Ipod Case

Apple chose particular suppliers for various reasons: to let them maintain bargaining power over the supplier, to let them leverage expertise and economies of scale, and maintain ability to focus on their own core competence.

When the iPod was first introduced, the project was set to meet an impossibly short schedule set by top-down by CEO Jobs. To meet the project deadline, head of hardware, Jon Rubinstein had to quickly put together an engineering team that focused on integrating third-party, standardized components into a small package. Historically, Apple typically designed its computers from scratch, using unique chips, disk drives, and monitors, proprietary operating systems, and many specially designed peripherals. The company did not believe in relying on outside vendors for undifferentiated technologies. However, the time constraint set by Jobs forced the iPod project team to experiment with a new engineering approach that delivered the required product features, not just on time, but also at a much lower cost and with virtually no upfront investment in product development – a critical condition for profiting from an inexpensive music-playing device with a much shorter product life cycle and considerably lower profit margins.

By studying competitors' failures, Apple identified what it needed to incorporate into a new DMP design that would dominate and thus maximize consumer willingness to pay. However, to do so it must leverage various components that it did not produce. Apple knew that they could convince others to support the innovation if they proved that the supplier would benefit from their early contribution. While the actual numbers are hard to pinpoint, Apple was (evidently) able to convince multiple suppliers that the iPod had low volatility, was a very certain investment, thus the NPV would continue to increase. The actual designing and software development was done in-house, however. This enabled Apple to maintain a high level of secrecy throughout the process and prevent imitation.

For example, at the time of the iPod's design Toshiba was the only firm manufacturing 1.8" Hard-Drives. Apple sought these in order to increase storage capacity. However, Toshiba was known for low-volume production and they also had low gross-margins. Apple's options were: 1) Negotiate with another producer to manufacture a small hard-drive, which would include the overhead of creating the capacity to produce it in the first place; 2) Manufacture the small hard-drive in-house; or 3) Buy from Toshiba, who already had the capacity to produce the item and also had incentive to work with Apple on such a profitable project. Apple maintained bargaining power over their supplier in this case, who also stood to profit from the deal regardless. The same is believed true for battery manufacturer.

Regarding the memory, Apple chose Samsung because they had a strong reputation for quality and efficiency and thus were the world's leading memory chip producer. Separate,