SlideShare ist ein Scribd-Unternehmen logo
1 von 11
Downloaden Sie, um offline zu lesen
BCG Strategy Cup 2011




          TABLETS AND E-BOOKS
                               f
                        by Leap roggers
2010                                          What Apple wins on premium tablets..
Key e-book revenues and profits in $M                                                                                                                  E-book market share in 2010
                                                              In 2010, the US e-book market is valued at $966M.
    700
                                                              It is assumed that Amazon and Apple control 80% of this
    525                                                       market. Barnes&Nobles, Sony as well as platforms non-
                                                              associated with any proprietary readers control the
    350
                                                              remaining 20%.                                                                                    20%
    175                                                       Previously minor, e-books became a true alternative with
                                                                                                                                                                      69,4%
       0
                                                              the introduction of e-readers and tablets.                                                      10,6%
               Apple       Amazon
                                             Amazon and Apple play different games in an evenly split market
                                                                                                                                                                       Amazon
                                             Apple launched the iPad in April 2010 and created a new category.                                                         Apple
     Profit                                   Several other devices were launched before, however Kindle and iPad were a real boost to
                                                                                                                                                                       Others
     Revenues                                the market. ey offer different functions and operate in different price segments. Both
                                             will stage a war to define this nascent segment and to impose proprietary standards.

                                                        Amazon                                                          Apple
Key tablet revenues and profits in $M                                                                                                            Tablet market share in numbers

 6 000
                                                        8M                        Sales in 2010
                                                                                                                    8.5M
 4 500
 3 000                                              1.86%                     Op erating Marg in                 54.83%
 1 500                                                                                                                                                             48%
     0                                                                                                                                                       52%
               Apple         Amazon               Amazon’s Kindle provides a channel to buy and read e-books. Apple’s iPad,
  Operating profits generated by Kindle are        on top of that, is a source of tremendous income in itself.
       negligible at $3.51 per device.


                                     *Given the scope of the analysis and poor market penetration by other players only Kindle and iPad were considered.
Amazon recoups on wholesaling e-books
            Wholesale Model where Amazon                                                                          Agency Model by Apple
            buys e-books at 50% discount on                                                                       where publishers get 70% of
            the retail price of paper version.                                                                    the retail price of e-books.
                          Based on NY Times Paperback Bestseller list ( July 2010), average publisher margins are:



Wholesale
                       $9.45                     a v e r a g e       r e t a i l          p r i c e                       $10.90                                   Agency
                       $2.32                     publisher profit per bestseller sold                                     $2.45
                 Aer factoring in margins on hardcovers at their current 23% market share, publishers’ profits per e-book rise to

                       $4.96                     32% more with Wholesale                                                   $3.76
        Short-term perspective
 Amazon offers lower prices at its own risk and




                                                          }
 thus extends publishers’ market.
                                                                        Customers prefer Wholesale which offers them lower prices.
         Long-term perspective
                                                                         In the short run, publishers gain more with Wholesale, but
 If the $9.99 e-book price persists:
 – current paper book prices are not sustainable, therefore
                                                                             in the long run, Agency Model prevents them from
 publishers’ revenues from the Wholesale model diminish                               becoming a mere content provider.
 – e-book retail platforms become the sole distribution
 channel thus putting publishers at retailers’ mercy.
 In the Agency Model:                                          *is estimate abstracts from market dynamics. It is likely that the $9.99 policy will be discontinued as:
 – publishers keep full control of retail prices                     a) TOP5 publishers control 84/73% of the hardcover/paperback market and therefore their supplier
                                                                     negotiation power is huge
 – avoid the threat of customers getting used to low prices.         b) Apple is explicitly against $9.99 and binds its contractors not to offer lower prices at any other platform
                                                               In this case, publishers would renegotiate upwards the 50% discount rate, thus making the two models converge.
Apple can encroach on Amazon’s turf
                                                           (Amazon cannot)




             {                                                                                                         }
                Historical leader in online book retail            Established & dominated new markets (iPod, iPhone)
Amazon                                                                                                                     Apple
                Exhaustive choice of competitively priced books    Product design and soware-hardware integration
stands for                                                                                                                 stands for
                Exemplary customer service and logistics           Cross-media 1-click platform with a large client base
books           Kindle, the first e-Ink reader to ship in volume   Stores: client interaction and first-hand experience     intuitive




                          Kindle                                                               iPad
                          Reader-friendly                                                   Status symbol
                         E-Ink technology                                                      Versatile
                   Allows for reading in sunlight                                       Excellent user interface
                         Limited eye strain                                                     Games
                 Long battery life (up to one month)                                         Applications
                  Lower price tag ($139 w/o WiFi)                                           Web browsing
                                                                                           E-mail support


             Kindle is preferred by active readers,                             Surveys show substantial interest
              they buy 8 times more books than                                 in new functions like color display
                          iPad users.                                                  or video support.
Apple reaps the fruits from the education market
                                                                                                                                         E-book market evolution by sector
          – Tablet sales are expected to grow at 11.8%.                                                                                                  in $M of sales
          – E-book sales are driven by the number of tablets operating in the market, not by current sales.                                                                      3 000

          – Obsolescence period of two years = tablet sales of last two years constitute this client base that is                                                                2 250
          directly correlated with e-book sales.
          – Initial boost in 2011 as the number of tablet roughly doubles and stable growth thereaer.                                                                           1 500
          – It is assumed that initial e-book market structure is identical as in the paper book market.
                                                                                                                                                                                 750
          – However, Higher Education sector will grow at 21.8%, thus outpacing all other segments and
          increasing total Education share from 42 in 2010 to 48% in 2015.                                                                                                       0
                                                                                                                                            2010 2011 2012 2013 2014 2015



                                                         21%                                                 27%       21%
                                         28%                                                                                                                        Others
                                                            3%                                                              2%                                      Religious
                                                                        2010              2015                                                                      Adult&Juvenile
                                         14%                                                                 21%        29%                                         Higher Education
                                                         34%                                                                                                        K12 Education




             E-book market share                                 Education demands color, video and interactive features.        Education sector evolution by provider
          between Amazon and Apple                                Amazon will lose market share in this critical segment.                            in $M of sales
100%     87                                                       By 2015, Apple will multiply its market share by four.         1 500
                    80
 80%
                              68                                                                                                 1 200
                                         60                        It is assumed that churn from Kindle to iPad will be
 60%                                                55
                                                          48
                                                            51   concentrated in both Education sectors as its demand for         900
                                               45
 40%                                39                                       features cannot be met by Kindle.                    600
                         31
 20%           20                                                                                                                 300
    13
  0%                                                                                                                                0
                                                                                                                                           2010   2011   2012   2013      2014       2015
   2010       2011       2012      2013       2014       2015                           Apple     Amazon
Amazon doesn’t budge
                                              Apple’s numbers skyrocket
  E-book Revenue Structure at Apple in $M                                                                                         E-book Revenue Evolution at Amazon in $M

1 500                                                                                                                                1 500
                                             iPad will increase its initial share from 51% in 2010 to  72% in 2015,
1 125                                                                                                                                1 125
                                             thus reaching the saturation point for devices in its price range.
 750                                         Apple’s business model enables it to generate tremendous profits both                     750

 375                                         on device and e-book sales with $7200M profit only from iPad in                           375
                                             2015.
   0
            2010 2011 2012 2013 2014 2015
                                                                                                                                        0
                                                                                                                                              2010 2011 2012 2013 2014 2015
                                             Amazon will see its market share be restricted to readers of
                                             traditional black&white books. Customers craving a versatile device
                                             are likely to switch to an iPad. Profits on Kindle will remain stable,
                                             but relatively low ($49M) as it is sold almost at construction cost.
        Profits                               ey show however a slight upward tendency starting 2013.
        Revenues w/o profit
                                                                                                                                      Kindle sales Revenue Evolution in $M
        iPad sales Revenue Evolution in$M
                                                                                                                                      2 000
 15 000
                                                                                                                                      1 500
 11 250                                           Tablet sales by manufacturer             Publisher profits by e-book platform
                                                          in mln units                                     in $M
                                                                                          1 000                                       1 000
  7 500                                      30
                                             24                                            750
                                             18                                                                                        500
  3 750                                                                                    500
                                             12
                                              6                                            250
                                                                                                                                         0
        0                                     0                                                                                               2010 2011 2012 2013 2014 2015
                                                                                             0
             2010 2011 2012 2013 2014 2015        2010 2011 2012 2013 2014 2015                   2010 2011 2012 2013 2014 2015
                                                                                  Apple   Amazon
Amazon should reinforce unique positioning
                                                       without blurring its image


iPad will attract Kindle customers who need a color display in the Education market.           Tablet client base evolution by manufacturer
                                                                                                              (in mln of units)
                                                                                                                                           50
e challenge Amazon will face is to convince switching customers to continue to            iPad
buy books at its platform. To succeed in leveraging its unique market positioning,                                                         40
                                                                                           Kindle to iPad churn
Amazon should:                                                                             Kindle
                                                                                                                                           30
   1) develop reading applications going beyond existing ones that would enable:
   - taking notes and sharing them                                                                                                         20
   - multi-device support, you open the book where you closed it the last time
   - updating textbooks as they published                                                                                                     10
   - enhance college features, e.g. teachers indicating chapters to read
                                                                                                 2010 2011                                    0
   2) address campuses and teachers directly to sell textbooks in bulk                                        2012   2013   2014    2015


             Since iBookstore is mainly restricted to Apple users, Amazon should recognize the opportunity of capturing
                       all ebook sales that are not tablet-bound, including e.g. netbooks and Android devices.

                  Analysis of two color device options lead Amazon to the same conclusion:

         Simple color reader                                                     iPad-like tablet
        – Lacks the e-Ink comfort                                          – Impossible to match iPad on usability and design
        – Reduced battery life                                             – Lacks relevant skills and R&D capacity
        – Losing brand identity                                            – Inadequate brand image to become a status symbol
        – Poor versatility compared to an iPad                             – Risk to lose advantageous books/device ratio as customers will
        – Little value for money (at least 35% price increase)             be seduced by low price and other features


                 e temptation to launch an imperfect substitute of an iPad should be resisted.
Tomorrow:
                           Color by default and integrated publishing

Binding books to proprietary platforms
  – By 2015 Apple will control 87% of the Education e-book market.
  – Apple’s increased negotiation power with publishers will enable it to convince them to launch
  applications replacing both paper and e-books, thus locking out the competition.
  – anks to unmatched expertise in user interface, Apple will introduce new proprietary options.


Color was not an option before

 – Apple will prompt authors and publishers to include color and animation that would bind them to Apple’s device
 – Many books bought on iPad today are children’s books. ose young readers are accustomed from their early days to
 iPad’s dynamic interface. As they grow up, they will crave it even more.
 – Apple should focus its marketing effort on these users by facilitating their access to iPads.

New publishers to appear

 – anks to e-books, publishers’ margins increase significantly (from $1.04 to $2.32 for an average bestseller)
 – Retailers will recognize this opportunity to integrate vertically and to act as publishers.
 – Today integrated publishing is in test phase in offstream segments but can easily be extended to bestsellers.
 – Individual authors will gradually become independent of the current value chain in the publishing industry.
Android: an ad-selling machine
Advertisement
 – Put side by side with the Internet ad market, e-book market remains tiny at 4%.               Internet ad market share by access platform

 – erefore, Google should focus its strategic efforts elsewhere.                                    100
                                                                                                     75
– e value of the US Internet advertising market in 2010, display and search                         50
combined, was $22.4B.                                                                                25

 – We assume that the share of display ad will remain stable at 30.2% with search                     0
                                                                                                             2010         2015
 accounting for the remaining 69.8%.                                                                                               Computer
                                                                                                                                   Cell & Tablet
 – In 2015, ad market on mobile devices accounts for 10.6% of the overall
 Internet ad market, up from 2.6% in 2010.


Operating systems
                                                                                              Tablet market share by operating system in 2015
 – Mobile devices will increase their ad share as they will capture parts of the
 display market. Most of search ad revenues will still be generated on computers.

 – Since display ads within apps are OS-bound, the real challenge for Google is to
                                                                                                          31%
 impose Android in the tablet market.
                                                                                                                       38%
 – By 2015, Apple’s share in the high-end tablet market is on a slippery slope down to 50 ,
 the rest being evenly split between Android and others, just as in the low-end segment.                      31%
                                                                                                                                     iOS
                                                                                                                                     Android
                                                                                                                                     Others
Browsing is the real cash cow
 – Application developers earn 60% of ad revenues generated in Apple apps.
– It is assumed that Google will converge towards this model for Android apps.

– Google’s revenues from display ads vary by access platform:


                                       100%                For AdSense ads in browsers, whether on a computer, a tablet or a smartphone


                                         0%                For iAds in apps on Apple operating system (iPad, iPhone, iPod touch)


                                        40%                For ads in Android apps


  In display ads, the transfer from computer to mobile devices will clearly diminish Google’s revenues.

– To remedy this unfortunate evolution, Google should:

  •   Support pre-tablet markets
  •   Impose web-based Chrome OS to maintain sales of app-free netbooks
  •   Encourage app development on Android mainly as a selling argument
  •   Improve web browsing experience on tablets so that applications lose their appeal
  •   Re-emphasize Google’s founding values and promote open, unconstrained access to the Internet as opposed
      to restricted environment of applications
Executive summary



             {
                 – e nascent tablet market is evenly split between Amazon(8M Kindles) and Apple (8.5M iPads), Apple
                 has far better margins on devices.
                 – anks to its historical position, Amazon dominates e-book sales at almost 70% market share.
 2010            – ey offer competing pricing models in the e-book market. Amazon buys e-books at discount and sets up
                 an aggressive pricing strategy. Apple leaves pricing decisions to publishers and imposes a 30% fee.
                 – In the long-run publishers will either favor the Agency model or make the two converge.




             {
                 – Education market will grow from $405M to $1543M.
                 – It will trigger demand for color, interactive devices like the iPad.
                 – Kindle sales remain stable as customers switch for an iPad (significant churn rate concentrated in Education market)
 2015            – iPad sales reach 21M p.a. and 8M for Kindle.
                 – ere are 55M tablets in operation. Market for high-end, expensive devices is saturated at 13% penetration rate.
                 – Apple’s market share in e-books reaches that of Amazon’s.




             {
                 – Amazon has to retain Kindle-to-iPad switchers within its e-book shop.
                 – Multiple device applications will be more important in retaining customers than the device itself.
Next steps       – Amazon should stick to its core competence rather than compete with device manufacturers.
                 – Books will become platform-bound applications.
                 – Publishing will become more profitable and retailers will try to integrate vertically.




             {
                 – E-books are tiny drops, Internet advertisement is an ocean.
                 – Display ads will be partly transferred from computers to mobile devices.
 Google          – Increasing OS market shares translate directly into increased display ad revenues.
                 – Google should keep users on browsers and out of applications.

Weitere ähnliche Inhalte

Andere mochten auch

The Kindle, Nook, iPad, and Reader Compared
The Kindle, Nook, iPad, and Reader ComparedThe Kindle, Nook, iPad, and Reader Compared
The Kindle, Nook, iPad, and Reader ComparedMichael Hyatt
 
What Is Strategy Recap
What Is Strategy RecapWhat Is Strategy Recap
What Is Strategy Recapsmehro
 
Porters 5 Forces And Mapping
Porters 5 Forces And MappingPorters 5 Forces And Mapping
Porters 5 Forces And Mappingsmehro
 
Value Chain
Value ChainValue Chain
Value Chainsmehro
 
Barnes & Noble - marketing plan
Barnes & Noble - marketing plan Barnes & Noble - marketing plan
Barnes & Noble - marketing plan Cole Ericson
 
Strategic Analysis on Barnes and Noble
Strategic Analysis on Barnes and NobleStrategic Analysis on Barnes and Noble
Strategic Analysis on Barnes and NobleMatt Handwerk
 
Barnes & Noble vs. Amazon.com - Comparative Strategy Analysis
Barnes & Noble vs. Amazon.com - Comparative Strategy AnalysisBarnes & Noble vs. Amazon.com - Comparative Strategy Analysis
Barnes & Noble vs. Amazon.com - Comparative Strategy AnalysisEvgenii Gvozdev
 

Andere mochten auch (10)

The tablet economy
The tablet economy The tablet economy
The tablet economy
 
The Kindle, Nook, iPad, and Reader Compared
The Kindle, Nook, iPad, and Reader ComparedThe Kindle, Nook, iPad, and Reader Compared
The Kindle, Nook, iPad, and Reader Compared
 
What Is Strategy Recap
What Is Strategy RecapWhat Is Strategy Recap
What Is Strategy Recap
 
Porters 5 Forces And Mapping
Porters 5 Forces And MappingPorters 5 Forces And Mapping
Porters 5 Forces And Mapping
 
Tablet industry
Tablet industryTablet industry
Tablet industry
 
Amazon Kindle Ecosystem
Amazon Kindle EcosystemAmazon Kindle Ecosystem
Amazon Kindle Ecosystem
 
Value Chain
Value ChainValue Chain
Value Chain
 
Barnes & Noble - marketing plan
Barnes & Noble - marketing plan Barnes & Noble - marketing plan
Barnes & Noble - marketing plan
 
Strategic Analysis on Barnes and Noble
Strategic Analysis on Barnes and NobleStrategic Analysis on Barnes and Noble
Strategic Analysis on Barnes and Noble
 
Barnes & Noble vs. Amazon.com - Comparative Strategy Analysis
Barnes & Noble vs. Amazon.com - Comparative Strategy AnalysisBarnes & Noble vs. Amazon.com - Comparative Strategy Analysis
Barnes & Noble vs. Amazon.com - Comparative Strategy Analysis
 

Kürzlich hochgeladen

Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...IMARC Group
 
Upgrade Your Banking Experience with Advanced Core Banking Applications
Upgrade Your Banking Experience with Advanced Core Banking ApplicationsUpgrade Your Banking Experience with Advanced Core Banking Applications
Upgrade Your Banking Experience with Advanced Core Banking ApplicationsIntellect Design Arena Ltd
 
TalentView Webinar: Empowering the Modern Workforce_ Redefininig Success from...
TalentView Webinar: Empowering the Modern Workforce_ Redefininig Success from...TalentView Webinar: Empowering the Modern Workforce_ Redefininig Success from...
TalentView Webinar: Empowering the Modern Workforce_ Redefininig Success from...TalentView
 
Chicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdf
Chicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdfChicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdf
Chicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdfSourav Sikder
 
Q2 2024 APCO Geopolitical Radar - The Global Operating Environment for Business
Q2 2024 APCO Geopolitical Radar - The Global Operating Environment for BusinessQ2 2024 APCO Geopolitical Radar - The Global Operating Environment for Business
Q2 2024 APCO Geopolitical Radar - The Global Operating Environment for BusinessAPCO
 
MC Heights construction company in Jhang
MC Heights construction company in JhangMC Heights construction company in Jhang
MC Heights construction company in Jhangmcgroupjeya
 
Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access
 
AMAZON SELLER VIRTUAL ASSISTANT PRODUCT RESEARCH .pdf
AMAZON SELLER VIRTUAL ASSISTANT PRODUCT RESEARCH .pdfAMAZON SELLER VIRTUAL ASSISTANT PRODUCT RESEARCH .pdf
AMAZON SELLER VIRTUAL ASSISTANT PRODUCT RESEARCH .pdfJohnCarloValencia4
 
Building Your Personal Brand on LinkedIn - Expert Planet- 2024
 Building Your Personal Brand on LinkedIn - Expert Planet-  2024 Building Your Personal Brand on LinkedIn - Expert Planet-  2024
Building Your Personal Brand on LinkedIn - Expert Planet- 2024Stephan Koning
 
BCE24 | Virtual Brand Ambassadors: Making Brands Personal - John Meulemans
BCE24 | Virtual Brand Ambassadors: Making Brands Personal - John MeulemansBCE24 | Virtual Brand Ambassadors: Making Brands Personal - John Meulemans
BCE24 | Virtual Brand Ambassadors: Making Brands Personal - John MeulemansBBPMedia1
 
IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...
IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...
IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...AustraliaChapterIIBA
 
Slicing Work on Business Agility Meetup Berlin
Slicing Work on Business Agility Meetup BerlinSlicing Work on Business Agility Meetup Berlin
Slicing Work on Business Agility Meetup BerlinAnton Skornyakov
 
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptx
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptxHELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptx
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptxHelene Heckrotte
 
Anyhr.io | Presentation HR&Recruiting agency
Anyhr.io | Presentation HR&Recruiting agencyAnyhr.io | Presentation HR&Recruiting agency
Anyhr.io | Presentation HR&Recruiting agencyHanna Klim
 
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdfTalent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdfCharles Cotter, PhD
 
Ethical stalking by Mark Williams. UpliftLive 2024
Ethical stalking by Mark Williams. UpliftLive 2024Ethical stalking by Mark Williams. UpliftLive 2024
Ethical stalking by Mark Williams. UpliftLive 2024Winbusinessin
 
Mihir Menda - Member of Supervisory Board at RMZ
Mihir Menda - Member of Supervisory Board at RMZMihir Menda - Member of Supervisory Board at RMZ
Mihir Menda - Member of Supervisory Board at RMZKanakChauhan5
 
To Create Your Own Wig Online To Create Your Own Wig Online
To Create Your Own Wig Online  To Create Your Own Wig OnlineTo Create Your Own Wig Online  To Create Your Own Wig Online
To Create Your Own Wig Online To Create Your Own Wig Onlinelng ths
 
Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access
 

Kürzlich hochgeladen (20)

Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
 
Upgrade Your Banking Experience with Advanced Core Banking Applications
Upgrade Your Banking Experience with Advanced Core Banking ApplicationsUpgrade Your Banking Experience with Advanced Core Banking Applications
Upgrade Your Banking Experience with Advanced Core Banking Applications
 
TalentView Webinar: Empowering the Modern Workforce_ Redefininig Success from...
TalentView Webinar: Empowering the Modern Workforce_ Redefininig Success from...TalentView Webinar: Empowering the Modern Workforce_ Redefininig Success from...
TalentView Webinar: Empowering the Modern Workforce_ Redefininig Success from...
 
Chicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdf
Chicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdfChicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdf
Chicago Medical Malpractice Lawyer Chicago Medical Malpractice Lawyer.pdf
 
Q2 2024 APCO Geopolitical Radar - The Global Operating Environment for Business
Q2 2024 APCO Geopolitical Radar - The Global Operating Environment for BusinessQ2 2024 APCO Geopolitical Radar - The Global Operating Environment for Business
Q2 2024 APCO Geopolitical Radar - The Global Operating Environment for Business
 
Investment Opportunity for Thailand's Automotive & EV Industries
Investment Opportunity for Thailand's Automotive & EV IndustriesInvestment Opportunity for Thailand's Automotive & EV Industries
Investment Opportunity for Thailand's Automotive & EV Industries
 
MC Heights construction company in Jhang
MC Heights construction company in JhangMC Heights construction company in Jhang
MC Heights construction company in Jhang
 
Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024
 
AMAZON SELLER VIRTUAL ASSISTANT PRODUCT RESEARCH .pdf
AMAZON SELLER VIRTUAL ASSISTANT PRODUCT RESEARCH .pdfAMAZON SELLER VIRTUAL ASSISTANT PRODUCT RESEARCH .pdf
AMAZON SELLER VIRTUAL ASSISTANT PRODUCT RESEARCH .pdf
 
Building Your Personal Brand on LinkedIn - Expert Planet- 2024
 Building Your Personal Brand on LinkedIn - Expert Planet-  2024 Building Your Personal Brand on LinkedIn - Expert Planet-  2024
Building Your Personal Brand on LinkedIn - Expert Planet- 2024
 
BCE24 | Virtual Brand Ambassadors: Making Brands Personal - John Meulemans
BCE24 | Virtual Brand Ambassadors: Making Brands Personal - John MeulemansBCE24 | Virtual Brand Ambassadors: Making Brands Personal - John Meulemans
BCE24 | Virtual Brand Ambassadors: Making Brands Personal - John Meulemans
 
IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...
IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...
IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...
 
Slicing Work on Business Agility Meetup Berlin
Slicing Work on Business Agility Meetup BerlinSlicing Work on Business Agility Meetup Berlin
Slicing Work on Business Agility Meetup Berlin
 
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptx
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptxHELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptx
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptx
 
Anyhr.io | Presentation HR&Recruiting agency
Anyhr.io | Presentation HR&Recruiting agencyAnyhr.io | Presentation HR&Recruiting agency
Anyhr.io | Presentation HR&Recruiting agency
 
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdfTalent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
 
Ethical stalking by Mark Williams. UpliftLive 2024
Ethical stalking by Mark Williams. UpliftLive 2024Ethical stalking by Mark Williams. UpliftLive 2024
Ethical stalking by Mark Williams. UpliftLive 2024
 
Mihir Menda - Member of Supervisory Board at RMZ
Mihir Menda - Member of Supervisory Board at RMZMihir Menda - Member of Supervisory Board at RMZ
Mihir Menda - Member of Supervisory Board at RMZ
 
To Create Your Own Wig Online To Create Your Own Wig Online
To Create Your Own Wig Online  To Create Your Own Wig OnlineTo Create Your Own Wig Online  To Create Your Own Wig Online
To Create Your Own Wig Online To Create Your Own Wig Online
 
Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024
 

The Kindle vs iPad battle in the tablet and e-book markets

  • 1. BCG Strategy Cup 2011 TABLETS AND E-BOOKS f by Leap roggers
  • 2. 2010 What Apple wins on premium tablets.. Key e-book revenues and profits in $M E-book market share in 2010 In 2010, the US e-book market is valued at $966M. 700 It is assumed that Amazon and Apple control 80% of this 525 market. Barnes&Nobles, Sony as well as platforms non- associated with any proprietary readers control the 350 remaining 20%. 20% 175 Previously minor, e-books became a true alternative with 69,4% 0 the introduction of e-readers and tablets. 10,6% Apple Amazon Amazon and Apple play different games in an evenly split market Amazon Apple launched the iPad in April 2010 and created a new category. Apple Profit Several other devices were launched before, however Kindle and iPad were a real boost to Others Revenues the market. ey offer different functions and operate in different price segments. Both will stage a war to define this nascent segment and to impose proprietary standards. Amazon Apple Key tablet revenues and profits in $M Tablet market share in numbers 6 000 8M Sales in 2010 8.5M 4 500 3 000 1.86% Op erating Marg in 54.83% 1 500 48% 0 52% Apple Amazon Amazon’s Kindle provides a channel to buy and read e-books. Apple’s iPad, Operating profits generated by Kindle are on top of that, is a source of tremendous income in itself. negligible at $3.51 per device. *Given the scope of the analysis and poor market penetration by other players only Kindle and iPad were considered.
  • 3. Amazon recoups on wholesaling e-books Wholesale Model where Amazon Agency Model by Apple buys e-books at 50% discount on where publishers get 70% of the retail price of paper version. the retail price of e-books. Based on NY Times Paperback Bestseller list ( July 2010), average publisher margins are: Wholesale $9.45 a v e r a g e r e t a i l p r i c e $10.90 Agency $2.32 publisher profit per bestseller sold $2.45 Aer factoring in margins on hardcovers at their current 23% market share, publishers’ profits per e-book rise to $4.96 32% more with Wholesale $3.76 Short-term perspective Amazon offers lower prices at its own risk and } thus extends publishers’ market. Customers prefer Wholesale which offers them lower prices. Long-term perspective In the short run, publishers gain more with Wholesale, but If the $9.99 e-book price persists: – current paper book prices are not sustainable, therefore in the long run, Agency Model prevents them from publishers’ revenues from the Wholesale model diminish becoming a mere content provider. – e-book retail platforms become the sole distribution channel thus putting publishers at retailers’ mercy. In the Agency Model: *is estimate abstracts from market dynamics. It is likely that the $9.99 policy will be discontinued as: – publishers keep full control of retail prices a) TOP5 publishers control 84/73% of the hardcover/paperback market and therefore their supplier negotiation power is huge – avoid the threat of customers getting used to low prices. b) Apple is explicitly against $9.99 and binds its contractors not to offer lower prices at any other platform In this case, publishers would renegotiate upwards the 50% discount rate, thus making the two models converge.
  • 4. Apple can encroach on Amazon’s turf (Amazon cannot) { } Historical leader in online book retail Established & dominated new markets (iPod, iPhone) Amazon Apple Exhaustive choice of competitively priced books Product design and soware-hardware integration stands for stands for Exemplary customer service and logistics Cross-media 1-click platform with a large client base books Kindle, the first e-Ink reader to ship in volume Stores: client interaction and first-hand experience intuitive Kindle iPad Reader-friendly Status symbol E-Ink technology Versatile Allows for reading in sunlight Excellent user interface Limited eye strain Games Long battery life (up to one month) Applications Lower price tag ($139 w/o WiFi) Web browsing E-mail support Kindle is preferred by active readers, Surveys show substantial interest they buy 8 times more books than in new functions like color display iPad users. or video support.
  • 5. Apple reaps the fruits from the education market E-book market evolution by sector – Tablet sales are expected to grow at 11.8%. in $M of sales – E-book sales are driven by the number of tablets operating in the market, not by current sales. 3 000 – Obsolescence period of two years = tablet sales of last two years constitute this client base that is 2 250 directly correlated with e-book sales. – Initial boost in 2011 as the number of tablet roughly doubles and stable growth thereaer. 1 500 – It is assumed that initial e-book market structure is identical as in the paper book market. 750 – However, Higher Education sector will grow at 21.8%, thus outpacing all other segments and increasing total Education share from 42 in 2010 to 48% in 2015. 0 2010 2011 2012 2013 2014 2015 21% 27% 21% 28% Others 3% 2% Religious 2010 2015 Adult&Juvenile 14% 21% 29% Higher Education 34% K12 Education E-book market share Education demands color, video and interactive features. Education sector evolution by provider between Amazon and Apple Amazon will lose market share in this critical segment. in $M of sales 100% 87 By 2015, Apple will multiply its market share by four. 1 500 80 80% 68 1 200 60 It is assumed that churn from Kindle to iPad will be 60% 55 48 51 concentrated in both Education sectors as its demand for 900 45 40% 39 features cannot be met by Kindle. 600 31 20% 20 300 13 0% 0 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 Apple Amazon
  • 6. Amazon doesn’t budge Apple’s numbers skyrocket E-book Revenue Structure at Apple in $M E-book Revenue Evolution at Amazon in $M 1 500 1 500 iPad will increase its initial share from 51% in 2010 to  72% in 2015, 1 125 1 125 thus reaching the saturation point for devices in its price range. 750 Apple’s business model enables it to generate tremendous profits both 750 375 on device and e-book sales with $7200M profit only from iPad in 375 2015. 0 2010 2011 2012 2013 2014 2015 0 2010 2011 2012 2013 2014 2015 Amazon will see its market share be restricted to readers of traditional black&white books. Customers craving a versatile device are likely to switch to an iPad. Profits on Kindle will remain stable, but relatively low ($49M) as it is sold almost at construction cost. Profits ey show however a slight upward tendency starting 2013. Revenues w/o profit Kindle sales Revenue Evolution in $M iPad sales Revenue Evolution in$M 2 000 15 000 1 500 11 250 Tablet sales by manufacturer Publisher profits by e-book platform in mln units in $M 1 000 1 000 7 500 30 24 750 18 500 3 750 500 12 6 250 0 0 0 2010 2011 2012 2013 2014 2015 0 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 Apple Amazon
  • 7. Amazon should reinforce unique positioning without blurring its image iPad will attract Kindle customers who need a color display in the Education market. Tablet client base evolution by manufacturer (in mln of units) 50 e challenge Amazon will face is to convince switching customers to continue to iPad buy books at its platform. To succeed in leveraging its unique market positioning, 40 Kindle to iPad churn Amazon should: Kindle 30 1) develop reading applications going beyond existing ones that would enable: - taking notes and sharing them 20 - multi-device support, you open the book where you closed it the last time - updating textbooks as they published 10 - enhance college features, e.g. teachers indicating chapters to read 2010 2011 0 2) address campuses and teachers directly to sell textbooks in bulk 2012 2013 2014 2015 Since iBookstore is mainly restricted to Apple users, Amazon should recognize the opportunity of capturing all ebook sales that are not tablet-bound, including e.g. netbooks and Android devices. Analysis of two color device options lead Amazon to the same conclusion: Simple color reader iPad-like tablet – Lacks the e-Ink comfort – Impossible to match iPad on usability and design – Reduced battery life – Lacks relevant skills and R&D capacity – Losing brand identity – Inadequate brand image to become a status symbol – Poor versatility compared to an iPad – Risk to lose advantageous books/device ratio as customers will – Little value for money (at least 35% price increase) be seduced by low price and other features e temptation to launch an imperfect substitute of an iPad should be resisted.
  • 8. Tomorrow: Color by default and integrated publishing Binding books to proprietary platforms – By 2015 Apple will control 87% of the Education e-book market. – Apple’s increased negotiation power with publishers will enable it to convince them to launch applications replacing both paper and e-books, thus locking out the competition. – anks to unmatched expertise in user interface, Apple will introduce new proprietary options. Color was not an option before – Apple will prompt authors and publishers to include color and animation that would bind them to Apple’s device – Many books bought on iPad today are children’s books. ose young readers are accustomed from their early days to iPad’s dynamic interface. As they grow up, they will crave it even more. – Apple should focus its marketing effort on these users by facilitating their access to iPads. New publishers to appear – anks to e-books, publishers’ margins increase significantly (from $1.04 to $2.32 for an average bestseller) – Retailers will recognize this opportunity to integrate vertically and to act as publishers. – Today integrated publishing is in test phase in offstream segments but can easily be extended to bestsellers. – Individual authors will gradually become independent of the current value chain in the publishing industry.
  • 9. Android: an ad-selling machine Advertisement – Put side by side with the Internet ad market, e-book market remains tiny at 4%. Internet ad market share by access platform – erefore, Google should focus its strategic efforts elsewhere. 100 75 – e value of the US Internet advertising market in 2010, display and search 50 combined, was $22.4B. 25 – We assume that the share of display ad will remain stable at 30.2% with search 0 2010 2015 accounting for the remaining 69.8%. Computer Cell & Tablet – In 2015, ad market on mobile devices accounts for 10.6% of the overall Internet ad market, up from 2.6% in 2010. Operating systems Tablet market share by operating system in 2015 – Mobile devices will increase their ad share as they will capture parts of the display market. Most of search ad revenues will still be generated on computers. – Since display ads within apps are OS-bound, the real challenge for Google is to 31% impose Android in the tablet market. 38% – By 2015, Apple’s share in the high-end tablet market is on a slippery slope down to 50 , the rest being evenly split between Android and others, just as in the low-end segment. 31% iOS Android Others
  • 10. Browsing is the real cash cow – Application developers earn 60% of ad revenues generated in Apple apps. – It is assumed that Google will converge towards this model for Android apps. – Google’s revenues from display ads vary by access platform: 100% For AdSense ads in browsers, whether on a computer, a tablet or a smartphone 0% For iAds in apps on Apple operating system (iPad, iPhone, iPod touch) 40% For ads in Android apps In display ads, the transfer from computer to mobile devices will clearly diminish Google’s revenues. – To remedy this unfortunate evolution, Google should: • Support pre-tablet markets • Impose web-based Chrome OS to maintain sales of app-free netbooks • Encourage app development on Android mainly as a selling argument • Improve web browsing experience on tablets so that applications lose their appeal • Re-emphasize Google’s founding values and promote open, unconstrained access to the Internet as opposed to restricted environment of applications
  • 11. Executive summary { – e nascent tablet market is evenly split between Amazon(8M Kindles) and Apple (8.5M iPads), Apple has far better margins on devices. – anks to its historical position, Amazon dominates e-book sales at almost 70% market share. 2010 – ey offer competing pricing models in the e-book market. Amazon buys e-books at discount and sets up an aggressive pricing strategy. Apple leaves pricing decisions to publishers and imposes a 30% fee. – In the long-run publishers will either favor the Agency model or make the two converge. { – Education market will grow from $405M to $1543M. – It will trigger demand for color, interactive devices like the iPad. – Kindle sales remain stable as customers switch for an iPad (significant churn rate concentrated in Education market) 2015 – iPad sales reach 21M p.a. and 8M for Kindle. – ere are 55M tablets in operation. Market for high-end, expensive devices is saturated at 13% penetration rate. – Apple’s market share in e-books reaches that of Amazon’s. { – Amazon has to retain Kindle-to-iPad switchers within its e-book shop. – Multiple device applications will be more important in retaining customers than the device itself. Next steps – Amazon should stick to its core competence rather than compete with device manufacturers. – Books will become platform-bound applications. – Publishing will become more profitable and retailers will try to integrate vertically. { – E-books are tiny drops, Internet advertisement is an ocean. – Display ads will be partly transferred from computers to mobile devices. Google – Increasing OS market shares translate directly into increased display ad revenues. – Google should keep users on browsers and out of applications.