After allegedly losing money for the last 11 seasons the NBA decided to alter its business model. This led to a 149-day lockout that claimed the first 7 weeks of the regular season and cost the NBA an estimated $480 million.

As with most labor disputes the issue at hand was money. The players wanted their “fair” share but the league argued that they could not continue operating under the current agreement which was causing them to lose over $300 million a year.

NBA Loses $340 Million Last Year

In an emailed statement to the New York Times, NBA spokesman Tim Frank stated:

The league lost money every year of the just expiring CBA. During these years, the league has never had positive Net Income, EBITDA or Operating Income.

The Knicks’, Bulls’ and Lakers’ combined net income for 2009-10 does not cover the losses of the 23 unprofitable teams. Our net loss for that year, including the gains from the seven profitable teams, was -$340 million.

Before the lockout the terms of the collective bargaining agreement (CBA) gave 57% of basketball-related income to the players. Under the new CBA this was lowered to 51% in order to provide more revenue to the league and close that $340 million gap.

The Dust Settles, Problems Remain

But as the dust begins to settle the question remains: did this change in the NBA’s business model really solve the problem?

Before we answer that question let’s take a step back and look at the numbers. The NBA generates an annual revenue of $3.8 billion (to put this in perspective the NBA is a bigger business than JetBlue Airways). And how do they “rank” in the industry of professional sports entertainment?

Well the NFL generates approximately $8.5 billion annually and Major League Baseball makes about $7 billion in annual earnings. So the NBA is in a distant third place, trailing the NFL by a $4.7 billion. So why is the NFL twice as successful as the NBA? Could it be that the NFL has a better business model than the NBA?

NFL vs. NBA

As we compare the NFL to the NBA let’s remember that a fundamental rule for any successful business model is to have quality customers (in this case, the customers are called fans). The business these companies are in is the sports entertainment business and sports are fueled by competition. Where am I going with this? I’ll show you.

The NBA has always been top-heavy. Out of the 65 NBA championships, 33 of them were won by just two teams, the Lakers and Celtics. And as Howard Beck of the New York Times recently pointed out:

“If Paul winds up with the Knicks and Howard lands with the Nets, 15 of the league's top 25 players would be spread among just six teams. In a league where superstars rule, that is depressing news for the other 24 franchises. Superteams may boost ratings in May and June, but they do nothing to help ticket sales for a Detroit-Charlotte game in January."

Did you catch that? Since there are only 6 superteams in the NBA the rest of the league suffers in ticket sales. As Beck said, this may boost ratings during the playoffs but it hurts ticket sales for the other 24 teams during the regular season.

Hard Salary Cap vs. Soft Salary Cap

But what can be done about this business model blunder? Again, let’s look at the NFL who seems to be doing a much better job than the NBA. One main difference has to do with the hard salary cap the NFL imposes which helps minimize superteams from forming.

This is why in the last 30 years, 14 NFL teams have won championships — the last five by five different teams. The competitive element is fostered by the NFL by providing opportunity to almost any team (despite the size of their franchise) to win the Super Bowl.

Even under the new CBA, the NBA still maintains a soft salary cap which does little to prevent these superteams from continuing as they always have. During the labor dispute the NBA commissioner David Stern stressed that the system needed to be changed to balance the playing field and give small-market teams the same chance as large-market teams to compete for a championship.

So the system (aka business model) was changed but not according to Stern’s statement. Fans lost 7 weeks of play, the NBA lost revenue and the salary cap is still soft. What really changed?

Like this post?  Join our discussion group on LinkedIn http://www.linkedin.com/groups?about=&gid=4171511

This summer, Blockbuster was full of glee. Titled “Blockbuster Rescues Furious Netflix Customers,” a press release in July promised to give Netflix customers an oasis after their upstart competitor blundered with its failed Qwikster service. The company launched a promotion to lure customers aware from Netflix and back to the once ubiquitous national movie rental chain, which had made a somewhat successful transition from brick-and-mortar to online and mail distribution off the heels of Netflix's explosively popular service.

The promotion was ambitious, offering Netflix customers a 30-day free trial of Blockbuster's Total Access plan, which which Blockbuster touted as a flexible approach to movie rentals that combines receiving movies by mail and through retail stores, although the company has closed hundreds of stories in the past couple of years.

Partly because of its dwindling retail presence, the company's lure to Netflix customers was largely unsuccessful, and the company kept closing retail stores throughout 2011. A number of other missteps led to Blockbuster's failure to capitalize on Netflix's big gaffe of 2011, creating a lose-lose scenario for the movie rental industry this year.

A Failure to Remodel

Aside from convenience, one of the most attractive parts of Netflix's business model was the low cost subscription service. This flat-fee pricing model is appealing for its transparency and straight-forwardness. Additionally, the lack of late fees removed the naughty-schoolboy feeling that customers had grown accustomed to when bringing back their rental to Blockbuster a day after the deadline. Many customers felt that Netflix was fairer, which accounted for the company's enormous success in its early days. By word of mouth, news of Netflix's convenient and hassle-free business model spread throughout the country.

In 2011, Netflix lost that sense of fair play with its customers, giving Blockbuster the chance to take it back by remodelling its pricing structure, terms of service, or delivery methods. The firm failed to capitalize on these opportunities, partly because its parent company was already in the process of downsizing Blockbuster's operations.

In April, Dish Network purchased Blockbuster for $320 million in a bankruptcy auction. Instead of aggressively investing in the brand, the network continued to close stores throughout the U.S. and Canada, while its rules about renting new releases intimidate and alienate many customers. The rule is simple but poorly defined--rent too many new releases and a customer's account will be throttled, meaning that new releases will be mailed more slowly than before. This business model made many customers feel like a liability to the company.

Additionally, there was the frustration that not all Blockbuster stores allowed exchanges of mailed discs, and discs obtained from in-store exchanges could not be returned to another store. To many, the retail tie-in was an added layer of frustration.

This is on top of the fact that customers have grown used to instant gratification thanks to streaming video solutions such as Netflix's popular offering. Returning to a largely mail-order system with the so-called "convenience" of driving to retail locations to exchange or return rentals was no longer acceptable in 2011. In short, Dish Networks was relying on Blockbuster's old business model long after that model had remained attractive to customers.

At the same time, Dish Network's broadcast experience meant that it was in a perfect position to push its Blockbuster On Demand service. Yet this streaming service was a sluggish entry that was simply too late to the party.

Is it Too Late for Blockbuster's PR War?

Blockbuster has attempted to revitalize itself by "borrowing" the kiosk-based retail model that Redbox began a few years ago under its Blockbuster Express brand. Blockbuster also offers video game rentals--which Netflix does not--and its price for two DVD rentals per month is actually lower than Netflix's. And with its kiosk services and retail locations, it has a greater physical presence in American neighborhoods than any of its competitors.

Despite the company's sizable assets, it faces an uphill battle in reclaiming its top spot in the movie rental industry even after Netflix's embarrassing gaffe caused a still-open rift between it and its customers. There are three major lessons for business owners from all of this:

1. Complacency destroys success. Blockbuster did not see the mail-delivery and streaming services on the horizon even when they should have been obvious after the DVD made movies lightweight and broadband made streaming virtually instantaneous. Blockbuster's earlier complacency ended in a humiliating bankruptcy and the closing of over a thousand stores. 2011 was a chance to reverse that complacency with renewed vigor, but instead  Blockbuster launched a PR campaign pronouncing how wonderful it already was instead of convincing customers that it could be better.

2. When your competitor trips, step up. Instead of reversing its downsizing of its Blockbuster operations when Netflix tripped, Dish continued to close Blockbuster stores. It rolled out the On-demand Service and kiosks too slowly, and failed to streamline Blockbuster's return policy and pricing model. Had it lowered prices or introduced new services just as Netflix rose prices and made its products inconvenient, Blockbuster could have delivered a knock-out to its stumbling competitor. Instead, Blockbuster continued on its previous track.

3. Your customers are partners, not liabilities. The golden rule of business is that customers choose businesses because of the price, quality, and convenience of their products. The foundation of any successful and sustainable business is the choice of its customers. No matter how big a company becomes, it should respect its customers for making the choice to do business with it. Here Blockbuster failed in a big way. In the minds of customers, Netflix had transformed late fees from a necessary evil to a nasty punishment to bad customers, which meant they were no longer acceptable. Blockbuster failed to recognize this in time, and thus failed to steal customers' affection for Netflix.

Netflix saw a meteoric rise in its stock price in 2010 after successfully weathering the devastating financial crisis that stifled wages, depressed consumer demand, and threatened just about every other retailer in existence. This was largely thanks to its relentless investment in video streaming and rising broadband access throughout the country after inventing a new way to distribute movie rentals--by mail--that crushed Blockbuster's traditional business model and forced independent movie rental shops to close across the country.

The company could do no wrong at the beginning of 2011, as it saw its stock price surge. The company was even outperforming Apple and Google. By summer, there was a real possibility that Netflix's stock price would surpass Apple's.

Then it all collapsed.

Now, Netflix trades around $70 dollars per share, down over 60% from the beginning of the year. This precipitous drop began in the middle of September, shortly after the company announced that it would be splitting its DVD delivery and streaming services. The new DVD delivery service was to be rebranded Qwikster, which was abandoned within a month with a quick mea culpa from Netflix chief Reed Hastings. "There is a difference between moving quickly--which Netflix has done very well for years--and moving too fast, which is what we did in this case."

The half-apology did little to placate investors as Netflix continued to hemorrhage users. It did not hold a monopoly on video streaming, with Hulu.com, Apple iTunes, and Blockbuster providing consumers with a number of options--not to mention the growing Video on Demand industry or, for that matter, illegal ways to download movies for free.

One of the reasons that Netflix had remained more popular than its competitors was its large selection and convenience. Netflix had access to thousands of movies, television shows, and other videos that users could request to watch immediately or add to their Netflix queue, essentially reserving the title for future viewing. At the same time, Netflix expanded to a variety of platforms--Netflix streaming was available on the Wii, Playstation 3, and Xbox 360, as well as several other popular devices, like the new Apple TV, Roku box, and Tivo DVR.

The firm's broad market exposure and cozy partnerships with several competing vendors allowed consumers to choose not only what they could watch, but when and how. Combined with an easy-to-use interface and smart algorithm for recommending related titles that subscribers could watch, Netflix had utilized every technological edge it could to make itself a household name much faster than Blockbuster--its closest competitor--could catch up.

So when Netflix decided to divide its two delivery systems, it infuriated consumers who had chosen the company for its video needs because it empowered users with a variety of choices. All of a sudden, and without a clearly articulated reason, the company was taking much of that power away by forcing users to choose between conventional DVDs and the newer streaming technology.

Netflix's apology that it had moved "too fast" hardly placated users and it certainly hasn't impressed investors (the company's stock is down a further 50% since Netflix reversed its decision). One analyst has called the company's business model "broken". We would agree.

What's worrying is that Netflix CEO's statement that they had moved "too soon" is a subtle threat that Qwikster might rear its head again, robbing consumers of the choice that broad them to Netflix in the first place.

The Lesson

While some could dismiss Netflix as acting too quickly, there is a much more significant lesson to be learned here. When a business provides consumers a product, there is a marginal product being offered at the same time. In Netflix's case, the company's explicit product was movies, but its implicit product was convenience. This marginal product was the real reason why consumers had chosen Netflix, and by abandoning its very successful business model, Netflix was robbing consumers of the one thing that drew them to the company in the first place.

Business owners should understand why customers are choosing them over their competitors and ensure that their business model maximizes the incentive for that choice. Likewise, they need to consider how any change to their business model will make the business more or less attractive to customers before acting. Only then can business owners begin to change their operations.

Netflix, tragically, acted without considering how it would affect customers' perceptions of the business, and is now paying the price.

Bank of America may have committed the #1 business model blunder of 2011for their $5 debit card fee.

First, let’s get some background. Spoiled U.S. banks have become so addicted to high-profit fees that they seem to have forgotten the customer. The average bank earns over forty percent of its profit from fees. These include, swipe fees, account fees, loan fees, statement fees, overdraft fees, balance fees, and more. Prior to Wall Street reform, banks averaged $0.44 per debit card swipe. Banks are now capped at $0.24 per swipe. According to The Nilson Report, banks took in $48 billion from these fees before the reform. Assuming the banks did not get tricky and add peripheral fees, this still translates to $26 billion in swipe fees.

In the old days, the banks’ business model required them to:

1. Provide free checking accounts.
2. Handle lots of cash, coin counting etc instead of electronic money.
3. Process billions and billions of checks by hand. (In fact, I personally know of a check processing center for a large bank that employed 250+ people for 24/7/365 solely to enter check amounts and account numbers into their system. Electronic commerce has made this center nearly obsolete.)
4. Charge the customer $0 for writing a check.
5. Have human tellers wait on you instead of ATMs and the internet.

It seems to me that banks have successfully leveraged technology to eliminate tellers, check processors, branch costs, and more. In one of the most brilliant business model moves ever, banks have not only lowered their costs through technology, but they have charged EXTRA to the users of the cost-lowering technology.

 Banks used to let consumers write a check at Wal-Mart, spend tons of money processing the check by hand; send the physical check back to the consumer; keep a scan of the check for years; and generally have a painful and expensive process. Debit cards dramatically lowered the cost of the bank’s business model. It seems that the banks should be paying the merchants and card holders to use debit cards, not charging for them. Forget consumers revolting and changing to a credit union, what if Americans revolted against the banks and started writing checks again?

However, none of these factors stopped Bank of America from trying to add a $5 per month debit card fee. Technically, Bank of America did not try to change the business model. Bank of America was simply trying to preserve the existing business model with complete disregard for the customer’s hot buttons. Customer reaction to the fee was swift. There were protests, petitions, and even a National Bank Transfer Day. As a result, many other big banks cancelled plans to institute a similar debit fee.

In fairness to the banks, it costs an estimated $350 annually to maintain a consumer checking account each year. This is according to Chase’s Jamie Dimon. This covers services such as a 24-hour call center, anti-fraud protection, ATMs and online bill pay, he said.

Let’s also include Washington in on this mess. The new law effectively transferred an estimated $16 billion from banks to retailers by forcing the swipe fee lower. Now the banks are scrambling to replace the revenue. In this game of financial musical chairs, the consumer has ended up becoming the only one without a chair. It would seem that this debate would have been better left to the free market. Wal-Mart has plenty of leverage on Citibank and vice versa. What is an average consumer to do for leverage against a bank or retailer?

So what are the business model lessons learned from this fiasco for both banks and non-banks?

The Lesson

Understand your customer’s hot buttons and understand when you have had a windfall. As technology rapidly changed banking, a rare window of opportunity opened for institutions to not only lower expenses, but charge for the enhanced service level which this technology provided. However, this window is now closing or closed. Banking technology is ubiquitous and expected. Banks will need to find other methods to cover the ever-increasing cost of checking accounts without starting a customer revolt.

What do you think Bank of America should have done differently?

In the world of the web, it is widely understood that you must ethically bribe your visitors with electronic goodies in order to get and hold their interest.  In the good old days of the internet, these free items may have been as simple as a quick quiz, a newsletter, or a short eBook.  As the sophistication and competition on the web has increased, so has use of the free bar as a business model.  Today, a web user can find more free and valuable web content than they can use.  Why buy a newspaper when cnn.com or usatoday.com if free?  Why pay for a research report when so much content is available for free?

In order to gain or retain a prospect’s interest, some gurus claim you must give away an item with a $50-$100 perceived value.  Successful website operators do just that while other web operators wonder why visitors quickly exit their sites or why no one signs up for their newsletter.  Unfortunately, the free bar is here to stay.   The traditional logic has always been that digital goods are effectively free to distribute, so why not utilize them to gain sales momentum.  Interestingly, the free bar may not be a web-only tactic.

Superstore operator Meijer now offers free antibiotics like Amoxicillin to shoppers vs. the $5 or $10 a customer would pay at CVS or Walgreens.  Most insurance companies have a maximum allowable cost for Amoxicillin of $2.10 or so.  Let’s assume this is close to the wholesale cost.  This means that Meijer is giving away goods and services with actual hard costs on the bet that the consumer will spend enough in their superstore to justify the customer acquisition cost.

Meijer has always been a business model innovator.  Meijer is credited for opening the very first hypermarket in 1962.  However, this Meijer business model change may not be as innovative is it appears.  For years, supermarkets have enticed shoppers with loss leaders to lure them into the store so they could purchase higher margin items.  A skeptical view if this business model would be to simply view free antibiotics and an extension of this model.  However, there is a big difference between cutting your margin and giving away a needed and valuable item like a prescription.

This also leads to some interesting side discussions.  Does Meijer treat the free Amoxicillin customer differently?  For instance, does Meijer immediately fill the prescription while the free customer waits or do they send them shopping for twenty minutes?  Does Meijer or should Meijer track the ticket average of the free prescription customers?  According to the Food Marketing Institute, the average consumer spends $26.78 per grocery store visit.  It is safe to assume that Meijer’s ticket average is higher since they offer clothing, toys, hardware, etc.  Would you expect Meijer’s ticket average on the Amoxicillin customers to be lower or higher than an average customer?

How can Meijer’s business model gamble best pay off?  What percentage of Meijer’s free drug giveaways are to the desirable family with kids?  What percentage of the giveaways is to hyper-sensitive retirees looking to save $3 vs. the Wal-Mart prescription plan?

Do you think Meijer is wise to bribe customers with free goods or is this simply an extension of the loss leader principle?  Do you see this trend continuing or expanding?

Since bridging the gap between full-service and self-service legal in 2001, LegalZoom has grown to the nation’s best-know legal services organization.  Now LegalZoom is toying with their business model by moving from form filling to prepaid legal plans.  LegalZoom is offering individuals and small businesses a basic legal plan for as low as $15/month.

These plans offer assistance from a local attorney on various legal issues such as contracts, collections, or intellectual property.  You can see the plans at http://lztrk.com/?a=3454&c=177&p=r&s1=

While this prepaid business legal plan from a trusted name is a viable offer, is it too much of a shift from the self-service, no lawyer approach that made the business model so popular?  This move is either a brilliant line extension to core clients who are inclined to do it themselves vs. hire a lawyer, or it is a boneheaded shift of focus away from a still-growing business model.

What do you think?  Will these plans strengthen Legal Zoom’s business model or weaken it?

Southwest Airlines recently reported their first net loss since Q3 2009. Southwest claimed the losses were primarily due to fuel hedge issues. However, I believe there may be a larger issue at play. While most other airlines have increased net revenue by nickel and diming their customers, Southwest has done the opposite. Last year, US airlines collected $3.4 billion in bag fees and a further $2.3 billion in ticket change fees. At the same time, Southwest Airlines attempted to endear itself to travelers by allowing them to check in up to two bags free with each ticket purchased. You have to commend Southwest for going against the crowd on this one.

The real issue here is whether the forfeiture of hundreds of millions of dollars in bag fees pays off in increased ticket sales. In 2010, Southwest carried 88 million passengers. Let’s assume that half of them would begrudgingly pay a $20 bag fee. Over a five year period, this equates to $4.4 billion in pure profit to Southwest if half of their passengers checked in one bag.

Southwest makes approximately $6.25 in profit per passenger trip. Therefore, in order for Southwest to justify no charging bag fees, they must sell over 140 million additional tickets each year. Do you think this is happening? I am not convinced that US travelers are giving Southwest as much credit for free bags as Southwest thinks.

Ryanair is one of the fastest growing airlines in the world. Ryanair recently removed all but one restroom from their flights and charges fliers $1.50 to use it. They are also debating installing standing room seating, and charging customers $47 to print a boarding pass at the airport. Ryanair is charging customers for everything imaginable but it is still growing; how can we reconcile the Ryanair business model with Southwest's business model? It’s simple: passengers only look at the ticket price and don’t consider add-ons when shopping around for a plane ticket. In my mind, Southwest is fighting basic buyer psychology, no matter how silly that psychology may be.

I predict that Southwest Airlines’ business model will eventually shift to the nickel-and-dime model used by the rest of the industry. Passengers can complain all day long about fees, but until they vote with their wallet, the Ryanair business model will rule the sky.  KZGDXAX253EC

Do you agree? What changes do you see in airline pricing models?

Steve Jobs may have been only one man, however, his impact on Apple was both significant and profitable.  We decided to evaluate Apple’s business model with and without Steve Jobs.

We ran Apple’s business model through the Business Model Evaluator under both scenarios.  You can see the results in detail below.  Apple’s business model score with Steve Jobs was 843.  Without Jobs, the business model score drops to 523.

Here are the results for Apple's Business Model with Steve Jobs:

Here are the results for Apple's Business Model without Steve Jobs:

With the recent passing of Steve Jobs, one question lingers in the minds of techies and business leaders alike: what will happen to Apple without Jobs at the helm? More specifically, what products will Apple release and how will the company's business model change without Jobs to direct the company into new sectors? How long can Jobs's vision last?

We still have time to see if Apple's offerings change significantly. The iPad, iPod, and iPhone will remain important consumer devices even without a new product to wow consumers, and if recent rumors about an Apple television prove true, this will extend Jobs's vision into a new product market for a while. Additionally, we have no way of knowing how many other ideas cooked up by Jobs are standing by, waiting to be released in the next few years.

The company's business model, however, is more volatile. With Tim Cook at the helm, there is a chance that a new management philosophy will steer Apple away from Jobs's vision relatively quickly. Cook can do this in a number of ways: by changing the company's supply chain, its marketing strategy, its market position, or its pricing strategy.

It's too early to know how Cook's vision for the company differs from Jobs's, but there was a time when Apple was without its founder. From 1985 to 1997, Apple had three CEOs lead the firm without Steve Jobs there to guide them.

Some Apple fans call these the lost years for the company, and for good reason. While Apple remained in relatively healthy financial shape, it lost market share and the technological head start that its GUI operating system gave it over Microsoft DOS and the so-called IBM Clones. Jobs himself complained that Apple lost its advantage when Microsoft released Windows 3.1 in 1992. By the time Windows 95 appeared, the Mac was a microniche product for artists and graphic designers. By the end of 1995, Apple's stock was trading at around $8 a share.

The rise of Apple from Jobs's return in 1996 to his recent death has become a corporate parable retold in office corridors just as legends of Achilles and Beowulf were retold in mead halls in previous millennia. Now we face the question of whether Apple can maintain this momentum without its hero.

To answer this question, let's compare Apple's business model before and after Jobs's return. In the next two posts, we will analyze Apple's business model with and without Jobs to see what direction the firm should take in the future.

As you will see, the differences are massive-- and telling. Cook would be keen to try to replicate Jobs's business strategy as best he can, but this strategy can't last forever within the ever-changing technology sector.

Apple's Business Model without Jobs

In 1984, one year before Jobs departed from Apple, the company unveiled the Macintosh, which would remain its bread and butter until years after Jobs returned and unveiled the iPod. Thus Apple's product line was already in place for a post-Jobs Apple.

Three years later, John Sculley shook up the company's business model by shifting the company's strategy away from the Macintosh and towards peripherals in the hope of increasing margins and profits. The quickly forgotten Apple Scanner is a good example of this.

However, Sculley's business model strategy didn't work. One of the important things about a business model is finding your niche and keeping your market position in that niche. Steve Jobs and Steve Wozniak created their niche--the personal computer--only to find their product increasingly threatened by competitors trying to poach market share. By 1985, IBM and IBM-compatible computers equipped with Microsoft DOS and Windows offered an alternative to the Macintosh.

As a result, Apple's niche changed; no longer having a monopoly on the personal computer, it was now a competitor in the much wider PC market. This produced a new, smaller niche: the Macintosh OS platform, which remained the preferred option amongst educators and graphic designers.

Sculley's initial response to this change in the market was to expand by producing non-PC peripherals. The assumption behind this decision was that diversifying the product line would increase the company's market presence and, accordingly, increase revenues. It is true that Apple's revenue from sales increased tenfold during his tenure at Apple, but it is likely that such growth was inevitable at a time when the personal computer was first beginning to penetrate companies and households.

More damning to Sculley's reputation is the fact that the company's margins shrank as the firm experimented with portable CD players, speakers, PDAs, televisions, digital cameras, and he beloved but unprofitable Newton.

The lesson here is that Sculley, unlike Jobs, did not focus on expanding the business within the niche as he watched the niche change form.

By the time Michael Spindler replaced Sculley as CEO in 1993, the company was in freefall both in terms of profitability and market share. Spindler ultimately failed to change the company's direction, largely because he continued with Sculley's strategy of expansion without direction. Now the company was producing new software alternatives, such as an online portal to compete with America Online and the short-lived A/UX, an operating system that never caught on. Spindler arguably made the matter much worse by licensing Macintosh clones in a misguided effort to expand Apple's market penetration. The opposite happened--the Macintosh clones started to eat up Apple's PC sales, which remained its most profitable operation.

After less than three years of poor performance, Spindler was replaced by Gil Amelio.

Amelio had a firm technological background that helped him to understand the problem with Apple's business model: it failed to adapt to changes in the IT marketplace by providing new products based on technological advances. Instead, Sculley and Spindler had simply tried to diversify the company's market share by releasing products that already existed. He decided that the company should return to its core product--the Macintosh Operating System--and improve it by bringing in new technology from a competing firm. He tried to do this by buying the BeOS from Be Inc., but after talks stalled, he brought Steve Jobs back after taking over Jobs's firm NeXT.

Finally, with Jobs back at the helm, the company could cease cannibalizing its own market share and shrinking its margin by focusing on improving a core product line. Apple was back.

Apple's Business Model with Jobs

Shortly before returning to Apple, Jobs said in an interview that he knew exactly what needed to be done to fix the company. When Apple bought NeXT and promoted Jobs to CEO, it was in desperate need of direction. Steve Jobs gave that direction by fixing Apple's biggest problems immediately. He killed the Macintosh clones. He shifted the company's focus back to the Macintosh, and started to streamline everything about the company.

One of his biggest decisions was to make the computer beautiful. Understanding that PCs were personal more than anything else, he realized that a big gray box would not appeal to the mainstream consumers who were just then starting to buy PCs to access the Internet. At the same time, Jobs began an aggressive campaign of buying digital production programs from competitors so that Apple could release a Macintosh that would work right out of the box. This wasn't enough for Jobs. He saw the promise in a young industrial designer named Jonathan Ive, who produced the first iMac, with its translucent blue casing and unibody design. The two became inseparable afterwards, and their teamwork produced the iPod, the iPad, and the iPhone.

Thus Apple's revival was the result of a convergence of strategies to make the Macintosh better. Jobs saw the need to make the product prettier, easier to use, and more powerful. These goals involved technology-based and design-based solutions, instead of simply diversifying the company's product line in the hopes of increasing market share. He knew that the only way to do this was to utilize the talents of his best employees, and elevate their position in the company (since Jobs's return, the design division of Apple has had authority over all other divisions).

With its focus back, the Macintosh slowly gained market share from 1997 to the present day in the personal computer market, just as that market share began to plateau in the 2000's as consumers shifted from PCs to mp3 players, cell phones, and, most recently, tablets. While Steve Jobs did not anticipate these new markets, he opened them up by creating products that shared the new Macintosh's emphasis on design, ease-of-use, and functionality.

Essentially, the new production ethos for the Macintosh became scaleable.

The nature of the PC market changed enormously in the 1980s, 1990s, and 2000s, but each decade brought similar challenges for Apple: as the technology sector grew and became more mainstream, more competitors threatened to make Apple's niche smaller and smaller. While this horrified Apple's other CEOs, Steve Jobs remained focused on completely dominating his niche by improving a single product in many different ways.

Nowadays, new challenges face Apple. The recent patent wars from Samsung and others will continue to be a headache. Competition from Android--which was an obsession for Jobs--may shrink the iPhone's market share just as Windows marginalized Macintosh over two decades ago. Even the iPad is facing challenges from the Kindle Fire, and the latest Macintosh OS has failed to inspire.

The company has plenty of challenges. However, Apple has newfound strengths that it never had before. It has always been financially solvent, but nowadays Apple has over $65.8 billion in cash sitting around. Apple fans have always been loyal, but the cult of Mac is stronger than ever. Apple has become the most recognizable brand in the world. Apple has never been a more desirable place to work than it is today. Siri is simply amazing. The firm's supplier contracts, market position, and monopoly on software markets with its App Stores have created several difficult barriers to entry for any would-be competitor.

Cook, then, would be wise to adopt Jobs's obsession with improving a small product line to create a scalable development model. Since Cook's background is in supply chain optimization, this may be second nature to him. However, he would also be wise to see how technological advances and changing consumer behavior will create new markets in the medium and long term. If he can do that, the legacy of Steve Jobs is secure.

Hats off to Howard Schultz, chairman of Starbucks.  Schultz announced that starting Nov. 1, Starbucks will collect donations of $5 or more from customers to help job growth in the U.S.  With this "Jobs for USA" program, Schultz is collaborating with the Opportunity Finance Network, a nonprofit that works with nearly 200 community development financial institutions to provide loans to small businesses and community groups.

Schultz says 100% of the donations go for loans for companies that can add jobs or stem job losses.  Starbucks declined to predict how much it will collect, but each day, millions of people visit nearly 7,000 company-owned stores. Customers who donate will receive a red, white and blue wristband that says "Indivisible."

"This is about using Starbucks' scale for good," says Howard Schultz, Starbucks CEO.

Schultz has been making an effort to address the nation's economic woes. In August, he sent more than 200,000 Starbucks employees a memo urging them to do what they can to help business thrive. Later, he asked fellow corporate CEOs to stop contributing to political campaigns until the nation's leaders reached a long-term economic solution. After that, he hosted a national telephone forum, bought full-page ads in two major newspapers and started a website, Upwardspiral2011.org.

Is this just a publicity ploy by Schultz?  I doubt it.  It seems that Schultz is using his public platform to do good.  Schultz has accomplished a triple play with this move.  He has generated tremendous positive PR for himself and for Starbucks.  He has sent a very public message to a politically-stalemated Washington that something CAN be done to create jobs.  Lastly, he has done a good deed for America.  Kudos Mr. Schultz!

Schultz said he feels a personal responsibility to stimulate this economy. Starbucks hires about 200 people a day in the U.S. as part of its effort to remodel thousands of stores and add about 200 locations in the next year. But Schultz says he wants to do more.   For more information, visit createjobsforusa.org

What do you think?  Is this a brilliant PR moves by Schultz or simply someone trying to do good?