Apple Computer Transformation towards GUI Analysis and Revised

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

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

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

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

Threats to Apple • Windows 3. 0 – Narrowed the interface “performance gap” – Cheap clones now almost as good as Mac • Lack of Application Software – Largest applications vendor is Microsoft – Independent vendors want to write for O/S with largest installed base

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

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

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

Weakness Microprocessor Volume Millions of Units

Weakness Apple’s Marketing Costs vs. Rivals SG&A to Sales (%)

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

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

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

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

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

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

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

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

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