Apple, iPhone a look from a resource-based view (Part I)

I find it quite interesting to study and apply the resourced-based view to Apple on the analysis of its competitive advantage. Michael Porter was famous for his five forces model teaching the firm how to deal with its external forces (buyers, suppliers, substitutors, new entrants and the competitors). However, as a company with interest (and even obsession) in technological innovation, Apple is better looked at and analysed by the resource-based view. Since the other purpose of this writing is for my Corporate Strategy class at the ABS (Amsterdam Business School), I am going to mention all of the relevant names in the reading of the resource-based view, named below:

- Barney (VRIO, 1995)

- Prahalad and Hamel (Core Competence, 1990)

- Peteraf ( Conerstone of the RBV, 1993)

- Grant (Knowledge-based, 1996)

- Stalk (Capabilities-based, 1992)

and along with that will be the Schumpeterian view on competitive advantage, Kim & Mauborgne (Blue Ocean strategy), Brandeburger & Stuart (1996), Value-based Strategy,... 

The first, common point among Barney, Peteraf, Prahalad & Hamel in order for a firm to gain competitive advantage is the question of value. 

Do Apple's resources and capabilities add value for the finding of new opportunities? Steve Jobs, in his keynote presentation of the iPhone in 2007 introduced a device which is an integration of three separate devices: a wide screen iPod with touch controls, a revolutionary mobile phone, and an Internet communication device. All of the three separate products, Apple took advantage of its existing products: iPod and Safari (Internet communicator). The new opportunity lay in the mobile phone, especially when it's a revolutionary mobile phone. All of the three integrated in one device, and what make the device outstanding is a big screen, with touch control. Apple has separated itself from the design of the cell phone at that moment: no main button, no key board (looking at Blackberry, Nokia, Motorola, Samsung,...), but only a big screen. There is also no need for a stylus, but the most handy pointer: finger. Creating an iPhone, based on this differentiation in design, and the idea of combining the three powerful products on a device, called smartphone Apple created a product with added value to customers/ end users and at the same time, brought it a lot of opportunity in the cell phone industry, which later is known as 'smartphone'. Apple, with the introduction of iPhone can be seen as a leader in the new industry. Apple had a chance of winning a large customer base where targeted ones are not businesses but consumers. There is one important thing I would like to point out here. Before, with a PC, customers are in businesses. The Apple's user-friendly PC did not succeed in the market in the 90s since the focus was on business, there was not really a need for user-friendly experience. Compaq, HP later on were the winner. There were also devices from HP, O2,... which also enable pointing (by a stylus), checking email, calendar, web surfing,... but those products are much more in business line not consumer line. HP's smartphone, Palm was not a popular product due to the main focus, business customers. Apple, still the same focus to consumers, gained a big market share in smartphone area since compared to HP, it has much larger customer base (consumers vs businesses).

The second point for Apple to keep its competitive advantage is imitability that Barney and Peteraf shared. Apple introduced its iPhone in January 2007 and the first product was on sales from June 2007. Only after about two years after that (2009), other competitors like HTC, Nokia, Samsung,... were able to catch up with Apple in smartphone, especially touch screen device. (HTC is also a new interesting player in smartphone).  

Going into this industry for Apple is like going to a 'blue ocean' where a lot of opportunities are out there to be achieved, where there were not a lot of competition at that time, and competitors need time to develop product and catch up in the market. 

Apple produced a hardware, a phone for one of the reasons, it has great software to go with its phone as Steve Jobs referred to Alan Kay thirty years ago 'People who are really serious about software should make their own hardware'. In 2007, there was no real player in smartphone who offered both perfect or almost perfect hardware product together with excellent software from a consumer point of view. Even up till now, 2010; the industry is still in it new phase of the life cycle where Nokia has plan to develop its own mobile operating system (MeeGo), RIM with Blackberry (but no touch screen), Samsung and HTC offer good products but using Android (Google's mobile operating system). That is to say the resources and capabilities that Apple has is hard or costly to imitate, which enable the firm to sustain its competitive advantage. The design of Apple products bear similarity among each other (iPhone 4, Macbook Pro, iPad,...) in the external appearance. They also share similar user interface in the software (iPhone 4, new Macbook Air, Macbook Pro, iMac,...). All of the similarities of Apple's products distinguish itself from other products in the market in hardware and software design. Because Apple develops its own softwares for its hardwares, the capabilities that it possesses is rare, or in another word, the resources or capabilities are not controlled by other firms or any competitor. Thus, Apple brings itself the source of competitive advantage. 

To be continued:

- Apple's heterogeneous resources

(- Ex-ante and ex-post limits to competition)

- Apple's organizational resources (Grant, Stalk)

- Apple's innovation (Schumpeter, Kim & Mauborgne)

- Apple's business model

Apple and iPhone, a look from a technology life cycle

In 1984, Apple introduced the Apple I, the first line of computers that changed Apple and the computer industry. From that on, not a lot of people had heard of Apple computer but instead Compaq, Toshiba, Sony, Dell,... Sales of Apple's PC and Mac have been up in recent years, due to my own hypothesis that a lot of users who use iPod and especially iPhone have been getting more acquainted with the interface that is claimed to be user-friendly. Thanks to that, Apple's sales of PC and Mac are up, leaving the business unit alone, I'm not sure if they can reach the sales of $22bln for Mac FY 2010. (Source: Apple keynote for new Macbook air, iLife,...)

In late June 2007, Apple introduced a 'revolution' in Phone, the iPhone (which has come to iPhone 3G, iPhone 3GS, iPhone 4 just from 2007 to 2010). iPhone has been a huge success for Apple so far in the smartphone industry. However, success in one phase of the technology life cycle does not guarantee success in the next phase (Stoelhorst, Building Resource-based Competitive Advantage Over a Technology Life Cycle). The thinking becomes more interesting when assessing which phase of the life cycle the smartphone industry is in (refer to the four phases in Stoelhorst's). Will Apple maintain its competitive advantage when the industry comes to the next phase? Or will Apple's start with the iPhone for the smartphone industry end up like the Apple I for the computer industry in 1980s? The question is to be observed in the next 5, 10 or 20 years. Yet, over the next writing, I would like to look and analyse Apple from a resource-based view on its competencies and its capabilities.

a little note on herd behavior

So in his recent book, John Authers summarized:

Institutionalized investment pushes investors to move in herds: Paying fund managers a percentage of the assets they manage and judging them against peers encourages them all to do the same thing.

This is making me wonder if this is really the fact, then shouldn't these investors do their job in Asia or those emerging markets where their own societies are said to be collectivistic. Since then, the chance that they follow each other is much higher than in the developed, and individual world. There's rarely a contrarian in Asian stock markets, compared to the Western markets. Because, a contrarian should have a lot of liquidity; and in the developed world, people are brought up and taught to be different, unlike the Asian countries.

Once participating in the emerging markets (the collectivistic), there could be a case that model is used to measure the herd behavior, with on-time and correct inputs. However, the markets should be big enough so that a few individuals cannot have effect on the markets which is sometimes the cases in the emerging ones.

Interesting talk - Zeigeist Europe 2010

a note for my quick observation

Subscribe your tweeter to Techcrunch or subscribe its RSS reader, you can get a day a hundred links for news of new tech stuff. I'm a daily reader of the site, to learn more about the internet industry which I do not really belong to (but I'm working for one kind of company). It occurred to me that there're lots of innovations and new things happen to the industry, news that can make you feel overwhelmed like things happen with the financial industry, even when it's in the crisis. The innovations in the industry to me, sometimes change as fast as the Dow.

The difference about the two is that the Dow can go up and down extravagantly, 14k when I was in the States in 2007, to 6,000 and now 10,000. But with the tech stuff, it seems that there's no deterioration, at least like the financial ones. Isn't it worth working for the IT and technology industry than working for a financial firm where you spend days by days with money, having no control of it, indeed? For developers, they would answer 'yes', I think, for the meaning of the job.
However, most of the young internet and media companies (I'll do the research for the stats when having some time) are financed by the venture capitalists and private equity firms. Still, the entrepreneurs need financial firms.

P.S: the job for a risk manager in the banking/ financial industry and the job of any kind of 'risk manager' in the internet area is difficult and head-aching as equivalent. Or is it not?

Review after a year

After one and a half year, TARP's money has brought a profit.

A year ago, this was the situations of Citibank, JP Morgan, BoA, and Wells Fargo. The numbers are not easy to attain or to watch, yet once it's on graph, it's not difficult to see Citi was in a big problem.

From left to right: Citi, BoA, JP Morgan, Wells Fargo, and Peer group

(Non-core funding dependence measures the degree to which the bank is funding longer-term assets (loans, securities that mature in more than one year, etc.) with non-core funding. Non-core funding includes funding that can be very sensitive to changes in interest rates such as brokered deposits .

the difference between non-core liabilities and short-term investments, divided by long-term assets.)

continued with Alan Greenspan

a 48-page paper from Alan Greenspan on the role of central bankers (the hyperlink from the title).

and the article from The Economist as a subjective summary for a few chapters in Greenspan's paper.

Greenspan on banking regulation

To come back and discuss about a subject of my thesis, controlling bank liquidity ratios.

about what I am doing

Part I: being in digital/ information age

For more than one time, I felt overwhelmed by being in Digital Age, working as an analyst for a start-up internet company in Amsterdam. The company was born in 2004, as a web messenger for students and people who cannot chat at school or office due to the block of MSN or Yahoo Messenger. I knew the company, e-messenger at that time because one of my closed girlfriends was among the first 4 people at the company. Once in a while, I came to eBuddy, another name and saw the interface was different, with I know later called Oberon. I knew Meebo and see it nice as well, but I used eBuddy just because I knew it first and my friends worked there. And, there are several chatting sites that I know later when I come to eBuddy, although my job is not relevant to Products. If you go to the site, there's almost nothing except for a box that you can log in using your MSN, AOL, Yahoo,... to chat on web (the site is unblocked to a great extent). Another great thing that I only knew when I came into the company is that you can view all of your contacts, in Gmail, MSN, Yahoo, Facebook,... by creating an ID (since I am not very into chatting). The site has no content. However, we (eBuddy) have more than 24 millions users worldwide, up to the beginning of 2010. The revenue when I entered the company came from advertising. Yet, advertisers do not pay money for nothing, they pay for the brand awareness (CPM), for cost per click (CPC), cost per action (CPA).

I myself ignore ads, however when an ad is targeted to you, it's not bad or even it's good to me. By having an ID to see all friends in all chat accounts, the company needs to know your date of birth and if you are male or female to match with the information on Facebook. This makes sense to me so I gave my information. Once, the system knowing my age, my gender and of course my location, it shows me ads that advertisers target on, like shoes, cosmetics, or campaigns for young people (since I am under 26). The targeted campaigns pay more money to my company. So, imagine that you have posted a blast on Facebook, for example "I want a pair of UGG" or "I am going to Nice". You now can imagine what you can see from Facebook right? It will show you ad on shoes, especially UGG, or showing flights and hotels in Nice. Even if you don't have that blast, the system still can see if you're male or female, and what age, to show you fashion stuff. Plus, you have done a lot of tests and used a lot of apps like you're compatible with orange color, or New York is your city,... Then it will show you orange skirts, underwear and trips to NYC. There are tons of ways to match the information and sell to advertisers.

I once found a very nice and reasonable room right in the centre of Amsterdam. It turned out to be a scam and the email address of that woman or man disappeared after a few days. I asked my colleague to track if the email address was made in Holland, UK or somewhere else. A plan was drawn in my to find out who but I gave it up, I'd prefer my own safety and people already know a lot about scamming in Amsterdam. Another case, a colleague of mine lost his Facebook account. Someone stole his and upload a picture of a groom and bride. I even said 'congratulations!' to my colleague when just seeing a small picture. He sent email to Facebook to ask for it back. Since Facebook is like your face and every of you, about you. (Unless you create a lot of accounts with different email addresses to play FarmVille or whatever it is). Facebook hadn't replied for more than two weeks. They have more than 40 millions to take care of! My CEO, of course hanging around a lot in NYC and San Franciso sent an email to a person he knew and the account was given back after less than two days. I might be naive, but that event made me feel like these days everthing of you can be showed and lost to others. Yet, if you know the right people in the digital/ internet area, you are saved.

Part II: a special report from The Economist on the Overwhelming of Data

Part III: a little of what I am doing (to be written when I have time)

natural selection and self-deception on financial crisis

nice ideas applied.