Who profits from innovation in global value chains?: a study of the iPod and notebook PCs

Owning the consumer—Getting to the core of the Apple business model

“…Some regale the 'return' of Steve Jobs as the decisive factor leading Apple out of the technology wilderness (Harvey & Novicevic, 2006;Strategic Direction, 2008;Swallow, 2011). Others focus on innovation, be it marketing and product design, software and content delivery, or good timing and a hint of serendipity (Dedrick, Kraemer, & Linden, 2009;Reder, 2009;Zott & Amit, 2010). Finally, there are those that point to Apple's ability to extract extraordinary margins due to a low cost manufacturing strategy and an ability to maintain high price points by providing a 'unique' retail experience (Duhigg & Bradsher, 2012;Froud et al, 2012;Sorescu, Frambach, Singh, Rangaswamyd, & Bridges, 2011;Useem, 2012).…”

“…Harvey and Novicevic (Harvey & Novicevic, 2006) call it a 'disruptive technology' because it created a new platform that encouraged the interests of studios (SONY, BMG, EMI) and consumers to converge for the first time. Dedrick et al (2009) emphasize how Apple maintained control over key elements of the iPod, particularly the user interface, and the interfaces between the iPod, iTunes software, and the online iTunes Store. It was through this strategy that Apple was able to capture by far the largest share of profits from its innovation in the iPod.…”

“…Apple maintained control over key elements of the iPod, particularly the user interface and the interfaces between the iPod, iTunes software, and the online iTunes Music Store (iTMS). The highly specialized iTunes client software was developed internally to inhibit connectivity with other software platforms while also reducing costs on licensing or royalty fees (Dedrick et al, 2009).…”

“…By 2009, Apple had captured approximately 70 percent of the global market for legitimate digital music downloads (Reder, 2009). The integration between content and hardware provides customers not only with a seamless user experience, from purchase to use, but also ensures that Apple captures the largest share of profits compared to the suppliers of the actual content (Dedrick et al, 2009).…”

“…The first Apple store opened in 2001, which coincided with the launch of the iPod. This allowed a co-specialization of the two assets, as the iPod needed effective sales efforts and attractive displays and the Apple Store needed a hot product to drive traffic to succeed (Dedrick et al, 2009). Since then, Apple stores have sought to 'leverage complementaries' by tying-in services and product knowledge.…”