Apple’s Strategy is to Partner with Leaders

People seem to think Apple is a big, risk-taking company. That is true, but the risks they take are calculated ones. The switch from IBM PowerPC to Intel x86 chips was a big risk at the time — given the possibility of alienating Apple’s customer base. The risks to branch out their product line from the Macintosh to the iPod, iPhone, and AppleTV were big changes. But even though these were game-changers, they still fit within Apple’s core competencies. So, while Apple takes some big risks in some areas it is also conservative in others.

Apple has been fairly conservative in their partnership strategies:

• Apple teamed up with Microsoft the leader in office applications.
• Apple teamed up with Google the leader in search, maps, video.
• Apple teamed up with Intel the biggest chip maker.
• Apple teamed up with Samsung the biggest Flash RAM manufacturer.
• Apple teamed up with AT&T the largest carrier in the U.S.
• Apple teamed up with Yahoo Mail the most popular email web application.

Is there a strategy in this? Aversion to risk. Microsoft, Google, Intel, Samsung, AT&T, and Yahoo Mail are leaders in their respective fields.

Microsoft is the big, sleeping giant. They have been leaders in office applications for several decades. Apple’s partnership with them guarantees higher adoption with the business and educational world.

Google is years ahead of Yahoo in terms of market capitalization, technology, and execution. Google is far away the leader in search, online advertising (their trading floor), maps, and video (YouTube). Their biggest innovation, however, is an amazing infrastructure that provides a barrier to entry for competitors that is almost impossible to overcome. Google’s market capitalization is $210b to Yahoo’s $31b. Google is almost 7x larger! Google is the largest online presence. In fact, Google is bigger than the rest of the Big Web combined!

Intel has been executing extremely well the past year. AMD is getting killed right now. People were practically begging Apple to partner with AMD instead of the Intel empire – as everyone likes an underdog. What do they think now? Intel is able to supply chips with excellent performance and low-power as promised. Intel has enough capacity and price points to meet many market segments and can supply Apple with chips and motherboards for multiple technologies, such as: Macs, iPods, iPhones, AppleTV, etc. AMD is in a world of hurt right now. Intel’s market capitalization is $152b to AMD’s$5b. Intel is 30x larger!

Samsung Electronics is the world’s largest producer of memory chips. There are contenders in the memory market such as Toshiba, Hynix, Intel and STMicroelectronics spinoff , AMD and Fujitsu spinoff Spansion, IBM, Sandisk, and Micron. As memory such as DRAM and Flash are becoming more and more important Apple’s partnership with Samsung has been excellent. Apple has made several billion dollar purchases of memory to ensure good volume pricing, allowing them to fend off competition.

AT&T is the largest telecommunications company in the United States. Apple’s exclusive partnership with AT&T was a brilliant strategy. It allows Apple to get a piece of the lucrative AT&T’s monthly data plan payments as well as for AT&T to get switchers from other carriers. Verizon and T-Mobile are also doing fairly well in the United States, but Apple chose AT&T. Sprint and AllTel are not doing so well. In France, Apple has teamed exclusively with Telecom’s Orange. Who do you think Apple will partner with in Europe? If they follow their existing trend they will partner with the largest carrier in Europe – Vodafone.

Yahoo Mail is the most used online email web application. Although the competition, such as Microsoft Hotmail and Google Gmail, is in pursuit. To be more clear, this partnership is kind of small, as any web browser can access any of the online email web applications.

Now, to be fair, Apple has also teamed with the non-leaders in certain cases, but usually that was because they had already teamed with the leader.

• Apple has teamed up with Facebook, while MySpace is currently the largest social network. However, Apple already has some partnership with MySpace, I believe, for iTunes music and ringtones. This will be an interesting space to watch as Facebook may surpass MySpace in the social network wars.
• Apple teamed up with ATI (owned by AMD) for their graphics processing units (GPUs), though Apple also partners with the largest GPU maker, NVIDIA.
• Apple teamed up with Parallels for their virtual machine technology. Though, Apple has also partnered with the leading virtualization company, VMWare, as well as companies such as Transitives, which is used in Apple Mac OS X for Rosetta emulation.

Apple takes small risks in some areas and huge risks in others. This is an interesting strategy and there is much that we can learn from this. Often, companies bet the farm, which basically means the stars have to align for success or failure. I like how Apple picks and chooses where to take its risks.

People are saying that because Apple has $15b cash in the bank that they have to go out and buy something big. Why? Why introduce massive risk unless there is the opportunity for a massive return. Apple can hang on to their cash war-chest (with interest), continue to stick with low-risk strategies that have guaranteed returns on investment (ROI), and occasionally take a calculated, big-risk when the time is right.