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Apple Inc.: Keeping the “I” in Innovation

Apple Inc.: Keeping the “I” in Innovation

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 com- position it has held since 2008.2 In March 2011, Fast panies in the world, Apple Inc. was one of the few Company also has named Apple the Most Innovative companies that emerged from the recession stron- Company. According to Editor Robert Safian, “in ger than ever. By spring 2011 Apple had an array putting together this month’s special package on the of impressive products including the iPad, iPhone, 2011. Most Innovative Companies, we really had iPod shuffle, iPod nano, iPod touch, iPod classic, no choice: Apple had to be No. 1.”3 With net sales Apple TV, MacBook, MacBook Pro, MacBook Air, of $37,491, $42,905, and $65,225 in 2008, 2009, , iMac, and MacPro.1 Apple that has main- and 2010, respectively, Apple’s stream of innovative tained its status as number one for innovativeness on products supported CEO ’ philosophy that Fortune Magazine’s list of the World’s Most Admired if you make something “really great, then everybody Companies in both prerecession 2007 and postreces- will want to use it”4 (see Exhibit 1). sion 2011. Apple is also named the World’s Most Although Apple started in 1976 as a Admired Company overall in 2011 by Fortune, a business, much of Apple’s success has been attributed

Exhibit 1 Apple Inc. Selected Financial Data

2010 2009 2008 2007 2006 Net sales ($) 65,225 42,905 37,491 24,578 19,315 Net income ($) 14,013 8,235 6,119 3,495 1,989 Earnings per common ($) Basic 15.41 9.22 6.94 4.04 2.36 Diluted 15.15 9.08 6.78 3.93 2.27 Cash dividends declared per common share ($) 0 0 0 0 0 Shares used in computing earnings per share Basic 909,461 893,016 881,592 864,595 844,058 Diluted 924,712 907,005 902,139 889,292 877,526 Total cash, cash equivalents and marketable securities ($) 51,011 33,992 24,490 15,386 10,110 Total assets ($) 75,183 47,501 36,171 24,878 17,205 Total long-term obligationsa ($) 5,531 3,502 1,745 687 395 Total liabilities ($) 27,392 15,861 13,874 10,347 7,221 Total shareholders’ equity ($) 47,791 31,640 22,297 14,531 9,984

aThe 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.

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to its - and -related products, in addi- whose innovations and inspirations are so closely tion to the iPhone. According to Steve Jobs, Apple’s tied to the vision of one leader when that leader’s charismatic CEO and cofounder, “This will go influence is in decline?”10 down in history as a turning point for the music To understand how Apple became a leader in industry. This is landmark stuff. I can’t overestimate innovation and how closely Steve Jobs is associated it!”5 Jobs was referring to the April 2003 debut of with Apple and its many achievements, it is neces- Apple’s iTunes Online Music Store, the first legal sary to first examine Apple’s history. online music service to have agreements with all five major record labels. Although initially avail- Early Company History able only for users, iTunes sold more than 1 million songs by the end of its first week in On April 1, 1976, Steve Jobs and Stephen Wozniak operation. Not only did iTunes change the nature of began the partnership that would eventually become the music industry, it also added greatly to Apple’s Apple Computer. Both electronics , Jobs and revenues by way of promoting the purchase of the Wozniak had known each other since high school iPod—a portable digital music device that could and had worked together previously on other proj- store downloaded iTunes songs. As Apple quickly ects.11 In early 1976, Wozniak had been working became known as a company that made innova- on combining video monitors with . His tive consumer electronics products instead of just a idea was to invent a user-friendly computer that company that made computers, it changed its name ordinary consumers could buy. Wozniak, who in 2007 from “Apple Computer” to “Apple Inc.” worked for Hewlett-Packard (HP) at the time, Jobs said, “The Mac, iPod, Apple TV and iPhone. decided to approach his employer with his idea. Only one of those is a computer. So we’re changing HP, however, did not see a future for personal the name.”6 computers (PCs) and soundly rebuffed him. At that Apple’s focus on innovation has helped it main- point, Steve Jobs told his friend Wozniak that they tain a competitive advantage and marketing prow- should go into business together and sell computers ess over other industry players that have historically themselves.12 been much stronger than Apple.7 However, Apple Their first computer, the , was built in must continue to beat the competition on a number the garage of Jobs’s parents (see Exhibit 3). Known of levels. iTunes faces stiff competition from new as a “kit computer,” the original Apple consisted and existing online music and video download ser- merely of a circuit board and did not even have an vices. The iPod, iPad, Apple TV, and iPhone all face exterior casing. It was intended to be sold to hob- the threat of lower-priced rivals and possible sub- byists only. Jobs called the computer an “Apple” stitutes. in honor of his days working at an orchard while Then on January 17, 2011, Apple was faced seeking enlightenment—and because neither he nor with an additional challenge when Steve Jobs Wozniak could come up with a better name.13 The handed control of the company to chief operating Apple I received mixed responses from hobbyists, officer Timothy D. Cook, with the announcement of and the duo decided it was time to expand the mar- another medical leave.8 This would be his third med- ket for PCs by building a more attractive and useful ical leave in less than six years. Jobs would retain machine, the Apple II14 (see Exhibit 2). the title of CEO, but Cook would handle day-to- day operations at the company. He did not share his Growth reason for leaving the company or tell his employees when he might return.9 After taking on new partners to fund expan- Diagnosed with a rare form of pancreatic can- sion plans, the company officially became Apple cer in 2004, Jobs took an undisclosed leave of Computer, Inc., in early 1977.15 Within months, the absence that year for treatment. In 2009 he took recapitalized company introduced the Apple II, the a six-month leave to undergo a liver transplant first computer to come with a sleek plastic casing at the Methodist University Hospital Transplant and color graphics.16 Annual sales increased dra- Institute in Memphis. Although these absences did matically to $10 million, and the company began to not interrupt Apple’s run of successes, the new ques- grow quickly in size, adding thousands of employ- tion became: “What happens to a modern company ees.17 On December 12, 1980, Apple became a public

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Exhibit 2 Select Apple Product Releases

1976 Apple I 2004 iPod Mini 1977 Apple II eMac iPod (Click Wheel) 1980 Apple III iPod ( Special Edition) 1983 Lisa iPod Photo 1984 Macintosh Graphical (GUI) 2005 iPod Shuffl e 1986 iPod nano 1987 Macintosh II iPod color iPod with video 1991 PowerBook 100 2006 MacBook 1994 PowerMac 6100 Mac mini 1997 PowerBook G3 2007 Apple TV 1998 iMac iPhone 1999 iBook 2008 iPhone 3G 2001 iTunes iPod classic (120 GB) iDVD 2009 iPhone 3GS iPod 2010 iPhone 4 2003 iLife suite iPad iTunes 4 (online music store w/200,000 2011 iPad 2 downloadable songs)

Source: www.apple-history.com.

company. On the first day of trading, its share price The memorable commercial featured an Orwellian increased from an initial $22 offering to $29.18 By 1984 world filled with stoic human zombies, all the end of the year, Apple reached $100 million in watching a large-screen image of “Big Brother.” annual sales.19 The fledgling company, however, A young woman rushes into the room and dra- soon faced some experienced competition. matically destroys the screen. Apple used this 1984 In 1981, IBM released its first PC. IBM’s sheer imagery to depict IBM’s computer dominance being size ensured its domination of the young PC market. destroyed by the new Macintosh.21 With features Steve Jobs realized that Apple would have to move that made the Mac easy to use for publishing and fast in order to remain a viable company. Over a marketing strategy that concentrated on uni- the few years, the company released several versities, the new computer sold very well, push- new computer models, most notably the Apple III ing Apple’s fiscal 1984 sales to an unprecedented and the Lisa. Neither of these models sold particu- $1.5 billion.22 larly well. In 1983, Jobs recruited Pepsi-Cola CEO John Shake-Up Sculley as Apple’s president and CEO. Jobs hoped that this change would bring more structure and By 1985, however, Jobs and Sculley began to dis- organization to the young company.20 Apple’s big- agree over the direction they wanted the company to gest computer achievement, the Macintosh (Mac), take. After Jobs’s attempt to remove Sculley failed, was released. After initially opposing it, Jobs had Jobs left Apple in May to start his own new busi- personally taken on the task of developing the Mac, ness, NeXT Computers. Meanwhile, ben- which became the first PC featuring a graphical efited from Apple’s poor negotiation of a contract interface and a mouse for navigation. Apple first pre- that cleared the way for successive versions of the sented the -famous Macintosh computer with Windows to use graphical user a riveting January 1984 commercial. interface (GUI) technology similar to that of the

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Mac. With this agreement, “Apple had effectively downloaded by way of iTunes, music could then lost exclusive rights to its interface design.”23 be transferred only to an iPod (due to encryption). In 1990, Microsoft released Windows 3.0, the With iTunes, Apple revolutionized the distribution first universal that could run on nearly of music and hoped to do the same with the distri- every PC regardless of the manufacturer. Although bution of movies on demand. Similar strategies were Apple’s worldwide sales had reached $7 billion by planned for the iPhone in the mobile or 1992, Apple soon found itself fighting an uphill industry segments and for Apple TV in the mobile battle against the movement toward standardized media and set-top box industry segments. software. More and more businesses and consum- ers wanted compatible operating systems, but the iTunes: Apple’s Online Music Store Macintosh still ran exclusively on Mac OS, a system not available to other computers. By 1993, Apple’s Apple ventured into the market of legal downloads replaced Sculley as CEO. Apple with the introduction of its iTunes Music Store.27 By moved through two CEOs over the next five years. 2011 the iTunes Store provided customers in 23 During this time, Apple partnered with IBM countries with music, movies, HD TV shows, apps, and Motorola to produce the PowerPC chip, which games, , , and ways to connect would run the company’s new line of PowerMacs, with artists and friends via Ping (Apple’s own social allowing it to outperform computers powered by network for music). iTunes offers downloads at a microprocessors.24 Despite this and Apple’s specified price without requiring a subscription or attempts to reorganize, losses mounted in 1996 and monthly fees.28 Originally offered exclusively on 1997. In December 1996, Apple acquired NeXT, Apple’s own Mac, iTunes can now be installed on with the plan of using its technology as the basis for PCs, , , , and Apple TV as well.29 a new operating system. After being gone for more In addition, the iTunes Store provides customers than a decade, Jobs returned to the company he had with recommendations from fellow fans, celebrity originally cofounded with Wozniak. playlists, recommendations from iTunes based on previous purchases, a free Single of the Week, and Jobs’ Return the option of subscribing to iTunes Newsletters. The original idea behind iTunes was to provide a solu- One of the first problems Steve Jobs moved to fix was tion to the illegal pirating of music and software the ongoing dispute between Apple and Microsoft from rival sources such as . over the Windows GUI. Microsoft not only paid iTunes offers its users a selection of more than an undisclosed amount to Apple, but also made its 13 million songs, with new songs continually added.30 Office 98 suite compatible with .25 Jobs Titles are from just about every genre of music. then proceeded to change the company’s sales strat- Users can perform a search by type of music, artist egy in 1997 to encompass direct sales—both online name, or title of track or album. Each song avail- and by phone. In a flurry of product releases, Apple able can be previewed without making a purchase introduced the new generation of PowerMacs, and is priced at $0.69, $0.99, or $1.29. Through , and the highly anticipated iMac and iTunes U, users can download lectures, discussions, iBook, which were less expensive computers aimed language lessons, and other opportunities for learn- at the low-end computer market. After an entire year ing for free from leading universities, museums, and without showing a profit, the first quarter of 1998 other institutions. began three years of profitable quarters for Apple.26 Once songs are downloaded, they are stored as Jobs stated that he wanted to transform the com- a digital music library. As this collection grows, this pany by making the Mac “the hub of [the consum- list of songs can be arranged in many different ways. ers’] digital lifestyle.” To do this, Apple introduced Songs can be arranged by personal rating, artist, or iLife in 2002, a software suite including applications genre. This feature allows for a customizable play list. such as iPhoto, iMovie, iTunes, and eventually the In addition, the iTunes Store includes Apple’s iPod. With the advent of and peer-to-peer and iBookstore. Gift certificates are also music , Apple saw a way to capitalize on the available in different denominations and can be sent emerging trend of cheap music downloads by creat- electronically. ing a legal online music distribution network. iTunes As previously mentioned, in its first week of would be the key to exploiting this market. Once existence, the number of downloads from iTunes

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surpassed the one million mark. This feat is amaz- ent iPod styles: the iPod shuffle, iPod classic, iPod ing considering that at the time of iTunes’ introduc- nano, and iPod touch. iPod owners can purchase tion, the download service was available only for accessories such as the armband, the radio remote, the Mac. In addition, at that time Mac users com- and the universal and remote to make using the prised less than 5 percent of U.S. computer users. iPod even more enjoyable. While others are seeking When iTunes became available for use on the PC, to simply duplicate the complementary and innova- sales increased even more rapidly. iTunes PC down- tive relationships between iPod and iTunes, Apple loads reached the one million mark in three days, continues to innovate with new products such as the less than half the time it took for the Mac version. iPad and new updated versions of existing products But the success of iTunes is not measured in number such as the iPhone and Apple TV31 (see Exhibit 3). of downloads sold per day or week; it is also used as a means to boost the sale of iPods, iPhones, iPads, iPhone and Apple TVs. In first-quarter 2007, Apple launched its “revolu- iTunes, iPod, iPhone, iPad, and Apple TV tionary” product, the iPhone. The iPhone combined three concepts popular with consumers: a mobile For music lovers, the iPod is the greatest invention phone, a widescreen iPod, and an communi- since the Walkman. There are currently four differ- cation device. The iPhone bragged “an entirely new

Exhibit 3 iPod Products

iPod shuffle iPod nano iPod classic iPod touch

The incredibly small, wearable Multitouch comes to the smaller, With 160GB of Have more fun than music player has buttons, and lighter iPod nano, along with storage for music, ever with FaceTime,* VoiceOver tells you the song features like a built-in FM radio, video, and photos, , HD video or playlist you’re listening to. pedometer, clip, and more. iPod classic is the recording, and the Learn more Learn more take-everything powerful A4 chip. everywhere iPod. Learn more Learn more Capability Music, audiobooks, podcasts Music, audiobooks, podcasts, Music, movies, Music, movies, TV photos, FM radio, pedometer, TV shows, , shows, videos, games, Nike 1 iPod support** audiobooks, podcasts, applications, ebooks, photos audiobooks, podcasts, photos, , email, Maps, FaceTime,* HD video recording and editing, Nike + iPod support built in

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Exhibit 3 (Continued)

iPod shuffle iPod nano iPod classic iPod touch

Battery life*** Audio playback Audio playback Audio playback Audio playback Up to 15 hours Up to 24 hours Up to 36 hours Up to 40 hours Video playback Video playback Up to 6 hours Up to 7 hours Colors

Apple Store Exclusive color

Includes Earphones, USB Cable Earphones, USB cable Earphones, dock Earphones, USB cable adapter, USB cable Capacity and price**** 2GB in $ 8GB in $ 160GB in $ 8GB in $ 49 149 249 229 16GB in $ 32GB in $ 179 299 A portion of the proceeds from 64GB in $ every purchase will go to the Global Fund to fi ght AIDS in Africa. 399 Size 1.14 x 1.24 x 0.34 inches 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 (29 x 31.6 x 8.7 mm) (37.5 x 40.9 x 8.78 mm) (103.5 x 61.8 (111 x 58.9 x 7.2 mm) including clip including clip x 10.5 mm) Weight 0.44 ounce (12.5 grams) 0.74 ounces (21.1 grams) 4.9 ounces 3.56 ounces (101 grams) (140 grams) Charge time About 3 hours (2-hour fast About 3 hours (1.5-hour fast About 4 hours About 4 hours (2-hour fast charge to 80%) charge to 80%) (2-hour fast charge charge to 80%) to 80%)

(Continued)

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Exhibit 3 (Continued)

iPod shuffle iPod nano iPod classic iPod touch

Display 1.54-inch (diagonal) color 2.5-inch (diagonal) 3.5-inch (diagonal) Multitouch display color LCD with LED widescreen Multitouch display Navigation Clickable controls with Multitouch display Click Wheel Multitouch display VoiceOver button Ports iPod shuffl e, USB cable Dock connector, stereo minijack Dock connector, Dock connector, stereo stereo minijack minijack Connectivity iPod shuffl e, USB cable USB through dock connector; USB through USB through dock audio through headphone jack dock connector; connector; component component and and composite video composite video through dock connector through dock (with AV cables, sold connector (with AV separately); audio through cables, sold separately); headphone jack audio through headphone jack Wireless 802.11b/g/n Wi-Fi (802.11n 2.4GHz only), Nike + iPod support built in, Maps location- based service, Bluetooth 2.1 + EDR Audio support AAC (8–320 Kbps), Protected Audio formats supported: AAC AAC (8–320 Kbps), Audio formats supported: AAC (from iTunes Store), (8–320 Kbps), Protected AAC Protected AAC (from AAC (8–320 Kbps), MP3 (8 to 320 Kbps), MP3 (from iTunes Store), HE–AAC, iTunes Store), MP3 Protected AAC (from VBR, Audible (formats 2, 3, MP3 (8–320 Kbps), MP3 VBR, (16–320 Kbps), MP3 iTunes Store), HE–AAC, MP3 4, Audible Enhanced Audio, Audible (formats 2, 3, 4, Audible VBR, Audible (formats (8–320 Kbps), MP3 VBR, AAX, and AAX+), Apple Enhanced Audio, AAX, and 2, 3, and 4), Apple Audible (formats 2, 3, 4, Lossless, AIFF, and WAV AAX+), , AIFF, and Lossless, WAV, and Audible Enhanced Audio, WAV AIFF AAX, and AAX+), Apple Lossless, AIFF, and WAV

(Continued)

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Exhibit 3 (Continued)

iPod shuffle iPod nano iPod classic iPod touch

Photo support Syncs iPod-viewable photos in Syncs iPod-viewable Syncs iPod-viewable JPEG, BMP, GIF, TIFF, PSD (Mac only), photos in JPEG, BMP, GIF, photos in JPEG, BMP, GIF, and PNG formats TIFF, PSD (Mac only), and TIFF, PSD (Mac only), and PNG formats PNG formats Video support H.264 video, up to 1.5 H.264 video up to 720p, Mbps, 640 by 480 pixels, 30 frames per second, 30 frames per second, Main Profi le level 3.1 with Low-Complexity version AAC-LC audio up to 160 of the H.264 Baseline Kbps, 48kHz, stereo audio Profi le with AAC–LC in .m4v, .mp4, and .mov audio up to 160 Kbps, fi le formats; MPEG–4 48kHz, stereo audio in video, up to 2.5 Mbps, 640 .m4v, .mp4, and .mov by 480 pixels, 30 frames fi le formats; H.264 video, per second, Simple Profi le up to 2.5 Mbps, 640 by with AAC–LC audio up 480 pixels, 30 frames per to 160 Kbps per channel, second, Baseline Profi le 48kHz, stereo audio in up to Level 3.0 with AAC- .m4v, .mp4, and .mov fi le LC audio up to 160 Kbps, formats; JPEG 48kHz, stereo audio in (M-JPEG) up to 35 Mbps, .m4v, .mp4, and .mov fi le 1280 by 720 pixels, 30 formats; MPEG–4 video, frames per second, audio up to 2.5 Mbps, 640 by in ulaw, PCM stereo audio 480 pixels, 30 frames per in .avi fi le format second, Simple Profi le with AAC–LC audio up to 160 Kbps, 48kHz, stereo audio in .m4v, .mp4, and .mov fi le formats

* FaceTime requires fourth–generation 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 referred to the iPhone 4 as “the biggest thing to hap- and pioneering software,” which users can con- pen to iPhone since iPhone.”35 trol with just their fingers.32 Apple sold one million The next “biggest thing” is the iPhone 5, which iPhones less than three months after this product is rumored to be scheduled for launch sometime became available to consumers. between late fall 2011 and early 2012. The launch As other companies tried to create products that is expected to be officially announced by Apple at its would be comparable to the iPhone, Apple was busy annual summer software developer conference, the creating new innovative features to make the iPhone Worldwide Developers Conference (WWDC) to be more powerful, easier to use, and more appealing to held June 6–10, 2011, at ’s Moscone users. In 2010, the iPhone surpassed PCs as Apple’s West. The launches of the iPhone 3G, 3GS, and largest product line, and the iPhone and related 4 were announced through this venue. As the antici- products represented 39 percent of its revenues that pation builds for the new product, speculations year.33 By December 2010, sales of the iPhone had about new features include a curved metal-clad back, grown by 87 percent year-over-year, outpacing the which would look similar to the original iPhone and growth in the global smartphone market of 70 per- a larger four-inch screen.36 cent year-over-year34 (see Exhibit 4). The iPhone 4 was introduced in 2010, with new Apple TV features including the A4 processor, video calling, high-definition video recording and editing, two In addition to the iPhone, Apple introduced the Apple cameras (one in front facing the user and one on the TV in 2007. With this product, Apple intended to back), and the ability to do multitasking (run third- revolutionize the Internet video industry, as it did party applications, or “apps,” and switch between with the industry. Users could them instantly without slowing performance or download movies and TV shows via the iTunes draining the battery). In addition, the App Store online service or via YouTube, as well as view digi- on iTunes offered more than 350,000 mobile apps tal photos and home videos.37 Some negative hype for downloading, many of which were free. Apple 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):

2010 2009 2008 Desktopsa 6,201 4,324 5,622 Portablesb 11,278 9,535 8,732 Total Mac net sales 17,479 13,859 14,354 iPod 8,274 8,091 9,153 Other music related products and servicesc 4,948 4,036 3,340 iPhone and related products and servicesd 25,179 13,033 6,742 iPad and related products and servicese 4,958 0 0 Peripherals and other hardwaref 1,814 1,475 1,694 Software, service, and other net salesg 2,573 2,411 2,208 Total net sales 65,225 42,905 37,491

aIncludes iMac, Mac mini, , and product lines. bIncludes MacBook, MacBook Air, and MacBook Pro product lines. cIncludes iTunes Store sales, iPod services and Apple-branded and third-party iPod accessories. dIncludes revenue recognized from iPhone sales, carrier agreements, services, and Apple-branded and third-party iPhone accessories. eIncludes revenue recognized from iPad sales, services and Apple-branded and third-party iPad accessories. fIncludes sales of displays, wireless connectivity and networking solutions, and other hardware accessories. gIncludes sales of Apple-branded operating system and , third-party software, Mac and Internet services. Source: Apple Inc. Annual Report 2010.

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the Apple III and the Power Mac Cube. Some of (movies, TV shows, photos, and music) streamed the features that made the first edition unpopular wirelessly to Apple TV. Features included instant included the following: access to SD and HD movies, often on the same day they came out on DVD, instant TV show rent- • Users were not able to download a movie from als, direct access to a account from an iTunes directly to their TV; they had to down- HDTV, access to Internet content such as YouTube load it to their computers first. videos, HD podcasts, Flickr photos, and MobileMe • It required an HDTV, but the movies that could galleries, and access to an iTunes library. In addi- be downloaded were of such low resolution that tion, with a free Remote app from the App Store, the picture looked fuzzy and old-fashioned. the Apple TV could be controlled by an iPhone, • It had no DVD drive. iPad, or iPod touch. With AirPlay, music, photos, Steve Jobs announced at the Macworld and videos could be streamed from an iPhone, iPad, Conference & Expo in January 2008 that the and iPod touch to Apple TV. At a price of $99, the upgraded version of Apple TV would allow owners future of the new Apple TV looked promising40 to order movies directly from the TV rather than (see Exhibit 5). having to download to the computer.38 Jobs said, “Apple TV was designed to be an accessory for The iPad iTunes and your computer. It was not what people wanted. We learned what people wanted was mov- Tablets had been around for approximately 20 years ies, movies, movies.”39 before the iPad was introduced in 2010, but the new By 2011 Apple had redesigned Apple TV with Apple iPad had many more innovative features and a focus on providing the kind of entertainment that capabilities than any of its predecessors. The iPad would appeal to the masses. At 80 percent smaller was considered a completely new portable comput- in size, it had a built-in power supply, was energy ing model, and from the beginning Apple wanted efficient and stayed cool without a fan. Everything 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 from these labels, but rather buying it wholesale mobile computing and a great productivity device.41 and reselling it to consumers.49 Apple was allowed The iPad had a touch screen display that mea- to keep its share, while the portion the label received sured approximately 10 inches, and a number of was divided among many parties including artists, functions such as games, music, videos, accessing the producers, and publishers. Labels earned approxi- Internet, checking email, and serving as an e-reader mately 70 cents per song sold on iTunes. This figure for books, magazines and newspapers.42 A mobile may seem small, but it was still greater than los- keyboard and keyboard dock allowed users to do ing money to the millions of illegal downloads that work on it similar to a . The iBook’s applica- nearly crippled the music industry at that time. tion for purchasing and storing e-books was also The revenues for record label companies had introduced.43 In addition, Apple used its own pro- dropped in 2006 and 2007 due to tough market cessor for the device. conditions, and Apple introduced a strategy to help Although some analysts were skeptical in the increase revenues by at least a small percentage. beginning about who the target customer was for It contracted with EMI to make its entire cata- this new tablet, it was eventually concluded that “the log available to iTunes’ users in two formats, the customer is everyone who likes cool technology.”44 traditional download option, which included the The iPad was named Best Tablet on PCWorld FairPlay digital rights (DRM) software Magazine’s list of the Best Products of 2010, and and DRM-free versions. The DRM software limited sales of the iPad soared to approximately $5 billion the number of times a song could be copied, which the first year.45 Apple sold 300,000 devices on the decreased the quality of the song. The DRM-free ver- first day.46 sions would deliver greater quality music but would Amid much hype and anticipation, the iPad require a higher price tag. iTunes started the DRM- 2 was launched in March 2011. It was thinner than free songs at $1.29 per song versus the traditional the original iPad and offered upgrades such as a new $0.99 per song.50 AF chip that provided faster graphics processing and DRM software was developed to protect music general performance; dual cameras for video chat, from unlimited copying and piracy. After the DRM HD video recording, and stills; an improved design restrictions were removed from the EMI songs, incorporating internal magnets for the Smart Cover the industry was able to obtain hard data on how accessory; 3G versions were available on AT&T and removing DRM restrictions from legally purchased Verizon Wireless; improved AirPlay features; and music affected piracy. According to Bill Rosenplatt, the ability to support HDMI output via an optional DRM specialist and president of GiantSteps Media adapter.47 The iPad 2 was named Editor’s Choice Technology Strategies, “The statistics show that for tablets by PCWorld Magazine and was widely there’s no effect on piracy.”51 Since DRM did not considered the benchmark tablet to beat, with a discourage piracy, it was soon considered to be sim- “top-notch seamless design paired with a robust ply a nuisance to the user.52 Record companies who app store.”48 were previously extremely cautious about selling One key component that must be in place to have their music on iTunes became extremely interested in good media content for the iPod, iPhone, Apple TV, obtaining access to iTunes’ millions of customers. In and iPad products is the relationship that Apple has January 2009, Apple announced that all four major with each of its media and phone service suppliers. music labels (Universal Music Group, BMG, Warner Music Group, and EMI) and thousands of Service Suppliers independent labels would offer music in iTunes Plus, which was Apple’s DRM-free format.53 In addition, iTunes companies such as and NetFlix that com- By 2007 iTunes had agreements with all five major pete with Apple in the sales of music and videos have record labels (BMG, EMI, Sony Music Entertainment, taken advantage of Apple’s customer base by offer- Universal, and Warner Bros.) as well as more than ing applications for their products and services for 200 independent labels. These agreements allowed use on Apple devices through the App Store. iTunes to sell the music owned by these labels and pay the record label each time a song was down- The App Store loaded. This deal was considered a reseller agree- The App Store, opened in 2008, offers software ment, meaning that Apple was not licensing content applications for the iPhone, iPod touch, and iPad

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that are created by third-party software developers. subscriptions became The number of apps available surpassed 100,000 available on the iTunes Store.61 In return for the by the end of 2009 and by spring 2011, there were 30 percent of each subscription sold on iTunes, the more than 350,000 apps available. Many apps are publisher will gain access to the readers who pur- free to users, others cost relatively small amounts, chased iPads in 2010 (14.8 million potential sub- and thousands of new apps are added monthly. The scribers) and to the 40–50 million (or more) who are App Store has been a significant source of revenue anticipated to purchase an iPad or iPad 2 in 2011.62 for Apple, which charges a fee of 30 percent of the Following is ’s list of sales of third-party apps.54 publishers who have and have not agreed to Apple’s On February 15, 2011, Apple announced a new terms as of April 11, 2011:63 subscription plan for “all publishers of content- based apps on the App Store, including magazines, Have agreed: newspapers, video, music, etc.”55 Publishers have Bloomberg Businessweek: $2.99 per month the ability to determine subscriptions to be weekly, Elle: $2.99 per month or $18.00 per year monthly, bimonthly, quarterly, bi-annual, or annual. Popular Science: $14.99 per year The subscription is paid at the time the customer Maxim: N/A places the order and subscriptions are managed through the user’s iTunes account. Personal - Have not agreed: mation provided by customers through the App Time Inc., publisher of Time, Fortune, People, Store is sent to the publisher and is subject to the Sports Illustrated, and others. publisher’s privacy policy, not Apple’s.56 Condé Nast, publisher of Vogue, The New Yorker, Apple will use the same billing system currently Vanity Fair, and others. used for apps and in-app purchases for the sub- Hearst Corp., publisher of Esquire, Cosmopolitan, scription service, which means Apple will charge Harper’s Bazaar, and others. publishers 30 percent of the revenue. Publishers, however, can waive fees for existing subscribers and Some publishers are waiting to see if the terms of can advertise and sell subscriptions outside the App the new plan will be modified before accepting, and Store on company Websites. In these cases, customer all publishers are waiting to see if the terms can be information is not exchanged through Apple and, improved. According to Philippe Guelton, executive as stated by Steve Jobs, “the publisher keeps 100 vice president/chief operating officer at Hachette percent [of the profits] and Apple earns nothing.”57 Filipacchi Media U.S. (publisher of Elle), “This is a Subscriptions purchased outside of the app must work in progress. I don’t think this is something that also be made available within the app at the same is set in stone either for us or for Apple. I’d rather or lower price.58 work with them to improve it over time than just sit Under the new plan, publishers will no lon- on the sidelines.”64 ger have the ability to use the application to send users outside of the app to purchase content or sub- Apple TV scriptions. For example, Amazon will be required Apple did not have an easy time finalizing its movie to change its Kindle app, which sends users to a studios contracts, allowing it to sell movies on iTunes “mobile version of the Kindle Store Website” for for use on the iPod and Apple TV. Not only were the purchases.59 Other services, including NetFlix, studios concerned about losing significant revenues Rhapsody, , and Hulu Plus, will also lose from the sales of DVDs and Blu-ray discs, but some 30 percent of in-app subscription sales, which could studios urged Apple to require a watermark on digi- lead to higher prices for customers. Since Apple con- tal video for it to play on its devices. Their concern tinues to dominate the smartphone and fast-growing was heightened given the pirating experienced in the tablet markets, switching to a different platform music download business. One movie studio execu- such as Android does not appear currently feasible.60 tive said, “Our position is, if you want our content, Most magazine publishers have balked at the you have to protect our business.” Apple, however, idea of giving up 30 percent of their profits to Apple responded that it trusted its consumers not to play and have chosen to sell single issues of selected pirated movies.65 titles instead. However, on Monday April 11, The limited number of movie downloads avail- 2011, Bloomberg L.P. agreed to the new terms and able on iTunes would significantly diminish the

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success of Apple TV. Thus, Apple’s CEO was per- operations to be trade secrets. However, a disas- sistent in his negotiations with the movie studios. sembled 2008 iPhone revealed that the microproces- Jobs announced at the Macworld Expo in 2008 that sor chip was supplied by Samsung; Philips, Texas Apple had reached agreement with each of the fol- Instruments, and Linear Technology all played lowing major studios: Twentieth Century Fox, The a role in providing the batteries, and many other Walt Disney Studios, Warner Bros., Paramount, companies provided chips that were central to the Sony Pictures Entertainment, MGM, Lionsgate, camera, display, and motion sensor.73 and New Line Cinema.66 Despite NBC’s issues with In 2011, industry analysts estimated that Apple Apple concerning TV shows, Universal Pictures obtained approximately 35 percent of its lightweight (owned by NBC and General Electric) agreed to flash memory chips used in its iPhones and iPads allow Apple to rent its movies via iTunes. from , and the remaining 65 percent from The original supplier agreement between Apple South Korea.74 and the movie studios was that new movies would On March 11, 2011, the same day that the iPad not be available for rent until 30 days after the DVD 2 became available for sale, northern was dev- was distributed. Within a 24-hour period, custom- astated by an 8.9 magnitude earthquake that set off ers would be able to watch a film as many times a tsunami. During the aftermath in , trains as they wanted once the movie was started. Movies and phones were down, all hotels were booked and that were downloaded but not started would not be roads were closed or jammed with traffic. Apple available for viewing after 30 days.67 store and corporate employees were allowed to stay By 2011 thousands of releases from every major overnight at Apple stores. As the senior store man- Hollywood studio, along with selected TV shows agers had stocked break rooms with food and bever- from all the networks, were available on iTunes ages after the first earthquake hit, employees asked for rent or purchase in standard or high defini- and were allowed to have their family members stay tion and were available for streaming on Macs or at the stores as well. The head of Apple International PCs, iPhones, iPads, iPod touch, or television via HR and of Japan Retail were in Japan that week; Apple TV.68 they also spent the night at Apple stores.75 In addi- tion Apple created a donation page, a special iTunes iPhone link in its iTunes store, where people could easily Cingular was selected as the exclusive wireless carrier donate to the Red Cross to benefit Japan.76 for the iPhone in the because, accord- After the earthquake analysts attempted to gauge ing to Steve Jobs, Cingular was the best and most the effects that would be felt by Apple, as shipping popular carrier in the United States.69 Together these times for the iPad 2 went from three to five days to companies developed the Visual Voicemail feature four to five weeks. In the two weeks following the that allowed users to listen to the voicemails they earthquake, Apple’s stock fell more than 5 percent.77 preferred rather than having to listen to all messages iSupply Research’s Andrew Rassweiler iden- in succession. Since the time that the agreement was tified five key components that were produced in made between Cingular and Apple, Cingular was Japan: NAND flash memory from Toshiba, DRAM acquired by AT&T. iPhone owners were required (dynamic random access memory) from Elpida to sign a two-year service agreement with AT&T.70 Memory Inc., an electronic compass from AKM After numerous complaints that AT&T was the Semiconductor, the touch screen overlay glass likely only service provider available to iPhone users in the from Asahi Glass Co., and the system battery from United States, Apple made Verizon Wireless avail- Apple Japan Inc.78 According to Rassweiler, Apple able in February 2011.71 would be able to obtain the NAND and DRAM International service providers for iPhone include from other companies such as Samsung and Micron, China Unicom, Deutsch Telekom, and O2. The but the battery compass and glass would be more iPhone was distributed in approximately 90 countries difficult to obtain elsewhere. Analyst Gene Munster through 166 carriers worldwide in 2010.72 with Piper Jaffray pointed out that Apple was prob- ably in a better position than its competitors, as it Hardware tends to buy components in large prepayment deals Concerning its hardware suppliers, Apple is usu- that guarantee supply and pricing.79 ally not forthcoming with this information. Major The possibility of disruptions in the supply chain electronics companies consider their supply chain because of natural disasters that occur overseas is

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one of the potential risks facing all companies that servers while opting to implement a fee-based service operate in the global market. to comply with the federal judge’s decision. On June Many suppliers have expressed frustration in 3, 2002, Napster filed for Chapter 11 bankruptcy working with Apple because Steve Jobs has been in an effort to secure court-ordered protection from very clear on his vision for his products and has a creditors. This move was part of the overall finan- reputation for being controlling. Maintaining good cial restructuring strategy of Bertelsmann AG, which supplier relationships and keeping enough control to was proceeding with its takeover of the once popu- provide the quality of products expected of Apple is lar file-sharing system. By July 2003, Roxio, Inc., a balance that Apple will have to maintain in order had acquired Napster and was planning a Napster to stay ahead of its competitors, with or without 2.0 launch for December 2003. Napster 2.0 became Steve Jobs. a successful, legal fee-based service.83 Through restructuring and quality legal repre- Competitors sentation, Napster finally has a legal base that is expected to stand. Currently, in 2011, Napster’s iTunes library is made up of more than 12 million songs. Since the October 2003 launch of iTunes.com for Members have unlimited access to the library for Windows, Apple has faced a multitude of competi- $5–10 (includes mobile access) per month. Napster tors. During the late 1990s, the emergence of music now accommodates the use of its software for sharing came about with Napster, a freeware pro- connected computers, iPhone, iPod, iPod touch, gram offering free downloads using peer-to-peer Android, Blackberry, compatible TV, Blu-ray play- transfers. Peer-to-peer transfers allow users to con- ers, or other compatible home audio products.84 nect directly with other users without the need for Kazaa. Sharman Networks Limited was founded a central point of management.80 However, due to in January 2002 as a private limited company. legal proceedings, Napster and other competitors Sharman Networks developed and marketed world- have become subscription services. class Internet applications. Kazaa Media Desktop Napster. In May 1999, 19-year-old Shawn and Kazaa Plus were products of Sharman Networks. Fanning created Napster while studying at Sharman Networks earned revenue by soliciting Northeastern University. The name Napster came companies to advertise on its software. Users that from the Internet “handle” he had used as a pro- preferred ad-free use of the software were able to grammer. He created a type of software that allowed purchase an upgrade, Kazaa Plus for $29.95. This music fans anywhere to “share” in one forum. upgrade also allowed for greater search capabilities During the first year of service, Napster was obtain- and more download sources.85 ing more than 250,000 new users a week while Being Australian-based, the company avoided maintaining a free service.81 This software creation legal intervention in allowing the , but led to the ever-growing controversy of the availabil- in 2005, the Federal Court of Australia ruled that ity of MP3s on the Internet. Music sharing exploded Kazaa had knowingly allowed users to illegally in the late 1990s, and Napster’s servers were over- download copyrighted songs. The company was loaded with millions of requests a day for media charged to change its software to prohibit copy- downloads. Music artists considered this new “shar- righted music or videos from being shared.86 Kazaa ing” forum to be a continuous violation. owners agreed to pay the four major record labels Fanning soon became the target of their animosity (Universal Music, Sony BMG, EMI, and Warner and became one of the most disliked people in the Music) $100 million.87 music industry. Kazaa Media Desktop was a program rumored During 2000, Napster was in and out of court to be littered with spyware and ad-based programs and was finally slated to shut down on July 26, that would “infect” consumer systems; thus many 2000. The decision was reversed two days later on users became wary of accessing Kazaa’s site.88 July 28, 2000.82 In 2001, Konrad Hilbers, a 38-year- By 2011 Kazaa had become a subscription-based old German, became CEO of the rapidly declining online digital music service owned by internet mar- music file-sharing site. In June 2001, Napster had keting firm Atrinsic, offering unlimited plays and more than 26 million users, but growth was declin- downloads, playlists, top 40 artists, music from all ing fast, going from 6.3 to 2.2 billion minutes popular genres and more on its Website. Users could used a day. On March 7, 2002, Napster closed its share playlists; rate and review their favorite artists,

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albums, songs, and playlists; “shout out” to people Rhapsody International. By 2011, Rhapsody contin- they would like to contact; and “follow” people ued to operate as an online music subscription service, they liked by following Kazaa on , Twitter, providing over 10 million songs for $10 per month. and MySpace. for were also Apps were made available for iPhone, iPod touch, available through Kazaa.89 Android, and BlackBerry.94 In March 2011, shares of Atrinsic more than Walmart. Walmart launched its own online doubled after the announcement was made that music store. It is currently the number two music subscribers would be able to access Kazaa on iPads, retailer in the nation. Surpassed by Apple in 2008, iPhones, and Android-based devices by streaming it Walmart offers music in MP3 format at price points from Kazaa’s Website. This move was in response to of $0.64, $0.94, and $1.24 per song with many Apple’s recently announced plan to charge 30 per- albums offered at $7.00 and less.95 cent on all revenue from the sale of online subscrip- Amazon. Amazon offers more than 15 mil- tions through the App Store.90 lion songs and albums that can be played on any RealNetworks, Inc. RealNetworks, through its Android device, PC, or Mac. Customers must have RealPlayer Music Store, sought a price war with an Amazon account to purchase music from the Apple by dropping the price to $0.49 per song Amazon MP3 store. Digital music purchases can be and $4.99 per album compared to Apple’s price of downloaded directly onto a player using the Amazon $0.99 and $9.99, respectively. Analysts indicated MP3 Downloader for Windows Media Player or that RealNetworks was pricing below the cost of iTunes, downloaded to a Mac or PC, or saved to purchasing the music from the record companies, Amazon’s online storage service, Amazon Cloud and eventually it did increase its price to $0.99 per Drive. The Amazon MP3 Store is only available to song; however, it still offers select songs for $0.49 customers in the United States who have a credit or a track. As part of its battle to reduce Apple’s mar- debit card issued by a U.S. bank with a U.S. billing ket share, RealNetworks launched technology called address. In addition, customers must be physically Harmony, which allowed RealNetworks users to located in the U.S. at the time of purchase.96 translate songs purchased from RealPlayer Music Store into a format that could be played on an iPod Apple TV and on Microsoft formats.91 By 2011 the business had become RealPlayer is a RealNetworks medium through so lucrative that it had attracted a myriad of com- which it competes in the video-on-demand market. petitors. Among the many competitors offering Video can be downloaded from any Website to movies and/or TV shows for free, rent, or purchase an iPod, PC, CD, and DVD. With the RealPlayer via downloading or streaming were cable television video converter, users are able to convert many service providers such as Cox Communications and types of video files into the MP3 format needed Time Warner; television networks such as HBO; for use on a computer, mobile phone, or portable satellite TV providers such as DISH Network and device. Downloaded videos can be converted for DIRECTV; online distributors with or without sub- playback on iPod or iPhone. Video files can also scription services such as Apple’s iTunes, NetFlix, be converted to audio files.92 Digital media can be , and CinemaNow; electronics retailers such as transferred to mobile devices from PCs and smart- Walmart (Vudu) and (CinemaNow); online phones. RealPlayer customers can subscribe to its retailers such as Amazon; and movie studios such as SuperPass membership, which combines the benefits Disney and Warner Brothers. In addition, compa- of RealPlayer and the RealPlayer Music Store. The nies that manufactured viewing devices such as HD $14.99 monthly fee provides subscribers with ten TVs, DVD and Blu-Ray disc players, gaming con- music downloads per month, one game to keep per soles, computers, smartphones, MP3 players, and month, premium video feeds, RealPlayerPlus (with other portable handheld devices offered software added features such as 33 faster video downloads that was preloaded. Following are some of Apple and the ability to create professional music CDs), TV’s and iTune’s competitors. and free antivirus and internet security software.93 Amazon Unbox. The Amazon Unbox Video In August 2003, RealNetworks purchased the Player was introduced in 2006. Users download digital music service Rhapsody, and in 2007 in a videos or TV shows from Amazon Instant Video to joint venture with MTV Networks formed Rhapsody the Amazon Unbox Player or on Windows Media America. This company was spun off in 2010 as Player. The Unbox Video Player is not compatible

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with Mac or Linus computers, and downloaded vid- any time. Movies that are purchased or rented are eos cannot be transferred to iPods.97 stored in the customer’s online movie library and In addition, Amazon sells a wide variety of do not require downloading to a computer; they Amazon Instant Video compatible devices such as can be accessed immediately by logging into Disney the Logitech Revue Companion Box, the Roku HD Movies Online from any computer.105 Currently, Streaming Player, TiVo TCD746320 Premiere DVR, Disney Movies cannot be accessed through most along with compatible HDTVs from Vizio, Samsung, portable video devices and work best on a dedicated and Panasonic, and Blu-ray Disc Players from Sony computer.106 and Panasonic. There are more than 90,000 movies In 2009, Disney acquired a 30 percent stake in and TV shows available for instant viewing through Hulu, the digital content distribution service. Disney Amazon Instant Video.98 also distributes films and TV shows through Apple’s CinemaNow. This company seemed to have iTunes store. Steve Jobs is Disney’s largest individual been ahead of the game, entering the video down- stockholder, having acquired a 7 percent holding load market in 1999. It was the first to offer pay- when Disney purchased .107 per-view movies from the major Hollywood studios, NetFlix. NetFlix subscribers (numbering more the first to offer Download-to-Own services, and than 20 million by 2011) can stream to their the first distributor of Burn-to-DVD movies. It is PCs or TVs an unlimited number of movies and headquartered in Marina Del Rey, , and TV shows per month, unconstrained by hourly its library consists of more than 10,000 movie titles, limits, for a monthly fee with plans starting at television programs, music concerts, and shorts.99 $7.99 per month.108 DVD rentals are also available Movie rentals, memberships, and downloads for for delivery through the U.S. Postal Service from dis- purchase are available from popular movie com- tribution centers located in major cities in the United panies such as Disney, MGM, 20th Century Fox, States. Currently, NetFlix plans to invest heavily in and Miramax. Their service also offers streaming streaming content and possible agreements with pay video and HD downloads that are compatible with TV channels and networks such as HBO. NetFlix Windows Mobile-based portable media centers. also plans to expand its online streaming service A “Burn-to-DVD” section has recently been added internationally. NetFlix gained many new subscrib- that allows users to burn selected titles to be played ers during the recession as people stayed home to on DVD players.100 save money and looked for inexpensive sources of The monthly membership fee is $29.95, which entertainment.109 includes adult content videos, news and concert Walmart. In December 2006, Walmart entered downloads, and access to approximately 1,400 free the movie download segment of the entertainment videos. It does not include unlimited access to the industry, but only a year later it exited the busi- Hollywood “hit” movies, which are offered as pay ness because it had not caught on with consumers. per movie. Movie rentals range in price from $1.99 Raul Vasquez, Walmart’s CEO for walmart.com, to $3.99 each, with unlimited access for 24 hours stated that the download service was an experiment. after the movie is started.101 “We want to understand what the customers want. Although the downloads are compatible with And I think what we learned is that the initial expe- Microsoft products, CinemaNow services are not rience of buying and downloading content needs to available for Apple products or through Internet be better. We thought it was going to be easier for browsers other than Internet Explorer. the customer to understand.” In 2011, CinemaNow received the number one Then in 2010, Walmart decided to re-enter the ranking by TopTenREVIEWS.com for movie down- lucrative and increasingly popular online video load service providers for its variety and availability business by purchasing the movie download ser- of movie selections and the ease of use of the ser- vice Vudu. According to Walmart Vice-Chairman vice.102 CinemaNow is owned by Sonic Solutions, Eduardo Castro-Wright, the Vudu purchase would which has Best Buy as a shareholder.103 “provide customers with unprecedented access to Disney. Movies from the Disney Studios library home entertainment options as they migrate to a are available at the Disney Movies Online Website digital environment.”110 to “buy, rent, and watch instantly.”104 “Watch Vudu, headquartered in Santa Clara, California, instantly” means that customers can stream mov- entered the video-on-demand market in April 2007. ies to any computer with an Internet connection at Vudu’s original black-box connected to the TV and

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Internet, and the built-in hard drive gave users the offers only pay-per-view, it is not available at a cen- option of viewing 5,000 movie titles instantly. The tralized storefront and it cannot be easily viewed on box was priced at $400. The service had no monthly larger-screen televisions.116 service charge, but the rental cost was $2.00–4.00 per movie. As such, Vudu claimed to be the cure- iPhone all for the movie rental business; it saved customers When the iPhone was introduced in 2007, it revolu- from running back and forth from the video store tionized the cell phone business. The iPhone became or waiting for the movie to come in the mail from the benchmark that other manufacturers rushed to NetFlix or Blockbuster; it offered more movie titles imitate. The competition is fierce, with numerous than video-on-demand providers; and it was more contenders struggling for market share. Several com- functional than Internet download services because panies that manufacture the iPhone’s competitors it did not require a PC. Similar to Vudu’s competi- follow. tors, once a movie was downloaded, it had to be Motorola. Motorola has been a long-time leader viewed within 24 hours.111 in mobile phone sales in the United States. However, Offered on Walmart’s Website under the since Apple’s iPhone and Research In Motion’s Electronics Department, Vudu services are available (RIM) Blackberry began to gain ground, the leader in the United States only and can be used on devices fell hard and fast. Motorola’s RAZR phone lost its from LG, Mitsubishi Electric, Vizio, Samsung, Viore, popularity, and its smartphone made in partnership Panasonic, Sharp, Sony PlayStation, Philips, Sanyo, with Microsoft, the Motorola Q, did not perform Toshiba, Magnavox, and RCA. There is no monthly as expected. Motorola announced in January 2008 subscription fee or contract and there are no late fees. that it was seeking alternatives for its handset busi- New releases are available the same day they come ness, most likely a divestiture.117 out on DVD, and titles are available at $2 for two In 2008 Motorola sold 100 million phones, nights. Walmart also offers Vudu-enabled devices but in 2009 it sold only 55 million, a 45 percent for sale, including HDTVs, Blu-ray disc players, PS3 decrease. By 2010, sales rebounded as it introduced consoles, and home theater systems. Through the 22 new phone models. By the end of the third quar- acquisition of Vudu, Walmart also hoped to increase ter 2010, the Mobile Devices segment was profitable hardware sales.112 for the first time in three years.118 Warner Brothers. A new venue for offering video In January 2011, Motorola spun off its smart- for rent or purchase was announced by Warner phone business into the stand-alone company Brothers on March 8, 2011. Shares of NetFlix stock Motorola Mobility. After the spin-off, Motorola was fell from $207.40 to $195.45, a decrease of $11.95, renamed Motorola Solutions. Motorola Mobility after Warner Brothers announced that it would offer took over the mobile devices, wireless accessories, videos through social network Facebook, which has set-top boxes, and video distribution systems prod- more than 500 million active users.113 ucts. Motorola Mobility operates in 40 countries Time Warner had previously expressed the and has major facilities in Brazil, China, Taiwan, opinion that the $7.99 per month streaming service and the United States.119 offered by NetFlix devalued movies and TV shows. Motorola’s Milestone XT720 was the first Using Facebook, users would be able to click a smartphone running ’s Android 2.1 operat- “rent” and pay with $3 in Facebook Credits. ing system to offer the Xenon flash for use in tak- Facebook would get a share of the sales when cred- ing pictures and shooting videos. The Xenon flash its were used. According to Jefferies & Co. analyst was more powerful than the usual LED illumina- Youssef H. Squali, “The $3 rental appears to pre- tion, allowing flash pictures to be taken at lower serve the value of content in studios’ eyes.” He added light levels and greater distances. Additional features that other studios may follow Warner Brothers, include GPS navigation, FM radio, and a 3.5-mm considering Facebook’s large customer base and the audio jack.120 potential to make a profit from a la carte rentals.114 The Motorola Droid X was also considered Videos will be available for viewing on all devices one of the top smartphones introduced in sum- that offer Facebook, including Apple products.115 mer 2010. With a 4.3-inch WVGA 854-by-480- However, according to Goldman, Sachs & Co. resolution display and a few third-party video apps analyst James Mitchell, the Warner Brothers service preinstalled, the Droid X could also be used as a is not an immediate threat to NetFlix as it currently portable video player.121

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Research In Motion. The Blackberry created 2.1 operating system and offered by Sprint, and the by RIM has been a popular product among corpo- HTC HD2 using the Windows Mobile 6.5 operating rate consumers who mainly needed e-mail service system and offered by T-Mobile.127 and a . To stay in the competitive game, By 2011, Google, Apple, and RIM were the main however, RIM added features to make its product competitors in the smartphone arena. According to more appealing to users who want the fun features data from Nielsen, Google’s Android operating sys- in addition to the features that aid in their work.122 tem was the most popular in the United States, with In an effort to compete with Apple’s popular 29 percent of the market share. Apple’s iOS and App Store, RIM introduced a similar mobile soft- RIM’s BlackBerryOS tied with 27 percent each.128 ware store named BlackBerry App World in 2010. The remaining 16 percent share was divided among Software tools and games could be purchased Microsoft’s Windows Mobile and Windows Phone that would appeal to users and add functionality 7 combined at 10 percent, HP’s Palm webOS at to their phones. RIM sells BlackBerry products to 4 percent, and Nokia’s Symbian at 2 percent.129 customers in approximately 170 countries. Its larg- Apple and RIM, who make their own devices est market is the United States, with approximately with their own operating systems, continue to 60 percent of sales, followed by Canada and the dominate the market for devices with their 27 per- United Kingdom.123 cent market share each. Third-place HTC garnered RIM’s BlackBerry Bold 9800, renamed the approximately 12 percent share with the Android Blackberry Torch 9800, was the first device to offer operating system and 7 percent with Microsoft’s the Blackberry OS 6 operating system. The new OS mobile OS. Motorola and Samsung followed.130 provided an improved browser, enhanced multime- dia experience, and improved user interface; how- iPod ever, the display and processor were not upgraded MP3 players are available in a wide range of sizes, and the phone did not compare well with many of colors, and features. The “one-size-fits-all” MP3 the other smartphones. This was also RIM’s first player does not exist, as some consumers want a slider phone, with a touch screen, full QWERTY small player for use at the gym, while others need keyboard and track pad. Originally anticipated to a tablet-sized player with wide-screen video play- be a viable competitor for the iPhone 4, the phone’s back.131 Manufacturers continue to add new features features and performance fell short of analysts’ pre- to their players in an effort to set them apart from dictions.124 However, BlackBerry has many loyal the competition, and the resulting variety of players fans and RIM continues to be a strong contender and features offered can be confusing. Features to be in the smartphone market with its 2011 product considered include color screens, photo viewing and lineup. video playback capabilities, radio, wireless capabil- HTC. Established in 1997, HTC is a Taiwanese ity, music recording, data storage, personal informa- company that partners with Microsoft for its tion management, sound-tweaking options, advanced Windows Mobile operating system. Other strategic playback features, and battery type and life.132 partners include Intel, QUALCOMM, and Texas Not surprisingly, iPods are among the most pop- Instruments in the United States. Currently, HTC ular MP3 players on the market. The current leader offers smartphones using the Windows Mobile is the iPod Touch 2010 (32GB), which is number operating system or the Google Android software one and Editor’s Choice on .com’s Best 5 MP3 operating system. Many of HTC’s products are self- Players list.133 This is the fourth-generation iPod branded, but some carry HTC’s subsidiary Dopod’s Touch, with photo and video capture, FaceTime name. Dopod International is a mobile phone vendor video chat, a high resolution Retina display, and a in China and other Asian markets. Other products GameCenter that allows social gaming with other are rebranded using the names of partnering mobile iOS devices. It is also PCWorld Magazine’s Editor’s operators such as T-Mobile, AT&T, Verizon, and Choice MP3 player.134 Competitors include the Sprint.125 HTC also partners with five leading opera- Znue HD (32GB), the SanDisk Sansa Clip+ (4GB), tors in Europe.126 and the Sony X-Series Walkman (16GB). HTC offered three phones that were considered Also appearing on cnet.com’s Best 5 MP3 competitors for the iPhone 4: the HTC Incredible Players list is the sixth-generation iPod Nano 2010 using the Android 2.1 operating system and offered (8GB). This model is almost half the size of the pre- by Verizon, the HTC Evo 4G using the Android vious versions and includes unique features such as

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Genius Mixes (preselected compilations of songs Much of Apple’s continued success and domi- from the user’s iTunes library), Genius playlists, an nance over the competition has been due to the inge- FM radio with pause and replay capability, and a nuity of its marketing efforts. pedometer.135 Marketing iPad The iPad 2 became available for purchase in the Apple’s marketing endeavors have earned it awards, United States on Friday, March 11, 2011. It was product sales, and a devoted base of customers, both scheduled to hit stores Friday afternoon, but those new and old. Apple has won accolades for its mar- who couldn’t wait until then to own one of the keting abilities and its focus on innovation. It has new devices could purchase one online beginning been hailed as one of the best marketers by many at 2:00 a.m.136 To emphasize the importance of the different sources and has had a reputation over iPad to Apple, Steve Jobs emerged from medical the years of being a brand that can gain customers leave to introduce the new version to bloggers and through its well-thought-out and carefully executed Apple enthusiasts. On March 25, the iPad 2 went marketing strategies. on sale in 26 other markets including Mexico, New Marketing has been one of Apple’s strengths; Zealand, , and other European countries.137 however, staying on top of the game has become The newly released iPad 2 easily dominates more difficult as Apple developed a broader range its competitors, according to tests conducted by of products for the mainstream customer rather Consumer Reports. In a test that evaluated devices than just the “tech-savvy fanatics” in fields such as using 17 different criteria, the iPad 2 was rated education and design.142 “The customer base is now “excellent” in nearly every category, in particular, more diverse, including students and mainstream “touch screen responsiveness, versatility, portability, consumers, and it’s harder to satisfy as a whole,” screen glare, and ease of use.”138 Consumer Reports says Lopo L. Rego, a marketing professor at the electronics editor Paul Reed said, “So far, Apple is University of Iowa.143 Business leaders today have a leading the tablet market in both quality and price, daunting job in balancing shareholder demands and which is unusual for a company whose products are running a successful company. Businesses want to usually premium priced. However, it’s likely we’ll market new products aggressively to try and ensure see more competitive pricing in tablets as other mod- their products’ success. Apple heavily promoted els begin to hit the market.”139 Technology analysts the iPhone when it was introduced in July 2007. also view the iPad 2 as the top contender in the tab- Customer and investor expectations, due to Apple’s let market. reputation, boosted the stock price. The Motorola Xoom is the only tablet considered Apple garnered major success for iPod and to be in the same league with the iPad or the iPad 2. iTunes by way of strategic partnerships with other The Xoom was the first tablet to feature Google’s well-known brands. Apple created marketing tablet-centric Android 3.0 (called “Honeycomb”) agreements with Volkswagen of America, Burton operating system. Samsung’s Galaxy Tab ranked Snowboards, Nike, and . By affiliating third behind the iPad 2 and the Xoom.140 itself with different brands, Apple gained consumer Technology analysts at Gartner Research predict confidence as well as exposure through marketing that Apple will continue to dominate the tablet mar- partner advertisements. ket through 2015. iPad sales in 2011 are forecast at 48 million compared to approximately 13.9 million Marketing Plan tablets that use Google’s Android operating system. Analyst Carolina Milanese said, “Many [tablet ven- A marketing plan begins with design of the product.144 dors] are making the same mistake that was made In an industry of low profit margins and cost cutting, in the first response wave to the iPhone, as they are Apple takes a different approach to the design of its prioritizing hardware features over applications, products. While competitors do everything they can to services and overall user experience. Tablets will keep costs down, Apple does what it can to make its be much more dependent on the latter than smart- product different. Its CEO, Steve Jobs has been called phones have been, and the sooner vendors realize “a legend for his design sense.”145 Even employees of that, the better chance they have to compete head- one of Apple’s biggest competitors, Microsoft, recog- to-head with Apple.”141 nized Apple’s 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 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 City.”147 the United States and approximately 80 stores in Apple’s 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 manu- them 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, Apple’s retail stores con- it received Advertising Age’s first “Marketer of the tributed an estimated $2.4 billion and $1.7 billion Decade” award. Adweek also named Apple’s “Get in 2010 and 2009, respectively, representing 15–16 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 Apple’s philosophy behind the As stated in a USA Today article, “Apple’s 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 pro- ads. 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 “” by enough. Faster, thinner, lighter; those are all good appointment. The Genius Bar is where Apple prod- things. But when technology gets out of the way, uct users meet face-to-face with Apple’s “geniuses” everything becomes more delightful, even magical. for answers to technical questions and for problem That’s when you leap forward. That’s when you end troubleshooting. In addition, customers wanting to up with something like this…”151 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 can’t 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 will- ing to share the idea to gain exposure. Stephen Kobrin, a Wharton Multinational manage- Jobs 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 technol- example, three months after the iPhone was available ogy that demands that they expand into many coun- in 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 product. Consumers who had purchased the iPhone acceptance in many different cultures and societies.”161

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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): 2010 2009 2008 Americas Net sales 24,498 18,981 16,552 Operating income 7,590 6,658 4,901 Depreciation, amortization, and accretion 12 12 10 Segment assetsa 2,809 1,896 1,693 Europe Net sales 18,692 11,810 9,233 Operating income 7,524 4,296 3,022 Depreciation, amortization, and accretion 9 7 6 Segment assets 1,926 1,352 1,069 Japan Net sales 3,981 2,279 1,728 Operating income 1,846 961 549 Depreciation, amortization, and accretion 3 2 2 Segment assets 991 483 272 Asia-Pacifi c Net sales 8,256 3,179 2,686 Operating income 3,647 1,100 748 Depreciation, amortization, and accretion 3 3 3 Segment assets 1,622 529 390 Retail Net sales 9,798 6,656 7,292 Operating income 2,364 1,677 1,661 Depreciation, amortization, and accretionb 163 146 108 Segment assetsb 1,829 1,344 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. Source: Apple Inc. Annual Report 2010.

Apple certainly meets Professor Kobrin’s 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 record- stores in the United States and international mar- breaking profit of $6 billion in the first quarter of - kets.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 Apple’s no debt and enough cash on hand to “buy any coun- operating segments can be found in Exhibit 6. try it wants”165 (see Exhibits 7, 8, and 9).

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Exhibit 7 Apple Inc. Consolidated Statements of Operations

CONSOLIDATED STATEMENTS OF OPERATIONS (In $ millions, except share amounts which are refl ected in thousands and per share amounts) Three years ended September 25, 2010 2010 2009 2008 Net sales ($) 65,225 42,905 37,491 Cost of sales 39,541 25,683 24,294 Gross margin 25,684 17,222 13,197 Operating expenses Research and development 1,782 1,333 1,109 Selling, general and administrative 5,517 4,149 3,761 Total operating expenses 7,299 5,482 4,870 Operating income 18,385 11,740 8,327 Other income and expense 155 326 620 Income before provision for income taxes 18,540 12,066 8,947 Provision for income taxes 4,527 3,831 2,828 Net income ($) 14,013 8,235 6,119 Earnings per common share Basic ($) 15.41 9.22 6.94 Diluted ($) 15.15 9.08 6.78 Shares used in computing earnings per share Basic 909,461 893,016 881,592 Diluted 924,712 907,005 902,139

Source: Apple Inc. Annual Report 2010.

Much of Apple’s success has been attributed to of the best strategic moves Jobs has made as CEO Steve Jobs. With a unique ability to visualize innova- has been to surround himself with extraordinary tive product designs and predict what people would people.168 like to have, Jobs is known to be obsessive about Apple has a reputation for hiring the best, most process and detail. He has kept Apple focused on talented people in their disciplines. As a result, Apple just a few products that have the potential for high has an existing team of highly skilled specialists with return. He routinely sends products back to the lab an operating system that more closely resembles a and insists that Apple must build the best products. start-up instead of an established company that nur- No product hits the market unless it meets his exact- tures and creates seasoned executives groomed to ing standards.166 potentially take over the CEO spot. One of Apple’s Jobs will be difficult to replace. No other person specialists is COO , who has been selected has had the experience of founding the company, by Jobs to manage the day-to-day operations until been asked to leave the company, and returned years Jobs returns from medical leave. There is wide spec- later to save it from bankruptcy. And Jobs is self- ulation that Cook will be Apple’s next CEO, if or taught. He attended for a while, but when Jobs departs permanently. Cook, a veteran of dropped out after he became bored with his classes. both IBM and , is known to be “an opera- Although he is not trained in product design, he tions genius, adept at cutting costs while delivering manages what could be the best design shop in the complex products on time and coping with stag- world. He does not have an M.B.A. degree, yet he gering growth.”169 Also, Cook successfully led the is considered to be one of the world’s leading busi- company during Jobs’ previous two absences, one ness strategists. His marketing, communications, of which occurred in some of the worst months of and salesmanship skills are unsurpassed.167 Some the recession. However, during all his medical leaves analysts and other “Apple watchers” say that one 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) September 25, 2010 September 26, 2009 Assets Current assets Cash and cash equivalents 11,261 5,263 Short-term marketable securities 14,359 18,201 Accounts receivable, less allowances of $55 and $52, respectively 5,510 3,361 Inventories 1,051 455 Deferred tax assets 1,636 1,135 Vendor nontrade receivables 4,414 1,696 Other current assets 3,447 1,444 Total current assets 41,678 31,555 Long-term marketable securities 25,391 10,528 Property, plan, and equipment, net 4,768 2,954 Goodwill 741 206 Acquired intangible assets, net 342 247 Other assets 2,263 2,011 Total assets 75,183 47,501 Liabilities and Shareholders’ Equity Current liabilities Accounts payable 12,015 5,601 Accrued expenses 5,723 3,852 Deferred revenue 2,984 2,053 Total current liabilities 20,722 11,506 Deferred revenue—noncurrent 1,139 853 Other noncurrent liabilities 5,531 3,502 Total liabilities 27,392 15,861 Commitments and contingencies Shareholders’ equity Common stock, no par value; 1,800,000,000 shares authorized; 10,668 8,210 915,970,050 and 899,805,500 shares issued and outstanding, respectively Retained earnings 37,169 23,353 Accumulated other comprehensive (loss)/income (46) 77 Total shareholders’ equity 47,791 31,640 Total liabilities and shareholders’ equity 75,183 47,501

Source: Apple Inc. Annual Report 2010.

decisions; thus Cook has not yet been completely There is no doubt that Apple will carry on if tested in the CEO role. Jobs is unable to return. They have products in Thus, a nagging question on the minds of many the pipeline for at least two years, maybe three, analysts, Apple enthusiasts, employees and share- according to Barclays Capital analyst Ben Reitzes. holders is, “Will Apple survive without Steve Jobs?” 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 2010 2009 2008 Cash and cash equivalents, beginning of the year 5,263 11,875 9,352 Operating activities Net income 14,013 8,235 6,119 Adjustments to reconcile net income to cash generated by operating activities Depreciation, amortization, and accretion 1,027 734 496 Stock-based compensation expense 879 710 516 Deferred income tax expense 1,440 1,040 398 Loss on disposition of property, plant, and equipment 24 26 22 Changes in operating assets and liabilities Accounts receivable, net (2,142) (939) (785) Inventories (596) 54 (163) Vendor nontrade receivables (2,718) 586 110 Other current assets (1,514) 163 (384) Other assets (120) (902) 289 Accounts payable 6,307 92 596 Deferred revenue 1,217 521 718 Other liabilities 778 (161) 1,664 Cash generated by operating activities 18,595 10,159 9,596 Investing activities Purchases of marketable securities (57,793) (46,724) (22,965) Proceeds from maturities of marketable securities 24,930 19,790 11,804 Proceeds from sales of marketable securities 21,788 10,888 4,439 Purchases of other long-term investments (18) (101) (38) Payments made in connection with business acquisitions, net of (638) 0 (220) cash acquired Payments for acquisition of property, plant, and equipment (2,005) (1,144) (1,091) Payments for acquisition of intangible assets (116) (69) (108) Other (2) (74) (10) Cash used in investing activities (13,854) (17,434) (8,189) Financing activities Proceeds from issuance of common stock 912 475 483 Excess tax benefi ts from stock-based compensation 751 270 757 Taxes paid related to net share settlement of equity awards (406) (82) (124) Cash generated by fi nancing activities 1,257 663 1,116 Increase/(decrease) in cash and cash equivalents 5,998 (6,612) (2,523) Cash and cash equivalents, end of the year 11,261 5,263 11,875 Supplemental cash fl ow disclosure Cash paid for income taxes, net 2,697 2,997 1,267

Source: Apple Inc. Annual Report 2010.

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at least in terms of the big picture.”170 There are 9. Ibid . 10. Ibid . additional indicators that Apple will continue to 11. R. E. Hoskisson, 2007, Strategic Focus: Apple: Using innovation to create thrive. technology trends and maintain competitive advantage, Hitt, Ireland, & Sales of the iPhone and iPad are surging. Apple Hoskisson, Strategic Management: Competitiveness and Globalization, 8th Edition. 12. Apple history, www.apple-history.com/frames. sold 16.24 million iPhones in the fourth quarter 13. Ibid . 2010. This represents an 86 percent growth over the 14. L. Kimmel, 1998, Apple Computer, Inc.: A History, www.geocities.com/ same quarter a year ago. With the iPhone 4 recently /3682/applehistory.html. 15. Ibid . made available on Verizon and the iPhone 5 antici- 16. http://apple-history.com. pated later in 2011, analysts believe it is reasonable 17. Apple Computer History Weblog, http://apple.computerhistory.org. to expect that Apple will sell between 25 and 30 mil- 18. L. Kimmel, 1998, Apple Computer, Inc.: A history. 19. Apple Computer History Weblog. lion iPhones in 2011. In addition, 7.33 million iPads 20. http://apple-history.com. were sold during the same quarter, up 70 percent 21. Ibid . from the 4.9 million sold in the previous quarter.171 22. Apple Computer History Weblog. 23. http://apple-history.com. And, although iPod sales decreased 7 percent for 24. Ibid . the quarter, they still sold 19.45 million of them. 25. Ibid . iPod sales could increase after Apple introduces its 26. Ibid . 27. http://www.apple.com/itunes. cloud streaming service later in 2011. Apple sold 28. 2010 Apple Inc. Annual Report. 13 million Macs, a 23 percent increase over the pre- 29. http://www.apple.com/itunes/what-is/ vious year.172 30. Ibid . 31. R. E. Hoskisson, Strategic Focus: Apple. Finally, as long as Jobs retains the CEO title, 32. 2007, Apple reinvents the phone with iPhone, Apple Inc. press release, the perception will exist that he is still in control. www.apple.com/pr/library/2007/01/09iphone.html, . Morale at Apple will remain high, along with 33. 2011, Apple Inc., Hoover’s Company Reports. 34. A. Zaky, 2011, Why Apple investors shouldn’t sweat Android, Fortune, April hopes that the popular and charismatic CEO will 11, http://tech/fortune.cnn.com/2011/04/11/why-apple-investors-shouldnt- eventually return or at least continue to have a sweat-android/. role in the decision-making. Kaufman Brothers 35. http://www.apple.com/phone/features/. 36. C. Ziberg, 2011, iPhone 5 Available by June 20?, Motley Fool on msnbc.com, analyst Shaw Wu said to Reuters that Jobs’ role is http://www.msnbc.msn.com/id/42183093/ns/business-motley_fool/ “important, but at the same time, as the company 37. 2007, In three months, iPhone sales top a million, New York Times, continues to execute, it becomes more secondary. www.nytimes.com, September 11. 38. M. Quinn & D. C. Chmielewski, 2008, Studios join Apple’s movie rental service, The way Steve thinks, his methodology, his sense Los Angeles Times, www.latimes.com, January 16. of style: frankly, a lot of it has been ingrained into 39. C. Edwards, 2008, Jobs Appeals to the Crowd, BusinessWeek, January 15. the Apple culture.”173 40. http://theapple.tv/history-of-apple-tv/. 41. T. 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Gideon, 2011, Apple iPad 2 (Wi-Fi + 3G), PCWorld Magazine, March 9, http:// www.pcmag.com/article2/0,2817,2381687,00.asp. 1. http://store.apple.com/us?mco-NzcIMjVlwNQ. 48. T. Gideon, 2011, How to Buy the Best Tablet, PCWorld Magazine, March 31, 2. G. Colvin, 2011, The World’s Most Admired Companies, Fortune Magazine, http://www.pcmag.com/article2/0,2817,2382821,00.asp. Vol. 163 No. 4, March 21. 49. W. Cohen, www.rollingstone/news/newsarticle.asp?nid =18075. 3. R. Safian, 2011, Letter From the Editor, Fast Company, March, 17. 50. K. Regan, 2007, EMI revenue falls but DRM-free iTunes sales promising, 4. B. Morris, 2008, What makes Apple golden, Fortune, March 3. Ecommerce Times, http://www.ecommercetimes.com, August 6. 5. D. Leonard, 2003, Songs in the key of Steve, Fortune, April 28. 51. T. Anderson, 2008, How Apple is changing DRM, The Guardian, May 15. 6. M. Honan, 2007, Apple drops ‘Computer’ from name, Macworld, Macworld 52. Ibid . Expo, January 9, http://www.macworld.com/article/54770/2007/01/ 53. http://www.apple.com/pr/library/2009/01/06itunes.html. applename.html. 54. 2011, Apple Inc., Hoover’s Company Reports. 7. R.E. Hoskisson, 2007, Strategic Focus: Apple: Using innovation to create 55. 2011, Apple Launches Subscriptions on the App Store, February 15, 2011, technology trends and maintain competitive advantage, Hitt, Ireland & http://www.apple.com/pr/library/2011/02/15appstore.html. Hoskisson, Strategic Management: Competitiveness and Globalization, 8th 56. B. Slattery, 2011, Apple Subscription Plan Launched, PCWorld, February Edition. 15, http://www.pcworld.com/article/219702/apple_launches_app_store_ 8. B. Stone & P. Burrows, 2011, The Essence of Apple, Bloomberg Businessweek, subscriptions.html. January 24, 6. 57. Ibid .

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58. Ibid. 99. 2008, CinemaNow Inc., BusinessWeek, http://investing.businessweek.com, 59. Ibid. March 14; 2008, www.cinemanow.com; 2008, Wikipedia, http://en.wikipedia.org; 60. Ibid. A. Gonsalves, 2007, InformationWeek, www.informationweek.com, July 18. 61. P. Elmer-DeWitt, 2011, iPad mags: Another publisher blinks, Fortune, April 11, 100. 2011, CinemaNow, TopTenREVIEWS.com, http://movie-download-review. http://tech.fortune.cnn.com/2011/04/11/ipad-mags-another-publisher- toptenreviews.com/cinemanow-review.html. blinks/ 101. Ibid . 62. Ibid. 102. Ibid . 63. Ibid. 103. O. Kharif, 2010, Wal-Mart Picks Up Digital VUDU, Bloomberg Businessweek, 64. N. Ives, 2011, Why Elle, Nylon and Pop Sci Said yes to Apple’s iPad February 22, http://www.businessweek.com/technology/content/feb2010/ Subscription Terms, AdAgeMEDIAWORKS, February 16, http://adage. tc20100222_235241.html. com/article/mediaworks/elle-nylon-pop-sci-accepted-ipad-subscription- 104. http://disneymoviesonline.go.com/movies. plan/148920/. 105. Ibid . 65. D. C. Chmielewski & M. Quinn, 2007, Technology; Movie studios fear the 106. Ibid . sequel to iPod; They see risk that new Apple TV signals effort to control 107. 2011, , Hoover’s Company Reports. distribution, Los Angeles Times, June 11, C1.38. 108. 2011, Netflix, Hoover’s Company Reports. 66. 2008, Apple premieres iTunes movie rentals with all major film studios, Apple 109. Ibid . press release, www.apple.com/pr/library, January 15. 110. O. Kharif, 2010, Wal-Mart Picks Up Digital VUDU, Bloomberg Businessweek, 67. Ibid. February 22, http://www.businessweek.com/technology/content/feb2010/ 68. http://www.apple.com/itunes/whats-on/#movies. tc20100222_235241.html. 69. 2007, Apple chooses Cingular as exclusive U.S. carrier for its revolutionary 111. D. Pogue, 2007, High-speed video store in the living room, New York Times, iPhone, Apple Inc. press release, www.apple.com/pr/library/2007/01/09 www.nytimes.com, September 6. cingular.html, January 9. 112. http://www.walmart.com/cp/vudu/1066144. 70. 2008, www.apple.com/iphone. 113. C. Edwards, B. Womack & A. Sherman, 2011, Netflix Falls as Warner Bros. Offers 71. http://www.apple.com/pr/library/2011/02/02iphone.html. Facebook Movies, Bloomberg, http://www.bloomberg.com/news/2011-03- 72. 2011, Apple Inc., Hoover’s Company Reports. 08/netflix-falls-as-warner-bros-starts-offering-movies-on-facebook.html. 73. A. Hesseldahl, 2007, Take the iPhone apart, BusinessWeek, www.businessweek. 114. Ibid . com, July 2. 115. Ibid . 74. C. Bruemmer, 2011, Electronic Manufacturer Supply Chain Hit by Japan 116. Ibid . Earthquake-Tsunami, TopTenWholesale.com, http://www.toptenwholesale. 117. J. Goldman, 2008, Motorola hangs up on handsets, www..com, January com/news/electronic-manufacturer-supply-chain-hit-by-japan-earthquake- 31; A. Hasseldahl, 2008, Blackberry vs. iPhone: Who wins? BusinessWeek, www. tsunami-3984.html. articles.moneycentral.msn.com, January 3. 75. K. Rose, 2011, Apple Japan goes the extra mile in earthquake’s aftermath, 118. 2011, Motorola Mobility Holdings, Inc., Hoover’s Company Reports. MacDailyNews, March 15, http://macdailynews.com/2011/03/15/applejapan- 119. Ibid . goes-the-extra-mile-in-earchquake-aftermath/. 120. M. Ricknas, 2010, Motorola Announces Flashy Android Phone, PCWorld, June 76. C. White, 2011, Apple & Microsoft Take Different Approaches to Japan Relief, 7, http://www.pcworld.com/article/198/159/motorola_announces_flashy_ Mashable, March 13, http://mashable.com/2011/03/13/apple-microsoft- android_phone.html. japan/. 121. G. Miles, 2010, Motorola Droid X: The Best of the Droids, PCWorld, June 23, 77. D. Glodman, 2011, Apple’s iPad 2 supply concerns mount, CNNMoney, March http://www.pcworld.com/article/199747/motorola_droid_is_the_best_of 23, http://money.cnn.com/2011/03/23/technology/apple_ipad_japan_ _the_droids.html. supply_chain_concerns/index.html. 122. J. Goldman, 2008, iPhone vs. Blackberry: Apple launches new software, www. 78. P. Elmer-DeWitt, 2011, Japan supplied 5 key iPad parts, Fortune, March 18, cnbc.com, March 6. http://tech.fortune.cnn.com/2011/03/18/5-key-ipad-parts-that-came-from- 123. 2011, Research in Motion Limited, Hoover’s Company Reports. japan/?section=magazines_fortune. 124. B. 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Ibid . 86. 2008, Wikipedia, http://en.wikipedia.org/wiki/kazaa. 130. Ibid . 87. 2008, Wikipedia, http://en.wikipedia.org/wiki/kazaa. 131. D. Bell, 2010, Best 5 MP3 players, cnet Reviews, December 22, http://reviews. 88. 2003, Kazaa Usage Map, http://tools.waglo.com/kazaa. cnet.com/best-mp3-players/?tag=contentMain;contentAux. 89. http://www.kazaa.com/#/about. 132. 2009, MP3 player buying guide, cnet Reviews, December 2, http://reviews. 90. S. I Ahmed, 2011, Atrinsic says Kazaa users can stream music on phones, cnet.com/2719-7964_7-272-3.html?tag=page;page. Reuters, March 7, http://www.reuters.com/article/2011/03/07/us-atrinsic- 133. D. Bell, 2010, Best 5 MP3 players, cnet Reviews, December 22, http://reviews. shares-jdUSTRE72657320110307. cnet.com/best-mp3-players/?tag=contentMain;contentAux. 91. N. Wingfield, 2004, Price war in online music, The Wall Street Journal, www. 134. 2010, Apple iPod touch (4th Generation with Camera), September 7, http:// wsj.com, August 17. www.pcmag.com/article2/0,2817,2179701,00.asp. 92. http://www.real.com/realplayer/convert-video. 135. D. Bell, 2010, Best 5 MP3 players, cnet Reviews, December 22, http://reviews. 93. http://www.real.com/realplayer/player-plus. cnet.com/best-mp3-players/?tag=contentMain;contentAux. 94. http://www.rhapsody.com/-discover. 136. 2011, iPad 2 sales start with pre-dawn online orders, Associated Press, March 95. http://mp3.walmart.com/store/home. 11, http://www.abc15.com/dpp/news/science_tech/ipad-2-sales-to-start- 96. http://www.amazon.com/go/help/customer/display.html/ref-hp_mp3store_ with-pre-dawn-online-orders gettingstarted/. 137. 2011, iPad 2 sales start with pre-dawn online orders, Associated Press, March 97. http://www.amazon.com/gp/video/ontv/player. 11, http://www.abc15.com/dpp/news/science_tech/ipad-2-sales-to-start- 98. http://www.amazon.com/go/video/ontv/ontv/ref-sv_atv_2. with-pre-dawn-online-orders

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138. B. Reed, 2011, iPad Rivals Not up to Snuff, Says Consumer Reports, 156. 2010, Apple Inc. Annual Report. NetworkWorld, PCWorld Magazine, April 5, http://www.pcworld.com/ 157. Cuneo, Apple transcends as lifestyle brand. businesscenter/article/224315/ipad_rivals_not_up_to_snuff_says__ 158. www.apple.com/findouthow/retail/. consumer_reports.html. 159. http://www.apple.com/retail/onetoone/ 139. Ibid . 160. Ibid . 140. Ibid . 161. 2007, What makes a global leader? Knowledge at Wharton, 141. G. Keizer, 2011, Apple Will Dominate Tablet Market Through 2015, Says http://knowledge.wharton.upenn.edu/india, October 4. Gartner, Computerworld, PCWorld Magazine, April 11, http://www.pcworld. 162. 2010, Apple Inc. Annual Report. com/businesscenter/article/224865/apple_will_dominate_tablet_market_ 163. Ibid . through_2015_says_gartner.html. 164. B. Stone & P. Burrows, 2011, The Essence of Apple, Bloomberg Businessweek, 142. 2007, A bruise or two on Apple’s reputation, BusinessWeek, www. January 24, 6. businessweek.com, October 22. 165. A. Corn, 2011, Apple prepares for Its Next Act: Time to Officially Appoint 143. Ibid . Cook as CEO, Seeking Alpha, April 12, http://seekingalpha.com/article/ 144. J. Quelch, 2007, How marketing hype hurt Boeing and Apple, Harvard 263025-apple-prepares-for-its-next-act-time-to-officially-appoint-cook- Business, http://discussionleader.hbsp.com, November 2. as-ceo. 145. L. Gomes, 2006, Above all else, rivals of Apple mostly need some design 166. P. Elmer-DeWitt, 2011, Thinking the unthinkable: Apple without Steve Jobs, mojo, The Wall Street Journal, May 24, B1. Fortune, January 17, http://tech.fortune.cnn.com/2011/01/17thinking-the- 146. Ibid . unthinkable-apple-without-steve-jobs/. 147. R. Goldbert, 2011, Selling the Apple Lifestyle: What Makes the Ads Work, 167. D. Lyons, 2011, Facing a Jobs-Less Apple, Newsweek, January 23, http://www. Minyanville.com, March 22, http://www.minyanville.com/special-features/ newsweek.com/2011/01/23/facing-a-jobs-less-apple.html. articles/apple-ad-best-ad-copy-apple/3/22/2011/id/33115. 168. Ibid . 148. Ibid . 169. P. Elmer-DeWitt, 2011, Thinking the unthinkable: Apple without Steve Jobs, 149. Ibid . Fortune, January 17, http://tech.fortune.cnn.com/2011/01/17thinking-the- 150. J. Graham, 2007, Apple buffs marketing savvy to a high shine, USA Today, unthinkable-apple-without-steve-jobs/. www.usatoday.com, March 3. 170. B. Stone & P. Burrows, 2011, The Essence of Apple, Bloomberg Businessweek, 151. P. Elmer-DeWitt, 2011, iPad ad as mission statement, Fortune, http://tech. January 24, 6. fortune.cnn.com/2011/04/03/ipad-ad-as-mission-statement/#more-56374. 171. C. Boulton, 2011, Enterprise Mobility: Apple Without Steve Jobs Will Do Just 152. Cuneo, Apple transcends as lifestyle brand. Fine: 10 Reasons Why, eWeek.com, January 20, http://www.eweek.com/c/a/ 153. Ibid . Mobile-and-Wireless-Apple-Without-Steve-Jobs-Will-Do-Just-Fine-10- 154. 2007, In 3 months, iPhone sales top a million. Reasons-Why-205563/. 155. R. Stross, 2007, Apple’s lesson for Sony’s stores: Just connect, New York Times, 172. Ibid . www.nytimes.com, May 27. 173. Ibid .

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