20:20 hindsight — Apple in 2006

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Reading a case study for my EMBA class this week was rather fun — looking at Apple Computer, circa 2006. (source: https://hbr.org/product/Apple-Computer--2006/an/706496-PDF-ENG). Writing in August 2017 the past decade is impossible to ‘un-imagine’: iPhone, iPad, the App Store, the decline then resurgence of Microsoft. But in 2006 none of that had yet come to pass.

As 2006 drew to a close, Apple Computer (now Apple Inc.) was in an interesting place.

Founded in 1976, Apple had been an early star in the rise of the PC, and was briefly the leader in a highly fragmented market. Throughout the mid 1980s, with the launch of the original Macintosh and the 1985 departure of CEO and co-founder Steve Jobs, the company developed a reputation for providing well-designed, user-centred products at a premium price. From that time through to around 2000, however, the company languished, losing market share and failing in several attempts at resurgence.

By the time of the case study in 2005, the company appeared to have emerged from oblivion. Share in the traditional PC market was up slightly, and the company offered new and interesting opportunities relating to its iPod consumer electronics devices and the iTunes Music Store.

The predicament in 2006

The situation facing Apple Computer — and a gaggle of investors, competitors, customers and onlookers — was particularly perplexing. Criticism focused on several specific areas:

  1. From a golden period in the late 1980s with 8%, Apple’s market share had fallen and stabilised around 2–3%. It appeared incapable of reversing that trend and despite some cost relief from the shift to Intel CPUs, it was continuing to offer premium products in a market seemingly driven by price.

  2. In pursuing its digital music strategy, Apple was appearing to move away from its core competencies, potentially spreading itself very thin and losing focus

  3. The entire market for PCs had been transformed by Dell and others. New business models had emerged with just-in-time, website ordering and ‘zero R&D’. Although Apple was pulling considerable volume through its online store it appeared to be pursuing various ‘failed’ strategies in launching new stores in major metropolitan centres and continuing to invest in innovation — developing its own mobile devices, operating system, and many of its own components such as capacitive touch screens.

So what?

The key questions for Apple concerned these quandaries:

  1. Should Apple continue to pursue deep product innovation or become a ‘box shipper’ like Dell?

  2. Could Apple reduce costs enough to move into the larger middle of the market, including corporate sales, or would it remain only a provider at the premium end of the market?

  3. Could Apple successfully leverage its brand and customer relationships in order to command premium prices?

  4. What was Apple’s endgame in regard to the iPod, the iTunes Music Store and video? Was that destined to be a low-margin strategy where the record companies could dictate terms?

Reflections

A glance back ten years later is particularly revealing. As attractive as the case study authors describe the situation in 2006, it was just about to get much, much better.

Strategic Marketing successes of the next decade would include:

  • The launch several months later of the market-transforming iPhone and the development of the App Store

  • The resulting development of an Apple platform/ecosystem that would extend to areas such as tablets (iPad and iPad Pro), watches (Apple Watch), the living room (Apple TV), and the car (CarPlay)

  • The ability for Apple to indeed maintain — and even extend — its margins at a time when all PC manufacturers competed almost exclusively on price, with razor-thin margins.

At the time of writing, Apple Inc. is valued at USD 825.66B. Yet again, the critics are many, and the next decade should make for interesting viewing.