The Apple iPhone idis 619 Capstone Assignment By

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5. If a phone of your choice is not available with your service provider, will you be willing to change service providers?

Yes	No	Maybe

6. Will you be willing to break a service contract to get the phone of your choice?

Yes	No	Maybe

7. How would you rate the following service providers in terms of complementary services (Complementary services include iTunes, Maps, Email, Music download)? (1 implies "Best complementary services available". 8 implies "Least complementary services available")

	1	2	3	4	N/A


Cingular (at&t)


Verizon


T-Mobile


Sprint Nextel

8. Will you be willing to switch service provider if data speeds on smartphones are better with other service providers?

Yes	No	Maybe

9. What service plan are you likely to choose?

$29.99	$39.99	$49.99	$59.99	$69.99

10. How important is the feature "Ability to receive free calls from landline" to you? (Similar to at&t unity plan)

Very Important	Somewhat Important	Neutral	Not Important

Exhibit III (D) 1b: Apple’s 2006 revenues

Total Macintosh net sales	7,375	38%
iPod	7,676	40%
Other music related products and services	1,885	10%
Peripherals and other hardware	1,100	6%
Software, service, and other sales	1,279	7%
Total net sales	19,315	100%

Exhibit III (D) 1d-1: Apple’s and Cingular’s synergies as partners

Factors	Classification	Recommended Strategy	Reason
Type of Synergies	Modular	Non-equity alliance	Apple’s core business is in electronic hardware, and Cingular’s core business is providing phone services
Relative Value of Intangible to Tangibles Resources	Low	Non-equity alliance	Because of the modular synergy, the intangible resources do not match with the tangible resource
Extent of Redundant Resources	Low	Non-equity alliance	Since it is a modular synergy, there is very low redundancy of resources
Degrees of Uncertainty	Moderate	Non-equity alliance	Apple is known to create superior technology compared to its competitors. However, it is uncertain if Apple can sell 10M units by 2008, or whether users will switch to Cingular just to use iPhone
Forces of Competition	Low	Non-equity alliance	Because Apple was determined to be in the commanding seat, Apple chose the service provider. As demanding as service providers are in the U.S. over handset development, Apple was determined to ignore the providers’ demands. Therefore, the competition for iPhone was relatively low

Exhibit III (D) 1d-2: Apple’s and Cisco’s synergies as partners

Factors	Classification	Recommended Strategy	Reason
Type of Synergies	Modular	Non-equity alliance	Apple’s core business is in electronic hardware, and Cisco’s core business is providing network infrastructure, router hardware, security, enterprise software, consumer voice over IP communications to name a few.
Relative Value of Intangible to Tangibles Resources	Low	Non-equity alliance	Because of the modular synergy, the intangible resources do not match with the tangible resource.
Extent of Redundant Resources	Low	Non-equity alliance	Since it is a modular synergy, there is very low redundancy of resources.
Degrees of Uncertainty	Moderate	Non-equity alliance	Apple is known to create superior user experience in its products. However, it is uncertain if Apple and Cisco can work together in bringing the user experience to corporate world with its offering on security and enterprise software integrated in iPhone. This will require software interaction between Apple and Cisco and Apple does not like depending on outsiders to deliver the software experience. Since Cisco’s software will be in the backend, we have assumed that the disruption to user experience will be minimal.
Forces of Competition	Moderate	Equity alliance	Apple was forced into this agreement by Cisco as part of the trademark settlement dispute. However, other makers such as RIM could partner with other networking firms to enhance their enterprise software or security offering in smartphone.

Exhibit II (D) 1: Global sales of mobile service providers

Graph: U.S. sales of mobile phone service in the U.S., 2005

Source: Mintel/CTIA

The U.S. sales of mobile phone services in the U.S., 2003 and 2005 are given below^{^cl}

Supplier	2003 Sales ($billion)	%	2005 Sales ($billion)	%	Change 2003-05 (%)	2003-05 (% point change)
Cingular (a)	29.0	33.1	30.6	27.0	5.7	-6.1
Verizon	20.3	23.2	28.1	24.8	38.3	1.6
Sprint Nextel (b)	21.1	24.1	27.6	24.3	30.9	0.2
T-Mobile	7.2	8.2	12.3	10.8	70.5	2.6
Alltel (c)	4.5	5.1	5.9	5.2	32.0	0.1
Subtotal	82.1	93.7	104.6	92.1	27.4	-1.6
Other	5.5	6.3	8.9	7.9	62.0	1.6
Total	87.6	100.0	113.5	100.0	29.6	-

(a) Cingular and AT&T Wireless completed merger as of October 2004.
(b) Sprint and Nextel completed merger as of August 2005.
(c) Alltel acquired Western Wireless and certain markets from Cingular in 2005.

Exhibit III (D) 3b – Part A: iPhone’s values

Patented technologies

There are over 200 patents filed for iPhone. Some of these patents demonstrate immediate value to end users:

Multi-Touch – Without seeing a demonstration of the iPhone, most people would think of the iPhone touch screen just like any other touch screen technology out there today. However, Apple has patented iPhone’s touch screen technology, because it is uniquely different. Besides being able to tap on the screen, the user can slide his finger from top to bottom, and it would scroll the listing of songs or contacts. It is like flipping through a rolodex. Also, the user can use 2 fingers in a pinching motion to cause an image on the screen to zoom in or out.
Proximity sensor – When the phone gets close to an object such as your ear, it turns off the display and turns off the touch screen. This will save energy, and avoid any unintentional touching of the screen by your face.
Ambient light sensor – This automatically adjusts the screen lighting based on ambient lighting conditions.
Accelerometer – This senses if the users is holding the iPhone in portrait or landscape position, and it automatically rotates the display.
Visual Voicemail – This allows random access to a user’s voicemail just like email. The user would see a list of voicemails in his/her mailbox, and could select the specific voicemail to listen to without starting from the first voicemail.

Email Access

This feature isn’t new since RIM and Cingular already offer push email to mobile phones. However, their services are not free. In contrast, the iPhone will support free push IMAP email in collaboration with Yahoo\. This will immediately allow millions of current Yahoo mail users to have access to free push emails. This is no longer limited to corporate users.

Full Web Browser

Because of the limited screen size on mobile phones, today’s mobile phone web browsers will cram the web content in a way that is hard or sometimes impossible to read. The iPhone is able to display a full web page content like a zoomed out page. The user can see the whole page, and the text would be of course too small to read. The user can then zoom in and out to various sections to read the details by double tapping the section of the screen or pinching the section of the screen.

Exhibit II (G) – Part A: Comparison of handset manufacturers

Key Aspects	Apple	Nokia	Motorola	LG	Samsung	Sony-Ericsson	RIM	Palm
Priorities	Creating ultimate user experience	Focusing on volume advantage	Bringing the best engineering products to market and promoting it through hip advertising	Changing consumer perception on brand	Focus on high end, high margin handsets	Focus on delivering products across price spectrums and establish in emerging markets	“Integrated hardware, software and services for seamless access to time sensitive information”	“Developing market defining products available on multiple industry platforms”
Achievement of objectives	Successful so far with its existing products	Market leader in handsets due to its strategy	Very successful in the mobile segment (#2 worldwide) but facing challenges on-and-off	Successful execution through their partnership with Prada	Develop partnerships with start-ups and universities.	Handsets across price spectrum; infrastructure investment in India	Very successful, has the largest smart phone market share in North America, is expending internationally	Moderately successful in the smart phone sector- trailing behind RIM
Beliefs about industry and resources and capabilities	Enter an existing industry with disruptive technology and value to consumers Creative people and expertise in enhancing user experience. Numerous patents	Untapped opportunities in emerging markets Well developed logistics and control over manufacturing processes to cater to demand	Focused primarily on gaining market share in the mobile segment through significant investments in R&D	Provide stylish mobile phones for today’s fashionable users.	Continues to believe in technological innovation in all its business segments with the belief that with increasing global competition, only the top one or two firms with the capabilities to identify, establish and lead new markets shall be assured survival	Mobile platform seen as the rapid way of large scale telecommunication deployment reducing the digital divide between the developed, the developing, and the under-developed economies of the world	Wants to leverage its ISV relationships to enhance connectivity with the blackberry network, but believes that a tight integration between hardware and software is critical and that RIM has the requisite resources and capabilities to achieve that.	Belief that the hardware devices can be differentiated through software and applications
Management style	Risk-takers	Risk-averse	Risk averse	Risk averse, as indicated by its hedged bet on OS- Symbian as well as Windows ME	Process improvement driven	Risk averse	Risk averse- has been expanding product lines and businesses in other geographies in a cautious manner.	Risk-averse: hedging bets with dual-OS (Windows, Palm OS) strategy
Recent moves in response to Apple’s strategic move		Unknown – may potentially acquire Palm to enhance capabilities.	Unknown – recent rumors regarding a potential acquisition of the ailing Palm business to beef up its smartphone business	New fashion phone for consumers – LG Prada phone	Introduced Samsung f700 touchscreen phone	Introduced Sony Ericsson W950I	Increase availability of RIM through network operators alliance	Looking for options (possibly to get acquired). Hires Apple engineer to design similar touch screen products.
Can the competitor address the challenge posed by Apple		Yes – with a few years in R&D	Yes – with a few years in R&D. Needs to build capabilities in software design and engineering	Yes – with a few years in R&D to match up features in Apple iPhone	Yes – User experience of touch screen in designed however need to work with partners for content delivery such as visual voice mails	Yes- By Sony’s excellence in producing high resolution handset camera lenses and walkman style integrated music players	Yes – with a few years in R&D	Unknown – strategic move unknown due to mixed messages sent to market.

Exhibit II (D) 1a – Part B: AT&T’s corporate structure

Exhibit IV (A) – Industry Lifecycle and Apple’s evolution

Source: Class powerpoint slides, “chris619eresw07.ppt”, Madsen, T; Slide 2, Date accessed: March 10^th 2007

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