The Evolution of Apple

Apple's continuing development from computer maker to consumer electronics pioneer is rich material in a number of Harvard Business School classrooms. Professor David Yoffie discusses his latest case study of Apple, the 5th update in 14 years, which challenges students to think strategically about Apple's successes and failures in the past, and opportunities and challenges in the future. Key concepts include:
  • Apple has an undeniable hit with the iPod, yet faces the question of whether the growth of that business and Apple overall can be sustained.
  • Looking at Apple through the lens of the company's previous chief executives gives students insights into why Apple lost its way after Steve Jobs left the company.
  • Student opinion of Apple tends to be excessively positive or excessively negative, depending on the company's current fortunes.
by Julia Hanna

In the context of the computer industry at large, professor David Yoffie explores the ups and downs of a company that's always been a bit different in "Apple Computer, 2006." The case poses this question: Given its 2 percent computer market share that year, can Apple find sustainable success as it continues to expand its product line into handheld devices like the iPod and, now, the iPhone?

The Apple case originally appeared in 1992 and has been rewritten 5 times since. "The company always looks a little different, yet many of the core issues that pose challenges for it remain constant," says Yoffie, noting that the case is used as part of the MBA required curriculum in the Strategy course and in numerous Executive Education programs. It can also be taught with a video presentation by John Sculley, Apple's CEO from 1985 to 1993, who candidly discusses his mistakes and what he would have done differently.

"The video is a very powerful teaching tool," says Yoffie. "Few CEOs will admit to their mistakes in a public setting."

The comings and goings of various CEOs at Apple over the years can be instructive in itself, he adds. "Their different approaches led to new versions of the case and gave students insights as to what the CEO was trying to do and why he was having so much difficulty."

Apple's market share has always been lower than its consumer mind share.

When Apple's cofounder, Steve Jobs, returned to the company in 1997, he also moved quickly to make some changes, announcing that archrival Microsoft would be developing core products such as its Office software for the Mac. In 1998, Apple launched the iMac, a candy-colored computer that fit well with its ad campaign to "Think Different." Even so, it sold only 6 million units over the course of 3 years, compared with sales of 300 million PCs during the same period.

"Apple's market share has always been lower than its consumer mind share," remarks Yoffie.

Birth of The Cool

In addition to generally consolidating and restructuring Apple, Jobs halted production of the Newton, an early version of the personal digital assistant, and closed the division working to develop a portable PC for the education sector. "What Apple is great at is figuring out how to invent cool technology [and] making it wonderfully easy to use," Jobs told the Wall Street Journal in June 2004. By then, sales of its iPod, introduced in 2001, had nearly quadrupled over the year before, leaping to over $1.3 billion in net sales. In 2005, that figure increased again to over $4.5 billion.

"This is a case where you can focus on strategic success as well as strategic failure," Yoffie notes. "There aren't many instances where you have both sides so nicely paired."

In class discussion, Yoffie says that student opinion of Apple tends to be excessively positive or excessively negative, depending on the company's current fortunes. "For the last two years there's been enormous enthusiasm in the classroom," he observes. "There's still some skepticism around the sustainability of the iPod business, however. It's difficult for people to believe that Apple can maintain that incredible level of success."

The verdict is still out on that question, says Yoffie. Even so, the iPod has altered the fundamental dynamics of Apple. In a change that signals the company's growing investment in consumer electronics, Apple dropped "Computer" from its name in January 2007. Future revisions of the case will reflect this change in the title, as well as offering the latest update on one of high-tech's best stories.

About the Author

Julia Hanna is Associate Editor of the HBS Alumni Bulletin.