Apple: friend or foeIn this case we try to analyze whether Apple Inc. has grown to become a monopoly like Microsoft using Michael Porter’s Five Forces model.

Introduction to the company:Apple Inc., formerly Apple Computer, Inc., is an American multinational corporation headquartered in Cupertino, California that designs, develops, and sells consumer electronics, computer software and personal computers. Its best-known hardware products are the Mac line of computers, the iPod music player, the iPhone smartphone, and the iPad tablet computer. Its consumer software includes the OS X and iOS operating systems, the iTunes media store, the Safari web browser, and the iLife and iWork creativity and production suites.

The company was founded on April 1, 1976, and incorporated as Apple Computer, Inc. on January 3, 1977. The word "Computer" was removed from its name on January 9, 2007, the same day Steve Jobs introduced the iPhone, reflecting its shifted focus towards consumer electronics.

Apple is the world's second-largest information technology company by revenue after Samsung Electronics, and the world's third-largest mobile phone maker after Samsung and Nokia. Fortune magazine named Apple the most admired company in the United States in 2008, and in the world from 2008 to 2012.

Porter’s five forces analysis for Apple:A monopoly is defined as a single seller with complete control over an industry. Microsoft was a monopoly for their complete control and running their competition to the ground. The question is if Apple is doing the same thing.

Before we begin our analysis of Apple it is important to understand that Apple not only sells hardware but it also a provider of digital content like music, movies, television shows and apps. We here, try to analyze Apple’s dominance in the digital content provider industry.

Competition within

an Industry

Bargaining Power of Suppliers

Bargaining Power of

Customers

Threat of New

Entrants

Threat of Substitute

Threat of New Entrants: There is an imminent threat to Apple’s music business from Google. Google’s Android operating system now powers 75% of all mobile devices in the world. This means that if Google decides to enter the digital music market with a store similar to Itunes it would enjoy much success just due to the sheer number of consumers that would be exposed to the service. Apart from Google there is hardly any threats of new entrants.

Bargaining Power of Suppliers:Suppliers, here the providers of digital content like music, movies (Universal, Warner Bros. etc.) have low bargaining power. Consider this, Apples Itunes Store enjoys 63% of the market share in digital music. So Suppliers have little choice but to agree to Apple’s terms and conditions. If they are not present on Itunes Store they stand to lose a lot in revenue. The plight of suppliers can also be felt from the fact that Apple keeps 30% of all the revenue generated from the sale of music on Itunes. So a record label only gets 70% of the revenue generated from the sale of its music on Itunes.

Bargaining Power of Customers:With a very few choices, if any, available to the consumer they have low bargaining power. And if this was not enough figure this; Apple First sells the hardware like IPods, IPads and IPhones that play digital content like music, movies etc. to consumers and then it sells them the content to consume. So it becomes a vicious circle the sales of IPods and IPads supports Itunes and the sales on Itunes store support the sale of Apple hardware. Cost of switching is considerably high, as the consumer cannot carry his purchased content to any non-Apple device. Thus the consumer is locked in Apple’s product-services ecosystem.

Threat of Substitute: In the short run there seems to be no threat of substitutes, people will always listen to songs and to do that they will either buy them or stream them online. Apple is currently the market leader in both by a long margin. But surely in the long run as technology progresses further a substitute could emerge.

Competition within an industry:Despite the rise of new competitors, Apple’s dominance of the market for digital songs remains the same. Apple’s iTunes generates around $6.9 billion in revenue from digital music each year, which is 75% of the $9.3 billion that consumers spend on digital music annually. This means that while music streaming services such as Pandora and Spotify have shown rapid growth recently, they still can’t match the revenue generating powers of the iTunes store. ITunes’ popularity also shows us why Apple was able to successfully play hardball with music labels when negotiating a deal for iTunes Radio, its clout in the digital music realm means that record companies are willing to take less per-song revenue if it means they’ll be exposed to a much wider audience.

Market Structure of Apple:Apple is a company that focuses on digital music. Apple uses iTunes to make much of their profits. The company gets 30 plus percent of every transaction on iTunes. With that, the selling of iPods helps Apple become a monopoly.

Apple not only is controlling the digital music industry with almost no competition but they are also into the computer and laptop business with the “Macs.” Macs are laptops and computers that are competing with companies like Dell and HP are doing very well. Apple does not completely control the industry of computers though. Unlike the digital music with very few competitors, which would be considered an “oligopoly” the Macs have quite the competition.

Unlike Microsoft’s monopoly, Apple is not doing anything illegal. They are not going out of their way to put other companies down. There are no competitors in the digital music industry that can keep up with Apple. Why is Apple so good? They are constantly improving their products and maintaining low prices. So is Apple becoming an actual monopoly? Yes the company is starting to take control of their market. There is no one that can even come close to competing with Apple with his or her digital technology. Apple will not last in the long run without any competitors. Competition is always needed to constantly be improving. In their case, they will need competition to keep improving their products or they will get lazy in the long run. Just like Microsoft, Apple is becoming one of the big bad monopolies for their business practices and the quality of their product except Apple is not engaging in unlawful tactics.