1. Analyzing Apple's Bargaining Power of Buyers (AAPL)
  2. Analyzing Apple's Bargaining Supplier Power (AAPL)
  3. Analyzing Apple's Degree of Rivalry Among Competitors (AAPL)
  4. Analyzing Apple's Threat of New Entrants (AAPL)
  5. Analyzing Apple's Threat of Substitutes (AAPL)

Porter’s Five Forces is a favorite tool for analyzing the profitability of a company and the competitive forces that affect it. The analytical framework looks at the rivalry within an industry as well as the bargaining power of suppliers, the threat of a new entrant drawing significant business away from companies in the consumer technology space, the bargaining power of customers or buyers, and the threat of customers choosing substitute products.

The Five Forces framework is especially useful for larger businesses and those with many facets to their businesses, such as Apple, Inc. (NASDAQ: AAPL). Apple has a hardware component in its iPhones, iPads and computers, but it also has software and services components. It creates its own operating systems and services include data storage, music, movies, books and app sales. Using a framework such as Porter’s Five Forces can help clarify threats. Take a look at how substitutes could affect Apple’s business.

A Return to Analog

One risk Apple faces is people opting for lower technology solutions. For instance, a person may choose to use a flip phone instead of an iPhone. It might sound surprising, but the choice to go analog is becoming increasingly popular. High-profile people such as prominent investor Warren Buffett and Bill de Blasio, mayor of New York City, use flip phones, and so does Anna Winter, the famous Vogue editor, as well as rock star Iggy Pop.

The move can be a financial one, it is an easy way to save money, but it is often practical. Flip phones are practically indestructible, but if you drop an iPhone, you could shatter the screen. Also, there is a greater trend toward a “back-to-basics” lifestyle. An analog phone may help people disconnect from technology in a way that is just easier and more complete than simply stowing away an iPhone.

Older Phones and Computers

In a bid to move away from consumerism, some people are actively bucking the trend toward having the best and most powerful technology and are instead refusing to upgrade until their systems die, whether it is phones, iPads or computers. In this sense, Apple can be its own competitor. Many of its products are high quality and at the forefront of innovation, processing speeds and memory capacity. This means people need to replace them less often. For instance, an Apple MacBook bought in 2015 may have the same specs as an entry-level model five years into the future. Similarly, a person may buy used Apple products instead of the newest models. In many cases, the technology is still adequate for most needs and it costs considerably less than a new model. There is such a focus on having the newest upgrades that older models may be priced lower than their actual values by their build specifications.

New Technologies

There is also a threat of Apple customers substituting newer technologies for Apple products. A good example of this is Google Glass. While the connected spectacles did not really catch on, a similar product that offers many of the same features of a phone or tablet could upset Apple’s profitability if it became fashionable or extremely useful. After all, for as trendy and interconnected as Apple products are, Apple's operating system is still the minority in the personal computing industry. A new, innovative technology could come along and provide a whole new level of connectivity. Apple has its watch, but another type of wearable technology, such as a tablet-type arm cuff, from a competitor could usurp its success.


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