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Electronics Manufacturing – M528

iPartner

A look into Apple’s business relationships



Introduction

With every business partnership, comes an element of risk. But how do you mitigate such a risk? Choosing the right partner, and making a worthwhile product helps and it seems Apple have hit the nail on the head. Since the launch of the original iPod, Apple has seen success roll their way in various forms. Sales for Macs, iPods, and now even iPhones are on the rise. But how does Apple achieve such success? A large proportion of this belongs to its various affiliates in the business world, which can contribute to creating new technologies, cheaper components, and a wider audience to produce for. This article looks into 3 of these business relationships, what they do for Apple and why they do it. It will show how Apple needs these affiliates to boost sales, image, and success.

Apple and Nike – Your favourite workout companion

The first of our three companies working with Apple are Nike, the well established shoe and clothing company. Nike and Apple worked together to create what is called ‘NikePlus’ that allows a runner (wearing a specific Nike trainer) read information on his or her workout produced on the screen or through the headphones (of a specific iPod). Apple chief executive Steve Jobs and Nike boss Mark Parker unveiled the new Nike system at an event in New York in May of 2006.

The kit itself (not including trainer or iPod), is somewhat reasonably priced at originally USD$29 (or about £19). The sensor in the shoe (which drives the system) was created and designed by Apple, where the shoe itself was designed by Nike. In fact, that is basically all that was designed by Nike. All in all, this is an Apple product, simply placed within a product created by someone else.

The potential in profit for this though is quite obvious to see, with Nike and Apple both very iconic brands. Steve Jobs, Apple CEO said, "The two companies are both really technology driven, it's just that (we're) in completely different areas of technology”. Greg Joswiak, Apple vice president added, “When you describe the Nike brand, some of the same things you would use also describe the Apple brand”.

This is not a new venture however, but Apple has made it successful. Phillips Technologies had a similar idea but failed to make a lasting impression. Using Nike, (and clever marketing) Apple have made the product work. In mid-September of 2006, Apple announced sales in excess of 450,000 sport kits. (Marsal, K. 2006). The product had been available for only 2 months.

Apple and BMW – iPod Your BMW

On June 21st, 2004, Apple and BMW Group announced the BMW iPod Adapter, the first seamless integration between iPod and a car audio system. The new system developed by Apple and BMW enables drivers to seamlessly use their iPods in a number of models by simply plugging their iPod into a cable located in the car’s glove compartment. The idea being that the iPod can remain completely hidden but the music can be sourced and controlled via the dashboard or steering console.

Apple originally priced the adapter at US$149, with fitting available through official BMW dealers. They also struck a deal with BMW allowing new cars to have the adapter fitted as an option (at an additional cost, presumably some of which going to Apple, and some to BMW). According to Jim Dalrymple, of MacWorld, “BMW recognizes a shared customer base with Apple: Both companies attract technology-adopting, successful people. It's this synergy that brought them together”. The deal was arranged after BMW recognized that many owners were trying to fit up their iPods simply through the auxiliary jack. Although this offers a flimsy solution, it reduces sound quality and hence the relationship with Apple was arranged.

It’s not hard to justify Apple’s reasoning here either. The concept is very simple: a user has an iPod and wishes to use it in their car. What Apple is doing is simply supplying a solution to a need that is already there. Being Apple, it is cosmetically aesthetically pleasing and possibly somewhat overpriced, but is successful nonetheless. Since the relationship with BMW began, Apple has signed deals with many other automotive companies including Ford, General Motors, Mazda, Volkswagen, Acura, Audi and Honda. In fact, over 70% of 2007 U.S. model autos will have iPod integration (Bachman, K. August, 2006). It is clear to see that from one successful relationship; many others have blossomed, increasing Apple success only further.

Apple and Samsung – A Memorable Deal

In August 2005, Apple struck a deal with the South Korean component giant, Samsung, tying up 40% of their output of NAND flash memory at a discounted market price. (Hasseldahl, A. 2005). This memory was to be used in the then up and coming Apple iPod Nano. Following the previous sales successes of the iPod mini, Samsung were keen to get involved in Apple’s latest project.. Samsung believed they could offer the computer giant a hugely discounted rate on memory modules, meaning Apple couldn't resist but to buy them.. As it turned out, Samsung were right, and sales of the Nano were big. Samsung sold all their memory modules, and forged a an important relationship for the future. Considering a huge amount of Nano's were sold, a large amount of memory modules were necessary, meaning Samsung still made a profit.

Apple, of course, also made money. With the price of the memory being dropped by Samsung, and all the memory coming from only one source, Apple could order in bulk, assemble, and sell. Buying in bulk secured a massive saving, and with the Nano being sold at the same price as it was originally predicted, boosted profit margins significantly. The future of this relationship looked bright for Apple too, with the iPhone just around the corner and the next generation iPod never too far away, could a similar deal be negotiated?

Conclusion

In conclusion, it is clear to say that Apple has benefited from each of these relationaships. That is to say, they can effectively make more money with them than could be made without them. Offering their services to other companies in different fields allows for new products to be made and to be sold. This widens Apple's scope, and also increases their stranglehold on the market. This is such the case with BMW/Apple and Nike/Apple; without these partnerships, the products developed would never have been achieved. In these circumstances, Apple is broadening their horizons, boosting image and creating new and exciting technology. A runner who listens to music would be wise to buy Nike, and Apple purely for the available technololgy alone. Although money is there to be made, reasons beyond this also have a huge part to play.

Not only do these relationships offer imminent success, they can also offer success in the future. This is a prime reason for any company getting into a relationship to start with. Since Samsung supplied Apple with flash memory for the Nano, who is to say they won't supply more memory for future products? The successes already achieved can be repeated if not increased by a sucessful working partenership. This also rings true with NikePlus. Since the development of the sportkit, Nike and Apple now offer new products, such as a wristband that control the iPod functions, without the iPod ever leaving the runners pocket. Potential for future developments is unrestricted. Apple have proved this in the automative industry, securing partnerships with 70% of the U.S. car market.

Of course though, with any business venture, an element of risk is at hand. Although this article proves the success that can be had by forming partnerships it is wise to be wary of the dangers. Pick the wrong partner and things can go badly, but it seems Apple have been smart in their choices. I believe it is crucial to choose an appropriate partner with both companies setting out to achieve an appropriate goal. Apple seem to consistently provide for a customer's need. They do this through partners and affiliates, and it would seem they do it very well.



References

[1] Bachman, K (2006) '07 Cars to be iPod Compatiable. Retrieved May 2007, from http://www.mediaweek.com/mw/news/recent_display.jsp?vnu_content_id=1002950482
[2] Buchko, D (2005) iPod Your BMW. Retrieved May 2007, from http://www.apple.com/pr/library/2004/jun/21bmw.html
[3] Dalrymple, J (2004) BMW execs talk about iPod integration. Retrieved May 2007, from http://www.macworld.com/news/2004/06/22/bmw/
[4] Dalrymple, J (2006) Nike and Apple partner for new products. Retrieved May 2007, from http://www.playlistmag.com/news/2006/05/23/applenike/index.php
[5] Ecker, C (2005) Apple partners with even more automakers. Retrieved May 2007, from http://arstechnica.com/journals/apple.ars/2005/9/7/1159
[6] Egan, M (2006) Nike, Apple launch nano running kit. Retrieved May 2007, from http://www.pcadvisor.co.uk/news/index.cfm?newsid=6577
[7] Hasseldahl, A (2005) A memorable deal for Apple and Samsung. Retrieved May 2007, from http://www.businessweek.com/technology/content/aug2005/tc20050826_8564_tc024.htm
[8] Hasseldahl, A (2006) Apple and Nike, Running Mates. Retrieved May 2007, from http://www.businessweek.com/technology/content/may2006/tc20060523_569911.htm
[9] Kelly, M (2006) Apple and Nike become running partners. Retrieved May 2007, from http://www.enn.ie/frontpage/news-9696937.html
[10] Marsal, K (2006) Apple and Nike to introduce bracelets for iPod. Retrieved May 2007, from http://www.newscloud.com/read/76569/
[11] O'Grady, J (2006) Apple partners with Nike for iPod runners. Retrieved May 2007, from http://blogs.zdnet.com/Apple/?p=203