Mobiles

Corporate Success Factors of Apple’s iPhone Company

When the Apple iPhone mobile company was announced in January 2007, the response was overwhelming. Within two months of the announcement, the search term ‘iPhone’ received more than 60 million web page references in Google. When the iPhone finally launched in June 2007, consumers lined up for days for the chance to buy another 500,000 units sold in the first weekend. Since that time, millions of iPhones company mobile phones have been sold, making it arguably one of the most successful mobile phone products ever launched in whole world. Why has the iPhone been so successful? The main purpose of this paper is to provide all total types of evidences showing the factors that have contributed to the success and the lessons that can be learned from the iPhone company mobile phone. The remaining work, purpose of this paper is organized as follows.

1. Business Model

The most important thing about the business model for the iPhone is that Apple controls and coordinates those parts of the value chain where they can add value, leaving other areas to organizations with specific competencies. In this way, Apple retains control, but is able to provide consumers with a better product/service. From starting to at present time in whole world within the business model, Apple mobile phone company controls and coordinates the various types of device, platform, application portal, online/offline mediation as well as acting as a service provider through the applications it develops for the iPhone. Apple controls those parts of the value chain where it has core competencies, leaving network provision to AT&T and most of the service provision (i.e., application development) to third parties. This model is somewhat similar to the business model employed for its iPod business, where Apple uses its core competencies of marketing and product innovation in device manufacturing, music platform, iTunes portal, and offline/online mediation, and leaves content development to musicians, etc. and network provision to Internet service providers.

Apple has proven this business model with the success of the iPod and iTunes in music and has replicated it with the iPhone. Interestingly, in 2008, Apple’s COO indicated that Apple was not married to a particular business model for the iPhone. Apple has proven that they are willing to dramatically change elements of the business model when required. The most obvious example of this is Apple’s decision to allow third party service providers to develop applications for the iPhone. Initially no user installable software was allowed but this changed with the opening of the App Store in July 2008. The business model changed with market demands, with Apple giving up control of application development but retaining control over the key aspect of distribution. In this way, they provide the market with what they want, while ensuring the quality of the applications that can be placed on the iPhone.

2. Technology

One of top and most Apple’s identified core competencies is product innovation. From a technology perspective, Apple has used this core competency to develop a highly functional and useful mobile device. Although a detailed analysis of iPhone mobile technology is beyond the scope of this paper, there are some most key technology-related factors that have contributed to the iPhone’s mobile phone company success. To begin with, the simple series of buttons on the iPhone appeals to consumers who are uncomfortable with a plethora of menus, icons, etc. As mentioned earlier, US consumer preferences dictate that they cannot use mobile Internet devices that they perceive as complex. Apple has addressed this preference through its innovative and intuitive interface. Secondly, the relative quality of the mobile browsing experience with the iPhone is very high, primarily due to Apple’s implementation of the Safari browser and its ability to render standard web pages without the need to create special mobile versions. This is particularly important for US consumers who want to replicate their fixed-line Internet experience on a mobile phone, as well as from an international perspective, where content already created in other countries will be readily available on the iPhone with little or no modification.

Finally, although Apple designs and manufactures the iPhone hardware, they have realized that from a technology perspective, the future of mobile phones will be distinguished not by hardware, but by software. By realizing this and promoting the platform like as App Store, Apple mobile company can focus on various types of hardware innovations and promote third parties in developing innovative software applications. Given that the launch of the iPhone 3G and the App Store occurred at almost the same time, it is difficult to determine whether the success of the iPhone 3G is due to the hardware, or perhaps due to the series of applications that presented themselves to customers. Nonetheless, the combination of these two events has fueled the success of the Apple iPhone company on worldwide level.

3. Marketing and Branding

Few would dispute Apple’s abilities in marketing products, based on the success of the iPod and iTunes for example. In fact some have described marketing as one of Apple’s core competencies. Apple has marketed the iPhone as a service more than a product. Apple’s recent advertising for the iPhone emphasizes the capabilities of the iPhone and related third party applications rather than focusing on the technology itself. From a pricing perspective, the iPhone has followed the typical Apple strategy of skimming and versioning, where prices are initially set high to capture high profits from early adopters (skimming) and then pricing is reduced (in this case, primarily due to AT&T subsidies) to increase access to the general public (versioning). The partnership with AT&T and the subsidies provided have contributed to Apple’s ability to have versioned pricing, which is currently as low as $99 in the US, compared to the launch price of $599 for the original iPhone. This discounted pricing has contributed to the iPhone’s success, as it has allowed the iPhone to be mass-marketed to general American consumers.

Pricing of the product is also based on geographic location, depending on how much the specific market is willing to pay. For example, in Japan, the iPhone was being distributed by SoftBank for free with a two-year contract, while in the US it sold for $99 (also with a two-year contract). In addition to marketing efforts, Apple has developed a brand image (as the name ‘iPod’ has become synonymous with MP3 players) that has created an extremely loyal customer base. This customer loyalty has led Apple consumers to form an attachment to future Apple products and the iPhone, leading to increased switching costs, as iPhone owners are unlikely to switch to competing smartphones.

4. Content Providers

Initially, Apple did not allow third-party software on the iPhone, but reversed that decision when it launched the App Store in July 2008. At the time, most of the publicity was focused on software applications, even as Apple launched a 3G version of the iPhone. Apple has established itself as the intermediary for software distribution, providing 70% of revenue to developers and keeping 30% to cover its costs and provide some profit. In essence, Apple has relinquished control over the software development aspect of the iPhone (application development is open to all developers), but has retained strict control over software distribution (all App Store applications must be approved by Apple). In this respect, Apple’s model is similar to the iPod/iTunes model where the company relies on content providers to drive business while maintaining profitability through the control of software distribution. By controlling distribution, Apple can be the gatekeeper concerning application security. This allows it to maintain its ecosystem in much safer surroundings because the company can decide what is allowed to be downloaded. This, in turn, is using the content as a means of driving revenue, similar to how musicians drove sales of the iPod device through iTunes. onto the iPhone will not create security problems for iPhone users. From the developer’s perspective, Apple created a successful platform for increasing consumer interest in mobile services through innovative applications (i.e., created consumer demand) while simplifying the process for software developers through the introduction of the Software Development Toolkit.

Apple provides opportunities to developers through several different revenue models, but to date it is unknown what percentage of developers are profitable, or which revenue model will be the most successful. From Apple’s perspective, the App Store has proven to be profitable virtually since its opening, with Apple’s revenue estimated at $45 million in its first six months of operation. Major players such as Facebook, Twitter, eBay, and Sega have already created applications distributed through the App Store. Finally, if imitation is an indicator of success, the App Store should be considered a success, as Google (for Android) and RIM have since launched their own online application stores. From a consumer perspective, Apple is making it easier for consumers to find quality software from third-party service providers. This was something that users demanded, and Apple responded, boosting the iPhone’s success again. With the launch of the App Store, the iPhone became a viable gaming platform. 90% of the highest-paid applications ever fall into the entertainment and gaming category. With the mobile gaming market projected to grow faster than the overall gaming market, this should further boost the iPhone’s success.

5. Network Operators

It would not have been possible for the iPhone to be successful without a strong partnership with the US wireless carriers. The partnership between Apple and AT&T can be considered a ‘win-win’, as both partners benefit. From the AT&T perspective, with the US market potentially moving towards a device-centric business model, the partnership with Apple can be seen as a highly strategic move. To add customers in the saturated US market, carriers need to ‘steal’ them from other carriers or upgrade existing customers, which is what the iPhone has been successful in doing. In addition, the iPhone has had a major impact on carriers in helping to sell consumers on the idea of mobile internet. Prior to the iPhone, AT&T had limited success in convincing customers of the need for mobile internet. This partnership has helped boost ARPU, important as voice revenues are continuing to shrink. It has been a joint venture, which has helped the company in offsetting part of its losses and remaining financially stable while pointing out the positivity brought about by strategic alliances in a market domain faced with change.

From Apple’s perspective, AT&T provided access to a large subscription base of consumers, as well as a subsidy for each iPhone sold, allowing the iPhone to be marketed extensively and also profitable for Apple. At the same time, AT&T made concessions to Apple, allowing them to sell iPhone applications and music without sharing any revenue, which was not allowed to other AT&T device manufacturers before Apple. Apple’s emergence in the mobile phone market has changed the game, tipping the balance of power in favour of device manufacturers, where previously carriers controlled the device side of the market.

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