Apple Inc.: Keeping The "I" in Innovation

Licensed to:
Apple Inc.: Keeping the i in Innovation

Robin Chapman, Robert E. Hoskisson, Gail Christian / Arizona State University
One of the most well known and respected companies in the world, Apple Inc. was one of the few
companies that emerged from the recession stronger than ever. By spring 2011 Apple had an array
of impressive products including the iPad, iPhone,
iPod shuffle, iPod nano, iPod touch, iPod classic,
Apple TV, MacBook, MacBook Pro, MacBook Air,
Mac mini, iMac, and MacPro.1 Apple that has maintained its status as number one for innovativeness on
Fortune Magazines list of the Worlds Most Admired
Companies in both prerecession 2007 and postrecession 2011. Apple is also named the Worlds Most
Admired Company overall in 2011 by Fortune, a
position it has held since 2008.2 In March 2011, Fast

Company also has named Apple the Most Innovative
Company. According to Editor Robert Safian, in
putting together this months special package on the
2011. Most Innovative Companies, we really had
no choice: Apple had to be No. 1.3 With net sales
of $37,491, $42,905, and $65,225 in 2008, 2009,
and 2010, respectively, Apples stream of innovative
products supported CEO Steve Jobs philosophy that
if you make something really great, then everybody
will want to use it4 (see Exhibit 1).
Although Apple started in 1976 as a computer
business, much of Apples success has been attributed
Exhibit 1 Apple Inc. Selected Financial Data
Net sales ($)

Net income ($)
Earnings per common share ($)
Basic
Diluted
Cash dividends declared per common share ($)
Shares used in computing earnings per share
Basic
Diluted
Total cash, cash equivalents and marketable
securities ($)
Total assets ($)
Total long-term obligationsa ($)
Total liabilities ($)
Total shareholders equity ($)
2010
65,225
14,013
2009
42,905
8,235
2008
37,491
6,119
2007
24,578
3,495
2006
19,315
1,989
15.41
15.15
0
9.22
9.08
0
6.94
6.78
0
4.04
3.93
0
2.36
2.27
0
909,461
924,712
893,016
907,005
881,592
902,139
864,595
889,292
844,058
877,526
51,011
75,183
5,531
27,392
47,791
33,992
47,501
3,502
15,861
31,640
24,490
36,171
1,745
13,874
22,297
15,386
24,878
687
10,347
14,531
10,110
17,205
395
7,221
9,984
a
The company did not have any long-term debt during the five years ended September 25, 2010. Long-term obligations excludes non-current deferred revenue.
Source: Apple Inc. Annual Report 2010.
Copyright 2012 Cengage Learning, Inc. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.
76812_Apple.indd C-1
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to its music- and video-related products, in addition to the iPhone. According to Steve Jobs, Apples
charismatic CEO and cofounder, This will go
down in history as a turning point for the music
industry. This is landmark stuff. I cant overestimate
it!5 Jobs was referring to the April 2003 debut of
Apples iTunes Online Music Store, the first legal
online music service to have agreements with all
five major record labels. Although initially available only for Macintosh users, iTunes sold more
than 1 million songs by the end of its first week in
operation. Not only did iTunes change the nature of
the music industry, it also added greatly to Apples
revenues by way of promoting the purchase of the
iPoda portable digital music device that could
store downloaded iTunes songs. As Apple quickly
became known as a company that made innovative consumer electronics products instead of just a
company that made computers, it changed its name
in 2007 from Apple Computer to Apple Inc.
Jobs said, The Mac, iPod, Apple TV and iPhone.
Only one of those is a computer. So were changing
the name.6
Apples focus on innovation has helped it maintain a competitive advantage and marketing prowess over other industry players that have historically
been much stronger than Apple.7 However, Apple
must continue to beat the competition on a number
of levels. iTunes faces stiff competition from new
and existing online music and video download services. The iPod, iPad, Apple TV, and iPhone all face
the threat of lower-priced rivals and possible substitutes.
Then on January 17, 2011, Apple was faced
with an additional challenge when Steve Jobs
handed control of the company to chief operating
officer Timothy D. Cook, with the announcement of
another medical leave.8 This would be his third medical leave in less than six years. Jobs would retain
the title of CEO, but Cook would handle day-today operations at the company. He did not share his
reason for leaving the company or tell his employees
when he might return.9
Diagnosed with a rare form of pancreatic cancer in 2004, Jobs took an undisclosed leave of
absence that year for treatment. In 2009 he took
a six-month leave to undergo a liver transplant
at the Methodist University Hospital Transplant
Institute in Memphis. Although these absences did
not interrupt Apples run of successes, the new question became: What happens to a modern company
whose innovations and inspirations are so closely

tied to the vision of one leader when that leaders
influence is in decline?10
To understand how Apple became a leader in
innovation and how closely Steve Jobs is associated
with Apple and its many achievements, it is necessary to first examine Apples history.
Early Company History

On April 1, 1976, Steve Jobs and Stephen Wozniak
began the partnership that would eventually become
Apple Computer. Both electronics gurus, Jobs and
Wozniak had known each other since high school
and had worked together previously on other projects.11 In early 1976, Wozniak had been working
on combining video monitors with computers. His
idea was to invent a user-friendly computer that
ordinary consumers could buy. Wozniak, who
worked for Hewlett-Packard (HP) at the time,
decided to approach his employer with his idea.
HP, however, did not see a future for personal
computers (PCs) and soundly rebuffed him. At that
point, Steve Jobs told his friend Wozniak that they
should go into business together and sell computers
themselves.12
Their first computer, the Apple I, was built in
the garage of Jobss parents (see Exhibit 3). Known
as a kit computer, the original Apple consisted
merely of a circuit board and did not even have an
exterior casing. It was intended to be sold to hobbyists only. Jobs called the computer an Apple
in honor of his days working at an orchard while
seeking enlightenmentand because neither he nor
Wozniak could come up with a better name.13 The
Apple I received mixed responses from hobbyists,
and the duo decided it was time to expand the market for PCs by building a more attractive and useful
machine, the Apple II14 (see Exhibit 2).
Growth
After taking on new partners to fund expansion plans, the company officially became Apple
Computer, Inc., in early 1977.15 Within months, the
recapitalized company introduced the Apple II, the
first computer to come with a sleek plastic casing
and color graphics.16 Annual sales increased dramatically to $10 million, and the company began to
grow quickly in size, adding thousands of employees.17 On December 12, 1980, Apple became a public
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Exhibit 2 Select Apple Product Releases

1976
Apple I
1977
Apple II
1980
Apple III
2004
iPod Mini
eMac
iPod (Click Wheel)
iPod (U2 Special Edition)
iPod Photo
2005
iPod Shue
iPod nano
iPod color
iPod with video
2006
MacBook
Mac mini
2007
Apple TV
iPhone
1983
Lisa
1984
Macintosh Graphical User Interface (GUI)
1986
Macintosh Plus
1987
Macintosh II
1991
Macintosh Quadra PowerBook 100
1994
PowerMac 6100
1997
PowerBook G3
1998
iMac
1999
iBook
2008
2001
iTunes
iDVD
iPod
iPhone 3G
iPod classic (120 GB)
2009
iPhone 3GS
2010
iPhone 4
iPad
2011
iPad 2
2003
iLife suite
iTunes 4 (online music store w/200,000
downloadable songs)
Source: www.apple-history.com.
company. On the first day of trading, its share price

increased from an initial $22 offering to $29.18 By
the end of the year, Apple reached $100 million in
annual sales.19 The fledgling company, however,
soon faced some experienced competition.
In 1981, IBM released its first PC. IBMs sheer
size ensured its domination of the young PC market.
Steve Jobs realized that Apple would have to move
fast in order to remain a viable company. Over
the next few years, the company released several
new computer models, most notably the Apple III
and the Lisa. Neither of these models sold particularly well.
In 1983, Jobs recruited Pepsi-Cola CEO John
Sculley as Apples president and CEO. Jobs hoped
that this change would bring more structure and
organization to the young company.20 Apples biggest computer achievement, the Macintosh (Mac),
was released. After initially opposing it, Jobs had
personally taken on the task of developing the Mac,
which became the first PC featuring a graphical
interface and a mouse for navigation. Apple first presented the now-famous Macintosh computer with
a riveting January 1984 Super Bowl commercial.
The memorable commercial featured an Orwellian

1984 world filled with stoic human zombies, all
watching a large-screen image of Big Brother.
A young woman rushes into the room and dramatically destroys the screen. Apple used this 1984
imagery to depict IBMs computer dominance being
destroyed by the new Macintosh.21 With features
that made the Mac easy to use for publishing and
a marketing strategy that concentrated on universities, the new computer sold very well, pushing Apples fiscal 1984 sales to an unprecedented
$1.5 billion.22
Shake-Up
By 1985, however, Jobs and Sculley began to disagree over the direction they wanted the company to
take. After Jobss attempt to remove Sculley failed,
Jobs left Apple in May to start his own new business, NeXT Computers. Meanwhile, Microsoft benefited from Apples poor negotiation of a contract
that cleared the way for successive versions of the
Windows operating system to use graphical user
interface (GUI) technology similar to that of the
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Mac. With this agreement, Apple had effectively

lost exclusive rights to its interface design.23
In 1990, Microsoft released Windows 3.0, the
first universal software that could run on nearly
every PC regardless of the manufacturer. Although
Apples worldwide sales had reached $7 billion by
1992, Apple soon found itself fighting an uphill
battle against the movement toward standardized
software. More and more businesses and consumers wanted compatible operating systems, but the
Macintosh still ran exclusively on Mac OS, a system
not available to other computers. By 1993, Apples
board of directors replaced Sculley as CEO. Apple
moved through two CEOs over the next five years.
During this time, Apple partnered with IBM
and Motorola to produce the PowerPC chip, which
would run the companys new line of PowerMacs,
allowing it to outperform computers powered by
Intel microprocessors.24 Despite this and Apples
attempts to reorganize, losses mounted in 1996 and
1997. In December 1996, Apple acquired NeXT,
with the plan of using its technology as the basis for
a new operating system. After being gone for more
than a decade, Jobs returned to the company he had
originally cofounded with Wozniak.
Jobs Return
One of the first problems Steve Jobs moved to fix was
the ongoing dispute between Apple and Microsoft
over the Windows GUI. Microsoft not only paid
an undisclosed amount to Apple, but also made its
Office 98 suite compatible with Macintoshes.25 Jobs
then proceeded to change the companys sales strategy in 1997 to encompass direct salesboth online
and by phone. In a flurry of product releases, Apple
introduced the new generation of PowerMacs,
PowerBooks, and the highly anticipated iMac and
iBook, which were less expensive computers aimed
at the low-end computer market. After an entire year
without showing a profit, the first quarter of 1998
began three years of profitable quarters for Apple.26
Jobs stated that he wanted to transform the company by making the Mac the hub of [the consumers] digital lifestyle. To do this, Apple introduced
iLife in 2002, a software suite including applications
such as iPhoto, iMovie, iTunes, and eventually the
iPod. With the advent of Napster and peer-to-peer
music sharing, Apple saw a way to capitalize on the
emerging trend of cheap music downloads by creating a legal online music distribution network. iTunes
would be the key to exploiting this market. Once
downloaded by way of iTunes, music could then

be transferred only to an iPod (due to encryption).
With iTunes, Apple revolutionized the distribution
of music and hoped to do the same with the distribution of movies on demand. Similar strategies were
planned for the iPhone in the mobile or smartphone
industry segments and for Apple TV in the mobile
media and set-top box industry segments.
iTunes: Apples Online Music Store

Apple ventured into the market of legal downloads
with the introduction of its iTunes Music Store.27 By
2011 the iTunes Store provided customers in 23
countries with music, movies, HD TV shows, apps,
games, podcasts, audiobooks, and ways to connect
with artists and friends via Ping (Apples own social
network for music). iTunes offers downloads at a
specified price without requiring a subscription or
monthly fees.28 Originally offered exclusively on
Apples own Mac, iTunes can now be installed on
PCs, iPhones, iPods, iPads, and Apple TV as well.29
In addition, the iTunes Store provides customers
with recommendations from fellow fans, celebrity
playlists, recommendations from iTunes based on
previous purchases, a free Single of the Week, and
the option of subscribing to iTunes Newsletters. The
original idea behind iTunes was to provide a solution to the illegal pirating of music and software
from rival sources such as Kazaa.
iTunes offers its users a selection of more than
13 million songs, with new songs continually added.30
Titles are from just about every genre of music.
Users can perform a search by type of music, artist
name, or title of track or album. Each song available can be previewed without making a purchase
and is priced at $0.69, $0.99, or $1.29. Through
iTunes U, users can download lectures, discussions,
language lessons, and other opportunities for learning for free from leading universities, museums, and
other institutions.
Once songs are downloaded, they are stored as
a digital music library. As this collection grows, this
list of songs can be arranged in many different ways.
Songs can be arranged by personal rating, artist, or
genre. This feature allows for a customizable play list.
In addition, the iTunes Store includes Apples
App Store and iBookstore. Gift certificates are also
available in different denominations and can be sent
electronically.
As previously mentioned, in its first week of
existence, the number of downloads from iTunes
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surpassed the one million mark. This feat is amazing considering that at the time of iTunes introduction, the download service was available only for
the Mac. In addition, at that time Mac users comprised less than 5 percent of U.S. computer users.
When iTunes became available for use on the PC,
sales increased even more rapidly. iTunes PC downloads reached the one million mark in three days,
less than half the time it took for the Mac version.
But the success of iTunes is not measured in number
of downloads sold per day or week; it is also used as
a means to boost the sale of iPods, iPhones, iPads,
and Apple TVs.
iTunes, iPod, iPhone, iPad, and Apple TV

For music lovers, the iPod is the greatest invention
since the Walkman. There are currently four differ-
ent iPod styles: the iPod shuffle, iPod classic, iPod

nano, and iPod touch. iPod owners can purchase
accessories such as the armband, the radio remote,
and the universal dock and remote to make using the
iPod even more enjoyable. While others are seeking
to simply duplicate the complementary and innovative relationships between iPod and iTunes, Apple
continues to innovate with new products such as the
iPad and new updated versions of existing products
such as the iPhone and Apple TV31 (see Exhibit 3).
iPhone
In first-quarter 2007, Apple launched its revolutionary product, the iPhone. The iPhone combined
three concepts popular with consumers: a mobile
phone, a widescreen iPod, and an Internet communication device. The iPhone bragged an entirely new
Exhibit 3 iPod Products
iPod shuffle
The incredibly small, wearable
music player has buttons, and
VoiceOver tells you the song
or playlist youre listening to.
Learn more
iPod nano
iPod classic
iPod touch
Multitouch comes to the smaller,

lighter iPod nano, along with
features like a built-in FM radio,
pedometer, clip, and more.
Learn more
With 160GB of
storage for music,
video, and photos,
iPod classic is the
take-everything
everywhere iPod.
Learn more
Have more fun than

ever with FaceTime,*
Retina display, HD video
recording, and the
powerful A4 chip.
Learn more
Music, audiobooks, podcasts,

photos, FM radio, pedometer,
Nike 1 iPod support**
Music, movies,
TV shows, videos,
audiobooks, podcasts,
photos
Music, movies, TV
shows, videos, games,
applications, ebooks,
audiobooks, podcasts,
photos, Safari web browser,
email, Maps, FaceTime,*
HD video recording
and editing, Nike + iPod
support built in
Capability
Music, audiobooks, podcasts
(Continued)
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Exhibit 3 (Continued)
iPod shuffle
iPod nano
iPod classic
iPod touch
Audio playback
Up to 24 hours
Audio playback
Up to 36 hours
Video playback
Up to 6 hours
Audio playback
Up to 40 hours
Video playback
Up to 7 hours
Earphones, USB cable
Earphones, dock
adapter, USB cable
Earphones, USB cable
8GB in $
149
16GB in $
179
A portion of the proceeds from
purchase will go
every
to the Global Fund to fight AIDS
in Africa.
160GB in $
249
8GB in $
229
32GB in $
299
64GB in $
1.48 x 1.61 x 0.35 inches

(37.5 x 40.9 x 8.78 mm)
including clip
4.1 x 2.4 x 0.41 inches

(103.5 x 61.8
x 10.5 mm)
4.4 x 2.3 x 0.28 inches

(111 x 58.9 x 7.2 mm)
0.74 ounces (21.1 grams)
4.9 ounces
(140 grams)
3.56 ounces (101 grams)
About 3 hours (1.5-hour fast

charge to 80%)
About 4 hours
(2-hour fast charge
to 80%)
About 4 hours (2-hour fast

charge to 80%)
Battery life***
Audio playback
Up to 15 hours
Colors
Apple Store Exclusive color
Includes
Earphones, USB Cable
Capacity and price****
2GB in $
49
399
Size
1.14 x 1.24 x 0.34 inches
(29 x 31.6 x 8.7 mm)
including clip
Weight
0.44 ounce (12.5 grams)
Charge time
About 3 hours (2-hour fast
charge to 80%)
(Continued)
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iPod shuffle
iPod nano
iPod classic
iPod touch
1.54-inch (diagonal) color

Multitouch display
2.5-inch (diagonal)
color LCD with LED
backlight
3.5-inch (diagonal)
widescreen
Multitouch display
Multitouch display
Click Wheel
Multitouch display
Dock connector, stereo minijack
Dock connector,
stereo minijack
Dock connector, stereo

minijack
USB through dock connector;

audio through headphone jack
USB through
dock connector;
component and
composite video
through dock
connector (with AV
cables, sold separately);
audio through
headphone jack
USB through dock

connector; component
and composite video
through dock connector
(with AV cables, sold
separately); audio through
headphone jack
Display
Navigation
Clickable controls with
VoiceOver button
Ports
iPod shue, USB cable
Connectivity
iPod shue, USB cable
Wireless
802.11b/g/n Wi-Fi
(802.11n 2.4GHz only),
Nike + iPod support
built in, Maps locationbased service, Bluetooth
2.1 + EDR
Audio support
AAC (8320 Kbps), Protected
AAC (from iTunes Store),
MP3 (8 to 320 Kbps), MP3
VBR, Audible (formats 2, 3,
4, Audible Enhanced Audio,
AAX, and AAX+), Apple
Lossless, AIFF, and WAV
Audio formats supported: AAC

(8320 Kbps), Protected AAC
(from iTunes Store), HEAAC,
MP3 (8320 Kbps), MP3 VBR,
Audible (formats 2, 3, 4, Audible
Enhanced Audio, AAX, and
AAX+), Apple Lossless, AIFF, and
WAV
AAC (8320 Kbps),

Protected AAC (from
iTunes Store), MP3
(16320 Kbps), MP3
VBR, Audible (formats
2, 3, and 4), Apple
Lossless, WAV, and
AIFF
Audio formats supported:

AAC (8320 Kbps),
Protected AAC (from
iTunes Store), HEAAC, MP3
(8320 Kbps), MP3 VBR,
Audible (formats 2, 3, 4,
Audible Enhanced Audio,
AAX, and AAX+), Apple
Lossless, AIFF, and WAV
(Continued)
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iPod shuffle
iPod nano
iPod classic
iPod touch
Photo support
Syncs iPod-viewable photos in
Syncs iPod-viewable
JPEG, BMP, GIF, TIFF, PSD (Mac only), photos in JPEG, BMP, GIF,
and PNG formats
TIFF, PSD (Mac only), and
PNG formats
Syncs iPod-viewable
photos in JPEG, BMP, GIF,
TIFF, PSD (Mac only), and
PNG formats
Video support
H.264 video, up to 1.5
Mbps, 640 by 480 pixels,
30 frames per second,
Low-Complexity version
of the H.264 Baseline
Profile with AACLC
audio up to 160 Kbps,
48kHz, stereo audio in
.m4v, .mp4, and .mov
file formats; H.264 video,
up to 2.5 Mbps, 640 by
480 pixels, 30 frames per
second, Baseline Profile
up to Level 3.0 with AACLC audio up to 160 Kbps,
.m4v, .mp4, and .mov file
formats; MPEG4 video,
up to 2.5 Mbps, 640 by
480 pixels, 30 frames per
second, Simple Profile
with AACLC audio up to
160 Kbps, 48kHz, stereo
audio in .m4v, .mp4, and
.mov file formats
H.264 video up to 720p,

30 frames per second,
Main Profile level 3.1 with
AAC-LC audio up to 160
Kbps, 48kHz, stereo audio
in .m4v, .mp4, and .mov
file formats; MPEG4
video, up to 2.5 Mbps, 640
by 480 pixels, 30 frames
per second, Simple Profile
with AACLC audio up
to 160 Kbps per channel,
.m4v, .mp4, and .mov file
formats; Motion JPEG
(M-JPEG) up to 35 Mbps,
1280 by 720 pixels, 30
frames per second, audio
in ulaw, PCM stereo audio
in .avi file format
* FaceTime requires fourthgeneration iPod touch or iPhone 4 and a Wi-Fi connection for both caller and recipient.
** Sold separately.
*** Rechargeable batteries have a limited number of charge cycles and may eventually need to be replaced (see www.apple.com/support/ipod/service/battery). Battery life and
number of charge cycles vary by use and settings. See www.apple.com/batteries for more information.
****1GB = 1 billion bytes; actual formatted capacity less.
Available on iTunes. Title availability subject to change.
Source: http://www.apple.com/ipod/compare-ipod-models/
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user interface based on a large multitouch display

and pioneering software, which users can control with just their fingers.32 Apple sold one million
iPhones less than three months after this product
became available to consumers.
As other companies tried to create products that
would be comparable to the iPhone, Apple was busy
creating new innovative features to make the iPhone
more powerful, easier to use, and more appealing to
users. In 2010, the iPhone surpassed PCs as Apples
largest product line, and the iPhone and related
products represented 39 percent of its revenues that
year.33 By December 2010, sales of the iPhone had
grown by 87 percent year-over-year, outpacing the
growth in the global smartphone market of 70 percent year-over-year34 (see Exhibit 4).
The iPhone 4 was introduced in 2010, with new
features including the A4 processor, video calling,
high-definition video recording and editing, two
cameras (one in front facing the user and one on the
back), and the ability to do multitasking (run thirdparty applications, or apps, and switch between
them instantly without slowing performance or
draining the battery). In addition, the App Store
on iTunes offered more than 350,000 mobile apps
for downloading, many of which were free. Apple
referred to the iPhone 4 as the biggest thing to happen to iPhone since iPhone.35
The next biggest thing is the iPhone 5, which
is rumored to be scheduled for launch sometime
between late fall 2011 and early 2012. The launch
is expected to be officially announced by Apple at its
annual summer software developer conference, the
Worldwide Developers Conference (WWDC) to be
held June 610, 2011, at San Franciscos Moscone
West. The launches of the iPhone 3G, 3GS, and
4 were announced through this venue. As the anticipation builds for the new product, speculations
about new features include a curved metal-clad back,
which would look similar to the original iPhone and
a larger four-inch screen.36
Apple TV
In addition to the iPhone, Apple introduced the Apple
TV in 2007. With this product, Apple intended to
revolutionize the Internet video industry, as it did
with the music download industry. Users could
download movies and TV shows via the iTunes
online service or via YouTube, as well as view digital photos and home videos.37 Some negative hype
claimed that the Apple TV would be a flop just like
Exhibit 4 Apple Inc. Net Sales by Product

Information regarding net sales by product for the three years ended September 25, 2010 is as follows ($ millions):
Desktops
Portablesb
Total Mac net sales
iPod
Other music related products and servicesc
iPhone and related products and servicesd
iPad and related products and servicese
Peripherals and other hardwaref
Software, service, and other net salesg
Total net sales
a
2010
2009
2008
6,201
11,278
17,479
8,274
4,948
25,179
4,958
1,814
2,573
65,225
4,324
9,535
13,859
8,091
4,036
13,033
0
1,475
2,411
42,905
5,622
8,732
14,354
9,153
3,340
6,742
0
1,694
2,208
37,491
Includes iMac, Mac mini, Mac Pro, and Xserve product lines.
Includes MacBook, MacBook Air, and MacBook Pro product lines.
c
Includes iTunes Store sales, iPod services and Apple-branded and third-party iPod accessories.
d
Includes revenue recognized from iPhone sales, carrier agreements, services, and Apple-branded and third-party iPhone accessories.
e
Includes revenue recognized from iPad sales, services and Apple-branded and third-party iPad accessories.
f
Includes sales of displays, wireless connectivity and networking solutions, and other hardware accessories.
g
Includes sales of Apple-branded operating system and application software, third-party software, Mac and Internet services.
a
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the Apple III and the Power Mac Cube. Some of

the features that made the first edition unpopular
included the following:
Users were not able to download a movie from

iTunes directly to their TV; they had to download it to their computers first.
It required an HDTV, but the movies that could
be downloaded were of such low resolution that
the picture looked fuzzy and old-fashioned.
It had no DVD drive.
Steve Jobs announced at the Macworld

Conference & Expo in January 2008 that the
upgraded version of Apple TV would allow owners
to order movies directly from the TV rather than
having to download to the computer.38 Jobs said,
Apple TV was designed to be an accessory for
iTunes and your computer. It was not what people
wanted. We learned what people wanted was movies, movies, movies.39
By 2011 Apple had redesigned Apple TV with
a focus on providing the kind of entertainment that
would appeal to the masses. At 80 percent smaller
in size, it had a built-in power supply, was energy
efficient and stayed cool without a fan. Everything
(movies, TV shows, photos, and music) streamed

wirelessly to Apple TV. Features included instant
access to SD and HD movies, often on the same
day they came out on DVD, instant TV show rentals, direct access to a NetFlix account from an
HDTV, access to Internet content such as YouTube
videos, HD podcasts, Flickr photos, and MobileMe
galleries, and access to an iTunes library. In addition, with a free Remote app from the App Store,
the Apple TV could be controlled by an iPhone,
iPad, or iPod touch. With AirPlay, music, photos,
and videos could be streamed from an iPhone, iPad,
and iPod touch to Apple TV. At a price of $99, the
future of the new Apple TV looked promising40
(seeExhibit 5).
The iPad
Tablets had been around for approximately 20 years
before the iPad was introduced in 2010, but the new
Apple iPad had many more innovative features and
capabilities than any of its predecessors. The iPad
was considered a completely new portable computing model, and from the beginning Apple wanted
to show consumers that it was more than just a
Exhibit 5 History of Apple TV Models
Source: http://theapple.tv/history-of-apple-tv/.
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newfangled tablet; it was a new approach to

mobile computing and a great productivity device.41
The iPad had a touch screen display that measured approximately 10 inches, and a number of
functions such as games, music, videos, accessing the
Internet, checking email, and serving as an e-reader
for books, magazines and newspapers.42 A mobile
keyboard and keyboard dock allowed users to do
work on it similar to a laptop. The iBooks application for purchasing and storing e-books was also
introduced.43 In addition, Apple used its own processor for the device.
Although some analysts were skeptical in the
beginning about who the target customer was for
this new tablet, it was eventually concluded that the
customer is everyone who likes cool technology.44
The iPad was named Best Tablet on PCWorld
Magazines list of the Best Products of 2010, and
sales of the iPad soared to approximately $5 billion
the first year.45 Apple sold 300,000 devices on the
first day.46
Amid much hype and anticipation, the iPad
2 was launched in March 2011. It was thinner than
the original iPad and offered upgrades such as a new
AF chip that provided faster graphics processing and
general performance; dual cameras for video chat,
HD video recording, and stills; an improved design
incorporating internal magnets for the Smart Cover
accessory; 3G versions were available on AT&T and
Verizon Wireless; improved AirPlay features; and
the ability to support HDMI output via an optional
adapter.47 The iPad 2 was named Editors Choice
for tablets by PCWorld Magazine and was widely
considered the benchmark tablet to beat, with a
top-notch seamless design paired with a robust
app store.48
One key component that must be in place to have
good media content for the iPod, iPhone, Apple TV,
and iPad products is the relationship that Apple has
with each of its media and phone service suppliers.
Service Suppliers
iTunes
By 2007 iTunes had agreements with all five major

record labels (BMG, EMI, Sony Music Entertainment,
Universal, and Warner Bros.) as well as more than
200 independent labels. These agreements allowed
iTunes to sell the music owned by these labels and
pay the record label each time a song was downloaded. This deal was considered a reseller agreement, meaning that Apple was not licensing content
from these labels, but rather buying it wholesale

and reselling it to consumers.49 Apple was allowed
to keep its share, while the portion the label received
was divided among many parties including artists,
producers, and publishers. Labels earned approximately 70 cents per song sold on iTunes. This figure
may seem small, but it was still greater than losing money to the millions of illegal downloads that
nearly crippled the music industry at that time.
The revenues for record label companies had
dropped in 2006 and 2007 due to tough market
conditions, and Apple introduced a strategy to help
increase revenues by at least a small percentage.
It contracted with EMI to make its entire catalog available to iTunes users in two formats, the
traditional download option, which included the
FairPlay digital rights management (DRM) software
and DRM-free versions. The DRM software limited
the number of times a song could be copied, which
decreased the quality of the song. The DRM-free versions would deliver greater quality music but would
require a higher price tag. iTunes started the DRMfree songs at $1.29 per song versus the traditional
$0.99 per song.50
DRM software was developed to protect music
from unlimited copying and piracy. After the DRM
restrictions were removed from the EMI songs,
the industry was able to obtain hard data on how
removing DRM restrictions from legally purchased
music affected piracy. According to Bill Rosenplatt,
DRM specialist and president of GiantSteps Media
Technology Strategies, The statistics show that
theres no effect on piracy.51 Since DRM did not
discourage piracy, it was soon considered to be simply a nuisance to the user.52 Record companies who
were previously extremely cautious about selling
their music on iTunes became extremely interested in
obtaining access to iTunes millions of customers. In
January 2009, Apple announced that all four major
music labels (Universal Music Group, Sony BMG,
Warner Music Group, and EMI) and thousands of
independent labels would offer music in iTunes Plus,
which was Apples DRM-free format.53 In addition,
companies such as Amazon and NetFlix that compete with Apple in the sales of music and videos have
taken advantage of Apples customer base by offering applications for their products and services for
use on Apple devices through the App Store.
The App Store
The App Store, opened in 2008, offers software

applications for the iPhone, iPod touch, and iPad
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that are created by third-party software developers.

The number of apps available surpassed 100,000
by the end of 2009 and by spring 2011, there were
more than 350,000 apps available. Many apps are
free to users, others cost relatively small amounts,
and thousands of new apps are added monthly. The
App Store has been a significant source of revenue
for Apple, which charges a fee of 30 percent of the
sales of third-party apps.54
On February 15, 2011, Apple announced a new
subscription plan for all publishers of contentbased apps on the App Store, including magazines,
newspapers, video, music, etc.55 Publishers have
the ability to determine subscriptions to be weekly,
monthly, bimonthly, quarterly, bi-annual, or annual.
The subscription is paid at the time the customer
places the order and subscriptions are managed
through the users iTunes account. Personal information provided by customers through the App
Store is sent to the publisher and is subject to the
publishers privacy policy, not Apples.56
Apple will use the same billing system currently
used for apps and in-app purchases for the subscription service, which means Apple will charge
publishers 30 percent of the revenue. Publishers,
however, can waive fees for existing subscribers and
can advertise and sell subscriptions outside the App
Store on company Websites. In these cases, customer
information is not exchanged through Apple and,
as stated by Steve Jobs, the publisher keeps 100
percent [of the profits] and Apple earns nothing.57
Subscriptions purchased outside of the app must
also be made available within the app at the same
or lower price.58
Under the new plan, publishers will no longer have the ability to use the application to send
users outside of the app to purchase content or subscriptions. For example, Amazon will be required
to change its Kindle app, which sends users to a
mobile version of the Kindle Store Website for
purchases.59 Other services, including NetFlix,
Rhapsody, Spotify, and Hulu Plus, will also lose
30percent of in-app subscription sales, which could
lead to higher prices for customers. Since Apple continues to dominate the smartphone and fast-growing
tablet markets, switching to a different platform
such as Android does not appear currently feasible.60
Most magazine publishers have balked at the
idea of giving up 30 percent of their profits to Apple
and have chosen to sell single issues of selected
titles instead. However, on Monday April 11,
2011, Bloomberg L.P. agreed to the new terms and
Bloomberg Businessweek subscriptions became

available on the iTunes Store.61 In return for the
30 percent of each subscription sold on iTunes, the
publisher will gain access to the readers who purchased iPads in 2010 (14.8 million potential subscribers) and to the 4050 million (or more) who are
anticipated to purchase an iPad or iPad 2 in 2011.62
Following is The Wall Street Journals list of
publishers who have and have not agreed to Apples
terms as of April 11, 2011:63
Have agreed:
Bloomberg Businessweek: $2.99 per month
Elle: $2.99 per month or $18.00 per year
Popular Science: $14.99 per year
Maxim: N/A
Have not agreed:
Time Inc., publisher of Time, Fortune, People,
Sports Illustrated, and others.
Cond Nast, publisher of Vogue, The New Yorker,
Vanity Fair, and others.
Hearst Corp., publisher of Esquire, Cosmopolitan,
Harpers Bazaar, and others.
Some publishers are waiting to see if the terms of
the new plan will be modified before accepting, and
all publishers are waiting to see if the terms can be
improved. According to Philippe Guelton, executive
vice president/chief operating officer at Hachette
Filipacchi Media U.S. (publisher of Elle), This is a
work in progress. I dont think this is something that
is set in stone either for us or for Apple. Id rather
work with them to improve it over time than just sit
on the sidelines.64
Apple TV
Apple did not have an easy time finalizing its movie

studios contracts, allowing it to sell movies on iTunes
for use on the iPod and Apple TV. Not only were the
studios concerned about losing significant revenues
from the sales of DVDs and Blu-ray discs, but some
studios urged Apple to require a watermark on digital video for it to play on its devices. Their concern
was heightened given the pirating experienced in the
music download business. One movie studio executive said, Our position is, if you want our content,
you have to protect our business. Apple, however,
responded that it trusted its consumers not to play
pirated movies.65
The limited number of movie downloads available on iTunes would significantly diminish the
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success of Apple TV. Thus, Apples CEO was persistent in his negotiations with the movie studios.
Jobs announced at the Macworld Expo in 2008 that
Apple had reached agreement with each of the following major studios: Twentieth Century Fox, The
Walt Disney Studios, Warner Bros., Paramount,
Sony Pictures Entertainment, MGM, Lionsgate,
and New Line Cinema.66 Despite NBCs issues with
Apple concerning TV shows, Universal Pictures
(owned by NBC and General Electric) agreed to
allow Apple to rent its movies via iTunes.
The original supplier agreement between Apple
and the movie studios was that new movies would
not be available for rent until 30 days after the DVD
was distributed. Within a 24-hour period, customers would be able to watch a film as many times
as they wanted once the movie was started. Movies
that were downloaded but not started would not be
available for viewing after 30 days.67
By 2011 thousands of releases from every major
Hollywood studio, along with selected TV shows
from all the networks, were available on iTunes
for rent or purchase in standard or high definition and were available for streaming on Macs or
PCs, iPhones, iPads, iPod touch, or television via
AppleTV.68
iPhone
Cingular was selected as the exclusive wireless carrier

for the iPhone in the United States because, according to Steve Jobs, Cingular was the best and most
popular carrier in the United States.69 Together these
companies developed the Visual Voicemail feature
that allowed users to listen to the voicemails they
preferred rather than having to listen to all messages
in succession. Since the time that the agreement was
made between Cingular and Apple, Cingular was
acquired by AT&T. iPhone owners were required
to sign a two-year service agreement with AT&T.70
After numerous complaints that AT&T was the
only service provider available to iPhone users in the
United States, Apple made Verizon Wireless available in February 2011.71
International service providers for iPhone include
China Unicom, Deutsch Telekom, and O2. The
iPhone was distributed in approximately 90 countries
through 166 carriers worldwide in 2010.72
Hardware
Concerning its hardware suppliers, Apple is usually not forthcoming with this information. Major
electronics companies consider their supply chain
operations to be trade secrets. However, a disassembled 2008 iPhone revealed that the microprocessor chip was supplied by Samsung; Philips, Texas
Instruments, and Linear Technology all played
a role in providing the batteries, and many other
companies provided chips that were central to the
camera, display, and motion sensor.73
In 2011, industry analysts estimated that Apple
obtained approximately 35 percent of its lightweight
flash memory chips used in its iPhones and iPads
from Toshiba, and the remaining 65 percent from
South Korea.74
On March 11, 2011, the same day that the iPad
2 became available for sale, northern Japan was devastated by an 8.9 magnitude earthquake that set off
a tsunami. During the aftermath in Tokyo, trains
and phones were down, all hotels were booked and
roads were closed or jammed with traffic. Apple
store and corporate employees were allowed to stay
overnight at Apple stores. As the senior store managers had stocked break rooms with food and beverages after the first earthquake hit, employees asked
and were allowed to have their family members stay
at the stores as well. The head of Apple International
HR and of Japan Retail were in Japan that week;
they also spent the night at Apple stores.75 In addition Apple created a donation page, a special iTunes
link in its iTunes store, where people could easily
donate to the Red Cross to benefit Japan.76
After the earthquake analysts attempted to gauge
the effects that would be felt by Apple, as shipping
times for the iPad 2 went from three to five days to
four to five weeks. In the two weeks following the
earthquake, Apples stock fell more than 5 percent.77
iSupply Researchs Andrew Rassweiler identified five key components that were produced in
Japan: NAND flash memory from Toshiba, DRAM
(dynamic random access memory) from Elpida
Memory Inc., an electronic compass from AKM
Semiconductor, the touch screen overlay glass likely
from Asahi Glass Co., and the system battery from
Apple Japan Inc.78 According to Rassweiler, Apple
would be able to obtain the NAND and DRAM
from other companies such as Samsung and Micron,
but the battery compass and glass would be more
difficult to obtain elsewhere. Analyst Gene Munster
with Piper Jaffray pointed out that Apple was probably in a better position than its competitors, as it
tends to buy components in large prepayment deals
that guarantee supply and pricing.79
The possibility of disruptions in the supply chain
because of natural disasters that occur overseas is
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one of the potential risks facing all companies that

operate in the global market.
Many suppliers have expressed frustration in
working with Apple because Steve Jobs has been
very clear on his vision for his products and has a
reputation for being controlling. Maintaining good
supplier relationships and keeping enough control to
provide the quality of products expected of Apple is
a balance that Apple will have to maintain in order
to stay ahead of its competitors, with or without
Steve Jobs.
Competitors
iTunes
Since the October 2003 launch of iTunes.com for

Windows, Apple has faced a multitude of competitors. During the late 1990s, the emergence of music
sharing came about with Napster, a freeware program offering free downloads using peer-to-peer
transfers. Peer-to-peer transfers allow users to connect directly with other users without the need for
a central point of management.80 However, due to
legal proceedings, Napster and other competitors
have become subscription services.
Napster. In May 1999, 19-year-old Shawn
Fanning created Napster while studying at
Northeastern University. The name Napster came
from the Internet handle he had used as a programmer. He created a type of software that allowed
music fans anywhere to share MP3s in one forum.
During the first year of service, Napster was obtaining more than 250,000 new users a week while
maintaining a free service.81 This software creation
led to the ever-growing controversy of the availability of MP3s on the Internet. Music sharing exploded
in the late 1990s, and Napsters servers were overloaded with millions of requests a day for media
downloads. Music artists considered this new sharing forum to be a continuous copyright violation.
Fanning soon became the target of their animosity
and became one of the most disliked people in the
music industry.
During 2000, Napster was in and out of court
and was finally slated to shut down on July 26,
2000. The decision was reversed two days later on
July 28, 2000.82 In 2001, Konrad Hilbers, a 38-yearold German, became CEO of the rapidly declining
music file-sharing site. In June 2001, Napster had
more than 26 million users, but growth was declining fast, going from 6.3 to 2.2 billion minutes
used a day. On March 7, 2002, Napster closed its
servers while opting to implement a fee-based service

to comply with the federal judges decision. On June
3, 2002, Napster filed for Chapter 11 bankruptcy
in an effort to secure court-ordered protection from
creditors. This move was part of the overall financial restructuring strategy of Bertelsmann AG, which
was proceeding with its takeover of the once popular file-sharing system. By July 2003, Roxio, Inc.,
had acquired Napster and was planning a Napster
2.0 launch for December 2003. Napster 2.0 became
a successful, legal fee-based service.83
Through restructuring and quality legal representation, Napster finally has a legal base that is
expected to stand. Currently, in 2011, Napsters
library is made up of more than 12 million songs.
Members have unlimited access to the library for
$510 (includes mobile access) per month. Napster
now accommodates the use of its software for
connected computers, iPhone, iPod, iPod touch,
Android, Blackberry, compatible TV, Blu-ray players, or other compatible home audio products.84
Kazaa. Sharman Networks Limited was founded
in January 2002 as a private limited company.
Sharman Networks developed and marketed worldclass Internet applications. Kazaa Media Desktop
and Kazaa Plus were products of Sharman Networks.
Sharman Networks earned revenue by soliciting
companies to advertise on its software. Users that
preferred ad-free use of the software were able to
purchase an upgrade, Kazaa Plus for $29.95. This
upgrade also allowed for greater search capabilities
and more download sources.85
Being Australian-based, the company avoided
legal intervention in allowing the file sharing, but
in 2005, the Federal Court of Australia ruled that
Kazaa had knowingly allowed users to illegally
download copyrighted songs. The company was
charged to change its software to prohibit copyrighted music or videos from being shared.86 Kazaa
owners agreed to pay the four major record labels
(Universal Music, Sony BMG, EMI, and Warner
Music) $100 million.87
Kazaa Media Desktop was a program rumored
to be littered with spyware and ad-based programs
that would infect consumer systems; thus many
users became wary of accessing Kazaas site.88
By 2011 Kazaa had become a subscription-based
online digital music service owned by internet marketing firm Atrinsic, offering unlimited plays and
downloads, playlists, top 40 artists, music from all
popular genres and more on its Website. Users could
share playlists; rate and review their favorite artists,
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albums, songs, and playlists; shout out to people

they would like to contact; and follow people
they liked by following Kazaa on Facebook, Twitter,
and MySpace. Ringtones for smartphones were also
available through Kazaa.89
In March 2011, shares of Atrinsic more than
doubled after the announcement was made that
subscribers would be able to access Kazaa on iPads,
iPhones, and Android-based devices by streaming it
from Kazaas Website. This move was in response to
Apples recently announced plan to charge 30 percent on all revenue from the sale of online subscriptions through the App Store.90
RealNetworks, Inc. RealNetworks, through its
RealPlayer Music Store, sought a price war with
Apple by dropping the price to $0.49 per song
and $4.99 per album compared to Apples price of
$0.99 and $9.99, respectively. Analysts indicated
that RealNetworks was pricing below the cost of
purchasing the music from the record companies,
and eventually it did increase its price to $0.99 per
song; however, it still offers select songs for $0.49
a track. As part of its battle to reduce Apples market share, RealNetworks launched technology called
Harmony, which allowed RealNetworks users to
translate songs purchased from RealPlayer Music
Store into a format that could be played on an iPod
and on Microsoft formats.91
RealPlayer is a RealNetworks medium through
which it competes in the video-on-demand market.
Video can be downloaded from any Website to
an iPod, PC, CD, and DVD. With the RealPlayer
video converter, users are able to convert many
types of video files into the MP3 format needed
for use on a computer, mobile phone, or portable
device. Downloaded videos can be converted for
playback on iPod or iPhone. Video files can also
be converted to audio files.92 Digital media can be
transferred to mobile devices from PCs and smartphones. RealPlayer customers can subscribe to its
SuperPass membership, which combines the benefits
of RealPlayer and the RealPlayer Music Store. The
$14.99 monthly fee provides subscribers with ten
music downloads per month, one game to keep per
month, premium video feeds, RealPlayerPlus (with
added features such as 33 faster video downloads
and the ability to create professional music CDs),
and free antivirus and internet security software.93
In August 2003, RealNetworks purchased the
digital music service Rhapsody, and in 2007 in a
joint venture with MTV Networks formed Rhapsody
America. This company was spun off in 2010 as
Rhapsody International. By 2011, Rhapsody continued to operate as an online music subscription service,
providing over 10 million songs for $10 per month.
Apps were made available for iPhone, iPod touch,
Android, and BlackBerry.94
Walmart. Walmart launched its own online
music store. It is currently the number two music
retailer in the nation. Surpassed by Apple in 2008,
Walmart offers music in MP3 format at price points
of $0.64, $0.94, and $1.24 per song with many
albums offered at $7.00 and less.95
Amazon. Amazon offers more than 15 million songs and albums that can be played on any
Android device, PC, or Mac. Customers must have
an Amazon account to purchase music from the
Amazon MP3 store. Digital music purchases can be
downloaded directly onto a player using the Amazon
MP3 Downloader for Windows Media Player or
iTunes, downloaded to a Mac or PC, or saved to
Amazons online storage service, Amazon Cloud
Drive. The Amazon MP3 Store is only available to
customers in the United States who have a credit or
debit card issued by a U.S. bank with a U.S. billing
address. In addition, customers must be physically
located in the U.S. at the time of purchase.96
Apple TV
By 2011 the video on demand business had become

so lucrative that it had attracted a myriad of competitors. Among the many competitors offering
movies and/or TV shows for free, rent, or purchase
via downloading or streaming were cable television
service providers such as Cox Communications and
Time Warner; television networks such as HBO;
satellite TV providers such as DISH Network and
DIRECTV; online distributors with or without subscription services such as Apples iTunes, NetFlix,
Vudu, and CinemaNow; electronics retailers such as
Walmart (Vudu) and Best Buy (CinemaNow); online
retailers such as Amazon; and movie studios such as
Disney and Warner Brothers. In addition, companies that manufactured viewing devices such as HD
TVs, DVD and Blu-Ray disc players, gaming consoles, computers, smartphones, MP3 players, and
other portable handheld devices offered software
that was preloaded. Following are some of Apple
TVs and iTunes competitors.
Amazon Unbox. The Amazon Unbox Video
Player was introduced in 2006. Users download
videos or TV shows from Amazon Instant Video to
the Amazon Unbox Player or on Windows Media
Player. The Unbox Video Player is not compatible
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with Mac or Linus computers, and downloaded videos cannot be transferred to iPods.97
In addition, Amazon sells a wide variety of
Amazon Instant Video compatible devices such as
the Logitech Revue Companion Box, the Roku HD
Streaming Player, TiVo TCD746320 Premiere DVR,
along with compatible HDTVs from Vizio, Samsung,
and Panasonic, and Blu-ray Disc Players from Sony
and Panasonic. There are more than 90,000 movies
and TV shows available for instant viewing through
Amazon Instant Video.98
CinemaNow. This company seemed to have
been ahead of the game, entering the video download market in 1999. It was the first to offer payper-view movies from the major Hollywood studios,
the first to offer Download-to-Own services, and
the first distributor of Burn-to-DVD movies. It is
headquartered in Marina Del Rey, California, and
its library consists of more than 10,000 movie titles,
television programs, music concerts, and shorts.99
Movie rentals, memberships, and downloads for
purchase are available from popular movie companies such as Disney, MGM, 20th Century Fox,
and Miramax. Their service also offers streaming
video and HD downloads that are compatible with
Windows Mobile-based portable media centers.
A Burn-to-DVD section has recently been added
that allows users to burn selected titles to be played
on DVD players.100
The monthly membership fee is $29.95, which
includes adult content videos, news and concert
downloads, and access to approximately 1,400 free
videos. It does not include unlimited access to the
Hollywood hit movies, which are offered as pay
per movie. Movie rentals range in price from $1.99
to $3.99 each, with unlimited access for 24 hours
after the movie is started.101
Although the downloads are compatible with
Microsoft products, CinemaNow services are not
available for Apple products or through Internet
browsers other than Internet Explorer.
In 2011, CinemaNow received the number one
ranking by TopTenREVIEWS.com for movie download service providers for its variety and availability
of movie selections and the ease of use of the service.102 CinemaNow is owned by Sonic Solutions,
which has Best Buy as a shareholder.103
Disney. Movies from the Disney Studios library
are available at the Disney Movies Online Website
to buy, rent, and watch instantly.104 Watch
instantly means that customers can stream movies to any computer with an Internet connection at
any time. Movies that are purchased or rented are

stored in the customers online movie library and
do not require downloading to a computer; they
can be accessed immediately by logging into Disney
Movies Online from any computer.105 Currently,
Disney Movies cannot be accessed through most
portable video devices and work best on a dedicated
computer.106
In 2009, Disney acquired a 30 percent stake in
Hulu, the digital content distribution service. Disney
also distributes films and TV shows through Apples
iTunes store. Steve Jobs is Disneys largest individual
stockholder, having acquired a 7 percent holding
when Disney purchased Pixar.107
NetFlix. NetFlix subscribers (numbering more
than 20 million by 2011) can stream to their
PCs or TVs an unlimited number of movies and
TV shows per month, unconstrained by hourly
limits, for a monthly fee with plans starting at
$7.99permonth.108 DVD rentals are also available
for delivery through the U.S. Postal Service from distribution centers located in major cities in the United
States. Currently, NetFlix plans to invest heavily in
streaming content and possible agreements with pay
TV channels and networks such as HBO. NetFlix
also plans to expand its online streaming service
internationally. NetFlix gained many new subscribers during the recession as people stayed home to
save money and looked for inexpensive sources of
entertainment.109
Walmart. In December 2006, Walmart entered
the movie download segment of the entertainment
industry, but only a year later it exited the business because it had not caught on with consumers.
Raul Vasquez, Walmarts CEO for walmart.com,
stated that the download service was an experiment.
We want to understand what the customers want.
And I think what we learned is that the initial experience of buying and downloading content needs to
be better. We thought it was going to be easier for
the customer to understand.
Then in 2010, Walmart decided to re-enter the
lucrative and increasingly popular online video
business by purchasing the movie download service Vudu. According to Walmart Vice-Chairman
Eduardo Castro-Wright, the Vudu purchase would
provide customers with unprecedented access to
home entertainment options as they migrate to a
digital environment.110
Vudu, headquartered in Santa Clara, California,
entered the video-on-demand market in April 2007.
Vudus original black-box connected to the TV and
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Internet, and the built-in hard drive gave users the

option of viewing 5,000 movie titles instantly. The
box was priced at $400. The service had no monthly
service charge, but the rental cost was $2.004.00
per movie. As such, Vudu claimed to be the cureall for the movie rental business; it saved customers
from running back and forth from the video store
or waiting for the movie to come in the mail from
NetFlix or Blockbuster; it offered more movie titles
than video-on-demand providers; and it was more
functional than Internet download services because
it did not require a PC. Similar to Vudus competitors, once a movie was downloaded, it had to be
viewed within 24 hours.111
Offered on Walmarts Website under the
Electronics Department, Vudu services are available
in the United States only and can be used on devices
from LG, Mitsubishi Electric, Vizio, Samsung, Viore,
Panasonic, Sharp, Sony PlayStation, Philips, Sanyo,
Toshiba, Magnavox, and RCA. There is no monthly
subscription fee or contract and there are no late fees.
New releases are available the same day they come
out on DVD, and titles are available at $2 for two
nights. Walmart also offers Vudu-enabled devices
for sale, including HDTVs, Blu-ray disc players, PS3
consoles, and home theater systems. Through the
acquisition of Vudu, Walmart also hoped to increase
hardware sales.112
Warner Brothers. A new venue for offering video
for rent or purchase was announced by Warner
Brothers on March 8, 2011. Shares of NetFlix stock
fell from $207.40 to $195.45, a decrease of $11.95,
after Warner Brothers announced that it would offer
videos through social network Facebook, which has
more than 500 million active users.113
Time Warner had previously expressed the
opinion that the $7.99 per month streaming service
offered by NetFlix devalued movies and TV shows.
Using Facebook, users would be able to click a
rent icon and pay with $3 in Facebook Credits.
Facebook would get a share of the sales when credits were used. According to Jefferies & Co. analyst
Youssef H. Squali, The $3 rental appears to preserve the value of content in studios eyes. He added
that other studios may follow Warner Brothers,
considering Facebooks large customer base and the
potential to make a profit from a la carte rentals.114
Videos will be available for viewing on all devices
that offer Facebook, including Apple products.115
However, according to Goldman, Sachs & Co.
analyst James Mitchell, the Warner Brothers service
is not an immediate threat to NetFlix as it currently
offers only pay-per-view, it is not available at a centralized storefront and it cannot be easily viewed on
larger-screen televisions.116
iPhone
When the iPhone was introduced in 2007, it revolutionized the cell phone business. The iPhone became
the benchmark that other manufacturers rushed to
imitate. The competition is fierce, with numerous
contenders struggling for market share. Several companies that manufacture the iPhones competitors
follow.
Motorola. Motorola has been a long-time leader
in mobile phone sales in the United States. However,
since Apples iPhone and Research In Motions
(RIM) Blackberry began to gain ground, the leader
fell hard and fast. Motorolas RAZR phone lost its
popularity, and its smartphone made in partnership
with Microsoft, the Motorola Q, did not perform
as expected. Motorola announced in January 2008
that it was seeking alternatives for its handset business, most likely a divestiture.117
In 2008 Motorola sold 100 million phones,
but in 2009 it sold only 55 million, a 45 percent
decrease. By 2010, sales rebounded as it introduced
22 new phone models. By the end of the third quarter 2010, the Mobile Devices segment was profitable
for the first time in three years.118
In January 2011, Motorola spun off its smartphone business into the stand-alone company
Motorola Mobility. After the spin-off, Motorola was
renamed Motorola Solutions. Motorola Mobility
took over the mobile devices, wireless accessories,
set-top boxes, and video distribution systems products. Motorola Mobility operates in 40 countries
and has major facilities in Brazil, China, Taiwan,
and the United States.119
Motorolas Milestone XT720 was the first
smartphone running Googles Android 2.1 operating system to offer the Xenon flash for use in taking pictures and shooting videos. The Xenon flash
was more powerful than the usual LED illumination, allowing flash pictures to be taken at lower
light levels and greater distances. Additional features
include GPS navigation, FM radio, and a 3.5-mm
audio jack.120
The Motorola Droid X was also considered
one of the top smartphones introduced in summer 2010. With a 4.3-inch WVGA 854-by-480resolution display and a few third-party video apps
preinstalled, the Droid X could also be used as a
portable video player.121
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Research In Motion. The Blackberry created

by RIM has been a popular product among corporate consumers who mainly needed e-mail service
and a calendar. To stay in the competitive game,
however, RIM added features to make its product
more appealing to users who want the fun features
in addition to the features that aid in their work.122
In an effort to compete with Apples popular
App Store, RIM introduced a similar mobile software store named BlackBerry App World in 2010.
Software tools and games could be purchased
that would appeal to users and add functionality
to their phones. RIM sells BlackBerry products to
customers in approximately 170 countries. Its largest market is the United States, with approximately
60 percent of sales, followed by Canada and the
United Kingdom.123
RIMs BlackBerry Bold 9800, renamed the
Blackberry Torch 9800, was the first device to offer
the Blackberry OS 6 operating system. The new OS
provided an improved browser, enhanced multimedia experience, and improved user interface; however, the display and processor were not upgraded
and the phone did not compare well with many of
the other smartphones. This was also RIMs first
slider phone, with a touch screen, full QWERTY
keyboard and track pad. Originally anticipated to
be a viable competitor for the iPhone 4, the phones
features and performance fell short of analysts predictions.124 However, BlackBerry has many loyal
fans and RIM continues to be a strong contender
in the smartphone market with its 2011 product
lineup.
HTC. Established in 1997, HTC is a Taiwanese
company that partners with Microsoft for its
Windows Mobile operating system. Other strategic
partners include Intel, QUALCOMM, and Texas
Instruments in the United States. Currently, HTC
offers smartphones using the Windows Mobile
operating system or the Google Android software
operating system. Many of HTCs products are selfbranded, but some carry HTCs subsidiary Dopods
name. Dopod International is a mobile phone vendor
in China and other Asian markets. Other products
are rebranded using the names of partnering mobile
operators such as T-Mobile, AT&T, Verizon, and
Sprint.125 HTC also partners with five leading operators in Europe.126
HTC offered three phones that were considered
competitors for the iPhone 4: the HTC Incredible
using the Android 2.1 operating system and offered
by Verizon, the HTC Evo 4G using the Android
2.1 operating system and offered by Sprint, and the

HTC HD2 using the Windows Mobile 6.5 operating
system and offered by T-Mobile.127
By 2011, Google, Apple, and RIM were the main
competitors in the smartphone arena. According to
data from Nielsen, Googles Android operating system was the most popular in the United States, with
29 percent of the market share. Apples iOS and
RIMs BlackBerryOS tied with 27 percent each.128
The remaining 16 percent share was divided among
Microsofts Windows Mobile and Windows Phone
7 combined at 10 percent, HPs Palm webOS at
4 percent, and Nokias Symbian at 2 percent.129
Apple and RIM, who make their own devices
with their own operating systems, continue to
dominate the market for devices with their 27 percent market share each. Third-place HTC garnered
approximately 12 percent share with the Android
operating system and 7 percent with Microsofts
mobile OS. Motorola and Samsung followed.130
iPod
MP3 players are available in a wide range of sizes,

colors, and features. The one-size-fits-all MP3
player does not exist, as some consumers want a
small player for use at the gym, while others need
a tablet-sized player with wide-screen video playback.131 Manufacturers continue to add new features
to their players in an effort to set them apart from
the competition, and the resulting variety of players
and features offered can be confusing. Features to be
considered include color screens, photo viewing and
video playback capabilities, radio, wireless capability, music recording, data storage, personal information management, sound-tweaking options, advanced
playback features, and battery type and life.132
Not surprisingly, iPods are among the most popular MP3 players on the market. The current leader
is the iPod Touch 2010 (32GB), which is number
one and Editors Choice on cnet.coms Best 5 MP3
Players list.133 This is the fourth-generation iPod
Touch, with photo and video capture, FaceTime
video chat, a high resolution Retina display, and a
GameCenter that allows social gaming with other
iOS devices. It is also PCWorld Magazines Editors
Choice MP3 player.134 Competitors include the
Znue HD (32GB), the SanDisk Sansa Clip+ (4GB),
and the Sony X-Series Walkman (16GB).
Also appearing on cnet.coms Best 5 MP3
Players list is the sixth-generation iPod Nano 2010
(8GB). This model is almost half the size of the previous versions and includes unique features such as
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Genius Mixes (preselected compilations of songs

from the users iTunes library), Genius playlists, an
FM radio with pause and replay capability, and a
pedometer.135
iPad
The iPad 2 became available for purchase in the

United States on Friday, March 11, 2011. It was
scheduled to hit stores Friday afternoon, but those
who couldnt wait until then to own one of the
new devices could purchase one online beginning
at 2:00a.m.136 To emphasize the importance of the
iPad to Apple, Steve Jobs emerged from medical
leave to introduce the new version to bloggers and
Apple enthusiasts. On March 25, the iPad 2 went
on sale in 26 other markets including Mexico, New
Zealand, Spain, and other European countries.137
The newly released iPad 2 easily dominates
its competitors, according to tests conducted by
Consumer Reports. In a test that evaluated devices
using 17 different criteria, the iPad 2 was rated
excellent in nearly every category, in particular,
touch screen responsiveness, versatility, portability,
screen glare, and ease of use.138 Consumer Reports
electronics editor Paul Reed said, So far, Apple is
leading the tablet market in both quality and price,
which is unusual for a company whose products are
usually premium priced. However, its likely well
see more competitive pricing in tablets as other models begin to hit the market.139 Technology analysts
also view the iPad 2 as the top contender in the tablet market.
The Motorola Xoom is the only tablet considered
to be in the same league with the iPad or the iPad2.
The Xoom was the first tablet to feature Googles
tablet-centric Android 3.0 (called Honeycomb)
operating system. Samsungs Galaxy Tab ranked
third behind the iPad 2 and the Xoom.140
Technology analysts at Gartner Research predict
that Apple will continue to dominate the tablet market through 2015. iPad sales in 2011 are forecast at
48 million compared to approximately 13.9 million
tablets that use Googles Android operating system.
Analyst Carolina Milanese said, Many [tablet vendors] are making the same mistake that was made
in the first response wave to the iPhone, as they are
prioritizing hardware features over applications,
services and overall user experience. Tablets will
be much more dependent on the latter than smartphones have been, and the sooner vendors realize
that, the better chance they have to compete headto-head with Apple.141
Much of Apples continued success and dominance over the competition has been due to the ingenuity of its marketing efforts.
Marketing
Apples marketing endeavors have earned it awards,
product sales, and a devoted base of customers, both
new and old. Apple has won accolades for its marketing abilities and its focus on innovation. It has
been hailed as one of the best marketers by many
different sources and has had a reputation over
the years of being a brand that can gain customers
through its well-thought-out and carefully executed
marketing strategies.
Marketing has been one of Apples strengths;
however, staying on top of the game has become
more difficult as Apple developed a broader range
of products for the mainstream customer rather
than just the tech-savvy fanatics in fields such as
education and design.142 The customer base is now
more diverse, including students and mainstream
consumers, and its harder to satisfy as a whole,
says Lopo L. Rego, a marketing professor at the
University of Iowa.143 Business leaders today have a
daunting job in balancing shareholder demands and
running a successful company. Businesses want to
market new products aggressively to try and ensure
their products success. Apple heavily promoted
the iPhone when it was introduced in July 2007.
Customer and investor expectations, due to Apples
reputation, boosted the stock price.
Apple garnered major success for iPod and
iTunes by way of strategic partnerships with other
well-known brands. Apple created marketing
agreements with Volkswagen of America, Burton
Snowboards, Nike, and Starbucks. By affiliating
itself with different brands, Apple gained consumer
confidence as well as exposure through marketing
partner advertisements.
Marketing Plan
A marketing plan begins with design of the product.144
In an industry of low profit margins and cost cutting,
Apple takes a different approach to the design of its
products. While competitors do everything they can to
keep costs down, Apple does what it can to make its
product different. Its CEO, Steve Jobs has been called
a legend for his design sense.145 Even employees of
one of Apples biggest competitors, Microsoft, recognized Apples dominance in the design of eye-catching
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products. The employees created a mock promotion in the first three months for the higher price expressed
for the iPod had it been created by Microsoft and great dissatisfaction. Jobs responded by promising
circulated it on YouTube.146
these consumers a $100 Apple store credit.154
The typical Apple ad has been called arresting in
In addition to online marketing and sales, Apple
its minimalism, culturally resonating, and stunning products are offered through its retail stores. Apple
enough to stop people in their tracks on probably has opened more than 300 retail stores located in
the most crowded stretch of New York City.147 the United States and approximately 80 stores in
Apples advertising focuses more on a lifestyle other countries. At the time that Apple opened its
instead of a product and has helped create a cult- first retail store in 2001, analysts predicted that
like loyalty among Apple enthusiasts. Customers are Apple would report huge losses and shut the store
made to feel as if purchasing an Apple product got within two years. At the time, no computer manuthem into a hip global family.148 Apple spent $501 facturer had proven profitable in running its own
million on global advertising in 2009, and in 2010 branded store.155 However, Apples retail stores conit received Advertising Ages first Marketer of the tributed an estimated $2.4 billion and $1.7 billion
Decade award. Adweek also named Apples Get in 2010 and 2009, respectively, representing 1516
a Mac and Silhouettes campaigns as the best of percent of its profits during the past two years
the decade in their respective categories.149
(see Exhibit 6).156 Apples philosophy behind the
As stated in a USA Today article, Apples arse- stores is brand exposure. Apple believes that the
nal of attention-getting tools holds lessons for any more people can touch an Apple product and see
company: design cool, innovative products. Have what it can do with their own eyes, the greater the
a streamlined product line. Invest in memorable potential market share.157 In addition, the stores proads. Work your customer base to make customers vide free group workshops, personal training, and
feel special and create word-of-mouth agents. Most personal assistance for Apple customers.158
important: keep the world and media surprised, to
Apple offers a one-to-one program for an annual
generate gobs of attention.150
fee of $99 (available only at the time of purchase
Apple continues its history of memorable ads of a new Mac from the Apple Retail Store or the
with the new 30-second television ad for the new Apple Online Store);159 subscribers can attend a
iPad 2, which debuted on Saturday, April 9, 2011. tutorial session with an Apple expert for an hour
A narrator speaks over understated piano music, once a week for one year. Apple customers can
This is what we believe . . . Technology alone is not also consult with the staff at the Genius Bar by
enough. Faster, thinner, lighter; those are all good appointment. The Genius Bar is where Apple prodthings. But when technology gets out of the way, uct users meet face-to-face with Apples geniuses
everything becomes more delightful, even magical. for answers to technical questions and for problem
Thats when you leap forward. Thats when you end troubleshooting. In addition, customers wanting to
up with something like this151
purchase a new computer or other equipment can
Steve Jobs has been considered essential to the schedule an appointment with a shopping assistant,
public relations and promotional aspect of Apple. who helps ensure that the customer selects the right
He has maintained relationships with the media and equipment for his or her needs. Apple has become
has been called the public face and champion of the new gathering place, said Steven Addis, chief
the brand.152 He is an expert when it comes to talk- executive of Addis Creson, a brand strategy and
ing with the press, maintaining relationships with design firm in Berkeley. You cant help but get
magazine editors, and continually creating new rela- caught up with it when you first walk in.160
tionships.153 Because of his dynamic, high-energy
personality, he usually holds a new idea that he is
Going Global
energetic about and has always been ready and willing to share the idea to gain exposure.
Stephen Kobrin, a Wharton Multinational manageJobs also has taken action in response to customer ment professor, explained in a recent interview that
feedback to show that he is listening and concerned. For companies that are high-tech and driven by technolexample, three months after the iPhone was available ogy that demands that they expand into many counin stores, Apple cut the price of this product by one- tries simultaneously are born global. He clarifies
third. This was a strategic move to increase demand by further stating that companies that are born global
and meet sales goals; it was not the result of a faulty tend to have high-tech products that immediately find
161
product.
Consumers
who had
purchased
iPhone
acceptance
manyscanned,
different
societies.
Copyright
2012 Cengage
Learning,
Inc. All the
Rights
Reserved.
May not be in
copied,
or cultures
duplicated,and
in whole
or in part.
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Exhibit 6 Apple Summary Information by Operating Segment

Summary information by operating segment for the three years ended September 25, 2010 is as follows ($ million):
Americas
Net sales
Operating income
Depreciation, amortization, and accretion
Segment assetsa
Europe
Net sales
Operating income
Segment assets
Japan
Net sales
Operating income
Segment assets
Asia-Pacific
Net sales
Operating income
Segment assets
Retail
Net sales
Operating income
Depreciation, amortization, and accretionb
Segment assetsb
2010
2009
2008
24,498
7,590
12
2,809
18,981
6,658
12
1,896
16,552
4,901
10
1,693
18,692
7,524
9
1,926
11,810
4,296
7
1,352
9,233
3,022
6
1,069
3,981
1,846
3
991
2,279
961
2
483
1,728
549
2
272
8,256
3,647
3
1,622
3,179
1,100
3
529
2,686
748
3
390
9,798
2,364
163
1,829
6,656
1,677
146
1,344
7,292
1,661
108
1,139
a
The Americas asset figures do not include fixed assets held in the United States. Such fixed assets are not allocated specifically to the Americas segment and are included in the
corporate and retail assets figures below.
b
Retail segment depreciation and asset figures reflect the cost and related depreciation of its retail stores and related infrastructure.
Apple certainly meets Professor Kobrins speci- Apple, Innovation, and Steve Jobs
fications for a company that was born global,
Steve Jobs has led Apple in an unprecedented run of
with reportable operating segments consisting of
successful products and services that have disrupted
the Americas (North and South America), Europe the music, mobile phone, media, and video game
(European countries), the Middle East, and Africa, industries. Following ExxonMobil, Apple is now the
Japan, Asia-Pacific (Australia and Asia but not Japan) second-most highly valued company in the world.
and the Retail segment operating Apple-owned retail And on January 19, 2011, it announced a recordstores in the United States and international mar- breaking profit of $6 billion in the first quarter of fiskets.162 At the end of fiscal year 2010, the Americas cal year 2011, which ended on December 31, 2010.
was the leading segment in sales ($24.5 billion) and This surpassed its previous high by 40 percent.164
operating income ($7.6 billion), followed by Europe With more than 50,000 employees, and a market
with net sales of $18.7 billion and operating income capitalization of more than $300 billion, Apple has
of $7.5 billion.163 Additional information on Apples no debt and enough cash on hand to buy any coun165
operating
segments
be found
in Rights
Exhibit
6.
(seeorExhibits
7,in8,whole
andor9).
trybeitcopied,
wants
Copyright
2012
Cengagecan
Learning,
Inc. All
Reserved.
May not
scanned,
duplicated,
in part.
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Exhibit 7 Apple Inc. Consolidated Statements of Operations

CONSOLIDATED STATEMENTS OF OPERATIONS
(In $ millions, except share amounts which are reflected in thousands and per share amounts)
Three years ended September 25, 2010
2010
2009
2008
Net sales ($)

Cost of sales
Gross margin
Operating expenses
Research and development
Selling, general and administrative
Total operating expenses
Operating income
Other income and expense
Income before provision for income taxes
Provision for income taxes
Net income ($)
Earnings per common share
Basic ($)
Diluted ($)
Shares used in computing earnings per share
Basic
Diluted
65,225
39,541
25,684
42,905
25,683
17,222
37,491
24,294
13,197
1,782
5,517
7,299
18,385
155
18,540
4,527
14,013
1,333
4,149
5,482
11,740
326
12,066
3,831
8,235
1,109
3,761
4,870
8,327
620
8,947
2,828
6,119
15.41
15.15
9.22
9.08
6.94
6.78
909,461
924,712
893,016
907,005
881,592
902,139
Much of Apples success has been attributed to

Steve Jobs. With a unique ability to visualize innovative product designs and predict what people would
like to have, Jobs is known to be obsessive about
process and detail. He has kept Apple focused on
just a few products that have the potential for high
return. He routinely sends products back to the lab
and insists that Apple must build the best products.
No product hits the market unless it meets his exacting standards.166
Jobs will be difficult to replace. No other person
has had the experience of founding the company,
been asked to leave the company, and returned years
later to save it from bankruptcy. And Jobs is selftaught. He attended Reed College for a while, but
dropped out after he became bored with his classes.
Although he is not trained in product design, he
manages what could be the best design shop in the
world. He does not have an M.B.A. degree, yet he
is considered to be one of the worlds leading business strategists. His marketing, communications,
and salesmanship skills are unsurpassed.167 Some
analysts and other Apple watchers say that one
of the best strategic moves Jobs has made as CEO

has been to surround himself with extraordinary
people.168
Apple has a reputation for hiring the best, most
talented people in their disciplines. As a result, Apple
has an existing team of highly skilled specialists with
an operating system that more closely resembles a
start-up instead of an established company that nurtures and creates seasoned executives groomed to
potentially take over the CEO spot. One of Apples
specialists is COO Tim Cook, who has been selected
by Jobs to manage the day-to-day operations until
Jobs returns from medical leave. There is wide speculation that Cook will be Apples next CEO, if or
when Jobs departs permanently. Cook, a veteran of
both IBM and Compaq, is known to be an operations genius, adept at cutting costs while delivering
complex products on time and coping with staggering growth.169 Also, Cook successfully led the
company during Jobs previous two absences, one
of which occurred in some of the worst months of
the recession. However, during all his medical leaves
Jobs has remained involved in all major strategic
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Exhibit 8 Apple Inc. Consolidated Balance Sheets
Consolidated Balance Sheets

(In $ millions, except share amounts)
Assets
Current assets
Cash and cash equivalents
Short-term marketable securities
Accounts receivable, less allowances of $55 and $52, respectively
Inventories
Deferred tax assets
Vendor nontrade receivables
Other current assets
Total current assets
Long-term marketable securities
Property, plan, and equipment, net
Goodwill
Acquired intangible assets, net
Other assets
Total assets
Liabilities and Shareholders Equity
Current liabilities
Accounts payable
Accrued expenses
Deferred revenue
Total current liabilities
Deferred revenuenoncurrent
Other noncurrent liabilities
Total liabilities
Commitments and contingencies
Shareholders equity
Common stock, no par value; 1,800,000,000 shares authorized;
915,970,050 and 899,805,500 shares issued and outstanding,
respectively
Retained earnings
Accumulated other comprehensive (loss)/income
Total shareholders equity
Total liabilities and shareholders equity
September 25, 2010
September 26, 2009
11,261
14,359
5,510
1,051
1,636
4,414
3,447
41,678
25,391
4,768
741
342
2,263
75,183
5,263
18,201
3,361
455
1,135
1,696
1,444
31,555
10,528
2,954
206
247
2,011
47,501
12,015
5,723
2,984
20,722
1,139
5,531
27,392
5,601
3,852
2,053
11,506
853
3,502
15,861
10,668
8,210
37,169
(46)
47,791
75,183
23,353
77
31,640
47,501
decisions; thus Cook has not yet been completely

tested in the CEO role.
Thus, a nagging question on the minds of many
analysts, Apple enthusiasts, employees and shareholders is, Will Apple survive without Steve Jobs?
There is no doubt that Apple will carry on if

Jobs is unable to return. They have products in
the pipeline for at least two years, maybe three,
according to Barclays Capital analyst Ben Reitzes.
He added, They are on autopilot to a degree,
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Exhibit 9 Apple Inc. Consolidated Statements of Cash Flows
Consolidated Statements of Cash Flows

(In $ millions)
Three years ended September 25, 2010
Cash and cash equivalents, beginning of the year
Operating activities
Net income
Adjustments to reconcile net income to cash generated by
operating activities
Stock-based compensation expense
Deferred income tax expense
Loss on disposition of property, plant, and equipment
Changes in operating assets and liabilities
Accounts receivable, net
Inventories
Vendor nontrade receivables
Other current assets
Other assets
Accounts payable
Deferred revenue
Other liabilities
Cash generated by operating activities
Investing activities
Purchases of marketable securities
Proceeds from maturities of marketable securities
Proceeds from sales of marketable securities
Purchases of other long-term investments
Payments made in connection with business acquisitions, net of
cash acquired
Payments for acquisition of property, plant, and equipment
Payments for acquisition of intangible assets
Other
Cash used in investing activities
Financing activities
Proceeds from issuance of common stock
Excess tax benefits from stock-based compensation
Taxes paid related to net share settlement of equity awards
Cash generated by financing activities
Increase/(decrease) in cash and cash equivalents
Cash and cash equivalents, end of the year
Supplemental cash flow disclosure
Cash paid for income taxes, net
2010
5,263
2009
11,875
2008
9,352
14,013
8,235
6,119
1,027
879
1,440
24
734
710
1,040
26
496
516
398
22
(2,142)
(596)
(2,718)
(1,514)
(120)
6,307
1,217
778
18,595
(939)
54
586
163
(902)
92
521
(161)
10,159
(785)
(163)
110
(384)
289
596
718
1,664
9,596
(57,793)
24,930
21,788
(18)
(638)
(46,724)
19,790
10,888
(101)
0
(22,965)
11,804
4,439
(38)
(220)
(2,005)
(116)
(2)
(13,854)
(1,144)
(69)
(74)
(17,434)
(1,091)
(108)
(10)
(8,189)
912
751
(406)
1,257
5,998
11,261
475
270
(82)
663
(6,612)
5,263
483
757
(124)
1,116
(2,523)
11,875
2,697
2,997
1,267
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at least in terms of the big picture.170 There are

additional indicators that Apple will continue to
thrive.
Sales of the iPhone and iPad are surging. Apple
sold 16.24 million iPhones in the fourth quarter
2010. This represents an 86 percent growth over the
same quarter a year ago. With the iPhone 4 recently
made available on Verizon and the iPhone 5 anticipated later in 2011, analysts believe it is reasonable
to expect that Apple will sell between 25 and 30 million iPhones in 2011. In addition, 7.33 million iPads
were sold during the same quarter, up 70 percent
from the 4.9 million sold in the previous quarter.171
And, although iPod sales decreased 7 percent for
the quarter, they still sold 19.45 million of them.
iPod sales could increase after Apple introduces its
cloud streaming service later in 2011. Apple sold
13 million Macs, a 23 percent increase over the previous year.172
Finally, as long as Jobs retains the CEO title,
the perception will exist that he is still in control.
Morale at Apple will remain high, along with
hopes that the popular and charismatic CEO will
eventually return or at least continue to have a
role in the decision-making. Kaufman Brothers
analyst ShawWu said to Reuters that Jobs role is
important, but at the same time, as the company
continues to execute, it becomes more secondary.
The way Steve thinks, his methodology, his sense
of style: frankly, a lot of it has been ingrained into
the Apple culture.173
Although Apple will continue to face challenges as
the company adjusts to operating without SteveJobs,
most analysts are confident that Apple will survive
the loss. The coming months and years, as products
flow through the pipeline, will tell if they are right
or wrong.
NOTES
1. http://store.apple.com/us?mco-NzcIMjVlwNQ.
2. G. Colvin, 2011, The Worlds Most Admired Companies, Fortune Magazine,
Vol. 163 No. 4, March 21.
3. R. Safian, 2011, Letter From the Editor, Fast Company, March, 17.
4. B. Morris, 2008, What makes Apple golden, Fortune, March 3.
5. D. Leonard, 2003, Songs in the key of Steve, Fortune, April 28.
6. M. Honan, 2007, Apple drops Computer from name, Macworld, Macworld
Expo, January 9, http://www.macworld.com/article/54770/2007/01/
applename.html.
7. R.E. Hoskisson, 2007, Strategic Focus: Apple: Using innovation to create
technology trends and maintain competitive advantage, Hitt, Ireland &
Hoskisson, Strategic Management: Competitiveness and Globalization, 8th
Edition.
8. B. Stone & P. Burrows, 2011, The Essence of Apple, Bloomberg Businessweek,
January 24, 6.
9. Ibid.
10. Ibid.
11. R. E. Hoskisson, 2007, Strategic Focus: Apple: Using innovation to create
technology trends and maintain competitive advantage, Hitt, Ireland, &
Hoskisson, Strategic Management: Competitiveness and Globalization, 8th Edition.
12. Apple history, www.apple-history.com/frames.
13. Ibid.
14. L. Kimmel, 1998, Apple Computer, Inc.: A History, www.geocities.com/
Athens/3682/applehistory.html.
15. Ibid.
16. http://apple-history.com.
17. Apple Computer History Weblog, http://apple.computerhistory.org.
18. L. Kimmel, 1998, Apple Computer, Inc.: A history.
19. Apple Computer History Weblog.
21. Ibid.
22. Apple Computer History Weblog.
24. Ibid.
25. Ibid.
26. Ibid.
27. http://www.apple.com/itunes.
28. 2010 Apple Inc. Annual Report.
29. http://www.apple.com/itunes/what-is/
30. Ibid.
31. R. E. Hoskisson, Strategic Focus: Apple.
32. 2007, Apple reinvents the phone with iPhone, Apple Inc. press release,
www.apple.com/pr/library/2007/01/09iphone.html, January 9.
33. 2011, Apple Inc., Hoovers Company Reports.
34. A. Zaky, 2011, Why Apple investors shouldnt sweat Android, Fortune, April
11, http://tech/fortune.cnn.com/2011/04/11/why-apple-investors-shouldntsweat-android/.
35. http://www.apple.com/phone/features/.
36. C. Ziberg, 2011, iPhone 5 Available by June 20?, Motley Fool on msnbc.com,
http://www.msnbc.msn.com/id/42183093/ns/business-motley_fool/
37. 2007, In three months, iPhone sales top a million, New York Times,
www.nytimes.com, September 11.
38. M. Quinn & D. C. Chmielewski, 2008, Studios join Apples movie rental service,
Los Angeles Times, www.latimes.com, January 16.
39. C. Edwards, 2008, Jobs Appeals to the Crowd, BusinessWeek, January 15.
40. http://theapple.tv/history-of-apple-tv/.
41. T. Bajarin, 2010, How the iPad Will Change Mobile Computing, February 1,
PCMagazine, http://www.pcmag.com/article2/0,2817,2358602,00.asp.
43. T. Bajarin, 2010, How the iPad Will Change Mobile Computing, February 1,
PCMagazine, http://www.pcmag.com/article2/0,2817,2358602,00.asp.
44. E. Griffin, 2010, Best Products of 2010, PCMagazine, November 19, http://
www.pcmag.com/article2/0,2817,2372799,00.asp.
46. 2011, iPad 2 sales start with pre-dawn online orders, Associated Press, March
11, http://www.abc15.com/dpp/news/science_tech/ipad-2-sales-to-startwith-pre-dawn-online-orders
47. T. Gideon, 2011, Apple iPad 2 (Wi-Fi + 3G), PCWorld Magazine, March 9, http://
48. T. Gideon, 2011, How to Buy the Best Tablet, PCWorld Magazine, March 31,
http://www.pcmag.com/article2/0,2817,2382821,00.asp.
49. W. Cohen, www.rollingstone/news/newsarticle.asp?nid =18075.
50. K. Regan, 2007, EMI revenue falls but DRM-free iTunes sales promising,
Ecommerce Times, http://www.ecommercetimes.com, August 6.
51. T. Anderson, 2008, How Apple is changing DRM, The Guardian, May 15.
52. Ibid.
53. http://www.apple.com/pr/library/2009/01/06itunes.html.
55. 2011, Apple Launches Subscriptions on the App Store, February 15, 2011,
http://www.apple.com/pr/library/2011/02/15appstore.html.
56. B. Slattery, 2011, Apple Subscription Plan Launched, PCWorld, February
15, http://www.pcworld.com/article/219702/apple_launches_app_store_
subscriptions.html.
57. Ibid.
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58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72.
73.
74.
75.
76.
77.
78.
79.
80.
81.
82.
83.
84.
85.
86.
87.
88.
89.
90.
91.
92.
93.
94.
95.
96.
97.
98.
Ibid.
Ibid.
Ibid.
P. Elmer-DeWitt, 2011, iPad mags: Another publisher blinks, Fortune, April 11,
http://tech.fortune.cnn.com/2011/04/11/ipad-mags-another-publisherblinks/
Ibid.
Ibid.
N. Ives, 2011, Why Elle, Nylon and Pop Sci Said yes to Apples iPad
Subscription Terms, AdAgeMEDIAWORKS, February 16, http://adage.
com/article/mediaworks/elle-nylon-pop-sci-accepted-ipad-subscriptionplan/148920/.
D. C. Chmielewski & M. Quinn, 2007, Technology; Movie studios fear the
sequel to iPod; They see risk that new Apple TV signals effort to control
distribution, Los Angeles Times, June 11, C1.38.
2008, Apple premieres iTunes movie rentals with all major film studios, Apple
press release, www.apple.com/pr/library, January 15.
Ibid.
http://www.apple.com/itunes/whats-on/#movies.
2007, Apple chooses Cingular as exclusive U.S. carrier for its revolutionary
iPhone, Apple Inc. press release, www.apple.com/pr/library/2007/01/09
cingular.html, January 9.
2008, www.apple.com/iphone.
http://www.apple.com/pr/library/2011/02/02iphone.html.
2011, Apple Inc., Hoovers Company Reports.
A. Hesseldahl, 2007, Take the iPhone apart, BusinessWeek, www.businessweek.
com, July 2.
C. Bruemmer, 2011, Electronic Manufacturer Supply Chain Hit by Japan
Earthquake-Tsunami, TopTenWholesale.com, http://www.toptenwholesale.
com/news/electronic-manufacturer-supply-chain-hit-by-japan-earthquaketsunami-3984.html.
K. Rose, 2011, Apple Japan goes the extra mile in earthquakes aftermath,
MacDailyNews, March 15, http://macdailynews.com/2011/03/15/applejapangoes-the-extra-mile-in-earchquake-aftermath/.
C. White, 2011, Apple & Microsoft Take Different Approaches to Japan Relief,
Mashable, March 13, http://mashable.com/2011/03/13/apple-microsoftjapan/.
D. Glodman, 2011, Apples iPad 2 supply concerns mount, CNNMoney, March
23, http://money.cnn.com/2011/03/23/technology/apple_ipad_japan_
supply_chain_concerns/index.html.
P. Elmer-DeWitt, 2011, Japan supplied 5 key iPad parts, Fortune, March 18,
http://tech.fortune.cnn.com/2011/03/18/5-key-ipad-parts-that-came-fromjapan/?section=magazines_fortune.
Ibid.
2001, Napsters History, http://w3.uwyo.edu/~pz/nap2.htm.
2001, The history of the Napster struggle, www.theneworleanschannel.com/
news/457209/detail.html.
2003, Napster 2.0 to launch by Christmas, www.roxio.com/en/company/
news/archive/prelease030728.jhtml.
Ibid.
www.napster.com.
J. Ketola, 2003, Kazaa Plus service launched, www.afterdawn.com, August.
2008, Wikipedia, http://en.wikipedia.org/wiki/kazaa.
2008, Wikipedia, http://en.wikipedia.org/wiki/kazaa.
2003, Kazaa Usage Map, http://tools.waglo.com/kazaa.
http://www.kazaa.com/#/about.
S. I Ahmed, 2011, Atrinsic says Kazaa users can stream music on phones,
Reuters, March 7, http://www.reuters.com/article/2011/03/07/us-atrinsicshares-jdUSTRE72657320110307.
N. Wingfield, 2004, Price war in online music, The Wall Street Journal, www.
wsj.com, August 17.
http://www.real.com/realplayer/convert-video.
http://www.real.com/realplayer/player-plus.
http://www.rhapsody.com/-discover.
http://mp3.walmart.com/store/home.
http://www.amazon.com/go/help/customer/display.html/ref-hp_mp3store_
gettingstarted/.
http://www.amazon.com/gp/video/ontv/player.
http://www.amazon.com/go/video/ontv/ontv/ref-sv_atv_2.
99. 2008, CinemaNow Inc., BusinessWeek, http://investing.businessweek.com,

March 14; 2008, www.cinemanow.com; 2008, Wikipedia, http://en.wikipedia.org;
A. Gonsalves, 2007, InformationWeek, www.informationweek.com, July 18.
100. 2011, CinemaNow, TopTenREVIEWS.com, http://movie-download-review.
toptenreviews.com/cinemanow-review.html.
101. Ibid.
102. Ibid.
103. O. Kharif, 2010, Wal-Mart Picks Up Digital VUDU, Bloomberg Businessweek,
February 22, http://www.businessweek.com/technology/content/feb2010/
tc20100222_235241.html.
104. http://disneymoviesonline.go.com/movies.
105. Ibid.
106. Ibid.
107. 2011, The Walt Disney Company, Hoovers Company Reports.
108. 2011, Netflix, Hoovers Company Reports.
109. Ibid.
110. O. Kharif, 2010, Wal-Mart Picks Up Digital VUDU, Bloomberg Businessweek,
February 22, http://www.businessweek.com/technology/content/feb2010/
tc20100222_235241.html.
111. D. Pogue, 2007, High-speed video store in the living room, New York Times,
www.nytimes.com, September 6.
112. http://www.walmart.com/cp/vudu/1066144.
113. C. Edwards, B. Womack & A. Sherman, 2011, Netflix Falls as Warner Bros. Offers
Facebook Movies, Bloomberg, http://www.bloomberg.com/news/2011-0308/netflix-falls-as-warner-bros-starts-offering-movies-on-facebook.html.
114. Ibid.
115. Ibid.
116. Ibid.
117. J. Goldman, 2008, Motorola hangs up on handsets, www.cnbc.com, January
31; A. Hasseldahl, 2008, Blackberry vs. iPhone: Who wins? BusinessWeek, www.
articles.moneycentral.msn.com, January 3.
118. 2011, Motorola Mobility Holdings, Inc., Hoovers Company Reports.
119. Ibid.
120. M. Ricknas, 2010, Motorola Announces Flashy Android Phone, PCWorld, June
7, http://www.pcworld.com/article/198/159/motorola_announces_flashy_
android_phone.html.
121. G. Miles, 2010, Motorola Droid X: The Best of the Droids, PCWorld, June 23,
http://www.pcworld.com/article/199747/motorola_droid_is_the_best_of
_the_droids.html.
122. J. Goldman, 2008, iPhone vs. Blackberry: Apple launches new software, www.
cnbc.com, March 6.
123. 2011, Research in Motion Limited, Hoovers Company Reports.
124. B. Cha, 2010, The RIM BlackBerry Torch 9800, cnet Reviews, October 12,
http://reviews.cnet.com/blackberry-torch-review#reviewPage1.
125. 2011, HTC Corporation, Hoovers Company Reports.
126. http://www.htc.com/www/about_htc.aspx
127. D. Ionescu, 2010, Apple iPhone 4 vs. The Rest of the Smartphone Pack,
PCWorld, June 7, http://www.pcworld.com/article/198214/apple_iphone_4_
vs_the_rest_of_the_smartphone_pack.html.
128. L. Whitney, 2011, Android is No. 1 OS, but Apple, RIM rule devices, cnet
Reviews, March 4, http://reviews.cnet.com/8301-19736_7-20039240-251.html.
129. Ibid.
130. Ibid.
131. D. Bell, 2010, Best 5 MP3 players, cnet Reviews, December 22, http://reviews.
cnet.com/best-mp3-players/?tag=contentMain;contentAux.
132. 2009, MP3 player buying guide, cnet Reviews, December 2, http://reviews.
cnet.com/2719-7964_7-272-3.html?tag=page;page.
134. 2010, Apple iPod touch (4th Generation with Camera), September 7, http://
31/08/11 10:36 AM
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138. B. Reed, 2011, iPad Rivals Not up to Snuff, Says Consumer Reports,
NetworkWorld, PCWorld Magazine, April 5, http://www.pcworld.com/
businesscenter/article/224315/ipad_rivals_not_up_to_snuff_says__
consumer_reports.html.
139. Ibid.
140. Ibid.
141. G. Keizer, 2011, Apple Will Dominate Tablet Market Through 2015, Says
Gartner, Computerworld, PCWorld Magazine, April 11, http://www.pcworld.
com/businesscenter/article/224865/apple_will_dominate_tablet_market_
through_2015_says_gartner.html.
142. 2007, A bruise or two on Apples reputation, BusinessWeek, www.
businessweek.com, October 22.
143. Ibid.
144. J. Quelch, 2007, How marketing hype hurt Boeing and Apple, Harvard
Business, http://discussionleader.hbsp.com, November 2.
145. L. Gomes, 2006, Above all else, rivals of Apple mostly need some design
mojo, The Wall Street Journal, May 24, B1.
146. Ibid.
147. R. Goldbert, 2011, Selling the Apple Lifestyle: What Makes the Ads Work,
Minyanville.com, March 22, http://www.minyanville.com/special-features/
articles/apple-ad-best-ad-copy-apple/3/22/2011/id/33115.
148. Ibid.
149. Ibid.
150. J. Graham, 2007, Apple buffs marketing savvy to a high shine, USA Today,
www.usatoday.com, March 3.
151. P. Elmer-DeWitt, 2011, iPad ad as mission statement, Fortune, http://tech.
fortune.cnn.com/2011/04/03/ipad-ad-as-mission-statement/#more-56374.
152. Cuneo, Apple transcends as lifestyle brand.
153. Ibid.
154. 2007, In 3 months, iPhone sales top a million.
155. R. Stross, 2007, Apples lesson for Sonys stores: Just connect, New York Times,
www.nytimes.com, May 27.
156.
157.
158.
159.
160.
161.
162.
163.
164.
165.
166.
167.
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169.
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2010, Apple Inc. Annual Report.

Cuneo, Apple transcends as lifestyle brand.
www.apple.com/findouthow/retail/.
http://www.apple.com/retail/onetoone/
Ibid.
2007, What makes a global leader? India Knowledge at Wharton,
http://knowledge.wharton.upenn.edu/india, October 4.
2010, Apple Inc. Annual Report.
Ibid.
B. Stone & P. Burrows, 2011, The Essence of Apple, Bloomberg Businessweek,
January 24, 6.
A. Corn, 2011, Apple prepares for Its Next Act: Time to Officially Appoint
Cook as CEO, Seeking Alpha, April 12, http://seekingalpha.com/article/
263025-apple-prepares-for-its-next-act-time-to-officially-appoint-cookas-ceo.
P. Elmer-DeWitt, 2011, Thinking the unthinkable: Apple without Steve Jobs,
Fortune, January 17, http://tech.fortune.cnn.com/2011/01/17thinking-theunthinkable-apple-without-steve-jobs/.
D. Lyons, 2011, Facing a Jobs-Less Apple, Newsweek, January 23, http://www.
newsweek.com/2011/01/23/facing-a-jobs-less-apple.html.
Ibid.
P. Elmer-DeWitt, 2011, Thinking the unthinkable: Apple without Steve Jobs,
Fortune, January 17, http://tech.fortune.cnn.com/2011/01/17thinking-theunthinkable-apple-without-steve-jobs/.
B. Stone & P. Burrows, 2011, The Essence of Apple, Bloomberg Businessweek,
January 24, 6.
C. Boulton, 2011, Enterprise Mobility: Apple Without Steve Jobs Will Do Just
Fine: 10 Reasons Why, eWeek.com, January 20, http://www.eweek.com/c/a/
Mobile-and-Wireless-Apple-Without-Steve-Jobs-Will-Do-Just-Fine-10Reasons-Why-205563/.
Ibid.
Ibid.
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Apple Inc.: Keeping the i in Innovation

position it has held since 2008.2 In March 2011, Fast

Exhibit 1 Apple Inc. Selected Financial Data

Net sales ($)

Apple Inc.: Keeping the i in Innovation

whose innovations and inspirations are so closely

Early Company History

Apple Inc.: Keeping the i in Innovation

Exhibit 2 Select Apple Product Releases

Macintosh Graphical User Interface (GUI)

Macintosh Quadra PowerBook 100

company. On the first day of trading, its share price

The memorable commercial featured an Orwellian

Apple Inc.: Keeping the i in Innovation

Mac. With this agreement, Apple had effectively

downloaded by way of iTunes, music could then

iTunes: Apples Online Music Store

Apple Inc.: Keeping the i in Innovation

iTunes, iPod, iPhone, iPad, and Apple TV

ent iPod styles: the iPod shuffle, iPod classic, iPod

Exhibit 3 iPod Products

Multitouch comes to the smaller,

Have more fun than

Music, audiobooks, podcasts,

Apple Inc.: Keeping the i in Innovation

Earphones, USB cable

Earphones, USB cable

1.48 x 1.61 x 0.35 inches

4.1 x 2.4 x 0.41 inches

4.4 x 2.3 x 0.28 inches

0.74 ounces (21.1 grams)

3.56 ounces (101 grams)

About 3 hours (1.5-hour fast

About 4 hours (2-hour fast

Apple Store Exclusive color

Apple Inc.: Keeping the i in Innovation

1.54-inch (diagonal) color

Dock connector, stereo minijack

Dock connector, stereo

USB through dock connector;

USB through dock

Audio formats supported: AAC

AAC (8320 Kbps),

Audio formats supported:

Apple Inc.: Keeping the i in Innovation

H.264 video up to 720p,

Apple Inc.: Keeping the i in Innovation

user interface based on a large multitouch display

Exhibit 4 Apple Inc. Net Sales by Product

Source: Apple Inc. Annual Report 2010.

Apple Inc.: Keeping the i in Innovation

the Apple III and the Power Mac Cube. Some of

Users were not able to download a movie from

Steve Jobs announced at the Macworld

(movies, TV shows, photos, and music) streamed

Exhibit 5 History of Apple TV Models