Transcript Ereaders and tablets

EREADERS AND
TABLETS
Michael Brandon
Sarah Icke
Sooyeon Kim
Daniel Sussman
OVERVIEW
I. The Industry
 Market Overview
 Competition
 Organization of Industry
II. Pricing




Intertemporal Pricing
Versioning
Two-Part Tariffs
Information Pricing
III. Analysis and Recommendations
THE INDUSTRY
DEFINING THE MARKET
Tablets versus eReaders:
 Tablets have apps and TV shows
 Most tablets can function as eReaders, but most eReaders are
not tablets
Our conclusion:
 Combine the most popular of both markets for our analysis
 One industry, but two markets
The market is…
 Still in growth stage
 Very concentrated with high barriers of entry
 Currently divided based on function and price
EREADER/TABLET COMPETITORS
 Amazon Kindle
 Apple iPad
 Barnes and Noble NOOK
 Samsung Galaxy Tab
 Sony Reader
 No government regulation yet
GLOBAL FIGURES: EREADERS
eReaders
Worldwide Units
Shipped
Year-to-year Growth
2011
4Q
3Q
2Q
25.6 Million
10.7 Million
6.5 Million
5.1 Million
200%
64.30%
165.90%
167%
Source: International Data Corporation
 Global eReader sales in 2011 hit 25.6 Million units,
doubling the total sold in 2010.
 In 2Q 2011, Kindle maintained a 51.7% market
share in the eReader market, while the Barnes and
Noble NOOK held the 2 nd most with 21.2%.
 Resulting 2Q 2011 Global HHI = 3122+
GLOBAL FIGURES: TABLETS
2011
 In 2011, global Tablet
sales reached 68.7
Million units, a yearover-year growth rate
of 381.67%.
 Apple saw their
market share take a
hit in 4Q 2011
dropping from 61.5%
to 54.7%. Much of
this was due to the
release of the Kindle
Fire in November,
which took 16.8% of
4Q market share.
Worldwide
Units Shipped
Year-to-year
Growth
Apple sales
Amazon sales
Samsung
sales
B&N sales
Pandigital
sales
HP sales
ASUS sales
4Q
3Q
68.7Million 28.2 Million 18.1 Million
381.67%
155.00%
264.50%
15.4 Million 11.1 Million
4.7 Million
N/A
1.6 Million 1.0 Million
1.0 Million 0.8 Million
0.7 Million 0.5 Million
0.9 Million
0.7 Million
HHI (Global)
3326.47
3873.75
Source: International Data Corporation
U.S. EREADER MARKET SHARE
HHI (U.S.)
4337
U.S. TABLET MARKET SHARE
HHI (U.S.)
3948
EBOOK INDUSTRY COMPETITORS
 Physical bookstores
 Online bookstores
 Tablets
 Smartphones
 Libraries
THE TARGET MARKET
Who do these companies target?
What is the difference between tablet
consumers and eReader consumers?
eReader Ownership by Age
30
% Ownership
25
24
20
10
5
19
18
15
12
9
6
5
12
11
8
7
4
0
11/10
12/11
Demographics
of eReader
and Tablet
owner s by
age
1/12
Tablet Ownership by Age
30
27
25
% Ownership
24
20
15
15
14
10
5
10
8
6
AGES
6
4
0
7
5
2
11/10
12/11
18-29
30-49
50-64
1/12
65+
Source: Pew Research Center
eReader Ownership by Education
35
30
30
% Ownership
25
EDUCATION
LEVELS
20
19
15
16
10
5
14
12
5
0
4
6
8
5
11/10
6
6
12/11
1/12
Tablet Ownership by Education
35
30
31
% Ownership
25
20
15
10
8
5
0
18
17
4
3
10
7
4
11/10
Some High School
15
6
5
12/11
High School
Some College
1/12
College Graduate
Source: Pew Research Center
Demographics
of eReader
and Tablet
owner s by
education
level
eReader Ownership by Income
35
30
31
% Ownership
25
20
21
19
15
10
0
13
12
9
5
4
3
6
INCOME
LEVELS
19
8
3
11/10
12/11
1/12
Tablet Ownership by Income
40
35
36
% Ownership
30
25
20
22
20
15
16
10
9
5
0
4
3
3
8
10
8
4
11/10
12/11
< 30K
30K - 50K
50K - 75K
1/12
75K+
Source: Pew Research Center
Demographics
of eReader
and Tablet
owner s by
income level
ORGANIZATION OF THE INDUSTRY
 Producers range from book stores to electronics
manufacturers to online retailers
 Companies produce their own eReader and have a
store to purchase eBooks and applications from
 Once a consumer purchases an eReader from one
company, they are tied to that company to purchase
eBooks and apps
DISTRIBUTION CHANNELS
DISTRIBUTION CHANNELS
DISTRIBUTION CHANNELS
MAJOR COMPANIES
 AMAZON:
 Kindle, Kindle Touch, Kindle Fire
 APPLE:
 iPad 1, iPad 2, newest iPad
 BARNES & NOBLE:
 NOOK, NOOK Color, NOOK Tablet
 SONY:
 Sony Reader
 SAMSUNG:
 Samsung Galaxy Tab
 Online retailer that does not specialize in
one product
 Kindle– November 2011
 Kindle Touch– November 2011
 Kindle Fire– November 2011
AMAZON
Kindle
Kindle Touch
Kindle Fire
 Electronics Manufacturer specializing in
products using the iOS operating system
 iPad– April 2010
 iPad 2– March 2011
 The new iPad– March 2012
APPLE
iPad
iPad 2
The new iPad
 Book retailer that started producing
eReaders
 NOOK– November 2009
 NOOK Color– November 2010
 NOOK Tablet– November 2011
BARNES
& NOBLE
NOOK
NOOK Color
NOOK Tablet
 Electronics manufacturer
 10 versions of the Reader
 First eReader on the market
 First sold through Borders and expanded
to other retailers
 Sony Reader– First launched in September 2006
 The latest model was released in 2011
SONY
Sony Reader
PRICING STRATEGIES
Second
Degree
Pricing
INTERTEMPORAL PRICING
 People value things differently depending on the
point in time they will receive it
 Value now > Value later (Hyperbolic Discounting)
 eReader and Tablet companies exploit this
discrepancy by marking up their product upon
introduction
 Capture the consumer surplus of early -adopters
 They later lower their prices to reflect the reduction in value
that occurs when the product leaves the initial market entry
stage and more consumers begin to enter the market
INTERTEMPORAL PRICING: EREADERS
INTERTEMPORAL PRICING: EREADERS
INTERTEMPORAL PRICING: EREADERS
INTERTEMPORAL PRICING: EREADERS
INTERTEMPORAL PRICING: EREADERS
INTERTEMPORAL PRICING: TABLETS
COMPETITION VS. MARKUP POWER
VERSIONING
 Offer variations of eReaders at different prices
 Customers will self-select into sub-markets
$79
KINDLE
$99
KINDLE
TOUCH
$149
KINDLE
TOUCH 3G
$139
KINDLE
K E Y B OA R D
3G
$199
KINDLE
FIRE
$ 37 9
KINDLE DX
$99
N OOK
SI M P LE
TOUC H
$ 16 9
N OOK
C OLOR
$199
N OOK
TA BLE T
8GB
$ 24 9
N OOK
TA BLE T
16 G B
$499
I PA D 16 G B
$599
I PA D 3 2 G B
$699
I PA D 6 4 G B
$629
I PA D 16 G B
+4G
$729
I PA D 3 2 G B
+4G
$829
I PA D 6 4 G B
+4G
$129
EREADER
$399
TABLET S
16GB
$499
TABLET S
32GB
$549
TABLET P
$349499
7.0”
$599
7.7”
$479
8.9”
$499
-649
10.1”
VERSIONING (CONT’D)
 Firms need to justify charging different prices for
different versions
 This is done by varying the level of functionality in
each version
FUNCTIONALIT Y
OVERLAP
 eReaders with a Touch Screen
 NOOK Simple Touch
 Kindle Touch
 Kindle Touch 3G
 Sony eReader
 eReaders with a Large Display
 Kindle DX
 Nook COLOR with “Tablet Essentials”
 Color display
 Apps and TV shows
 High storage but low battery life
PRICE
FUNCTIONALITY
TWO-PART TARIFFS
 One-time large fee for the actual eReader or
tablet followed by…
 Marginal costs of each individual eBook and app
the consumer buys
 Tying of eReaders/tablets and apps
AVERAGE PRICE OF EBOOK
INFORMATION PRICING
High initial fixed costs and sunk fees
Prevention of arbitrage
Network Effects
Long-Tail Effect
Lending
Lock-In sales
Cost leadership
NUMBER OF EBOOKS IN AMAZON’S
ELIBRARY OVER TIME
EBOOK TRENDS
 Largest eBook and eReader combined libraries are
Barnes & Noble and Amazon
 Most children’s picture books and graphic books are
not available in eBook stores
 However, eBook retailers looking to expand into these areas
 eBook inventories are different across retailers; they
sometimes do not carry the same eBooks
 Largest eBook library currently: Google with over 3 million
eBooks
EBOOK TRENDS
 Independent author books can be priced more
cheaply in eBook edition than big name publishers’
books
 Different eBook formats exist.
 eReader apps are available on different company’s
devices
 Linking up an eReader account on multiple
computers and/or devices
 eBook retailers without accompanying eReader
device
 Example: Google Play
 International Download Availability
Book
Green Eggs and Ham by Dr. Suess
The Chronicles of Narnia by C.S. Lewis (all
seven books)
Scones and Bones by Laura Childs
The Blood Sugar Solution by Mark Hyman
The Lorax by Dr. Suess
Extra Yarn by Mac Barnett
Publication
Date
Children's Picture
August 28th,
N/A
Books
1960
October 28th,
Children's Series
N/A
2001
#35 as of April 4th
March 1st,
Mass-Market Fiction
(paperback only)
2011
#1 as of April 4th (hardcover February 28th,
Advice & Misc.
only)
2012
Children's Picture
August 28th,
#1 as of April 4th
Books
1971
Children's Picture
January 17th,
#10 as of April 4th
Books
2012
Genre
NY Times Ranking
Publisher
Random House
Publishing
HarperCollins
Publishers
Penguin Group
Little, Brown &
Company
Random House
Publishing
HarperCollins
Publishers
The Walking Dead, Book One by Robert
Kirkman, Tony Moore, and Charlie Adlard
Graphic books
#1 as of April 4th (hardcover
only)
October 5th,
2010
Image Comics
X-Men: Season One by Dennis Hopeless and
Jamie McKelvie
Graphic books
#10 as of April 4th
(hardcover only)
March 13th,
2012
Marvel Enterprises,
Inc.
The Walking Dead Compendium by Robert
Kirkman and Others
Graphic books
Flashpoint: Batman by Brian Azzarello and
Eduardo Risso
Graphic books
#10 as of April 4th
(paperback only)
March 20th,
2012
DC Comics
Sailor Moon Volume 4 by Naoko Takeuchi
Manga
#1 as of April 4th
March 13th,
2012
Kodansha
International
Simple to Spectacular: How to Take One Basic
Recipe to Four Levels of Sophistication by
Jean-Georges Vongericten
Cooking
N/A
October 28th,
2000
Crown Publishing
Making Faces by Kevyn Aucoin
Beauty and Health
Was a New York Times Best
Seller
1997
Little, Brown &
Company
#1 as of April 4th (paperback
May 6th, 2009
only)
Image Comics
LENDING
 Only a select number of books are available for lending
 Books are lendable for certain periods of time
 Different lending options provided by each company
 Outsourcing
 Lending books through public libraries or other outlets
 Industry moving toward offering a larger scope of
lendable books
 Increase Network Effects
EBOOK PROMOTION PRICING
 Gifting Books
 Limited time offers
 “Weekly and Daily Deals”
 eBooks that are free for a limited time only
 Discounted best-sellers or currently popular books
 Free samples of every eBook
 Free literary classics
THE COST LEADER: AMAZON
 Able to provide the cheapest eBook prices where
applicable
 Lock-in sales to cause the consumer to invest in the
Amazon environment
 An eBook download automatically downloads to the
Amazon Cloud
 Kindle Reader app available for other tablets
Book
Other Retailer
Price (Cheapest)
Kindle Price
Difference
Genre
Current NY Times
Ranking
Imagine by Jonah Lehrer
$12.99
$9.59
$3.40
Non-Fiction
#1 as of April 4th
Lonely Planet Paris by Steve Fallon
$10.44
$9.99
$0.45
Travel
N/A
Pride and Prejudice by Jane Austen
$0.99
$0.00
$0.99
Fiction
N/A
Heaven is for Real by Todd Burpo
$8.49
$4.98
$3.51
Non-Fiction
#1 as of April 4th
(paperback only)
Go The _ To Sleep by Adam
Mansbach
$5.15
$4.61
$0.54
Advice & Misc.
#15 as of April 4th
(hardcover only)
The Hunger Games by Suzanne
Collins
$8.49
$5.00
$3.49
Children's Series
#1 as of April 4th
Redwood Bend by Robyn Carr
$3.50
$3.49
$0.01
Fiction
#13 as of April 4th
(ebook only)
Unfinished Business by Nora
Roberts
$3.49
$2.99
$0.50
Fiction
#22 as of April 4th
(ebook only)
Why Me? By Sarah Burleton
$3.99
$2.99
$1.00
Non-Fiction
#8 as of April 4th
(ebook only)
Jane Eyre by Charlotte Bronte
$3.99
$0.00
3.99
Fiction
N/A
Communication Law by John D.
Zelezny
Lending: $82.98
Lending: $39.66
$43.32
Textbook
N/A
The Politics of China: Sixty Years of
The People's Republic of China by
Roderick MacFarquhar
$32.76
$21.45
$11.31
Non-Fiction
N/A
The Kind Diet by Alicia Silverstone
$9.99
$8.53
$1.46
Advice & Misc.
N/A
THE FUTURE…
 Google Nexus Tablet (July 2012)
 Rumors about an iPad Mini
 Large barriers of entry are making it hard for
competitors to enter the market, however because
the industry is growing… we expect more competitors
to release eReaders
ANALYSIS AND
RECOMMENDATIONS
ANALYSIS AND RECOMMENDATIONS
LOWER EBOOK PRICES
 Tablet takeover?
 Lower Tablet prices
 A cautionary tale: Netbooks
 Bookstores come full-circle
LOWER EBOOK PRICES
 An antitrust lawsuit alleged that Apple colluded with
5 major publishers:
 HarperCollins
 Hachette
 Simon & Schuster
 Penguin
 MacMillan
Wsj.com
COLLUSION
Wholesale Model
Agency Model
 Used for traditional books
 Lets the retailer set
prices
 Amazon initially offered
eBooks for $9.99 to spark
eReader sales
 The publisher controls the
prices that consumers
see
 The agent receives a
commission and a “mostfavored-nation”
agreement
"We told the publishers, 'We'll go to the
agency model, where you set the price,
and we get our 30%, and yes, the
customer pays a little more, but that's
what you want anyway'”
-Steve Jobs
Wsj.com
COLLUSION
 Publishers approached retailers and demanded to
use the Agency structure
 This raised eBook prices across all retailers,
including Amazon
PENDING SETTLEMENT
 3 out of 5 publishers have agreed to settle
 Terminates anti-competitive agreement
 Pricing power back in the hands of retailers
ANALYSIS AND RECOMMENDATIONS
 Lower eBook prices
TABLET TAKEOVER?
 Lower Tablet prices
 A cautionary tale: Netbooks
 Bookstores come full-circle
TABLET TAKEOVER?
 eReader manufacturers are releasing Tablets and
eReaders with Tablet capabilities
 Over time, consumers have gained understanding of
eReaders and Tablets
TABLET TAKEOVER?
eMarketer.com
TABLET TAKEOVER?
 eReaders stripped down to basic capabilities
 Price discrimination
 eReaders marketed to heavy readers, while Tablets
have much wider appeal
 Apple eReader?
 A base model with simple capabilities might increase
ability to keep charging high prices for iPad
 Similar to iPod Nano and Shuffle releases
TABLET TAKEOVER?
 Not quite a computer
 No Keyboard
 Not quite a cell-phone
 Lack of ease-of-portability
TABLET TAKEOVER?
 Companies entering the Tablet market:
 Google*
 Dell
 HP
 Toshiba
 Lenovo
 LG
 HTC
 Blackberry
 Motorola
 Vizio
CNet.com
Google Correlate
ANALYSIS AND RECOMMENDATIONS
 Lower eBook prices
 Tablet takeover?
LOWER TABLET PRICES
 A cautionary tale: Netbooks
 Bookstores come full-circle
LOWER TABLET PRICES
 Increased competition within Tablet market
 Competitive pressure from firms previously only in
eReader market
 Amazon
 Barnes and Noble
 Device subsidized by purchase of tied goods:
 Books, movies, and music
ANALYSIS AND RECOMMENDATIONS
 Lower eBook prices
 Tablet takeover?
 Lower Tablet prices
A CAUTIONARY TALE: NETBOOKS
 Bookstores come full-circle
A CAUTIONARY TALE: NETBOOKS
Allthingsd.com
A CAUTIONARY TALE: NETBOOKS
 Increased competition led to less perceived
differentiation
 Features can be imitated, quality cannot
 Research and Development:
 Away from developing new features
 Toward improving existing ones
 Comparative
 Flexible screen technology
 Samsung acquired Liquavista
 Operating systems
ANALYSIS AND RECOMMENDATIONS
 Lower eBook prices
 Tablet takeover?
 Lower Tablet prices
 A cautionary tale: Netbooks
BOOKSTORES COME FULL-CIRCLE
IBISWorld
BOOKSTORES COME FULL-CIRCLE
 Larger retailers moving more towards online sales of
physical books and eBooks
 Will begin closing brick-and-mortar stores
 Need still exists for “bookstore experience”
 Mom-and-pop shops will flourish, industry goes full circle
QUESTIONS?
THANK
YOU FOR
YOUR
TIME!