a comparative business strategy ipad vs kindle

MGMT 906 Business Strategy: iPad vs Kindle | 2012-05-05 |

vsıPad vs KindleBusiness StrategyKoç University Graduate School of BusinessGroup 7Akın GarzanlıHasan Basri AkırmakSemin BalBora BuyrukDağhan Güçlü

MARKET, INDUSTRY AND SUPPLY CHAIN DYNAMICS

STRATEGY, POSITION AND PERFORMANCE

STRATEGIC ISSUES

OPTIONS

RECOMMENDATIONS

AGENDA

MARKET, INDUSTRY AND SUPPLY CHAIN DYNAMICSSTRATEGY, POSITION AND PERFORMANCE

STRATEGIC ISSUES

OPTIONS

RECOMMENDATIONS

MGMT 906 Business Strategy: iPad vs Kindle | 2012-05-05 | Page 5

Overview› Founder and CEO Jeff Bezos› Opened the virtual doors in 1995. › Vision is to build a place where people can come to find and

discover anything they might want to buy online. › Products, Enterprises services, market place› Shipments to 200 countries.

› eBook Sales: Market leader with 48 % (iTunes: 12%) in 2010› Devices used for eBooks: Amazon, no 2 with 29% after PC

(46%).› Source: Book Industry Study Group, 2010 and annual reports


EVOLUTION OF EBOOKSHISTORY & TIMELINE

Xerox Rocket eBook Gemstar Sony iRex Kindle Kindle 2 DX Kindle 2 Intl B&N iPad1997 1998 2000 2006 2006 2007 2009 2009 2009 2010 2010Pros

+modem +easy to use +e-ink +pen Tablet +Surf internet+Text 2 Speech +Big screen

+international download

+touch screen

+long battery life +WiFi + 3G

+Purchase & download +PDF +WiFi + 3G

+preview+1hr free reading

Cons

-heavy

-more expensive

content-only 30 % of bestsellers

-long refresh times 6 inch 6 inch

-heavier-no modem

Price600$ 499$ 269-699$ 349$ 599-699$ 399$ 359$ 489$ 279$ 299$ 499-829$


INDUSTRY STRUCTURE(eBook) PUBLISHING VALUE CHAIN

Author Agent Publisher Device Manuf. Retailer

Authoring the Content

Book Proposals /

Submitting to Publishers

Publishing, printing

eBook Reader HW

Book Store, Electronic

Store

• Industry consolidation

• Mega authors

• Royalties $5k-$10k in advance + 10%-15% per hardcover

• Usually free to read

• Commission if printed, filmed etc.

• Industry consolidation

• Top 10 address 94 % of the market

• Oligopolistic market, high concentration

Consumer

Stephen King, … Andrew Wylie

Macmillan, Random House,

Amazon

Amazon,Barnes&Noble

Sony, Apple

Amazon, Walmart,Target,Best Buy

• 10% of US population as eBook reader potential

Val

ueP

laye

rs

Hig

hlig

hts

• Highly competitive with many product substitutes


DYNAMICS IN THE SUPPLY CHAINAMAZON PERSPECTIVE

Content producer

Com

p.

Adv

anta

geC

omp.

D

isad

vant

age

Com

pete

vs.

C

oope

rate

Pot

entia

l Cooperate: Increase commission

Owns content rights

Produces B2B

Bargaining powerWholesaler

Doesn’t own the customer

Co-petition:

Cooperate:

•Increase commission

•Broaden sales channel

•Sell data mining

•Offer enriched books

Compete:

•Bypass them for long tail

Author Publisher Device Manuf. Retailer

Non mega authors not in publishers focus

Big brands

1 device may not fit all consumers

Cooperate: Additional channels for device sales

Cooperate:

Use other devices as additional channels


INDUSTRY DYNAMICSCAT SCANNER: AMAZON PERSPECTIVE

Entrants

Substitutes

OnlineRetailer

•Tablets

•Smart phones

•PC

•Netbook

•Traditional retail

•Bookstores

•Libraries

Note: Low entry barrier, but not an issue due to network effect.

Publisher eBookManufacturer

Entrants

•Media device manufacturers

Entrants

•Traditional publishers

•eCommerce players

SubstitutesSubstitutes

•Apple, B&N, Sony

•Ebook.com, ebay, local e-commerce (idefix.com.tr)

•Macmillan, Random House, Libri


eBook Industry DynamicsPower & Profitability

70%15 % of LP 15% List Price30%

** 35 % printing & Paper, marketing 13%, editing 5%, G&A 9%, shipping 7%, depreciation 3: Total: 87%

15.95 $4.79$7.54 Total Rev0.98 $ Net Rev6.56 $ COGS**

2.39$ 0.36$

Author Agent Publisher Device Manuf. Retailer Consumer

Revenue Share among Players

Scenario 1: Traditional Publishing

% R

ev S

hare

Net

Rev



** 35 % printing & Paper, marketing 13%, editing 5%, G&A 9%, shipping 7%, depreciation 3: Total: 87%



Scenario 2: eBook Publishing

% R

ev S

hare

Net

Rev

25% of Pub Com

%70 of NS15 % of LP 15% List Price30%

7.99 $2.39$2.60 $ Total Rev1.90 $ Net Rev

0.70 COGS**

1.20$ 0.18$





Scenario 3: eBook Publishing. Amazon as Publisher

% R

ev S

hare

Net

Rev

87 % of Publisher revenues go for costs

70%* 30%

* Give T2S, price 2.99-9.99$, 20% lower than Paper** 35 % printing & Paper, marketing 13%, editing 5%, G&A 9%, shipping 7%, depreciation 3: Total: 87%

7.99 $

2.39 $5.60 $


Consumer Segmentation› Consumer Demographics

– eBooks bought: Female, over 40+– Devices most frequently used: PC 46%, Kindle 29%, Other 25 % – Most Popular Genres: Howtos/Manuals, General Fiction, Sci Fi,

Biography, Mystery, Detective– Drivers for eBook usage: Portability, carry multiple books, instant

access, large selection, lower cost.› Consumer Characteristics

– Very low customer turnover (high loyalty)(Can’t imagine living without it: 1 yr (7.1%), 2 yr (38.9%)

› Other Potential customers:– Non English natives– Library– Schools (K12, High education)– Professionals (sales force)

Source: See Case exhibits


CUSTOMER VALUE PROPOSITIONEBOOKS & AMAZON KINDLE

PortabilityCarry Multiple books

instant accesslarge selection

lower costWireless downloadEnlarged font size

DesignBrand nameNote takingHighlighting

Access to Online Newspapers

Lo Med Hi

iPad

KindleSource: Qualitative


CUSTOMER VALUE PROPOSITIONPUBLISHERS

› eBook Publishing Model increases publisher’s profit by 94%*› Increases exposure to a global market› Simplified Value chain:

› * See Profitability example

RawM Print DistributionWarehousingEditing Marketing


› The Long tail of the authors addressed› Approaching Amazon as publisher can increase author’s

revenues by up to 466 %*› Independence from Publisher Oligopoly

› * See profitability example

CUSTOMER VALUE PROPOSITIONAUTHORS


STRATEGY, POSITION AND PERFORMANCESTRATEGIC ISSUES

OPTIONS

RECOMMENDATIONS


EBOOK CONTENT OUTLOOK 2010AMAZON VS APPLE• Amazon• 670.000 titles• 107 of 111 bestsellers• 550.000 titles less than 9.99 $• In general 15 % cheaper

compared to iBookstore and B&N

• iBookstore• 60.000 titles• 12 of 20 bestsellers


SUSTAINABILITY PROFILEAMAZON EBOOKS

AmazonResources & Skills

Size Time

Efficiency

+ Scale

+ Scope

+ Learning

Bargaining power

- Buyers/supplier

+ Network effect

+ Installed base + Complementary products

+ Experience effects + Trial cost / time + Durability

Absolutepreemption

Relative: Time / Cost penalties

(Legal, Physical, Mental)

+++

-

-

+ +

+

+

+


COMPETITIVE ADVANTAGEAMAZON VS APPLE› Amazon Strengths

› Number of Titles› Largest number of Publisher

Agreements› Price Maker: Lowest

Consumer Prices› Market dominance

› Network effect› Loyalty of traditional

customers› CRM assets

› Customer understanding› Recommendation engine

› Apple Strengths› B2B publishing captured by iPad› Enriched books› Very big addressable market (even

the smallest % makes a difference)› iPad more innovative, can set the

standard on eBook



STRATEGIC ISSUESOPTIONS

RECOMMENDATIONS


Key Strategic Issues1. Increasing Competition from Product Substitutes

› Sony, Barnes and Noble, Ipad entered with better products

› Number of iPad sales in 3 months, exceeded 3 years sales volume of Kindle (iPad competition as eBook reader device)

2. Diverse eBook Device landscape3. Consumers more empowered, have many options



STRATEGIC ISSUES

OPTIONSRECOMMENDATIONS


Strategic Options

› New trend is 1 content available in multiple screens (Cloud computing, Tablets, Netbooks, Smart phones)

› Core business is not HW› Core business is CRM, customer info (Data mining, recommendation engine, Reviews)

Author Agent Publisher E Book Reader Man.rer Retailer Consumer

Author Agent Publisher E Book Reader Man.rer Retailer Consumer

Option 1: Further invest on Manufacturer roleLaunch different products focusing on eBook and internet

access to compete with iPad and other tablets such as Kindle Fire)

Option 2: Move focus away from Manufacturer RoleFocus on eBook strategy of 1 content, multiple devices

(Amazon Kindle SW for iPad, Android, PC etc.)



STRATEGIC ISSUES

OPTIONS

RECOMMENDATIONS


Recommendations1. Do not compete in device domain. 2. Embrace substitutes

eBooks for all Screens approach (Kindle apps for PC, iPad etc.)3. Continue as retailer

Customer relationship is the major intangible asset4. Continue as alternative eBook publisher

Reach the long tail authors.5. Expand

With a Host / Complement model1. Create an international eBook market and business model with big local publishers.2. Utilize affordable kindle prices to expand emerging markets (BRICS-T)