Apple Computer: Transformation towards GUI

1. Apple Computer: Transformation towards GUI Analysis and Revised Strategy presented by Walter J. Ferrier, Ph.D. CEO, Thoroughbred Consulting Group

2. Apple’s Historical Competitive Advantage • Unique, Proprietary Software • GUI Interface • Graphics/desktop publishing software • WYSIWYG Screen-Printer Interface • Networking Capabilities • Multimedia Capabilities

3. Strategic Group Map Pre-Windows Premium Sun Apple Price Compaq IBM Clones Low Broad Narrow Strategic Focus - Differentiation

4. 5-Forces Model of Computer Industry • Potential • Entrants • Low Entry Barriers • Apple No Longer • Protected from Clones (-) (?) • Buyers • Price Sensitive • Mass Merchandisers • Mail Order (-) • Suppliers • Apple owns O/S • Motorola / RISC Processor • Software Firms want to • write for largest installed • base (-) Rivalry • New Products • More Marketing • Price Cutting • Outsourcing • IBM Compatible Clones • Ability to Differentiate • Disappearing • Substitutes • Workstations • Palm-tops/ PDA’s (-)

5. Threats to Apple • Windows 3.0 • Narrowed the interface “performance gap” • Cheap clones now almost as good as Mac • Lack of Application Software • Largest applications vendor is Microsoft • Independent vendors want to write for O/S with largest installed base

6. Opportunities • Attack operating system market for Intel and RISC processors • Alternative technologies requiring GUIs • Office machines (copiers, FAX, etc.) • PDAs • Telephone switchboards • Home electronics/appliances • Robotics

7. Apple Weaknesses • Level of uniqueness is eroding • Inability to keep pace with R&D spending • IBM’s R&D = $6,644 mil • Apple’s Revenues = $6,309 mil • Small installed base vs. IBM “compatibles” • Lack of dominant market share position • High SG&A to Sales

8. Weakness Strategic Group Map Post-Windows Premium Sun Apple Price Compaq IBM Clones Low Broad Narrow Strategic Focus - Differentiation

9. Weakness Microprocessor VolumeMillions of Units

10. Weakness Apple’s Marketing Costs vs. RivalsSG&A to Sales (%)

11. Apple Strengths • Best GUI O/S • Brand name loyalty

12. Revised Mission • To position Apple as the world leader in man-machine interfaces though the development of ergo- and cerebro-nomic software and interface devices required for electronic and electromechanical applications.

13. Goals • 20% ROS by 1994 • 40% Share of O/S Market by 1994 • Develop 3 New Interface Devices by 1994 • Achieve full interoperability with • Intel and RISC microprocessors by 1993 • Top 4 Software Vendors by 1993

14. Revised Strategy • Milk Mac • Target O/S Market • License System 7 - • Pursue “open system” Pink • Interface Devices • Copiers • Manufacturing Automation • Medical Equipment • Aerospace

15. Milk Mac • No new manufacturing and R&D investment in existing hardware products • Outsource next 3 years’ production to Malaysia: • Send VP Mfg. and 3 Engineers on “Sourcing Mission” Benefit: Decrease COGS from 53% to 33%

16. Target PC O/S Market • License System 7 • Motorola-based clone sales • RISC-based clone sales • Create new brand: Apple “Core”

17. Apple Core • “Open system” O/S (a.k.a. Pink) • not processor specific • head-to-head with Windows • increase installed base • increase ISV applications • Shift 80% of R&D budget to Core Benefit: Increase ROS from 5% to 20% (NOTE: O/S production has COGS average 19% percent of sales vs. 66% in hardware manufacturing.)

18. Interface Software and Devices • Form product development alliances with: • Canon (copiers) • Sharp/Casio (PDAs) • Northern Telecom (PBXs and cell phones) • Kawasaki (Robotics servers and teach pendants) • Volvo (Automated material carriers) • Honeywell (Avionics and flight control equipment) • GE (Magnetic resonance imaging equipment) • Devote 20% of R&D budget to new products Benefit: New interface device products.

19. Projected Revenues, Costs, and Income(in $ millions)