The infographic makes use of sources 1, 7, 19, 20, 22, 23, 24, and 28, below listed.
Case: The Amazon Kindle Product Line
Section 3 (9:00 AM), Team 5
MI021 Computers in Management, Fall 2011
Group Members:
In 1995, Jeff Bezos launched Amazon.com. Today, Amazon is a Fortune 500 e-commerce company and the largest online retailer in the United States.1 Originally an online bookstore, Amazon has since branched out and become a major player in the highly competitive online entertainment and retailing industries. Bezos’ goal with Amazon has been to “seek to offer the Earth's Biggest Selection and to be the Earth's most customer-centric company, where customers can find and discover anything they may want to buy online”.2
Amazon.com, when it was first launched, had the major competitive advantage of the long tail over brick and mortar businesses like Borders. In 1997, the company went public and Amazon became the first online retailer to reach a million customers, growing far quicker than brick and mortar competitors like Borders. Last year, Amazon posted over $34 billion dollars in revenue, and has a market cap of $110 billion dollars.1 The profit from such sales figures provided Bezos with enough capital to start focusing on expanding his firm and fulfill his dream of offering “the Earth’s Biggest Selection.”
Today, most people are familiar with the Amazon Marketplace, a place where buyers and sellers could interact and exchange a variety of goods. Such a forum led to the development of one of Amazon’s greatest strengths: network effects, which helped to establish the Amazon brand. The huge number of interactions let Amazon establish customized consumer suggestions, and led to the creation of the loyalty program Amazon Prime, which offers deals on shipping and other perks. Because of these efforts, Amazon has over 75 million customer accounts today.3
In 2007, Bezos took Amazon in a new direction by starting Amazon MP3, a music store, and launching the Kindle series, a new breed of book.4 Amazon was able to establish its trademark long tail in the music industry as well by offering a library of over 17 million songs. The Kindle on the other hand, was an electronic device that allowed readers to purchase and read digital books off of Amazon’s website. While it was originally met with criticism, it proved its worth quickly. By the end of the year, sales were up to $5.67 billion in the fourth quarter of 2007 from $3.26 billion just the previous quarter.5 The Kindle line has shown wild success since then, and in November, Bezos will once again try to revolutionize the online retailer industry with the release of the Kindle Fire, which will attempt to do with all of Amazon’s digital media what the original Kindle did with eBooks.6
In the industry as a whole, Amazon has remained a dominant force for several years due to its savvy business practices, conservative financial policies, and strong performance even through tough times like the recent recession, posting up $34.2 billion dollars in revenue last year.14 Because of this, Standard and Poor’s recently bumped the company from an A- to an A in general business quality.14 Its entrance into, and arguably creation of, the eBook market was an unprecedented step for the company, a market that in 2010 was estimated to reach over $500 million dollars in content sales of books alone.7 This is up from $109 million in 2009 from $52.4 million in 2008.7 It is even estimated that by the year 2012, Amazon alone will sell more eBooks than the rest of the world will sell hard copies for all titles.7
In its main business of internet retailing, Amazon is clearly a market leader without many significant competitors. However this does not hold true for the eBook market. When the Kindle was first introduced in November 2007, it was the only eReader to be backed by a content provider, a major advantage over existing products like the Sony Reader. Since then, there have been many iterations, all of which have garnered similar praise and reception, and many imitators as well, causing the eBook market to explode in size.14 To put that in perspective, in January of this year, it was estimated that Amazon would sell as many as eight million Kindle units by year’s end.21 Amazon’s success was in the face of much adversity however, with items such as the Apple iPad, Barnes and Noble Nook, and Blackberry Playbook attempting directly or indirectly to usurp the eBook king. Despite this competition, it is estimated that the Kindle has continued to hold between 70 and 80 percent of the total E-book market.7 The strongest pure play eReader competitor is without a doubt the Nook, which holds around 25% of the market due to its offering of over 2 million books, newspapers, magazines, and other items, while Kindle offers a little more than half of that.10
The Kindle Fire contrastingly competes directly with the iPad and the Playbook, as it has a multi-touch LCD screen rather than the E Ink one of previous models.14 It also has a significantly shorter battery life, a sacrifice from as much as two months to around seven hours, which will likely prove to lessen its appeal to those who are strictly eBook readers.14 It makes up for this deficiency by having many of the same abilities as other tablets at only a fraction of the cost, a mere $200 dollars compared to the some $500 dollar price tag on an iPad, or a $300 dollar one on a Playbook.13 This is an advantage with the fact that the Playbook has actually hurt RIM’s profits due to its straddling between high end power and affordability.8 It is possible that this pricing decision will cause Amazon to see the netbook effect of recent years in the tablet market, though as of right now, the iPad is estimated to have no less than 68% of the market while Android tablets only account for 20%-25% of it.19, 20
Despite the faster processors and some other technical superiorities of competitors, the Fire has the brand loyalty of the Kindle line and Amazon as well as the switching costs of any existing Amazon content and ease of access to the Amazon marketplace.12 The Kindle has done extremely well in the eBook industry in the past, and with these things in mind, the Kindle Fire stands a good chance in the industry in which it will participate.
After the cost of goods and manufacturing expenses, the estimated production cost of the Kindle Fire is $209.63, causing Amazon to take an expected loss of roughly ten dollars per unit; however, iSuppli predicts digital sales per unit to create a marginal profit of about ten dollars for each Kindle Fire sold.15 This is made possible by Amazon’s massive scale, allowing them to sell the razor at a loss and profit off of the blades, so to speak. Amazon’s primary goal is to create a convenient and permanent link, or “umbilical cord,” from the customer to Amazon’s retail service.15 The company projects that creating this mobile version of the store will drastically increase sales and widen profit margins. Further working to increase affordability, Amazon provides a discount on each Kindle device if customers choose to opt into the Special Offers and Sponsored Screensavers service.16 These advertising channels allow Amazon to offer a lower price to buyers while also opening up another distribution channel. This practice can be enhanced by going a step further with IP address tracing for personalized ads.30 Additionally, all Kindles ship free for customers that subscribe to Amazon Prime and have the option of arriving preregistered to your Amazon account, making out-of-package use and purchasing quicker. (Amazon Store) Also, Amazon offers free, unlimited cloud storage for all Amazon digital content in all off the most recent Kindle models, which combined with the renowned Whispersync technology and wireless data transferal makes the Kindle a venerable media hub. Complementary access to both Wikipedia and a built in dictionary add value to the product as well.17 The newest line of Kindles, begin at $79 and are equipped with an E Ink displays of varying sizes and interface navigation methods consisting of a directional pad, a touch screen, or a keyboard.17 This series will likely remain the standard in E Ink readers, and cater specifically to those that desire crisp text combined with aforementioned long battery life. The Kindle Fire contains a 7” multi touch color display with a resolution of 1024x600, which iSuppli estimates to cost around $87, making it the most expensive component. Also, the new eight gigabyte capacity, despite being double that of previous models, is painfully restrictive given the new apps, music and movies it will support, making the five gigabyte limit on non-Amazon content a critical problem, especially when compared to the sixteen gigabyte capacity of the introductory iPad and Playbook.22, 23 It runs on a modified version of Android that provides easy access to all of Amazon’s digital content. This includes the Amazon Android Appstore containing more than 17,000 apps, the Amazon MP3 Store, Amazon eBooks and Magazines, the Amazons Video Store, as well as access to over 10,000 Amazon Instant streaming videos to customers with an Amazon Prime membership. This business even stands to be augmented by rumored Pandora and Netflix apps, and a plethora of other value-adding services. One of the best parts of these features is that digital content costs only fractions of a penny of their material counterparts, so expenditures on distribution and expiration are almost non-existent. Furthermore, Amazon has created a book recommendation service that closely resembles Cinematch of Netflix in order to recommend books to customers that closely resemble their previous purchases, a subtle but important factor to increasing sales. Most innovatively, the device ships with Amazon Silk, a cloud accelerated browser leveraging the “speed and power of the Amazon Elastic Computing Cloud” in order to make web browsing faster and more customized, complete with predictive page loading.17 Also, leveraging Android and juxtaposed to the iPad, the Kindle Fire supports Adobe Flash content on the web.24 Despite all of these new innovations, Amazon unfortunately has to contend with some new problems, as well as some old ones that are finding their way into this young industry.
The eBook industry as a whole suffers from a few plagues not uncommon in digital media today. The Telegraph cites a conservative estimate that between 1.5 and 3 million people search for pirated eBooks every day, and Google Insights shows terms like “torrent books” and “ebook torrent” showing huge increases in frequency over the past few years.25, 26 This statistic speaks to a problem that has existed in the music and movie industries for years, absorbing revenue and sapping profits. This piracy is likely in response to eBook vendors asking prices similar to that of print editions, while offering considerably lower quality in most cases. This is especially a problem in the textbook market. Because of this, it is likely that until the eReader market addresses quality concerns, it will face growth problems.
For the Kindle series, there exist two main hindrances to attracting younger customers, namely the existing problems with some formats, and the limited selection of digital textbooks. With regards to the first problem, the new Kindle Fire will undoubtedly illicit a positive response with its massively improved presentation of different document types and a back-lit, multi-touch, color screen, as the black and white E Ink visuals of the original series simply could not do justice to textbooks, children’s books, or any other literature that makes heavy use of images, colors, or complex formatting.27 Because of this, Amazon was having difficulty capturing college students and business people, which might very well be remedied by the changes in the Fire, as the majority of Kindle owners have been presumed to be over the age of 35.28 Concerning its textbook selection however, Amazon has had considerably less traction creating its long tail, offering only about 30,000 textbooks for the Kindle as of September 2011.29
The Amazon Marketplace was the foundation of Amazon.com, Inc. and it still remains one of Amazon’s greatest assets. However, the company’s continued growth over time is dependent on its ability to expand its offerings. The Kindle line and the digital products distributed through it offer this opportunity.
Works Cited
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1 Funding Universe, http://www.fundinguniverse.com/company-histories/Amazoncom-Inc-Company-History.html
2 Amazon Form 10-K 2010, http://www.wikinvest.com/stock/Amazon.com_(AMZN)/Description_Business
3 Amazon, http://www.amazon.com/gp/help/customer/display.html?nodeId=13819211
4 Amazon, http://www.amazon.com/MP3-Music-Download/b?ie=UTF8&node=163856011
5 Amazon, http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-corporateTimeline).
6 Todd Haselton, http://www.bgr.com/2011/10/05/leak-suggests-amazon-kindle-fire-may-surpass-ipad-pre-sales/
7 http://paidcontent.org/article/419-ten-predictions-for-the-e-book-market-in-2010/
8 http://www.guardian.co.uk/technology/2011/sep/16/profits-plunge-maker-blackberry-rim
9 http://us.blackberry.com/playbook-tablet/?CPID=KNC-kw388198_p6&HBX_PK=rim%7C3dfa21f1-7280-f5c9-4318-0000083bb232
10 http://www.nydailynews.com/money/2010/02/24/2010-02-24_barnes__noble_falters_despite_nook_ebook_sales.html
11 http://www.barnesandnoble.com/nookcolor/features/index.asp?cds2Pid=35583
12http://www.dailytech.com/Report+Apple+Cuts+07+Percent+of+iPad+Profit+to+Give+Factory+Workers+Big+Raise/article18571.htm
13 http://www.pcworld.com/article/188196/apples_ipad_profit_breaking_it_down.html
14 http://www.marketwatch.com/story/sp-raises-amazoncom-credit-rating-2011-02-23
15 iSuppli, http://www.isuppli.com/Teardowns/News/Pages/Amazon-Sells-Kindle-Fire-at-Low-Profit-Margin-to-Promote-Online-Merchandize-Sales.aspx
1 Funding Universe, http://www.fundinguniverse.com/company-histories/Amazoncom-Inc-Company-History.html
2 Amazon Form 10-K 2010, http://www.wikinvest.com/stock/Amazon.com_(AMZN)/Description_Business
3 Amazon, http://www.amazon.com/gp/help/customer/display.html?nodeId=13819211
4 Amazon, http://www.amazon.com/MP3-Music-Download/b?ie=UTF8&node=163856011
5 Amazon, http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-corporateTimeline).
6 Todd Haselton, http://www.bgr.com/2011/10/05/leak-suggests-amazon-kindle-fire-may-surpass-ipad-pre-sales/
7 http://paidcontent.org/article/419-ten-predictions-for-the-e-book-market-in-2010/
8 http://www.guardian.co.uk/technology/2011/sep/16/profits-plunge-maker-blackberry-rim
9 http://us.blackberry.com/playbook-tablet/?CPID=KNC-kw388198_p6&HBX_PK=rim%7C3dfa21f1-7280-f5c9-4318-0000083bb232
10 http://www.nydailynews.com/money/2010/02/24/2010-02-24_barnes__noble_falters_despite_nook_ebook_sales.html
11 http://www.barnesandnoble.com/nookcolor/features/index.asp?cds2Pid=35583
12http://www.dailytech.com/Report+Apple+Cuts+07+Percent+of+iPad+Profit+to+Give+Factory+Workers+Big+Raise/article18571.htm
13 http://www.pcworld.com/article/188196/apples_ipad_profit_breaking_it_down.html
14 http://www.marketwatch.com/story/sp-raises-amazoncom-credit-rating-2011-02-23
15 iSuppli, http://www.isuppli.com/Teardowns/News/Pages/Amazon-Sells-Kindle-Fire-at-Low-Profit-Margin-to-Promote-Online-Merchandize-Sales.aspx
16 Amazon, http://www.amazon.com/gp/product/B0051QVESA/ref=as_li_ss_tl?ie=UTF8&tag=briatobephota-0&linkCode=as2&camp=217145&creative=399373&creativeASIN=B0051QVESA
17 Amazon, http://www.amazon.com/Kindle-Color-Multi-touch-Display-Wi-Fi/dp/B0051VVOB2/ref=sr_1_1?ie=UTF8&qid=1318556185&sr=8-1
18 Amazon, http://www.amazon.com/Kindle-Wi-Fi-Ink-Display-Screensavers/dp/B0051QVESA/ref=sr_tr_sr_1?ie=UTF8&qid=1318556231&sr=8-1
19 TG Daily News,
http://www.tgdaily.com/mobility-features/58463-android-tablet-market-share-tumbles-to-268
20 Vator News,
http://vator.tv/news/2011-09-22-apple-losing-tablet-market-share-but-still-on-top
21 Bloomberg news, Joseph Galante and Peter Burrows,
http://www.bloomberg.com/news/2010-12-21/amazon-com-is-said-to-exceed-kindle-sales-estimates-by-60-shares-advance.html
22 Apple Tech Specs for the iPad,
http://www.apple.com/ipad/specs/
23 Blackberry Playbook Tablet,
http://us.blackberry.com/playbook-tablet/#!tabletFeatures
24 Amazon Kindle Store Page,
http://www.amazon.com/Kindle-Fire-Amazon-Tablet/dp/B0051VVOB2/ref=amb_link_357715942_7?pf_rd_m=ATVPDKIKX0DER&pf_rd_s=center-1&pf_rd_r=1B9EK6H4PPF7BVZ1C1PQ&pf_rd_t=101&pf_rd_p=1324280122&pf_rd_i=507846
25 The Telegraph,
http://blogs.telegraph.co.uk/technology/adrianhon/100005867/your-time-is-up-publishers-book-piracy-is-about-to-arrive-on-a-massive-scale/
26 Google Insights,
http://www.google.com/insights/search/#q=torrent%20ebook&cmpt=q
27 CNET Preview,
http://reviews.cnet.com/tablets/amazon-kindle-fire/4505-3126_7-35022491.html
28 FCG Media Solutions,
http://floridaresearchgroup.wordpress.com/2010/02/16/demographics-of-kindle-and-other-ereader-users/
29 Amazon eTextbook Page,
http://www.amazon.com/s/ref=nb_sb_ss_i_0_9?url=search-alias%3Ddigital-text&field-keywords=textbooks+for+kindle&sprefix=textbooks
30 The Telegraph,
http://www.telegraph.co.uk/technology/amazon/8797591/Amazons-Kindle-Fire-will-track-users-across-the-web.html
