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Consumer products changing landscape: The beginning of an AI-powered world
  1. Online shopping experience
  2. Weekly Industry Newsletter
  3. Apple’s Product Development Process – Inside the World’s Greatest Design Organization
  4. Why is Apple’s Marketing Just So Darn Good?

The gross margin percentage in was The decrease in gross margin in compared to was driven by multiple factors including introduction of new versions of existing products with higher cost structures and flat or reduced pricing, a shift in sales mix to products with lower margins, introduction of iPad mini with gross margin significantly below average product margins Apple, The following chart show the operating segments share of net sales over the past 3 years.

Analysing Apple's Product Market Interaction Apple has its roots as a computer company but its current business strategy encompasses far more products than just its Mac line of personal computers PC. The success of these products and the potential of platform-based digital ecosystems means Apple now places more importance to such mobile communication devices than its traditional PC offerings.

The success of Apple's product can be attributed to two main factors. The ability to 'own the consumer' and the ability to both create and capture high value. Montgomerie argued that the turning point for Apple business model came in when Apple managed to control both hardware and content through the integration of iPod and iTunes music store. This multichannel platform allowed Apple to 'own the consumer'. By ensuring content is only usable within Apple devices, consumers are locked in via high switching cost should they choose to change platforms, switching cost only increases as consumer builds up content through digital download.

Consumer demand allows Apple to exercise control over its supplier, retailers and third party app developers. This leads to high value creation and capture. Apple uses its tremendous leverage over its suppliers to not only exert downward pressure on prices, leading to lower profits and margins but also to enforce strict control of product information and instant responses to production requests. This allows Apple to have huge product launches without having to maintain large and costly inventories.

Consumer electronics retailers are willing to give special galleries for Apple products because of high consumer demand and higher margins which in effect is increasing the effectiveness Apple reach out to consumers without adding new retail stores. Third party developers are drawn to Apple's lucrative platform and continues producing applications app which increases the value of Apple profitable hardware devices. Apple takes a 30 percent cut from app sales and in-app advertising revenue. Apple benefits from not having to pay the labor costs of developers and loses nothing if an app does not sell but profits handsomely if successful.

Capital Market The means to financing a company's strategy lies in its use of equities and debts. I shall examine Apple's capital structure by focusing on its ability to generate returns and the sustainability of its debts. Some key financial ratios: Source: Apple Financial Statements. Apple's short term liquidity Year Current Ratio 1.

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Reduced net income reduced the returns Apple could generate given the increased equity base. If Apple did not increase its debt to equity ratio, reduce cash from assets and reduce its equity levels, the ratios would have been even worst. Indicating to investors that Apple was failing to generate returns for shareholders. Including reinvestment of dividends Source: Apple Financial Statements.

Weekly Industry Newsletter

It has beaten all major indexes and its EPS Diluted has soared. Indicating the confidence investors puts into Apple.

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The use of debt also comes cheaper as its tax deductible and reduces the cost of capital for Apple's capital structure. It is largest single stock repurchase program in history. Recent events seemed a sharp departure from Apple previous approach to capital market strategy.

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The reasons for such actions will be discussed in detail in later section of this report. Apple's phenomenal growth has allowed it to accumulate an enormous cache of liquid assets. Showing investors the confidence Apple puts in its business. Apple as a company is very much influenced by its late founder and CEO Steve Jobs Isaacson, , the way he micromanaged Apple led to a decision model that is much centralised. Adam Lashinsky described in his book Inside Apple, how Jobs ran marketing, oversaw product development, launched products and was the primary spokesman for Apple.

Apple’s Product Development Process – Inside the World’s Greatest Design Organization

Jobs initiated, ratified, implement and subsequently monitor the development of the iPhone which showed how decision management and decision control was fused at Apple. To attract talents, employee stock options became an important component of remuneration and performance rewards, especially for a Silicon Valley firm like Apple. However, by exercising stock options when share price soar, executives and key employees can become rich enough to retire Lazonick, This is disruptive to organisational integration and reduces the firm's competitive advantage.

Therefore, Apple along with other companies like Microsoft has ceased to use stock options to reward employees except for senior executives. This is quite typical where companies want to establish an installed base with a low base unit price and considerable profit margins for the consumable unit. Think of razors and blades the famous razors-and-blades model , inkjet printers and the cartridge or gaming consoles and the actual games.

If it was about the razor-and-blades model Amazon would price the eReader low just to price the ebooks high.

Why is Apple’s Marketing Just So Darn Good?

Looking at their pricing structure this is not the case benchmarked to the book industry :. Of course, the traditional low unit profit, high sales volume that underpins most of mass retail still persists but this model is more sophisticated. It is not about selling the consumable unit ebooks at ridiculous margins as in the case of some razor blades or inkjet cartridges. The Kindle platform has already disrupted traditional bookstores who still had growth in the first ten years after Amazon appeared but then fell off a cliff when Kindle was introduced.

Traditional publishers are the next domino piece. Not only can authors now bypass the traditional gatekeepers via self-published eBooks. But they can now publish paperbacks via Amazon. And it does not have to end there. Amazon could well enter the higher value-adding functions, such as editing and illustrations via their professional service marketplace. This would leave no place to hide for the traditional publishers.

The most staggering element of the Kindle platform is that we get a glimpse into the benefits of good data. You hear often that good data translates into a real competitive advantage. And we know this is true for our own companies. But it is rare to get good insights into the data space of large companies like Amazon who are known for not sharing a lot of data. We get these insights from a smart bunch of guys who have written algorithms that scan over a million Amazon pages each day to re-engineer daily sales figures.

Comparing these deep insights to the data of traditional analysts which is used by many industry participants for their decisions is eye-opening. While this percentage will vary across genres it still shows that most players in the industry make important resource allocation decisions with poor data visibility [source: Authoreearnings ] There are too many important conclusions here the direct link to the section of my Kindle article. The data above is compiled by scanning over a million Amazon pages daily. The combination of well-managed indirect network effects and deep meaningful data which is so important for managing incentives well and driving participant behaviour is one of the most powerful innovation ingredients that we have discovered in the last 2 decades.

Read my full Kindle article for all the intriguing details or bookmark to read later …. Similar to the Kindle platform, the main story plays behind the scenes. There are 10 business models enabled by the Kindle system and 10 enabled by Prime Video. There may be even more but I stopped looking for more once I identified Most are similar, a few are different. For most of the content, which is not exclusive to Prime, Prime Video also is only one distribution channel.

It offers various types of content:.

Will Apple Go Out of Business?

The whole point of exclusive content is to use it to funnel people into an Amazon Prime Video or Amazon Prime subscription:. And it is an experiment worth keeping an eye on over the next years. Knowledge is one of the most important ingredients to innovation ideas that actually work! The Fire phone ended unsuccessfully.

Fire phone 1G introduced in June was never followed by another generation of phones due to the commercial failure of the initial phone. Fire phone was discontinued from August Amazon had more success with its own line of tablet, called Fire Tablet. The latest line is the Fire 8G released in The later generations are available as HD or HDX being the high-end model with higher resolution, faster processor, etc. Amazon has its own operating system OS which is based on Android.

They have forked Android and customised the user interface to feature their own ecosystems. Not many companies have the resources to build their own app store hence will use GMS. Not so Amazon. This confined ecosystem is a significant limitation to the customer value proposition. Over the years, more developers have made their apps available on Amazon Appstore.