers, the proliferation of many providers of streaming music and Internet radio services and the presence of non-legal forms of music access and digital content access means that buyers have high bargaining power. This is arguably part of the reason why Spotify is unable to jack up pricing for its services ,and has to complement subscription-based services with free streaming supported by ads. The same goes for the other players in the industry, except for Apple, where it can dictate pricing for its music for those who use the iPhone and the iPad (Google Finance 2014; Hunt 2011; Goldman 2010; Ausick 2013). In terms of the bargaining power of suppliers, for streaming content it is low, except again for Apple because of its captive market. This may change if Spotify and others gain traction at the expense of iTunes users. The threat of substitutes is high, because of the proliferation of options discussed above, and the threat of new entrants is low, given the scale needed to compete with the present players. The level of competition is high (Hunt 2011; Goldman 2010; Ausick 2013) 2. PESTLE Analysis Concentrating on Apple’s core domestic market which is the United States, no political factors are relevant due to the stable political system in the US. Economic factors include purchasing power issues with changes in the buying power of the dollar, and jobs numbers and how those affect consumption. Social factors relate to the way consumers warm up to streaming versus traditional social practices of downloading and paying for downloaded content. Technological factors relate to advancements in cloud computing and how those impact streaming music and digital content consumption. Legal factors relate to legal issues with streaming and royalty payments for artists. Environmental factors are negligible for digital content (Hunt 2011; Goldman 2010; Ausick 2013). B. Internal Analysis 1. SWOT Analysis While many competitors seem to offer credible threats to the various aspects of Apple’s business, such as selling music and digital content, the truth is that Apple is operating from a host of formidable strengths. One, it has one of the best brands in the planet, and one that commands the loyalty and the premium dollars of its fans and users. Two, it has an ecosystem of apps and content that few companies outside are able to penetrate and to topple. Three, Apple has a lot of money in reserve that it can use to build new businesses and to fortify its existing products and services. In the case of streaming music, this meant buying Beats in a deal that would allow it to compete better with the likes of Pandora and Spotify. Four, it has a large customer base that is locked in to Apple products and services which it can herd into its future products as well (Google Finance 2014; Hunt 2011; Goldman 2010; Ausick 2013). On the other hand, it has many weaknesses at present as well. Among these are that in comparison to Spotify and Pandora it is unable to offer its services and products mostly outside of its own platform. In contrast, Spotify is available in Android and in Windows. This limits what Apple can do to compete with other streaming and cloud services. Opportunities lie in strengthening its own streaming services to compete better with Spotify and Pandora. Threats are in the form of new services cutting into its iTunes revenues as discussed above (Hunt 2011; Goldman 2010; Ausick 2013). III. Proposed Solutions Given the above analysis, it is clear that Apple needs to leverage all of its strengths to get into streaming services and to prevent competitors like Spotify from killings its digital content business through iTunes. Apple has the brand, the money, the ecosystem and the following to do this. Moreover, Apple needs to take into account technological and market changes in music and content consumption when creating its own streaming business, so as not to be blindsided by the business model of Spotify and other potential new entrants (Hunt 2011; Goldman 2010; Ausick 2013; Google Finance 2014). References Allan, D. (2014). Apple snaps up Beats Electronics and Beats Music streaming service for $3bn. IT Pro Portal. [Online] Available from: http://www.itproportal.com/2014/05/29/apple-snaps-up-beats-electronics-and-beats-music-streaming-service-for-3bn/ [Accessed 13 November 2014] Ausick, P. (2013). Apple, Google Fail to Dominate Internet Radio; Spotify Makes a Move. 24/7 Wall St. [Online] Available from: http://247wallst.com/media/2013/12/06/apple-google-fail-to-dominate-internet-radio-spotify-makes-a-move/ [Accessed 13 November 2014] Goldman, D. (2010). Apple faces iTunes threat from overseas. CNN Money. [Online] Available from: http://money.cnn.com/2010/05/04/technology/apple_itunes_spotify/index.htm?iid=EAL [Accessed 13 November 2014] Google Finance (2014). Apple Inc. Google. [Online] Available from: https://www.google.com/finance?cid=22144 [Accessed 13 November 2014] Hinks, J. (2014). Juniper: Spotify and Pandora under threat from Apple and Google in slow digital music sector. IT Pro Portal. [Online] Available from: http://www.itproportal.com/2014/08/19/juniper-spotify-and-pandora-under-threat-apple-and-google-slow-digital-music-sector/ [Accessed 13 November 2014] Hunt, K. (2011). 5 Reasons Spotify poses a threat to iTunes. Chicago Tribune. [Online] Available from: http://articles.chicagotribune.com/2011-08-27/features/sc-cons-0825-tech-spotify-itunes-20110827-13_1_itunes-stream-songs-streamable [Accessed 13 November 2014] McDuling, J. (2014). Pandora doesn’t think Apple and Beats are a threat. Quartz. [Online] Available from: http://qz.com/215288/pandora-doesnt-think-apple-and-beats-are-a-threat/ [Accessed 13 November 2014] Schaefer, S. (2014). Will Apple’s Beats Buy Hurt Pandora and Spotify? Forbes. [Online] Available from: http://www.forbes.com/sites/steveschaefer/2014/05/29/will-apples-beats-buy-hurt-pandora-and-spotify/ [Accessed 13 November 2014] Read More