Sunday, December 25, 2011

Apple iPhone no longer in Blue Ocean Market- Change in Strategy essential


Apple launched iPhone in 2007 which is an internet and multimedia enabled Smartphone with touch screen and has totally redefined the Smartphone market. Apple iPhone has become a cult device and five generations of iPhone models have hit the market till now and Apple sold more than 100 million units till now. With half million applications in app store for the consumers to play with, iPhone is a great device that revolutionized the Smartphone segment with features like a portable media player (iPod), an Internet client with email, web browsing capabilities, multi touch screen, 3G connectivity, camera, etc. iPhone has provided consumers with an unique experience and has generated significant revenues and profits. Apple iPhone created a blue ocean market where it has total control of everything from the product design, pricing, software, app store and development to the way it markets and sells its iPhones. Apple had a created an uncontested market at the high end of the smartphone market and its iPhone has offered the mobile users a very unique experience that has become a benchmark in the smartphone industry that all the other players are trying to achieve. Hardware, software and the developer ecosystem is the best in the world and Apple is dominant player in the application market. Developers love to work on the Apple OS as it is one of the best OS in the world and it allowed them to create numerous applications and make money selling them. Apple developers get 70% revenue of the sales.

Initially only AT&T was authorized to sell the phone but many other carriers across the world are selling. Apple had been able to sell the iPhone at a premium and consumers are more than willing to pay the premium because iPhone was such a magnificent device with functionality and half million applications in the app store that allowed its users to use for everything. Apple has total control on the hardware, software and provided limited access to developers to its code and it tightly restricts the apps on its app stores and allows only apps that are approved by it. Apple has single product and price strategy and focuses all their R&D, engineering, hardware, software efforts on just one product. Apple has the highest profit margin per iPhone and its pricing strategy has been remarkably as it launches its new versions at higher reference price and subsequently lowers the previous versions price. Recently it reduced its iPhone 3GS price to zero with contracts and it is not relying only on hardware sales but also on the sales of apps, music, movies, videos etc on its iTunes store.


Apple iPhone has transformed from a GSM phone to a 3G network capability in second version but the screen size and the home button placement remained as a standard. The 3GS models came with a bigger difference like faster processor, better camera with video and better OS. The iPhone 4 is thinner with a wider brushed stainless steel band, aluminosilicate glass panels, with video conferencing capability, high resolution display and powerful A4processor. The iPhone 4S came with 8 mp camera with video recording, face detection, dual core processor, multi-standard wireless support and a natural language voice control system called Siri. Apple iOS, the operating system initially developed for iPhone has been extended to iPod Touch and iPad. There have been five versions till now and it has been enhanced further with multi tasking capability in fourth version and the OS has been constantly developed to add more functionality and features.

Change in Apple iPhone Strategy
Apple has always believed in quality rather than quantity and focused on the high end premium market. iPhone has been costly when compared to other smartphones but Apple tried to keep the premium pricing close to its competitors premium model price. Initially AT&T was the only carrier selling the iPhones until February 2011 and since then Verizon and Sprint started selling iPhone and in October 2011, C Spire Wireless announced that it would be carrying the iPhone 4S. iPhone was originally launched in six countries in 2007 but now Apple has launched it in around 100 countries.  For the first time Apple has three models of iPhone 3Gs, 4 and 4S with prices ranging from Zero for 3GS with contract, US$ 99 for 4  to US$400 for 4S. Apple has to reduce the price for the older models as the Android Models have flooded the market at the lower price levels and have successfully captured the market and made it the number one in the smartphone market in just three years. Another factor that forced Apple to reduce the price despite good 4S sales and not make the 3GS obsolete is that there has been no wow factor for the 4S model as the consumers were not attracted by the faster chip, better camera and voice activated personal assistant software Siri.

Apple has also been criticized for not having a proper pricing strategy for the emerging markets as iPhones come with huge price tag. There have been a rumors that there will be smaller version of iPhone specifically targeted towards the emerging markets but till now it is no there. But Apple is reducing the price of the older versions of iPhone but these versions are outdated and with less features and functionality compared to the Android phone models that come in all sizes, prices and powerful hardware. Dependency only on the high end market will lead to limited revenue growth but with significant margins. Most of the analysts and Research firms forecast Apple to keep its market share at around 16-18% of smartphone market by 2015. Other Smartphone players like Samsung, RIM, Nokia, and Microsoft are aggressively looking to improve their market shares with new products. Even Android that is holding more than 50% smartphone now is expected to hold around 50% market share by 2015. Initially Apple did not focus much on the enterprise segment but with businesses and other organizations changing their strategy where they are allowing employees to bring in their own devices and integrating them with their IT infrastructure, Apple has a good opportunity to improve sales in this segment. Some of the companies are even buying iPhones as enterprise device for their employees as Blackberry is losing out due to product failures. Apple needs to support its enterprise sales team.

Smartphone market - Red Ocean
Smartphone market has become a big Red Ocean with many mobile makers launching phones that are even more powerful and feature and functionality rich than the iPhone. There has been patent wars going on between all the players and each one of them is trying to block others legally but they are not able to do it. Android, Microsoft and RIM are also invested heavily in their ecosystems and wireless carriers are looking to have multiple eco systems so that they can offer more choice to their customers. Wireless carriers, Google, Microsoft and Mobile phone makers except Apple are looking to convert more mobile phone users to smartphone users. They have been successful in their strategy as the percentage of smartphones has been rising and expected to reach 50% of the total mobile phone market. Apple has to be part of this strategy and look for a less costly iPhone as the reliance only on the high end premium market will always be risky. And there is also a risk that all the other players will bring down the average selling price and no matter how iconic and cult following the brand has Apple will loose the market to its competitors. The success of the Samsung Galaxy phones, HTC Smartphones and the yet to be launched new phones from Microsoft and RIM next years will be deciding factor for the Apple iPhone future success. Smartphone makers are adopting various strategies to survive in the market like collaborating with software developers, investing in R&D for designing new devices with differentiation, attracting more developers to develop more apps and also working closely with wireless carriers to understand the local market dynamics and consumers.

Application store iTunes with Apps was Apple’s another success factor. But now Android has Android Market Place with Apps matching Apple’s app store, Nokia Ovi Store and every mobile manufacturer coming up with their own app stores, Apple is loosing its advantage. Developers are developing for other stores as they are also competitive 70-80% revenue share. Apple also launched another unique offering to its customers which is the iCloud, iPhone users can back up and store their data and content on the cloud. Everybody in the Smartphone market is investing heavily in R&D and realized innovation is must for success in the market. Consumers are looking for powerful devices that offer them more functionality and feature and help them in their day to day life. Mobile manufacturers are launching low price smartphones in the emerging markets that come with essential smartphone features and are pushing them through the wireless carriers with subsidies in price and data plans. Wireless carriers are also upgrading their networks as the smartphones put a lot of pressure on their existing networks and they need to push more smartphone to recover their investments in infrastructure. Marketing and advertising strategy is also essential as the mobile manufacturers have to invest millions to promote the products and educate the consumers about the device functionality and features as they do not have a brand like Apple that is considered to offer most innovative and disruptive products. Under the charismatic leadership of Steve Jobs, Apple has been able to keep customers interested in its iPhone and sell millions of iPhones, but without Steve Jobs one has to see how Apple will do in the coming years. Apple has to keep its innovating and change its strategy according to the consumer needs and also keep a close eye on its competitors.





2 comments:

jailbreak iphone said...

Here history about iPhone is really awesome and Steve Job gave his efforts and skills for making iPhone more popular in the world. I hope Apple get iPhone 5 with more features.

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