torage space.

As reliance on computers increase in every sphere of public life, we can offer faster
speeds with stronger software that does not crash with higher loads. The number of units in a
computer system can be reduced too.

Profit: By early 1997 it had just 3.3 per cent of the personal computer market and its stock was
down to $14 a share. In September 1996, Amelio managed to post a $23 million profit, but sales had
slidto $2.5 bni.

People: The 13000 employees at Apple have been racked by a flurry of layoffs in the past few years.
This has been coupled with appointments of George Scalise (Operations Head) and Ellen Hancock
(Chief Technologist), people who are client to the Personal Computer business and hence, lack the
capability of taking focussed decisions.

Furthermore, Apple has been governed by a contrarian corporate culture that promotes individual
thinking and is not quite process driven. This makes it difficult for organising discipline in times of
crises.
Gilbert Amelio himself had been slow in taking decisions, compared to the standards of the industry,
leading to slow implementation of the same. Furthermore, the employees were disgruntled with his
lavish compensation package and personal perks like a leased private jet. According to this article in
the New Yorker, appearing in September 1997, the employees referredii to his management with the
term Carpetbaggers.

Answer b]

Eliminate: Raise:

Difficult to use personal computers User experience, Graphics quality,

meant for hobbyists; Unnecessarily Storage capacity, Processing Speeds,
bulky hardware components Ease of internet access, Design and
aesthetics

Reduce: Create:

Processing times; Dependency on Seamless, online file sharing

institutions for driving sales, with capability; User friendly design and
increased focus on general documentation software; Bug
consumers; resistant software

Question 2:

a) The Music Entertainment Industry of the late 1990s was divided mainly in the following segments:
the music player segment and the music record/songs segment.

iPod:
Industry: Portable Music Players Digital Audio Player (DAP)

Portable cassette players have been around since the 1980s since the introduction of the Walkman
in mid- 1979. But the first digital music player was unveiled at the CeBIT conference in 1997 by Eiger
Labs in the form of the MPMan. This had a 32 MB storage space and could store about 8 songs.

Two types of digital music players came into the market flash drive based players and hard drive
based players. The former were inexpensive ($100-$200) and could store songs of a single album at
the most, while the latter had higher storage capacities but were also priced at a premium ($300-
$800).

A major roadblock in all music players at this stage was storage space. Furthermore, they were
equipped with low quality graphic user interfaces, were often quite bulky and very short battery
lives. (NdubuisiEkekwe, Nazrul Islam, Disruptive Technologies, Innovation & Global Redesign,2012)

But in 2001, with the entry of the iPod, in Steve Jobs own words, Apple has invented a whole new
category of digital music player that lets you put your entire music collection in your pocket and listen
to it wherever you go." He predicted a change in the way people listen to music and he was right.

Blue Ocean Strategy, 24th July, 2017 Page 2

Thus, iPod (and in conjunction, iTunes), created a Blue Ocean for itself in the DAP market by offering
a compact, easy to use, fashionable and high storage alternative. It eliminated bulky players, low
storage issues and price concerns, raised music quality and legality, storage and battery life, reduced
piracy and createdseamless syncing with iTunes - a product that exceeded the expectations of the
consumers themselves, creating a unique market for itselfiii.

iTunes:
Industry: Digital Audio/Visual Media (in 2001, it was simply Music Media)

With the introduction of digital music players and the development of the MP3 formativ of music,
illegal P2P sharing of downloaded music (via sites like Napster) saw a spike, leading to major piracy
concerns for the beleaguered music record label industry which was already suffering from a
reduction in Vinyl and Cassette sales.

The legal copies of music were more expensive and hadlimited accessibility for the general public.
Due to a large number of players in the field, there was high competitiveness and barely any
understanding between the music player manufacturers and record label companies.

The P2P network was free, but suffered from low quality issuesand was illegal.

Apple looked for a way to resolve the impasse between subscription based music labels and the free
file sharing network. With the introduction of iTunes in 2003, andan agreement between 5 major
music companies, people could now download music legally (Knight and Hornby, 2007).

iTunes offered a legal, user friendly platform for downloading songs at a reasonable price. It
created an easy to access database of a huge selection of music for people to download at any time.
Backed up by the large storage capacity and easy syncing capabilities of the iPod, iTunes took off to a
flying start.

Blue Ocean Strategy, 24th July, 2017 Page 3

It eliminated piracy concerns, complex pricing methods, raised music quality, selection and ease of
use, reduced purchase restrictions for listeners, created a per song purchase system, 30 second free
samplings, and seamless syncs with iTunes softwarev.

iPhone:
Industry: Smartphones

The iPhone was introduced in 2007 and Apple managed to ship only 1.5 million units in the next two
quarters after its launch. It lacked a physical keypad, was enabled with 2G connectivity and not 3G,
as was the norm, and its users could not install apps from anywhere except the App Store. However,
it had far better (and more intuitive) user experience and more seamless internet connectivityvi.

However, according to Clayton Christensen, author of Innovators Dilemma, the iPhone was not a
brand new innovation, rather, a case of sustaining innovation, guided by market trends.
(Christensen, 2007).

The iPhone, thus, kept adding incremental features, thus creating a blue ocean for itself in a data
and internet driven Smartphone market.

It eliminated numerous models, raised user friendliness, designattractiveness and internet

accessibility, reduced extra buttons and embedded business applications, and created a database of
applications on the App Store, thus providing consumers the ability to customize.

iPad:

Industry: Tablet Computers

Apple wanted to create an offering for people which would be a middle path between a PC and a
smartphone. It would be an easily portable personal computing device.

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With the iPad, Apple eliminated the bulky hardware features of a notebook or PC, raised portability,
user friendliness, non-PC functions like handheld gaming, an e-Book reader etc. It reduced storage
space and compromised slightly on processing speed as well, as compared to a PC. It created a
smart, fashionable and exciting device which boosted the market for peripherals like hardware add
ons and more customization offerings through the App Store.

Thus, it created a blue ocean for itself via a product offering between a notebook and a smartphone.

b) Apple was a new entrant in the industry of Digital Music Players, with several companies like Eigar
Labs offering flash drive based or hard drive based music players.

As for iTunes, it was a new player as well, creating a completely new market category with its entry.

With the iPhone too, it was a new entrant, having focussed on PC devices and peripherals till now.
Although with products like the Newton and eMate, it did venture into the Personal Digital Assistant
industry, the iPhone was more than a PDA with more diversified functions.

Apple had never sold a product like a tablet before and hence, it was a new entrant in the industry.

Question 3:

iPOD:

a] Market Conditions:For a decade after its launch in 1978, Sonys Walkman retained a 50% market
share in the U.S. (46% in Japan) in a space teeming with competitors, even as it enjoyed a price
premium of approximately $20 over rival offers.
For an mp3 player without the widespread availability of mp3s and broadband, the value
proposition could not come together.

Technology: Flash memory-based players of the era held only about a CDs worth of songs. Hard
drive players held far more but were relatively big, heavy, and they sported difficult-to-navigate user
interfaces that did not scale well when scrolling through thousands of songs.
Moreover, most portable media players (PMPs) used the pokey USB 1.1 standard to transfer music
from a host computer to the player, which made the user wait up to five minutes to transfer a CDs
worth of songs. When moving thousands of songs, the transfer time could shoot up to several hours.

Value: By the late 1990s, digital music had become big news. Illegal file sharing site Napster, in
particular, shoved the issue in everyones face. Despite the legal issues, it quickly became apparent
to most in the tech industry that Internet-downloaded MP3s were the future of music distribution.
People needed a product that could provide help download music from the internet and store music
in a portable device.

Solution from Apple: Steve Jobs knew that, on its own, the mp3 player was useless. He understood
that, in order for the device to have value, other co-innovators in the mp3 player ecosystem first
needed to be aligned. And, in October of 2001, when Apple announced the iPod, those pieces were
solidly in place: both mp3s and broadband were finally widely available.
Apple began preliminary research for ideas on how to proceed. From the beginning, he had two
ingredients in mind: a speedy FireWire interface to solve the transfer problem, and a particular 1.8-

Blue Ocean Strategy, 24th July, 2017 Page 5

inch 5GB hard drive from Toshiba that could make Apples music device smaller than any other hard
drive-based player on the market.
Apple provided an augmented product for the customers.
So we can see that by planning the time of the launch when the ecosystem was in place and the
right technological combinations, Apple provided a product that gave value to customers.

Hence the innovation came from all the three factorsviiviii.

b]Apple focused on the existing customer who could sync the device with their existing apple
products. But in addition to that it targeted customers in the Walkman based music category also.

c]Apple pursued differentiation first and then reduced their price as the production increased. As
mentioned in the Blue Ocean Strategy Case Outline presented to us, Apple offered newer variations
of the iPod at reduced prices, so that consumers could purchase the iPod Classic Photo 40 GB for the
same price they had paid for the first model, the 10 GB model ($499).

iTUNES MUSIC STORE:

Market Conditions: Record companies claimed that the CD manufacturing process was expensive
and so charged a premium for CD singles. Also, music buyers had become accustomed to listening to
music uninterrupted for an hour or more. The idea of changing media after just a few minutes to
play a single seemed quaint.

At the same time, with cassette decks a common part of an audio system, consumers had a way to
make recordings of their records and CDs (and other cassettes if they had a dubbing deck) and then
share that music with others via mixtapes. So common was the practice that people started to
develop the idea that music could be freely (and legally) shared. Ripping CDs because common
practice. With the help of broadband Internet connections, people could share this music far more
widely than ever before. And they did so by the truckloadvia peer-to-peer sharing sites such as the
original Napster.

Apples Solution:
Then, in walks Apple with a compelling idea: People who are motivated to steal music will continue
to do so. But if you make stealing more trouble than it's worth by making digital music easy to find
and purchase, and you price it reasonably, the vast majority of people will choose to buy rather than
steal. And so was born the iTunes Music Store.

When it launched in April 2003, the iTunes Music Store was available only to Mac users, but
Windows support was added that October. And, year after year, Apples store grewin capability,
cataloguesize, and number of salesuntil the point where, with the addition of videos and
eventually apps and books, it became simply the iTunes Storeix.

b) Apple targeted existing iPod and iMac customers.

c) Apple used low cost strategy to be successful.

iPAD:

Blue Ocean Strategy, 24th July, 2017 Page 6

a] Market Conditions: Most people dont buy a laptop for the tasks they were originally designed for
heavy office work, such as writing, crafting presentations, or financial analysis with spreadsheets.
They use it mostly to communicate via email, text, Twitter, LinkedIn, and Facebook; to browse the
Internet; and to consume media such as books, movies, TV shows, music, photos, games, and videos.
Jobs said that you could do all this on an iPhone, but the screen was too small to make it
comfortable. You could also do it all on a laptop, but the keyboard and the trackpad made it too
bulky, and the short battery life often left you tethered to a power outlet.

What the world needed was a device in the middle that combined the best of both something that
was more intimate than a laptop, and so much more capable than a smartphone.

Technology: The problem was that the tablet hardware was unusable. The energy-efficient
processors that would eventually drive the iPhone and the iPad were not yet powerful enough to run
software that would appeal to consumers. The tablet needed a hard drive, which took up too much
room in the case because flash storage was still too expensive in the capacities they needed. What
that left was a machine without a keyboard that was not much lighter, cheaper, or better powered
than a laptop.

With the iPad, you dont have to use a trackpador mouseto move a cursor around a
screen.Instead, you use your fingers to touch and swipe the screen. In addition, the iPad is very light,
weighing only 1.5 lbs (680 grams), and has a battery life of 9-10 hours, which is far greaterthan the
battery life of the typical laptop computer. Combined, all of these features provide theuser with a
more direct and immediate relationship to computing: all cables, mice and otherdevices are gone.
The iPad facilitates a magical experience, according to Steve Jobs. Certainly,it makes life easier for
the customer.

Value: Consumers knew instinctively that they needed a phone and a laptop, the only tablets they
had ever seen were devices they didnt want.

Apples Solution: iPad came into market to fulfil the tasks of the persons who needed something
between a laptop and a phone. Technological advancements in the form of efficient processors, high
capacity batteries and big screens helped make iPad possible. It was also giving value to the
customers by offering them an augmented product.

Thus, all three factors were responsiblex.

b] Apple targeted existing iPhone and iMac customers to create a new market base.

c] Apple offered a differentiated product policy with prices being slashed for the older models with
the introduction of newer variants for capturing newer markets.

iPHONE:

a] Market Conditions: In 2007, Nokia was the world's biggest smartphone manufacturer when
iPhone was released. They controlled about 37% of the market share at that time. Motorola &
Samsung captured 14% & 13% market share respectively. Then Microsoft chief executive Steve
Ballmer's predicted that it would be a niche product and that Microsoft would dominate the
smartphone industry.

Blue Ocean Strategy, 24th July, 2017 Page 7

Value: The idea was to carry super-intelligent computers in the pockets of the consumer that
connects them to the internet anywhere & everywhere. In addition to the iTunes app store, end
users could customize the applications to their own needs & interests.

Technology: It was focused on minimal user interface hardware, immediately making the tactile
number key buttons of cell phones seem outdated. Steve jobs succeeded in innovating a product
that consumer couldnt even think about & thus urged them to buy it. The widescreen iPhone, one
of Jobs great visions, combined mobile phone function with the music app technology of the iPod,
included a 2-megapixel camera and internet access. Its designers did not create a telephone with
some extra features, but rather a full-fledged hand-held computer that could also make calls and
browse the internet.

b] Apple targeted smartphone users who were looking for faster in internet access and easier user
experience.

c] Apple offered a differentiated product (although the initial model has a slew of problems, as
outlined in the previous question) for its customers, thus creating a niche market.

Question 4:

a) Value: Sony Corporation aims to provide entertainment through a wide range of

consumer products. It also has a high reputation for providing innovative products
with good quality. For instance, Walkman combined the strength of boom box and
radio transistor. Sony Corporation divided the business segments between the
consumer and professional electronics products, music, motion picture, game,
mobiles, and financial services. However, the excessive product lines made it hard
for Sony Corporation to properly allocate the resources. The competitive advantage
of each product line in the corresponding industry was not well recognized and
cultivated. Therefore, the market share of the most profitable products wastaken
over by other competitors.

Profit: The company announced a record annual net loss of 520 billion yen ($6.4
billion) for the year ends in March 2012xi. The great loss partially resulted from the
global economic crisis starting in 2008 and Great East Japan Earthquake in 2011. The
consumers are more price-sensitive to the product during the recession, which
damaged the profitability to a great extent. The Great East Japan Earthquake in 2011
caused excessive restoration costs and disturbed operations. In 2011, Sonys stock
price declined by 54%.

People: The outbreak of global financial crisis in 2008 raised up the unemployment
ratexii. Prolonged unemployment rate slows down the productivity and creates skills
gap. The shortage of skilled labour force made it difficult for Sony to develop
innovative product variants and features, thus stagnating research and
development. Beyond that, great loss of labour supply shrank the manufacturing
operation due to earthquake in 2011.

Blue Ocean Strategy, 24th July, 2017 Page 8

 Norio Ohga, Senior advisor and former President and Chairman of Sony Corporation
passed away in 2011. Under his leadership, Sony Corporation was successfully
transformed into a global entertainment leader. The loss of an influential leader may
lead to low employee morale. Plus there was a prevalence of an inconsistent
business strategy due to a disagreement from hissuccessor.

i
http://archive.fortune.com/magazines/fortune/fortune_archive/1997/03/03/222710/index.htm
ii
http://www.newyorker.com/magazine/1997/09/08/the-perceptionist
iii
http://strategyatheinz.blogspot.com/2013/11/blue-ocean-strategy-ipod.html
iv
http://bit.ly/2eG2zbs
v
http://www.blueoceanstrategy.com/wp-content/uploads/assets/videos/AppleSlides.pdf
vi
https://technology.ihs.com/408607/five-years-of-iphone-disruption
vii
http://www.macworld.com/article/1163181/consumer-electronics/the-birth-of-the-ipod.html
viii
https://knowledge.insead.edu/blog/insead-blog/innovation-success-how-the-apple-ipod-broke-all-sonys-
walkman-rules-2791
ix
http://www.macworld.com/article/1163181/consumer-electronics/the-birth-of-the-ipod.html
x
https://www.wired.com/2013/11/one-ipad-to-rule-them-all-all-those-who-dream-big-are-not-lost/
xi
Sony annual report 2010: https://www.sony-
latin.com/corporate/SOLA/acerca/infocorporativa/pdf/info_financiera/SonyAR10-E.pdf
xii
Japan unemployment rate :https://tradingeconomics.com/japan/unemployment-rate

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