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Apple Inc. not only had to face a number of barriers to entry in the development of the iPhone but they must also worry about potential competitors overcoming them as well.

Although Apple currently has an advantage with its innovative products it must always be aware of the ease that a competitor can copy its products, especially in the extremely competitive field of cellular phones. However those new companies to the market will not only have to compete with the strong brand that Apple Inc. has built but will also have to face barriers more strenuous then what Apple had to face.

1.Economies of Scale

Apple Inc. had an existing experience in manufacturing mass-market consumer electronics devices, many of which share similar components of the iPhone; so Apple Inc. was not negatively affected by this barrier. Since Apple Inc. had the production lines and personnel to make advance electronic products such as, the iPod and their line of computers, it wasn’t difficult to develop a production line capable of mass production of the iPhone. New entrants may not have that comfort as the cell phone market is almost defined by its mass-market environment. A new company entering this market would have one of two choices available: 1) They sell their product at a higher price to make up for the fact they can’t sell the same volume as a company like Apple Inc. and must hope that the consumer sees the higher price as a indicator of better quality. Or 2) They sell their product at a lower price probably occurring a loss per unit in hopes of selling a high volume and banking on sales of applications that can be purchased for the phone. In either situation it is extremely risky as both could lead to the company’s collapse.

Although Apple Inc. has had success with the distribution of its products it does face issues with this barrier due to the limited retailers of the iPhone and the fact that there is currently only one service provider. The iPhone is only available through a limited number of distribution channels those being Apple Inc. and AT&T stores and auction websites, like eBay, and it is only supported by the AT&T network. A future entrant to the market could create an advantage by make their product more available for multiple carriers and multiple retailers.

3. Product Differentiation

In general this trait is favorable for Apple Inc. because the iPhone is significantly different than most of its competitors. First and foremost, the iPhone 3G is a revolutionary phone with a high call quality as its main point of parity. A list of the iPhone’s highlighted features includes the iPod, Internet tool (Wi-Fi, 3G and EDGE network). Apple Inc. also has a certain amount of protection through the strength of its brand identity. The problem with cell phones is product differentiation can be emulated, to a certain extent. Cell phones are pretty uniform in functionality and use and not overly differentiated between each other. However, recently LG with Verizon have just release the Dare, an iPhone like product, in hopes of attacking some of Apple’s market share. Not to mention companies like, Samsung and Nokia, have released designs and plans to develop their own versions of an iPhone.

4. Capital Requirements

Since Apple Inc. had already been successful with their computers and the iPod they had an advantage with having the capital required to start mass production of a new product. Apple Inc. also has experience with developing software and hardware, which gives them another advantage as they do not need to spend as much time and money in the research and development stages as a new phone manufacturer would. So, to most effectively compete with the iPhone they will need to invest significantly in certain areas. Apple Inc. itself did not face much resistance with this barrier because of their experience creating both software and hardware. Companies looking to enter this market with have difficult barriers to overcome in order to compete at the same level as Apple Inc. and unless a company has experience in developing consumer electronics it seems very unlikely that they can experience similar success.

5. Government Policy

Any company looking to enter this market has two governmental factors they must consider before entering the market: 1) the strength of current manufactures patents and 2) the regulatory obligations and approval requirements of the FCC (Apple Insider, 2007), which governs communication technologies in the United States. Apple has gained another advantage by acquiring a patent and FCC approval for the IPhone. This will make it more difficult for competitors to copy the iPhone but we are sure will not stop companies from developing their own versions of this successful product.

6. Threat of Substitutes

Porter’s five-force model validates that all forms of communication devices threaten the mobile phone industry as a whole. The iPhone’s top priority is to provide its customers with a complete solution in the mobile phone industry with added features and benefits. Quoting Steve Jobs “the original iPhone, it combines three products in one — a revolutionary phone, a widescreen iPod, and a breakthrough Internet device with rich HTML email and a desktop-class web browser” (Steve Jobs, 2008). Examples of substitute industries include landlines, pagers, walkie talkies, computers, fax machines, and snail mail.

If the mobile phone industry cannot meet the needs of its customers at a reasonable price, then substitute products play a key threat. Landlines are evolving to be more of a direct competitor to the mobile phone industry, but they still provide its services at a different vantage point. Landlines are non-wireless receivers that are offered at a much lower cost than mobile phones. Computers (notebook and desktop) offer numerous options in the communication sector, which include electronic mail, live chat, and communication software.

Collectively, fax, snail mail, pagers, and walkie talkies make up a small portion of the market share, but still pose a threat for unsatisfied customers in the wireless industry.

The capacity of the PC market is constantly increasing because of the introduction of new products. Companies are constantly introducing new PCs that are more powerful than the ones already on the market. There were no new entrants worth mentioning, in other words, no new companies have entered the market and got a hold of a significant market share in 2001.

One ‘New Entrant’ worth mentioning is a new product from Microsoft, namely Windows XP. Although this product has not been released during the life of the Apple G4 Cube, it has been announced. Customers could decide not to purchase a Mac, but wait for Windows XP instead.

7. Threat of Buyers

The buyers market consists of a large amount of individuals or corporations that own one or multiple cell phones. Due to the large market, the lost of a buyer is not a key threat. When a buyer is purchasing a new cell phone, the process at times is overwhelming due to the wide variety of differentiated products. Buyers play an important role in the strategic pricing for a new cell phone because they have no obligations in purchasing a cell phone from a single supplier. Buyer’s spending habits will change accordingly with the economy’s position. For example, if economic profits are high then buyers are willing to spend versus saving their disposable income. Mobile phones have become integrated as a point of parity in the American lifestyle, and economic profits will determine the price a buyer is willing to pay for a cell phone.

8. Threat of Rivalry

The number of competing firms within the mobile phone industry is increasing, while a few firms make up the majority of the market share. Provided by CNET is a list of suppliers that operate within the same industry as Apple’s iPhone, and a count of their product offerings.

Direct competition includes all mobile phones that can be subcategorized as a basic, smart, camera, mp3, or videophone. The industries large selection of mobile phone manufacturers creates a strong threat of rivalry. The iPhone has made its debut as a smart phone targeting the higher-income demographic, but this does not eliminate the fact that all subcategories of cell phones contribute to the strengthening threat of rivalry. According to CNET Senior Editor Kent German (2008), the editor’s top cell phones include the LG Dare, RIM BlackBerry Curve 8320, Nokia N95, Samsung Instinct, Sony Ericsson W760i, and the newest edition of direct competition comes from Google introducing the T-Mobile G1.

9. Threat of Suppliers