Apples Business Model of iPhone: The success behind it

Ioannis Parapontis

Abstract. Nowadays, the so called fourth generation mobile environment is shaped under the advancements of converged networks and innovative mobile telecommunication and handset technologies. Todays market is characterized as mature and rather saturated for the basic mobile services of the past, due to the high penetration rates achieved. The mobile phone manufacturers and telecommunications providers are therefore seeking for new services and products that will create and support new customer needs. In this sense, the mobile phone itself is a vital element and the means by which these services are handed over to the end user-customer. A successful product contributes in an increase, (or conservation) of the average revenue per user (Network Operators) and also maintains high average selling prices in developed markets (Handset Manufacturers). As a result firms continuously adopt strategies and business models to suit the customers needs and to overcome fierce competition and the issue of short product life cycle. This work examines Apples decision to enter the mobile handset business and attempts to reveal the strategy behind it. The approach followed, views this strategy in terms of Apples competitors strategies and also in connection to the firms previous strategies for different and related products. The conclusion is that the success of the iPhone lies greatly on Apple's insight for the mobile Web, but also in its brilliant use of its core competencies and its hybrid business model.

Keywords: iPhone, Business Model, Mobile Web, Smartphone, mobile 2.0,

1 Introduction
The mobile handset business is characterized by an always in a flux technological state to satisfy the different changes of market demand, whether these concern developed, or emerging and in growth potential markets. Although this dynamic character of the telecoms market in general is not something new, the recent observed changes have been more dramatic than ever before. With high penetration rates for basic mobile services becoming a reality in most developed countries, network operators faced the challenge of steadily falling average revenues per user. At that point their only chance to maintain the momentum and to allow a continuation of growth against such a mature market was through innovative mobile data services. These services however would only reach the end user-customer through the corresponding capable mobile devices to support them. Therefore the handset manufacturers were also largely affected and especially since their main distribution channel was through the network operators, with whom business models they had to align. Thus to follow and to drive more use of mobile data it was imperative for them to invest in new sophisticated mobile devices, evolved from voice-oriented terminals to data service-based ones. The overall combined effect led to huge advancements in both the telecommunications sector (4G converged nets, mobile TV, mobile Web & mobile 2.0) and in the key enabling technologies (OLED Touch screens, 3D cameras, Improved Batteries), to provide new services and products that would in turn create and support new customer needs. These innovations additionally acted as the catalyst for micro billing and value creation from accessing information and downloadable contents [1]. In general, these advancements also revealed the intensions of both the network operators and the mobile handset manufacturers to migrate the subscribers and the mobile devices to a next generation technological platform. This 4G platform of converged networks and converged mobile devices promised a broad array of services that would not only include the traditional and recent customer choices, but also a new class of services and the potential for a true mobile Web.

With its iPhone, the firm presented a converged device that rapidly gained smartphone market share while spurring widespread adoption of mobile data services globally. It managed to do so despite the lack of telecommunications experience by utilizing its core competencies in product innovation and marketing developed over its 30 year history. This work focuses on Apples decision to challenge the stable oligopoly of the mobile handset business and attempts to unveil the strategy behind it. The approach followed, analyzes the firms market entry strategy with regards to its competitors strategies, its own competencies and the efforts to deliver a dominant design for a converged device, equally ideal for voice, entertainment and the mobile Web. Through the analysis a better understanding can be obtained on whether or not the success of the iPhone, among other things, lies greatly on Apple's insight of the mobile Web as being the next big thing, and its incorporation as a core part of its strategy. The paper is organized as following: the 2 nd section provides some background material on the history of Apple Inc. The third part focuses on the iPhone and the strategies-business models around it. The final section discusses these matters and concludes.

2 Background
2.1 Apples key competencies through the years Throughout its history, Apple Inc is known for its innovative products, many of which changed and are still altering the face of the industry, (e.g. Apple II, Macintosh, iPod, iPhone & iPad). The companys success and reputation through the years can be mainly linked to its strategies of combined innovation with industrial design and its clever marketing. To be more specific, it was always the intention of Apple to be as much as possible in control so as to both create and capture the created value. As a result it usually followed an end to end system design approach and operated as a vertically integrated supplier of operating systems, software and hardware. This however did not mean that the company raised barriers to all out of its system. On the contrary Apple often took special care to encourage software developers and third-party content suppliers to become a crucial part of its dynamic ecosystem and thus to drive its products into being successful (e.g. i-family of devices/iTunes business). 2.1.1 The early years

The first successful decade of the firm must be credited to its effective competencies of innovation, product design and public relations. In its first steps the company based its success into technical innovation and the use of software and efficient hardware design to reduce the required chips and thus manufacturing parts costs. Additionally, the companys products were often characterized as being true consumer products, designed to be different and to satisfy customer expectations. Apple II personal computer was the first to suit such a description. In particular, it distinguished itself from the competition with a far more appealing molded plastic case, (others had unattractive metal ones) ease of use and other special features. This product differentiation revealed Apples product design strategy to be followed through the years, in producing insanely great products that differ substantially from anything else marketed ever before, (cf. Levy, 1994). As far as public relations are concerned, Apples tactic included waves of prepublicity that gradually built excitement before major product launch events. The end result was a news story by itself and the announcements were always well reported and remembered, even if they lacked such significance. Besides its reputation as a successful company and a worthy competitor, Apple was also known for its strict policy when protecting its trademark, copyrights and

other intellectual property. That was also the main reason why its overall strategy was characterized by many as a rather closed one. However as West (2006) argues, the level of openness often differs between the various stakeholders such as suppliers, customers, end-users and complementors [2]. Considering the particular case of systems vendors, Apples architecture was an obvious less open one than for instance the IBM PC (later Wintel platform). In addition and as mentioned previously, the company operated as a vertically integrated supplier, exclusively using its own operating system software and hardware. However, with regards to third-party complements, as the leader of the Apple II (and later Macintosh) ecosystem, Apple followed a more open approach to attract a supply of crucial software and hardware [3]. 2.1.2 The Lost Decade

There was a period of ten years known as the Lost Decade where Apples rate of innovation slowed to eventual stagnation and the company suffered major problems in terms of strategic leadership, implementation and operations. Apple experienced record-low stock prices and severe financial losses, but this was bound to change thanks to Steve Jobs. 2.1.3 The return of a Market Leader

In August 1998, Apple managed to return to profitability with its innovative iMac and by adopting more open and flexible product strategies. These strategies among others, involved outsourcing manufacturing, improving inventory turns and embracing de facto or open industry standards, (VGA, IEEE-1394, USB, TCP/IP & other Internet standards). At the same time it abandoned its proprietary hardware interfaces of the past and even incorporated Intel processors as the rest of the PC industry. However, these actions described only one part of the story because in reality the firm did not abandon its close strategy philosophy but merely repositioned it in other areas. As Chesbrough (2003) states, Apple became more vertically integrated and less open in its innovation strategies [4]. 2.2 Apples recent key strategies As previously mentioned, Apple's re-emergence as a market leader can be highly credited to Steves Jobs second turn as a CEO in 1997, whose initiatives and actions revived the firm. His strategies involved different areas and can be divided to the ones brought from the past with no significant changes and the true revolutionary ones that turned Apple into the worlds biggest technology company by market value. As a whole these strategies allowed Apple to establish a huge reputation in both the computer and consumer electronics markets and the following paragraphs explain why. 2.2.1 Strategies reinvented from the past

Apple borrowed the elements of fashionable innovative design, user friendly interfaces and clever marketing from its early years to continue its differentiation from its competitors. For instance, regarding fashionable, innovative design and just as with the Apple II personal computer, the Mac Book embraced the companys idea of insanely great products. It was thus built as a single piece, aluminum enclosure that not only made it attractive but it also gave a feel of durability capturing the consumers by their senses. At the same time this one piece aluminum frame acted as a heat-sink, proving the companys unique ability to combine performance, innovation and attractive designs. Focusing on other elements such as user friendliness and practical interfaces, the iPods click wheel or the iPhones touch screen further revealed Apples vision to

built true consumer products, designed to be different and to satisfy. This unique consumer approach also explains Apples reputation for a large loyal customer base. Finally and with regards to clever marketing, Apple always had a unique way of catching media interest through leaked rumors, pre/publicity games and major product launch events. The company also added value through celebrity influence. Many others, (Microsoft) later attempted to imitate its moves desperately trying to follow while Apple was setting the trend. In this way the firm managed to create the desired media hype effect around its products and to serve well its purpose. This purpose was no other than keeping both first time and already loyal customers into a continuous state of anticipation to purchase completely new or new versions of the existing products. Although the previously mentioned strategies continued to be successful as in the past, they were in fact inadequate to face by themselves the challenges of the current dynamic telecoms market. This was particularly true since the observed changes have been more dramatic than ever before and competition was fierce. As a result there was a need to add new innovative strategies that would and actually made the difference as described in the following subsection 2.2.2 Strategies that made the difference

One of the first noticeable actions taken was to become application independent. For this, certain own software components (web browser, e-mail program, contact manager and music player) were selectively incorporated in the OS, while at the same time others were developed and provided separately to account for other needs, (page layout, presentations, photo layout, music and movie editing). Another major step worth mentioning concerned the distribution channel and the creation of the firms first online stores. The aim was to shift product distribution away from dealers and by 2006, 16.7% of the companys sales took place through its owned stores (Apple, 2006). However, perhaps Apples greatest strength lies in a truly revolutionary strategic planning that manages to answer the question of Bradford and Duncan, "How can we beat or avoid competition?" [5]. When entering a market, the company initially studies the consumer response to a product combined with its competitors mistakes and succeeds where they have failed. For this purpose, it waits for the appropriate time, (to get it right in the first time) and designs its products to complement one another, in order to create a complete solution. In a sense there is an interconnection of the companys business models across its products (iPod, iPhone & iPad). Each business model and the product it is applied to, serve as the base where a new business model and a new product will be placed, carrying also the satisfied customers from one to another. The customers follow not only because of the various switching costs involved, but also because of the gained trust in reliability, the satisfaction in quality and the unmatched ease of use offered. A truly satisfied customer gained once will first look at the same firm for a new product to satisfy new needs rather than taking a risk with another company. This complete and well thought product ecosystem was the main reason that Apple achieved market dominance in many of its products. In fact it was this philosophy of complete proposed solutions that led to one of the companys greatest moves and an industry model innovation at the same time. By selecting a vertically integrated strategy in the digital content business sector, Apple combined hardware with software to provide digital content from its online store, straight to its loyal customers through their mobile devices, (iPod, iPhone). As early as the firm wisely understood that one of the determining factors for success would be the availability of digital content and applications, it designed the iTunes store in accordance to the characteristics of digital goods and the Web, (a more detailed analysis on the 3rd section). Furthermore, to ensure a successful entry into the online digital content business, the company took several key strategic decisions that are presented in the following paragraphs. As previously mentioned, it was decided to work with a solution of a complete and secure functional end to end system to combine the mobile devices with the iTunes store.

This was a strategy initially not followed by other manufacturers, who strongly believed in only one part of the system, either the store or the device, and not their combination. Such a decision, deprived companies that did not embrace this idea, from coordinating their interaction as closely as Apple could. In addition, Apple further enjoyed the benefits of the overall system capabilities in situations where one part covers the weaknesses of the other and their combination benefits them both, (Power of the union). For example, even if Apples devices had their weak areas, were higher priced or lacked the features of the competition, the overall system capabilities allowed them to stand out as the best choice. Another important decision was to make the system flexible and functional in all operating systems. By doing so, the system won praise for elegance and ease of use and that further contributed to its widespread adoption. Returning to Apples closed product strategy, the firm decided to employ a proprietary encryption system to encode its digital content downloads. In that way, any content purchased from its stores could only be used on its devices and nowhere else. This decision offered a twofold advantage for the company. From one point of view, Apple managed to reduce the negative effects of the web and digital goods regarding digital products and illegal copies. On the other hand this also created the desired switching costs and helped to protect Apples market share lead. The combined costs, whether economic, psychological or effort and time-based, discouraged customers from switching to a competitor's product, brand or services. In a surprisingly clever way, Apple also managed to use the negative effects that the web and digital goods bring to digital content providers and turned this into her own benefit. Big music labels and other digital content providers, generally suffer from the fact that the nonrival, infinitely expansible and aspatial characteristics of their digital content goods promote illegal copies and piracy through the Web. That of course results in reduced sales and great losses for them. As a result even Apples proposition of low retail prices was good news to the digital content industry, which has been buffeted by flagging sales. Apple however took this a step further by encouraging them to become signed iTunes content providers, with the benefits of reaching millions of customers and the advantages of its marketing programs. For instance iTunes 360 is a marketing and advertising program cofunded by iTunes and content providers to promote music, movies, and TV shows in a way that maximizes sales and leverages advertising budget. In this way the firm managed to obtain complete content catalogs and to attract all major and many independent providers of content in both the US and EU. The end result was that Apple had managed to avoid a digital content risk area that holds back any new entertainment media. On April 3 2008, the iTunes Store became the number one music retailer in the US based on the amount of music sold [6]. On the same year, the company also launched the App Store, which gave users the ability to browse and purchase applications for all its mobile products (iPod, iPhone & iPad). Nine months after its launch, one billion applications had been downloaded from the App Store [7]. However, both stores are targeted on an indirect way on profit and their existence is justified on an attempt to drive the sales of the more profitable consumer electronic products. Apple uses its innovative design and obtained market share to sell its mobile devices at huge profits. Then it provides the content for these devices at low prices, counting on high volumes to carry them. Thus the stores complement the i-product family and set them as the best available choice. This in fact resembles a new, reversed razor blade business model. As soon as the firm realized that the iTunes store would have to compete with strong players such as Amazon, Walmart and others, it decided not to successfully imitate their business models but to differentiate from the competition by introducing its own model. This same philosophy of being different enough to be successful was also followed by the company when it decided to enter the complex environment created by the convergence of mobile telephony, mobile Web and the data communications market.

2.3 In search of the dominant converged mobile device The appeal of convergence to the mobile phone device was grounded in the fact that since its creation, it was always carried in our everyday lives. Thus as people were becoming more reliant to communicate, get connected and to access information anytime, anywhere, the mobile phone suited more and more this description. As of 2006, markets began to show signs of maturity for the primary mobile services of the past. The restructuring of the telecommunications industry have changed the competitive landscape and competition has intensified. At this point the only hope for a continuation of growth existed in new innovative services that would satisfy among others, information and entertainment needs. The handset vendors thus faced a challenge of providing feature-rich mobile phones, evolved into integrated communication, entertainment and work devices. The reason was that in such mature markets, innovation competencies allow a company to get a competitive edge in a new feature and therefore to gain a substantial margin and share advantage. The early converged mobile phones brought a series of failures and were no true marketplace successes. Problems were related to an incomplete understanding of the product category by both the producers and users. In addition the devices themselves were also limited by the available hardware, (LCD screens, computing-capable microprocessors, and the batteries that power-hungry components required) [3]. As before Apple waited patiently for an opening to appear in this market and for the right time to launch such a product. The right time related highly on the available technology, the critical customer mass, (its loyal iPod customers) and the mobile Web. The company also waited for the competitors to fail so as to learn from their mistakes and to provide what they were unable to. Although it lacked the experience in this particular market, Apple relied on its unique, core competencies developed through the years and its remarkable ability to adopt to such dynamic environments. When it identified the time as being right, it found the dominant converged device that everyone was struggling to discover in the product of the iPhone. The following section analyses Apples business model choice for the iPhone and attempts to connect the dots on explaining how the firm managed to produce the right product at the right time.

3 The iPhone Business Model/s

3.1 The right time to get it right in the first time The introduction of convergence through the ever more capable mobile devices, offered to both the operators and the handset vendors new ways of pursuing customer control. In a sense it altered the previous balances of this market and changed the role of the operators who dominated entirely their market and were the only direct channel to the end customers. Until that moment, handset manufacturers suffered from the bargaining power of their main distributors (network operators) and the requirement to introduce new technology to align to their distributors business models [3]. This balance disruption however also gave opportunities to new competitors to enter the handset business with their own propositions of devices and business models. That is when Apple launched its iPhone and challenged the stable oligopoly of the market share leaders. Unlike the long established handset manufacturers (Nokia, Ericsson and Motorola), or the previous unsuccessful challengers, (Samsung, Matsushita and LG) this new entrant had no manufacturing and lacked the telecommunications experience. Nevertheless the company showed a better understanding of the complex environment created by the convergence of mobile telephony, the Web and data communications and ignited the smartphone revolution with its iPhone. With a different perspective and set of skills, the firm managed to redefine the mobile-phone experience and the following subsections explain how.

3.1.1

Strategies reinvented from the past

Apples revolutionary strategic planning when entering a market, was followed also in the case of the iPhone. The company was continuously observing the consumers response against the smartphone proposals of its competitors and managed to identify and solve the myriad issues that restrained these products from being successful. Most of the smartphones of that time offered limited, similar capabilities, and thus none captured the heart of the mainstream consumer like the iPhone did. One of the reasons behind this was that none of the mobile devices was designed with Apples philosophy of true consumer products. In addition, none of the firms managed or were willing to solve the frustrations faced by hundreds of millions of phone users. The problems among others involved complex menus, poor user software interfaces, and the inability to access information and content. It was thus obvious that there was an incomplete understanding of this product category by both the producers and the users. With its iPhone the firm demonstrated an explicit consciousness of what the smartphone experience should be, and offered a converged device which took away the frustrations and equally provided voice, entertainment and the mobile Web. 3.1.1.1 Design, Innovation & Marketing Each user wants to be considered as a distinct, valued customer who demands special treatment for his or her exclusive needs. Thus in an attempt to follow its successful philosophy of true consumer products, Apple reused its elements of the past also in the case of the iPhone and differentiated from the start with its design. Keeping in mind the principal aim to penetrate the mass market and to have a strong impact on peoples lifestyles, the firm acknowledged the customers demand in elegant innovative designs and that is what it delivered. The high quality finish of the device, captured consumers by their senses and the extraordinary aesthetics designated the iPhone as an icon for self-expression. This fact brought Apple a step closer to its objectives especially with the firm being viewed as a style leader in smartphones. The companys design confidence with hardware captured consumers imagination, but it was innovation and clever solutions that were difficult for competitors to emulate. Therefore in order for the company to differentiate even further, it borrowed the element of innovation from the past and applied it in many forms with the iPhone. For instance, to satisfy the requirement of an appropriate screen for the purposes of integrated entertainment, the dialing keypad was replaced by a large multi-touch display and innovative software. iPhone was the first phone to bring such an effective touch control and supported various advanced gestures (pinch to zoom, two-finger tap, etch). This is a characteristic example where the company solves hardware problems with software and reveals another great skill. Apples unique way of pushing design differentiation via software, hardware and their intersection is proved as yet another critical competitive advantage. However, the key element in unlocking this hardware power via effective software design was the firms skilled employs. This was the reason that the company always ensured to lure talented software developers via its casual working environment, reputation for fostering individuality and excellence [8]. The remarkable ability of the company to combine performance, innovation and attractive designs redefined the concept of smartphones but was not enough alone to attract the so far disappointed and mistrustful customers of the smartphone market. Luckily the company had an answer for this problem too that also originated from its successful early years. Apples intriguing and clever communication through leaked rumors, pre/publicity games and major product launch events, always managed to entice the customers, in a very unique way.

A pre-announcement, more than a year before entry into the competitive European and Asian markets, resulted into a media hype effect around the iPhone that boosted sales and enhanced the brand value too. Apples new iPhone was the years most publicized new mobile device and in less than two months the term iPhone appeared in more than 60 million pages on the Web. 3.1.1.2 Mainstream strategies Another well chosen strategy that also worked in the past, involved outsourcing manufacturing with the obvious benefits of reduced costs. Although the iPhone was designed by Apple, it was however assembled from third-party components by Chinese contract manufacturers. In a similar way as with the iPod, once sales began skyrocketing, the company worked with makers of portable speakers, cases, and all sorts of other add-on gadgets for the iPhone, to generate more profit. An industry of iPhone accessories continues to blossom until today. 3.1.2 The right Strategies

Although the so far mentioned strategies were equally successful as in the past, Apple had to also consider new factors, strongly related with the smartphone market. Their presence altered the environment itself to one which was more complex in nature and more dynamic than ever before. Factors such as the challenging market of the converged devices, the characteristics of digital goods (content) and the Web interesting effects, requested other measures and a different approach. To face this, Apple had to alter some of its core competencies and at the same time it systematically developed new ones as also presented in the following subsections. 3.1.2.1 The Open/Closed strategy Individual firms face a well known dilemma associated with the required tradeoff in the selected level of openness that their strategies need to introduce. Considering the two extremes when following a strategy, value is either not captured or not created at all when following a strategy of complete openness or a strictly closed one respectively. It therefore seems that an optimal profit can be approached through a combination of trial and error, of closed and open approaches always depending of course from the situation and the circumstances. Apples strategy for the iPhone was always characterized as being rather closed although the firm often altered it depending on the applied area and the conditions each time. As far as the first iPhone model is concerned, Apples initial decision was to lock the device to a single carrier. This tactic was followed by many US cell phone carriers of the past to lock their handsets to a specific network in order to recover the handset subsidy through subsequent monthly service revenues. However, after a year, the company decided to drop its monthly revenue sharing business model in favor of a more conventional operator-subsidized sale of the handset in the US and elsewhere. Another major criticism concerning Apples phone was that it initially banned any user-installable software. This closed application strategy that locked (or at least restricted) the addition of third party software was followed to avoid the need of a third-party software developer ecosystem, (Symbian, Microsoft and Palm). However, later on with the introduction of the App store and a new SDK, the firm changed its policy towards previously banned applications and in fact allowed almost all popular ones to be distributed through its store. The firms use of an own proprietary encryption system that locked the value of its stores downloaded content only to its devices followed the same strategy as with the iPod before, (later imitated by Microsoft). This decision was taken to overcome the negative effects of the Web and the digital goods in relation to illegal copies. In addition this approach also created the desired switching costs and helped to protect Apples market share lead.

Overall, the companys end to end system approach of the iPhone involved the exclusion of many actors from its ecosystem, so as for the company to regain direct access to consumers and the overall control. This allowed for the firm to manage almost everything, from hardware, to software, the actual content, (music, video, etch) and the distribution. The main conclusion is that Apple was more vertically integrated and less open in its innovation strategies [4]. That however did not mean that the company was not flexible in its decisions. 3.1.2.2 The Content & the Stores significance In aligning with the emerging digital content market, Apples vision for the iPhone, among other things was that of a gateway for multimedia content. To accomplish that, and to offer true entertainment content on its mobile device, the company relied on its proven, working solutions of the past. Considering its philosophy of complete systems and products that complement one another, the firm decided to follow this path also this time. Therefore the decision was to initially integrate its best selling iPod functionality into its iPhone and in turn to fully integrate the iPhone into its market leading iTunes store. As a result, the iPod and its business model served as the base where the iPhone and a new business model were placed, carrying also a significant number of satisfied customers from one to another. This fact, revealed a small part of the iPhones hybrid business model and more specifically that one of the Digital Merchant (Bit vendor) model. Although indirectly connected to the iPhone, the models role was purely assistive with the handset sales, just as before in the case of the iPod. The firm already knew the significance of digital content on device sales from the phenomenal iPod era and was certain that it would boost the iPhone sales too. Returning to Apples loyal customers, carried between products and just as expected, many iPod owners chose the same firm to satisfy their additional smartphone needs. This can be explained if one takes into account their gained trust in reliability, their satisfaction in quality and the unmatched ease of use that they experienced with the iPod and the iTunes environment. As far as the content strategy is concerned, Apple followed the same vertically integrated one of the digital music business sector. However, to further ensure the iPhones success and to stay ahead of the competition the company also enriched its iTunes store with more content types and introduced the App store to claim other uncovered content areas. Although there were others before Apple that launched online application stores, none managed to create such a functional and user-friendly interface and furthermore none had the millions of customers already familiar with its functionality, (from the iTunes store). That led to an advantage over other phone manufacturers and related in Apples unique philosophy of complete solutions. What really differentiated Apples stores, was their unique environment that allowed even people that used mobile phones for basic services, to download content with a few clicks on their iPhone. Apple thus avoided complicated user interfaces, incomplete content catalogs and high up-front costs. Instead it offered a P2P resembling service environment with la carte, ("from the menu") content, (from most major content providers), advanced searching, one-click purchasing, and no subscription fees. Content was actually offered on low prices but in big numbers (micro billing). This kept the consumers focused on short-term costs and preserved the impulse based purchase phenomenon. Although major providers often pressured Apple to raise its prices for popular content, the company denied such a request and characterized this price discrimination as a thing of the past, or of the offline world. However, as previously mentioned the stores initial purpose was not profit but to assist and to drive handset sales. This revealed Apples ingenious reversed razor blade model in which Apple sells the iPhone as profitable razors and the content providers sell the digital content as the cheap blades.

The end result was that the iTunes and App stores turned into the most favored content aggregators in which the consumers see a central online point for all their digital mobile content needs. This in a surprise surpassed also Googles search technology which currently is not the primary way of discovering new products and services on a mobile device. Instead Apples stores are. As far as the issues of content are concerned, Apple took well into account the characteristics of digital goods and the Web implications on them. In a surprisingly clever way, the company took advantage of the negative effects that the Web and digital goods bring and turned this into its own advantage. The nonrival, infinitely expansible and aspatial nature of digital content, encourages illegal copies and piracy through the Web. Since this further leads in great losses for the content providers, Apple used this fact to negotiate for complete content catalogues at low prices. In addition, the company took this one step further with the aid of network effects. Apples own growing customer base was initially used to encourage content providers in becoming signed with its online stores. Then the firm presented benefits such as access to millions of customers and to marketing and advertising programs, (iTunes 360) that promote content, maximize sales and leverage advertising budget. In the end, this strategy brought more content providers and more content on Apples online stores. This in turn attracted more customers, resulting in a positive feedback virtuous circle and more profits. The larger the network size of the iTunes/App store, i-family owners is getting, the greater their will is to buy devices and updated content. Apple sells more devices, and gets more profit and the consumers get more content and services at low prices However, the benefits from network effects and from Apples large customer base did not stop there. Another positive outcome that related to competition was that the network effects, introduced entry barriers for the firms rivals and that furthered secured the companys position in the digital content market. Returning to the effects of the Web and the characteristics of content in relation to illegal copies, Apple employed the same closed product strategy for its online content. The company used its own proprietary encryption system so that any content purchased from its stores could only be used on its devices and the iPhone. This also created the desired switching costs and helped to protect Apples market share lead. To make an overall conclusion, Apples online stores changed the online content landscape and in a way managed to compete with pirate content distributed over P2P networks. The stores benefited both the consumers as well as major and independent content providers. Of course Apple was the one benefited more. The previous paragraphs presented the importance of content in an emerging twosided market that consists of content providers and content seeking users. Apple managed to cover the two end points of this environment, one with its online stores making content available and the other with its converged mobile device. However these two elements would not be functionally connected if they lacked the compatibility with the medium itself and its characteristics. 3.1.2.3 The Mobile Web Significance Mobile Web as a medium has the potential to satisfy the rising requirement for people to communicate and get connected with each other but to also have an appropriate on demand, anytime, anywhere access to information and content. It has emerged as the latest mobile service and is one of the fastest growing segments in the global telecommunications market. Subscribers value the freedom, immediacy, ease-of-use and power of mobility it brings and this drives the current explosive growth. As people are becoming more reliant on accessing the web for their everyday lives and expand its access to the always carried mobile devices, mobile web is becoming the obvious next big thing and a major revenue generator. By considering also the fact that in developed regions and countries, data traffic is mainly carried by fixed networks, Apple was among the first to identify that even if a small part of the traffic moved from this segment to mobile and wireless systems, this would result in a huge traffic growth opportunity and thus profit.

As before the company initially examined the various issues around mobile Web and the weaknesses/strengths of its competitors with this matter. Apple quickly realized that there was an incomplete understanding and inability from its competitors to provide a true mobile Web experience to the subscribers. In addition it did not share its rivals desire to create a new version of internet, specifically suited for the needs of the mobile devices. Instead rather than trying to recreate the internet with the rest, Apple focused on reinventing a truly functional client device for the existing and already mature ecosystem of the wired Web. The concerned issues associated with the client devices of the other firms resulted in frustrations for most of the potential mobile Web users. The problems among others involved a large number of limitations, which varied depending on the device, but the main issue was that of inability to access information and content in an appropriate way. More specifically, mobile Web access suffered from interoperability and usability problems. As far as interoperability was concerned, issues stemmed from the platform fragmentation of mobile devices, mobile operating systems, and the browsers. On the other hand, usability problems were centered around the small physical size of the mobile device. The company managed to knock down the primary barriers associated with the mobile Web with its iPhone and its innovative solutions through software skills. For instance, to satisfy the requirement of an appropriate screen for the purposes of full-featured Web sites, the dialing keypad was replaced by a large multi-touch display and innovative software. In addition, Apple incorporated its own Safari Web browser, based on its personal computer standards rather than rewriting a mobile version. In combination with an enhanced touch driven interface with advanced panning and zooming, it made it easier to manage web browsing on a small screen and the whole navigation process was playful, intuitive and simple. This was another example where the company solved hardware and other problems with software and in this particular case, Apple built a device capable of handling the already mature Web and its full-featured Web sites. In a way, the iPhone changed the kinds of web activities that so far seemed inappropriate for mobile devices, into appropriate. iPhone users quickly showed an interest in web browsing disproportionate to any other mobile phone in the US or Europe. Thus by presenting the mobile Web in a way that no one else could at that time, Apple had won the crowd and a leading advantage in the mobile Web and content market. Besides the already mentioned clever ways of utilizing the Web as a medium for content, the company realized that it could use the same medium to also reach new markets. Through mobile devices, the Web could reach much wider audiences, and in places previously unthinkable. These places usually concern developing countries where it is highly more probable for the majority of people to have economic access to a basic mobile phone rather than access to a desktop computer and a fixed line to the Web. As a result these emerging, developing markets are likely source of growth for web-capable mobile devices and the mobile Web. This huge promise for profits becomes obvious also from the fact that consumers of these areas are also becoming more and more connected and eager to consume digital content. As a result Apple thought that an easy way for them to access the Web and this content would be a reasonable priced, web capable mobile phone and why not an iPhone. This was also proved from the recent news, (June 2010) that reported that Apple is planning on releasing a low cost iPhone device. The company figured through a survey that the greatest barrier for iPhone adoption in the emerging markets like India and China is the ownership cost and the service plan cost of the phone. Thus the company is focused to work on reducing the cost of production of Apple iPhone, so as to boost it sales much further. 3.1.2.4 iPhone & Social Networking Another important point of consideration for the company is as [9] states the social networking phenomenon that dramatically changed the way people behave and consequently, offered new challenges and opportunities to the global media and

advertising industry alike. The increasing popularity of social networks has resulted in an increasing demand to access them also on the move. Mobile is a natural fit for social networks as consumers are already used to connect with friends via mobile calls and text. In addition using the phone to access social networks doesnt require much change in consumer mindset [9]. In particular, social networking technology in the mobile area is drawing interest as services such as MySpace and Facebook are becoming more popular and various technologies related to social book marking and social networking are being developed. The feasibility of mobile social networking can be considered to be high because of the characteristics of the mobile device as the personal terminal for holding important personal information and as a tool for communicating with others [10]. Social networking includes blogs, instant messaging (IM), texts, email, and online networking sites such as Facebook, LinkedIn and MySpace. Apple well covers this area with a huge number of iPhone supported applications through its iTunes store. However, the firm is thinking of distributing its own developed communications based social networking application known as the iGroups. The fact that the firm developed it itself, reveals that it views social networking as of great importance. This new service for the iPhone aims to allow groups of users that roam in the same geographic location to form a private network, which may or may not use another network to access the Internet. The proposed intergroup connection can vary between 3G, Wi-Fi, or even Bluetooth and a cryptographically-encrypted key generation system ensures security and privacy. With such conditions, the members of such networks, (friends, or colleagues) attending events could stay in communication with each other as a group and share information or reactions to live events as these take place. An additional, important requirement for the device itself would be a group location identifying capability to inform members of the group about their relative locations with an immediate and easy way. This decision for such a capability with the iPhone comes from the fact that social networks are about being social and around other people. Thus, there is a need for the mobile device to promote social gatherings through GPS, cell phone triangulation or other ways. The objective is for the members of the group to be able to share their presence, location or even heading course, to facilitate meetings. Apples iGroups proposal includes two options, a business, (conference, trade show or meeting) and an event oriented one. Apples system also allows for a Wi-Fi or other location determining mechanism and eliminates the need for GPS signal. By offering a social network to the iPhone users Apple pursues differentiation and hopes that the exclusivity factor will draw enough iPhone users to kick start the service and create a critical mass. After this critical mass is formed its the turn of the network effects to join in and except from increasing the value of the iPhonecentric network itself, to also raise barriers to other competitors. Today Apples explicit strategy for adding value with social networks is supported by iPhone 4, which provides interactivity among smart crowds. This allows content self-organization via metainformation and feedback from tracking of the consumers interactions with content and communications. Apples iPhone 4.0, as announced will also run applications created with Web 2.0 standards. This allows developers to create Web 2.0 applications which can seamlessly access the device services, including phone calls, emails and displaying a location in Google Maps, (location based tagging). Third-party applications using Web 2.0 standards can also extend the iPhones capabilities and enhance community networking, user generated content abilities and other services. Any Web 2.0 program that works with Safari browser will also work on the iPhone. That means that popular sites as MySpace, or Amazon.com will be able to adapt their services to take advantage of the device without compromising the iPhones security or reliability.

3.1.2.5 iPhone 4.0 & the Advertising model The mobile web is also effective as a platform to reach consumers. A recent study by the Online Publishers Association reports that about one-in-ten mobile web users said they have made a purchase based on a mobile web ad, while 23% said they have visited a web site, 13% said they have requested more information about a product or service and 11% said they have gone to a store to check out a product [11]. The main reason why wired Internet, the Web, and Web 2.0 companies grew rapidly was the advertising-based business model rather than the subscriber-centered income model. Online advertising enabled the creation of a profitable online advertising market and Internet industry through keyword-based commercials showing information based on the user query linked to the search [10]. A similar if not greater potential was foreseen by Apple in the latest mobile environment with the obvious benefit of revenues from consumers, business users and advertisers. While others such as Google, Yahoo, and Microsoft were actively conducting studies on technology for linking mobile link and advertising, Apple already predicted that mobile phone advertising was to become a major medium, in a similar way to Internet advertising [10]. Thus, the company introduced a new mobile advertising platform that combined the emotion of TV ads with the interactivity of web ads. With its iAd functionality, mobile ads run as video and interactive ad content in a way that they dont navigate users away from their current application. Instead, content can be accessed from a portion of the screen at the bottom of the application. Keeping in mind that mobile phones are one of the most efficient and accessible devices for reaching the worlds masses, Apple did not lose any time and created its own advertising platform to sell and serve the ads. Its iPhone new OS was designed to allow developers and corporate marketers to easily embed iAd commercials within the iPhone applications and the ads can even be dynamically and wirelessly delivered to the device. Although not certain as to how much the users will embrace this new functionality, developers, corporations in reach of potential customers and marketing firms will definitely do. Apple will sell and host the ads, and in return offer the developers 60% of the revenue. However, there are other benefits hidden in this strategic move. First of all, the iAd platform gives Apple a workaround with Flash. Since none of Apples mobile devices support flash which the dynamic ads advertisers are used to, all of the interactivity can now be done through HTML5. Secondly, the biggest advantage with iAd and its in-app ads is that the ad can specifically relate to whatever content is being served up at that moment. In this way Apple is advising marketers that the best way to reach mobile users is through iPhone applications, rather than the Web. This is answer back at Google's attempt to outdo Apple's iPhone with its Android software and the consequences might be more severe since the strike is focused on Googles online advertising. Google is more focused on ads delivered in the browser on mobile Web pages and not in the applications. Apple argued that the in app environment could be more effective for ads because an average iPhone owner spends a significant amount of time on applications. With this important decision, Apple added the advertising business model to its overall hybrid one to capture new market opportunities and to defend from its opponents. 3.1.2.6 iPhone 4.0 & the Affiliate model Another part of the iPhones hybrid business model is that of the Affiliate model. Apple took advantage of the positive effects of the Web and in this case its appropriate environment to launch an Affiliate model based strategy.

The affiliate model provides purchase opportunities irrespective of the customers web location. This becomes possible through financial incentives, (percentages) offered to the affiliated partner sites that point to the site of purchase. The whole system is based on click-through activities towards the merchant and that is why the model works well with the Web. Although indirectly connected to the iPhone, the models role in this case is purely assistive with the handset sales. The way that it manages to do so, is by encouraging users to visit the Apples online stores for purchases. These purchases then translate to an increase of the network size of the iTunes/App store, i-family owners. That is the point where the network effects join in and except from increasing the value of the iPhone-centric network itself, they also raise barriers to other competitors. The larger the i-family network is getting, the greater the will of the customers is to buy devices and new content. With the Affiliate model, Apple sells more content and devices, and in return its affiliates are eligible for a 5 percent commission on any iTunes sales made to a user for 72 hours after that user follows an affiliate link. A recent example is the third party application of Podcast Push. Podcast Push alerts users via push notifications on their iPhones when new episodes of the podcasts they subscribe to, have been published to the iTunes store. The push notifications connect users to the specific podcast page in the iTunes store on the iPhone using an affiliate link. This process can also be automated so that new files are downloaded automatically. The iTunes affiliates then are reportedly eligible for their 5 percent commission on any iTunes sales made to a user. If people regularly use the Podcast Push notifications, to access their shows, that could create a steady revenue stream for the affiliates but also great benefits for Apple too.

4 Discussion
Apple succeeded, and raised itself and its overall ecosystem above the industry giants now battling to "own" the digital consumer. Considering the telephone and cable companies, these try to take advantage of their control on the customers access to video, data, and voice content. On the other hand giants such as Google want to leverage their unique access to information to control all. Apples approach however, is quite different and comes from the device perspective. If the firm manages to control the gateways, (iPhone, iPad) that people use to connect to all other platforms, it will also have control of the market itself. In its entry to the handset market and the online digital content business, Apple relied on its two decade conventional wisdom about the nature of competition in digital markets and built upon its unique competencies. That effectively led to a simpler strategy than that of the competition. To begin with, Apple succeeded with the iPhone, initially because of its philosophy of true consumer products. If the products are the best, the rewards will follow. Then it was the companys truly revolutionary strategic planning when entering a market that made a huge difference. The firm studied the consumer response to smartphones and identified its competitor mistakes. It then provided what its rivals were unable to and differentiated from the rest. Perhaps another one of the firms greatest strengths with the iPhone was its ability to provide a complete solution by designing the handset to be compatible with the Web. This in addition also revealed a unique skill in interconnecting the companys business models across its products (iPod with iPhone). The iPod business model and the iTunes environment, served as a firm base where the iPhone and its hybrid business model were placed. In the process the satisfied customers were also carried between the two to satisfy their new smartphone needs. That also proved the existence of a loyal customer base, which is present only when the customers are satisfied by the firm. This customer base is also valuable when thinking in terms of network effects and critical mass.

That was also something that the company was aware of and that is why its actions often promoted the enhancement of network effects especially when one of their benefits was the creation of high entry barriers for the firms rivals. In addition the company must be credited for its continuously adoptable hybrid business model of the iPhone. In different periods the company adopted its strategies accordingly and depending on the conditions. If we could think that the complex market experiences changes created by the convergence of mobile telephony, mobile Web and the data communications as colors, then Apple might be viewed as a chameleon, always managing to change into the right market color. Currently its iPhone business model is a combination of the Digital Merchant (Bit vendor), the revolutionary inApp advertising, the Affiliate and the reverse razor-andblades models. In addition among others the company uses a micro billing revenue model for its online stores. This keeps the consumers focused on short-term costs and preserves the impulse based purchase phenomenon. Another fact of great importance was that the company had a true understanding of the Web. It was taking decisions always in accordance to the characteristics of the Web and its effects. Apples insight for the mobile Web allowed for the firm to have explicit consciousness of what the smartphone experience should be and offered a converged device which equally provided voice, entertainment and the mobile Web. Today the iPhone forces competitors to reassess, identify and acquire new core competencies if they intend to follow.

References
1.Patrik Krrberg Dr. Jonathan Liebenau.: Mobile Service Delivery Business Models in Europe and Japan: The shift from wherever and whenever to right here and now. http://stuff.carstensorensen.com/mobility/PIMRC07-IEEE-DeliveryBusinessModels.pdf 2.West, Joel.: The Economic Realities of Open Standards: Black, White and Many Shades of Gray, in Shane Greenstein and Victor Stango, eds., Standards and Public Policy, Cambridge: Cambridge University Press, 2006 3.Joel West, *Michael Mace.: Entering a mature industry through innovation: Apples Iphone strategy. Appropriability, Proximity, Routines and Innovation, Copenhagen, CBS, Denmark, June 18 - 20, 2007. http://www2.druid.dk/conferences/viewpaper.php?id=1675&cf=9 4.Chesbrough, Henry.: Open innovation: the new imperative for creating and profiting from technology, Boston, MA: Harvard University Press, 2003 http://books.google.gr/books?id=OeLIH89YiMcC&printsec=frontcover&dq=Open+innovation :+the+new+imperative+for+creating+and+profiting+from+technology&source=bl&ots=RB7 ClMLLcc&sig=fOttfg56iAjcH_q513OSsfS5Hs&hl=el&ei=m9L6S6OrENWmsQaEr_WPBg&sa=X&oi=book_res ult&ct=result&resnum=1&ved=0CAwQ6AEwAA#v=onepage&q=apple&f=false 5.Bradford and Duncan.: Simplified Strategic Planning. (2000), Chandler House. http://en.wikipedia.org/wiki/Strategic_planning 6Apple.com. Apr 3.: iTunes Store Top Music Retailer in the US, (2008). http://www.apple.com/pr/library/2008/04/03itunes.html 7.Apple Inc. Press Release. Apr 24.:Apples Revolutionary App Store Downloads Top One Billion in Just Nine Months, (2009). http://www.apple.com/pr/library/2009/04/24appstore.html 8.Apple Inc. http://en.wikipedia.org/wiki/Apple_Inc. 9.Nielsen.: Global Faces and Networked Places, A Nielsen report on Social Networkings New Global Footprint, March 2009 http://blog.nielsen.com/nielsenwire/wpcontent/uploads/2009/03/nielsen_globalfaces_mar09.pdf 10.Jonghong Jeon, Seungyun Lee.: Technical Trends of Mobile Web 2.0: What Next ? http://www2.research.att.com/~rjana/MobEA2008/final/mobea2008_submission_6-1.pdf 11. Mobile Web http://en.wikipedia.org/wiki/Mobile_Web