ASSIGNMENT 1 – Individual Case Analyses: iPad vs Kindle

The Team
Team 444A

631-0548

Edward Lam

Queen’s School of Business MBAS 853 – Strategic Implementation & Change Professor Tina Dacin

known as ‘windowing’. Given the state of flux within the industry and the lethargy of its traditional competitors. publishers have slashed expenditure by laying off editorial staff and taking less risks with unknown writers. In response. Between 2002 and 2008 annual sales grew a mere 1. money and ease of consumption. publishers’ traditional triple play of multiple format releases. Furthermore.6%. who predominantly sell profitable but low brow miniseries like “Twilight”. aggregation of distribution (75%) in big box and chain stores has reduced the number of domestic novels or worthy books being published. the publishing industry is ripe for change and represents a tremendous opportunity for some disruptive technology or game changing strategy.499 words) . Meanwhile. What is the current state of the publishing industry? Is this a good industry to be in? The publishing industry is in a persistent state of decline that continues to be threatened by new entrants and made irrelevant by new technologies. (227 of 1. has become more of a detriment than a solution to bottom line profitability. The industry is under attack from the revenue side by substitutes that compete for readers’ time. Publishers don’t understand their customers and are out of touch with what business they are in: literary communication and entertainment. with profit margins shrinking precipitously. This then forced publishers to overly rely on big box and chain stores. Traditional publishing houses have failed to address a fundamental flaw in their business model: People are buying less paperbound books from traditional bookstores.1.

this can easily be displaced by a new entrant. establishing a sizable installed base of 3M Kindles in just 3 years. Amazon has sold the Kindle using a reverse ‘razor & blades’ model pioneered by Gillette. and more e-book readers flood the market. As more players crowd into the distribution space. Commitment to long-game . users in this group buy 3. Assess the strengths and weaknesses of Apple and Amazon These strengths and weaknesses are specific to the publishing and e-book business. This demand is magnified by Amazon’s ‘long tail’ strategy with up to 450. Amazon has extremely strong channel power. Amazon has yielded an impressive adoption rate. As such. . Amazon’s first mover advantage can only be diluted. A strong effort has been made to avoid ‘general’ strengths of the two businesses and only focused on the strengths and weaknesses specific to this case.2. Building an industry that will eventually displace your only supplier will be a tough balancing act to implement. Weaknesses Distribution as leverage – Distribution is always less reliable as leverage than proprietary content. Amazon’s short term strategy is still heavily reliant on content providers like publishers. However. For example. Amazon was among the first companies to recognize the decline of the traditional paper bound book and spearheaded the transition to e-books. fulfilling Jeff Bezos’ vision of a transparent and efficient marketplace. At this point. Amazon has made e-book buying tremendously easy and now controls 80% of all e-book sales.1 times more e-books than twelve months ago.Amazon sees publishing through the lens of reengineering the entire business. He is committed to a vision that would see a large disruption in the marketplace and create new forms of competition among publishers. Amazon is willing to underprice e-books as a loss leader to spur Kindle adoption. In turn.000 e-book titles available. Strengths Market power . publishers will have more leverage since content copyright is enforceable. All this translates to an unmistakable trend in publishing: e-books. with an existing share of 3~5%. As it stands. By subsidizing the cost of e-books to just under $10.As a distribution channel. While Amazon might control distribution today. Jeff Bezos’ ‘blue ocean’ strategy seeks to democratize the industry by allowing individual authors to become content providers and publish their own e-books. as shown by Apple. as shown by Amazon’s acquiescence to the ‘agency model’. grew 170% in 2009 and is projected to grow to approximately 25~50% of all books sold. a means to monopolize online distribution A channel monopoly would then grant Amazon greater power over publishers and other content providers. Amazon sees publishing as hugely inefficient. Amazon is not deterred by the short term losses that discourage traditional publishers. Core strategy – Amazon’s core strategy will see an extreme retrenchment in the number and operations of the traditional publishing houses.

all represent stakeholders that have a finger in the pie. Therefore. It does not aspire to be in the content business itself. This is a strength as the publishing industry will see Apple as a long term partner rather than an eventual competitor.Whereas Amazon’s claim to fame was its dominance of the bookstore titan Barnes & Noble. there will also be a place for the traditional publishing houses. as long as Apple is in the e-book business. particularly in e-book pricing negotiations.499 words) . Long term partnership – Apple’s core strategy is to be a strong channel for distributing e-book content.Interchangeable product – As fantastic as the Kindle is. Similarly. Apple’s lack of understanding of this space and of its key success factors represent a key weakness in this industry. Apple lacks this functionality and scale that has proven to be a clear differentiator in the online retailing space. Apple has no history in the e-book or book business. All in all. Weakness Lack of experience and resources . Apple is the publishers’ saving grace and has. Amazon’s feedback system and suggested products algorithms are highly intuitive and successful. Strengths White Knight – Apple enters the e-book business at a contentious time in the industry. This can only further dilute Amazon’s 80% control of e-book distribution if there are no incentives in using a Kindle over any other e-book reader. publishing houses. (760 of 1. Authors. it currently reads the same PDF e-books and performs the same core functions an iPad. forced Amazon to concede to the ‘Agency model’. this has led to a less contentious relationship than with Amazon and has put Apple in a much more favorable light. bookstores. This may partly be also due to Apple’s reputation for saving content providers as shown by its recent success with the music industry. This means the switching costs are $0 as formats and inputs are not proprietary. Apple’s unproven capabilities means the company has no partnerships or relationships with any players in the industry. As another player in the content delivery business. among other issues.

Is Amazon’s current strategy for the Kindle sustainable? Why or why not? It depends. Currently. Bezos’s game. video content such as authors discussing their books. and you own the game. The New Yorker. while providing publishers sales figures (of their own books). As one publisher said. ‘installed base’ model to sell as many units as possible. and when you get far ahead it is hard to catch up. Re-evaluate pricing matrix. then it is not sustainable. then it is sustainable. Amazon will then continue to use the agency model to further build its business while slowly becoming a publisher of its own e-book content.3. Even changes from accepting the ‘agency model’ must be factored into the final price of the Kindle to make it a competitive product. April 26. Without cheap e-books. Further develop Kindle’s features as to further compete with the changing user experience of ebook reading. functionality and value. Formulate 3-4 suggestions for Amazon’s CEO in response to the challenges posed by the iPad. Amazon could erect barriers like tie up with publishers. Amazon could provide an online solution with exclusivity contracts and tie ups. The next stage of e-book value add will come in the form of embedded audio. single functionality reader. Kindle access only e-book formats. the Kindle has no inherent switching costs associated with ownership. This entire strategy relies on Amazon underpricing e-books to spur Kindle adoption/sales. Then there would be an obvious difference in cost of ownership that would naturally favor Amazon’s current market dominance of e-book distribution and usage. Amazon must revisit the Kindle’s value proposition and price it accordingly. Amazon will continue to aggregate and multiply its e-book sales. 2. .1x more e-books. it will be hard for Kindle buyers to justify the purchase of the unwieldy. In contrast. Traditionally. 4. If Amazon’s strategy for the Kindle is revenue driven using the reverse ‘razor & blades’. Kindle’s value proposition currently ranks fairly low on the ‘experience’ factor. For example. like Jobs’s before him.”1 Since Kindle users tend to buy 3. (512 of 1. publishers shied away from retail. “Get market share. or movie clips relevant to the topic. the Kindle will be stacked against its iPad competition in price. ebooks marketed through McGrawhill’s Amazon page cannot be distributed through Apple or any other online vendors. A major competitive threat stems from the iPad’s multimedia capabilities. With Apple’s entrance into the e-book reader space. if Amazon’s strategy is to use the Kindle to gain distribution market share and then use it as a competitive advantage to monopolize content creation. Erect barriers to entry in e-book business.499 words) 1 Ken Auletta. 2010. is to get the device and get 80 to 90% distribution on the device. the Kindle could fend off the iPad’s appeal and maintain its user base. all of which makes the Kindle less versatile but raises the switching costs of ownership. Publish or Perish. or use a different software for content delivery. 1. Create an online aggregator of publisher content to provide publishers with their own distribution channel. 3. Give publishers flexibility in pricing and product availability. than publishers will have less leverage in agency negotiations. If Amazon is able to increase its 80% share of e-book distribution even further. By improving the user experience from a black & white text tablet to a portable multimedia platform.

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