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Michael Brandon Sarah Icke Sooyeon Kim Daniel Sussman EREADERS AND TABLETS.

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Presentation on theme: "Michael Brandon Sarah Icke Sooyeon Kim Daniel Sussman EREADERS AND TABLETS."— Presentation transcript:

1 Michael Brandon Sarah Icke Sooyeon Kim Daniel Sussman EREADERS AND TABLETS

2 I. The Industry  Market Overview  Competition  Organization of Industry II. Pricing  Intertemporal Pricing  Versioning  Two-Part Tariffs  Information Pricing III. Analysis and Recommendations OVERVIEW

3 THE INDUSTRY

4 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 DEFINING THE MARKET

5  Amazon Kindle  Apple iPad  Barnes and Noble NOOK  Samsung Galaxy Tab  Sony Reader  No government regulation yet EREADER/TABLET COMPETITORS

6  Global eReader sales in 2011 hit 25.6 Million units, doubling the total sold in  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 = GLOBAL FIGURES: EREADERS eReaders20114Q3Q2Q Worldwide Units Shipped 25.6 Million10.7 Million6.5 Million5.1 Million Year-to-year Growth 200%64.30%165.90%167% Source: International Data Corporation

7  In 2011, global Tablet sales reached 68.7 Million units, a year- over-year growth rate of %.  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. GLOBAL FIGURES: TABLETS 20114Q3Q Worldwide Units Shipped 68.7Million28.2 Million18.1 Million Year-to-year Growth %155.00%264.50% Apple sales 15.4 Million11.1 Million Amazon sales 4.7 Million N/A Samsung sales 1.6 Million1.0 Million B&N sales 1.0 Million0.8 Million Pandigital sales 0.7 Million0.5 Million HP sales 0.9 Million ASUS sales 0.7 Million HHI (Global) Source: International Data Corporation

8 U.S. EREADER MARKET SHARE HHI (U.S.) 4337

9 U.S. TABLET MARKET SHARE HHI (U.S.) 3948

10  Physical bookstores  Online bookstores  Tablets  Smartphones  Libraries EBOOK INDUSTRY COMPETITORS

11  Who do these companies target?  What is the difference between tablet consumers and eReader consumers? THE TARGET MARKET

12 Demographics of eReader and Tablet owners by age AGES Source: Pew Research Center

13 Demographics of eReader and Tablet owners by education level EDUCATION LEVELS Source: Pew Research Center

14 Demographics of eReader and Tablet owners by income level INCOME LEVELS Source: Pew Research Center

15  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 ORGANIZATION OF THE INDUSTRY

16 DISTRIBUTION CHANNELS

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19  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 MAJOR COMPANIES

20  Online retailer that does not specialize in one product  Kindle– November 2011  Kindle Touch– November 2011  Kindle Fire– November 2011 Kindle Kindle Touch Kindle Fire AMAZON

21  Electronics Manufacturer specializing in products using the iOS operating system  iPad– April 2010  iPad 2– March 2011  The new iPad– March 2012 iPad iPad 2 The new iPad APPLE

22  Book retailer that started producing eReaders  NOOK– November 2009  NOOK Color– November 2010  NOOK Tablet– November 2011 NOOK NOOK Color NOOK Tablet BARNES & NOBLE

23  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 Reader SONY

24 Second Degree Pricing PRICING STRATEGIES

25  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

26 INTERTEMPORAL PRICING: EREADERS

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31 INTERTEMPORAL PRICING: TABLETS

32 COMPETITION VS. MARKUP POWER

33  Offer variations of eReaders at different prices  Customers will self-select into sub-markets VERSIONING

34 $79 KINDLE $99 KINDLE TOUCH $149 KINDLE TOUCH 3G $139 KINDLE KEYBOARD 3G $199 KINDLE FIRE $379 KINDLE DX

35 $99 NOOK SIMPLE TOUCH $169 NOOK COLOR $199 NOOK TABLET 8GB $249 NOOK TABLET 16GB

36 $499 IPAD 16GB $599 IPAD 32GB $699 IPAD 64GB $629 IPAD 16GB +4G $729 IPAD 32GB +4G $829 IPAD 64GB +4G

37 $129 EREADER $399 TABLET S 16GB $499 TABLET S 32GB $549 TABLET P

38 $ ” $ ” $ ” $ ”

39  Firms need to justify charging different prices for different versions  This is done by varying the level of functionality in each version VERSIONING (CONT’D)

40 FUNCTIONALITY

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42  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 OVERLAP

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45 FUNCTIONALITY PRICE

46  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 TWO-PART TARIFFS

47 AVERAGE PRICE OF EBOOK

48  High initial fixed costs and sunk fees  Prevention of arbitrage  Network Effects  Long-Tail Effect  Lending  Lock-In sales  Cost leadership INFORMATION PRICING

49 NUMBER OF EBOOKS IN AMAZON’S ELIBRARY OVER TIME

50  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

51  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 EBOOK TRENDS

52 BookGenreNY Times Ranking Publication Date Publisher Green Eggs and Ham by Dr. Suess Children's Picture Books N/A August 28th, 1960 Random House Publishing The Chronicles of Narnia by C.S. Lewis (all seven books) Children's SeriesN/A October 28th, 2001 HarperCollins Publishers Scones and Bones by Laura ChildsMass-Market Fiction #35 as of April 4th (paperback only) March 1st, 2011 Penguin Group The Blood Sugar Solution by Mark HymanAdvice & Misc. #1 as of April 4th (hardcover only) February 28th, 2012 Little, Brown & Company The Lorax by Dr. Suess Children's Picture Books #1 as of April 4th August 28th, 1971 Random House Publishing Extra Yarn by Mac Barnett Children's Picture Books #10 as of April 4th January 17th, 2012 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 #1 as of April 4th (paperback only) May 6th, 2009Image Comics 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 TakeuchiManga#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 CookingN/A October 28th, 2000 Crown Publishing Making Faces by Kevyn AucoinBeauty and Health Was a New York Times Best Seller 1997 Little, Brown & Company

53  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 LENDING

54  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 EBOOK PROMOTION PRICING

55  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 THE COST LEADER: AMAZON

56 Book Other Retailer Price (Cheapest) Kindle PriceDifferenceGenre Current NY Times Ranking Imagine by Jonah Lehrer$12.99$9.59$3.40Non-Fiction#1 as of April 4th Lonely Planet Paris by Steve Fallon$10.44$9.99$0.45TravelN/A Pride and Prejudice by Jane Austen$0.99$0.00$0.99FictionN/A Heaven is for Real by Todd Burpo$8.49$4.98$3.51Non-Fiction #1 as of April 4th (paperback only) Go The _ To Sleep by Adam Mansbach $5.15$4.61$0.54Advice & Misc. #15 as of April 4th (hardcover only) The Hunger Games by Suzanne Collins $8.49$5.00$3.49Children's Series#1 as of April 4th Redwood Bend by Robyn Carr$3.50$3.49$0.01Fiction #13 as of April 4th (ebook only) Unfinished Business by Nora Roberts $3.49$2.99$0.50Fiction #22 as of April 4th (ebook only) Why Me? By Sarah Burleton$3.99$2.99$1.00Non-Fiction #8 as of April 4th (ebook only) Jane Eyre by Charlotte Bronte$3.99$ FictionN/A Communication Law by John D. Zelezny Lending: $82.98Lending: $39.66$43.32TextbookN/A The Politics of China: Sixty Years of The People's Republic of China by Roderick MacFarquhar $32.76$21.45$11.31Non-FictionN/A The Kind Diet by Alicia Silverstone$9.99$8.53$1.46Advice & Misc.N/A

57 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

58 ANALYSIS AND RECOMMENDATIONS

59  LOWER EBOOK PRICES  Tablet takeover?  Lower Tablet prices  A cautionary tale: Netbooks  Bookstores come full-circle ANALYSIS AND RECOMMENDATIONS

60  An antitrust lawsuit alleged that Apple colluded with 5 major publishers:  HarperCollins  Hachette  Simon & Schuster  Penguin  MacMillan LOWER EBOOK PRICES Wsj.com

61 Wholesale Model  Used for traditional books  Lets the retailer set prices  Amazon initially offered eBooks for $9.99 to spark eReader sales Agency Model  The publisher controls the prices that consumers see  The agent receives a commission and a “most- favored-nation” agreement COLLUSION

62 "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

63  Publishers approached retailers and demanded to use the Agency structure  This raised eBook prices across all retailers, including Amazon COLLUSION

64  3 out of 5 publishers have agreed to settle  Terminates anti-competitive agreement  Pricing power back in the hands of retailers PENDING SETTLEMENT

65  Lower eBook prices  TABLET TAKEOVER?  Lower Tablet prices  A cautionary tale: Netbooks  Bookstores come full-circle ANALYSIS AND RECOMMENDATIONS

66  eReader manufacturers are releasing Tablets and eReaders with Tablet capabilities  Over time, consumers have gained understanding of eReaders and Tablets TABLET TAKEOVER?

67 eMarketer.com

68  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?

69  Not quite a computer  No Keyboard  Not quite a cell-phone  Lack of ease-of-portability TABLET TAKEOVER?

70  Companies entering the Tablet market:  Google*  Dell  HP  Toshiba  Lenovo  LG  HTC  Blackberry  Motorola  Vizio TABLET TAKEOVER? CNet.com

71 Google Correlate

72  Lower eBook prices  Tablet takeover?  LOWER TABLET PRICES  A cautionary tale: Netbooks  Bookstores come full-circle ANALYSIS AND RECOMMENDATIONS

73  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 LOWER TABLET PRICES

74  Lower eBook prices  Tablet takeover?  Lower Tablet prices  A CAUTIONARY TALE: NETBOOKS  Bookstores come full-circle ANALYSIS AND RECOMMENDATIONS

75 A CAUTIONARY TALE: NETBOOKS Allthingsd.com

76  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 A CAUTIONARY TALE: NETBOOKS

77  Lower eBook prices  Tablet takeover?  Lower Tablet prices  A cautionary tale: Netbooks  BOOKSTORES COME FULL-CIRCLE ANALYSIS AND RECOMMENDATIONS

78 IBISWorld

79  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 BOOKSTORES COME FULL-CIRCLE

80 THANK YOU FOR YOUR TIME! QUESTIONS?


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