Recently, Apple rejected a digital book application from Sony. The disagreement here is over how and when Apple collects for its services. Apple is playing a dangerous game.
In theory, Apple has the right to insist, under its terms for developers, that any app, which offers customers the ability to purchase books outside of the app, offer the ability for customers to purchase within the app at the same time.
Here is the rub. In its application, Sony sends customers to its own web site where they complete the purchase of a book. By routing the customers to its own web site, Sony is able to avoid a payment of 30% of revenues to Apple.
Others, including Amazon, with its Kindle, and Barnes & Noble, with its Nook, have been able to sell e-books by sending users to the companys’ own web sites. Apple simply was not enforcing its policy requiring developers to use its in-app purchasing feature to buy new content.
A 30% charge on revenues is a high price to pay Apple. Apple may be setting itself up for future loss of market share by enforcing this policy. If the Android platform does not put the same requirement on its app developers, the developers will have a strong incentive to avoid the 30% charge by encouraging customers to purchase using an Android device rather than an Apple device. Alternatively, the application developers may charge a higher price for purchases through Apple.
Apple’s unique strength has been its superior list of available applications. Apple’s enforcement of this requirement to purchase inside the app so that Apple can collect 30% of the revenues puts at risk its major advantage. Apple needs to compromise here by charging a lower price or no price at all. After all, it already makes high profits on its hardware and software product combination. It also makes profits on many of the downloaded apps. The application developers are customers too. Why make their life difficult? Does the benefit Apple provides a seller justify 30% of revenues? Sounds pretty rich.
Showing posts with label Sony. Show all posts
Showing posts with label Sony. Show all posts
Thursday, February 17, 2011
Thursday, April 29, 2010
Creating Economies of Scale in the Auto Industry
The German automakers are under some pressure. They need to have a small car in their product line-up in order to respond both to consumers’ growing preferences for smaller cars and to government pressures to reduce fuel consumption and carbon emissions. BMW has answered with its One series. Volkswagen has taken a 20% stake in Japan’s Suzuki Motor Corporation, which is a small car specialist. Mercedes Benz has decided to go an alliance route.
Recently, Daimler, the maker of Mercedes Benz automobiles, announced an alliance with Nissan and Renault to create a common line of small cars. The companies will also share engines and work together to create small commercial vans. To do this, Nissan and Renault will invest about $1.6 billion in Daimler who, in turn, will invest about $1.6 billion in Nissan and Renault. These investments will have a good pay-off. The two sides of the alliance estimate that they will each save about $2.7 billion in costs over the coming five years. This alliance creates new economies of scale for each side by increasing their productivity, as measured by units of input costs over units of output product. (See “Audio Tip #187: The Components of Productivity” on StrategyStreet.com.) In this case, they improve productivity by spreading fixed cost activity such as design of new products over more sales output.
In analyzing several thousand cost reduction approaches, which companies have employed over the last twenty-five years, we have seen two basic approaches to the task of increasing the output over which fixed costs investments are used. First, the company may acquire a similar organization to spread fixed costs over more units of sales. Second, the company may form an alliance of some kind to spread these fixed costs over more sales output. This small car alliance is an example of the second approach. In turn, we have identified three ways that companies pursue this second approach of spreading fixed cost. First, the companies may use their fixed cost with competitors who employ outsourcing. Second, the companies may combine fixed cost with competitors into separate businesses. Third, the company may use its fixed cost with new customer segments by turning some of their cost centers into profit centers. This small car alliance is an example of the second of these techniques, combining fixed costs with competitors into separate businesses.
Other examples where companies have employed this cost management approach include Sony and Sharp partnering in the flat panel TV business two years ago. Sony invested in Sharp’s plant to make LCDs. This gave Sony the option of buying the panels for its TVs while Sharp reduced the investment burden for panel production. In another example, General Mills and Land O’Lakes combined their distribution networks, improving their scale economies. In this later case, the companies were not direct competitors as are the companies in the small auto alliance.
You may find many more cost management concepts and examples in StrategyStreet.com/Improve/Costs.
Recently, Daimler, the maker of Mercedes Benz automobiles, announced an alliance with Nissan and Renault to create a common line of small cars. The companies will also share engines and work together to create small commercial vans. To do this, Nissan and Renault will invest about $1.6 billion in Daimler who, in turn, will invest about $1.6 billion in Nissan and Renault. These investments will have a good pay-off. The two sides of the alliance estimate that they will each save about $2.7 billion in costs over the coming five years. This alliance creates new economies of scale for each side by increasing their productivity, as measured by units of input costs over units of output product. (See “Audio Tip #187: The Components of Productivity” on StrategyStreet.com.) In this case, they improve productivity by spreading fixed cost activity such as design of new products over more sales output.
In analyzing several thousand cost reduction approaches, which companies have employed over the last twenty-five years, we have seen two basic approaches to the task of increasing the output over which fixed costs investments are used. First, the company may acquire a similar organization to spread fixed costs over more units of sales. Second, the company may form an alliance of some kind to spread these fixed costs over more sales output. This small car alliance is an example of the second approach. In turn, we have identified three ways that companies pursue this second approach of spreading fixed cost. First, the companies may use their fixed cost with competitors who employ outsourcing. Second, the companies may combine fixed cost with competitors into separate businesses. Third, the company may use its fixed cost with new customer segments by turning some of their cost centers into profit centers. This small car alliance is an example of the second of these techniques, combining fixed costs with competitors into separate businesses.
Other examples where companies have employed this cost management approach include Sony and Sharp partnering in the flat panel TV business two years ago. Sony invested in Sharp’s plant to make LCDs. This gave Sony the option of buying the panels for its TVs while Sharp reduced the investment burden for panel production. In another example, General Mills and Land O’Lakes combined their distribution networks, improving their scale economies. In this later case, the companies were not direct competitors as are the companies in the small auto alliance.
You may find many more cost management concepts and examples in StrategyStreet.com/Improve/Costs.
Thursday, December 17, 2009
Make Them Wait
Three of the largest book publishers have decided to delay the release of their most popular new books to the e-Book market. This is unlikely to be a successful experiment. But another experiment from a fourth publisher offers promise.
E-Book readers, from Amazon, Barnes & Noble and Sony, among others, are some of this years hottest Christmas gifts. These e-Book readers are more than doubling last year’s unit sales. They are pulling the e-Book book sales with them.
The problem, of course, is money. An e-Book sells for about $10. The most popular hard cover books sell for $25 to $27. There’s the rub. The book publishers get about half of that $27 hard cover price. So you can imagine these publishers are less than excited about the opportunity in the retail price of an e-Book at $10, even if they would get all of that $10, which they won’t. (See “Audio Tip #88: Questions to Determine Your Response to a Low-end Competitor” on StrategyStreet.com.)
So, to try to hold the $27 hard cover market, three major publishing houses have announced delays in allowing their most popular titles to go to the electronic book publication market. HarperCollins Publishers, Hachette Book Group and Simon and Schuster plan to delay a few of the books that carry their highest expectations for profit. The delays will last from four to six months. These delays roughly match the time that the paperback version of a title follows the hard cover version.
On the one hand, these titles are unique Function innovations. Some readers will pay the higher price in order to be first in line to read the new publications. But there are many other unique books. The delays announced so far will cover less than 150 of the total 2000 new book titles issued each year.
The e-Book format is less costly and much more user-friendly. The e-Book is a much less expensive product to produce and deliver. Its digital format allows companies to distribute their product over the internet and to the e-Book readers by wireless connections. The e-Book reader can carry more than 1500 books. The user, then, can carry many books in the space of one paperback. This technology is not going to shrink nor pass away, no matter what publishers decide to do with their most popular new book titles. The cost of book publishing is simply going to plummet. But the revenues available to the industry over time should increase dramatically as new customers enter the market.
This e-Book market is an entirely new market. The e-Book offers opportunities to do things never before possible with hard cover books. The digital format allows companies to provide “special features” that enhance the attractiveness of the e-Book. These special features could include such benefits as interviews with the author, in-person video reviews by some of the country’s best book reviewers and videos of the geographic settings in the book, among others. There will be a lot of these new features (See “Audio Tip #29: Positive vs. Negative Volatility” on StrategyStreet.com). These new features, along with the much lower prices charged, will bring a whole new set of e-Book customers into the marketplace. Many of these new customers are not candidates for the $27 hard cover product. They will be happy buyers of the e-Book at $10 with its enhanced features.
A fourth member of the major book publishers, Macmillan, has developed a more creative and more promising approach. This approach envisions the release of an e-Book version of its best sellers on the same day as the hard cover book hits the shelves. The company envisions a “special edition” of the e-Book. This special edition will cost the same as the hard cover book and will be on the market for only 90 days. The special edition will include author interviews and reading guides, along with other material. At the end of 90 days, the special edition will discontinue and the company will issue the standard e-Book format at the lower standard e-Book price.
The publishing industry will fail at its delay experiment. They would be better off embracing the new technology, with its potential for extra Functions and ease-of-use, and then spending the next few years reducing the scale of the paper-based cost structure they carry today. My guess is that a hybrid version of the Macmillan experiment will eventually emerge. Under this hybrid version, all of the most popular books will be available in e-Book format, along with many function enhancements, like those in the Macmillan special edition, for a price a few dollars above the standard e-Book price, but at least 25% below the hard cover price. This approach ensures a much better value proposition for the e-Book customer, builds the e-Book market, and should allow the industry to make an attractive profit at the lower price, due to the much lower cost of production and distribution. Over time, the higher price of the most popular e-Books would gradually fall to the price of the standard e-Book in the market place so that the publisher may reap the rewards from customers willing to wait for a lower price on a good product.
E-Book readers, from Amazon, Barnes & Noble and Sony, among others, are some of this years hottest Christmas gifts. These e-Book readers are more than doubling last year’s unit sales. They are pulling the e-Book book sales with them.
The problem, of course, is money. An e-Book sells for about $10. The most popular hard cover books sell for $25 to $27. There’s the rub. The book publishers get about half of that $27 hard cover price. So you can imagine these publishers are less than excited about the opportunity in the retail price of an e-Book at $10, even if they would get all of that $10, which they won’t. (See “Audio Tip #88: Questions to Determine Your Response to a Low-end Competitor” on StrategyStreet.com.)
So, to try to hold the $27 hard cover market, three major publishing houses have announced delays in allowing their most popular titles to go to the electronic book publication market. HarperCollins Publishers, Hachette Book Group and Simon and Schuster plan to delay a few of the books that carry their highest expectations for profit. The delays will last from four to six months. These delays roughly match the time that the paperback version of a title follows the hard cover version.
On the one hand, these titles are unique Function innovations. Some readers will pay the higher price in order to be first in line to read the new publications. But there are many other unique books. The delays announced so far will cover less than 150 of the total 2000 new book titles issued each year.
The e-Book format is less costly and much more user-friendly. The e-Book is a much less expensive product to produce and deliver. Its digital format allows companies to distribute their product over the internet and to the e-Book readers by wireless connections. The e-Book reader can carry more than 1500 books. The user, then, can carry many books in the space of one paperback. This technology is not going to shrink nor pass away, no matter what publishers decide to do with their most popular new book titles. The cost of book publishing is simply going to plummet. But the revenues available to the industry over time should increase dramatically as new customers enter the market.
This e-Book market is an entirely new market. The e-Book offers opportunities to do things never before possible with hard cover books. The digital format allows companies to provide “special features” that enhance the attractiveness of the e-Book. These special features could include such benefits as interviews with the author, in-person video reviews by some of the country’s best book reviewers and videos of the geographic settings in the book, among others. There will be a lot of these new features (See “Audio Tip #29: Positive vs. Negative Volatility” on StrategyStreet.com). These new features, along with the much lower prices charged, will bring a whole new set of e-Book customers into the marketplace. Many of these new customers are not candidates for the $27 hard cover product. They will be happy buyers of the e-Book at $10 with its enhanced features.
A fourth member of the major book publishers, Macmillan, has developed a more creative and more promising approach. This approach envisions the release of an e-Book version of its best sellers on the same day as the hard cover book hits the shelves. The company envisions a “special edition” of the e-Book. This special edition will cost the same as the hard cover book and will be on the market for only 90 days. The special edition will include author interviews and reading guides, along with other material. At the end of 90 days, the special edition will discontinue and the company will issue the standard e-Book format at the lower standard e-Book price.
The publishing industry will fail at its delay experiment. They would be better off embracing the new technology, with its potential for extra Functions and ease-of-use, and then spending the next few years reducing the scale of the paper-based cost structure they carry today. My guess is that a hybrid version of the Macmillan experiment will eventually emerge. Under this hybrid version, all of the most popular books will be available in e-Book format, along with many function enhancements, like those in the Macmillan special edition, for a price a few dollars above the standard e-Book price, but at least 25% below the hard cover price. This approach ensures a much better value proposition for the e-Book customer, builds the e-Book market, and should allow the industry to make an attractive profit at the lower price, due to the much lower cost of production and distribution. Over time, the higher price of the most popular e-Books would gradually fall to the price of the standard e-Book in the market place so that the publisher may reap the rewards from customers willing to wait for a lower price on a good product.
Thursday, September 3, 2009
The eBook Competition
Amazon and its Kindle products have had the eBook market to themselves since the market began taking off a couple of years ago. The eBook market is now starting to grow fairly fast. Sony has decided to grab some of that growth.
Sony is entering the market with three price points: a $199 entry product called the Reader Pocket Edition, the $299 Reader Touch Edition with a touch screen and the high-end Reader Daily Edition at $399 with both touch screen and wireless capability.
Very fast-growing markets see market share changes due to Function and Price innovations. Let’s use the Customer Buying Hierarchy (see Audio Tip #95: Customer Buying Hierarchy on StrategyStreet.com) to evaluate Sony’s prospects against Amazon.
The Customer Buying Hierarchy holds that customers buy using four major criteria: Function, Reliability, Convenience and Price. Customers go through the hierarchy in that specific order and purchase when there is one, and only one, competitor who can offer them a unique benefit.
Function refers to the way the customer uses the product. Function innovations in this eBook market are two types: hardware innovations and content. In hardware, Sony has two Price Points with a touch screen capability that Kindle does not offer. On the other hand, the regular Kindle 2 offers wireless downloads. The only Sony product that offers wireless is the high-end Reader Daily Edition at $399, compared to Kindles’ $299 Price Point. Without considering price, it is hard to call a winner when the Kindle 2 offers wireless connectivity while the Sony offers a touch screen.
Content is likely to be a different story. Sony has adopted the ePub format, which is an international format for digital books and publications. Amazon, on the other hand, offers eBooks which can be read only on Kindle 2 devices, a proprietary approach. Sony argues that its readers can download books from the local library using its format, saving costs. But libraries have only a limited number of digital copies of books available. And, if the market takes off, the authors and publishers are likely to severely limit the number of free library copies available to ereaders. Kindle, for its part, is the progeny of a book retailer. There are many books available through Amazon for the Kindle 2, far more than will be available for the Sony products. In addition, the Apple iPhone and the iPod Touch also allow their owners to read books in the Kindle 2 format. With its extensive experience and product platform already in the market, content providers are highly likely to choose the Kindle 2 format before choosing the Sony format, if they must make a choice. Certainly in the early going, the content, and thus the Function advantage, goes to Amazon and it’s Kindle 2.
Reliability refers to how a company keeps the promises it makes to its customers. For an end user customer, Reliability means that the product works and will be fixed promptly if it does not work. Amazon has a superb reputation for Reliability among consumers. Sony’s reputation is also good. However, since Sony produces mostly electronic gear, its reputation is unlikely to be as good as that of Amazon, who sells mostly digital products. I would guess Amazon gets a slight nod in Reliability.
Convenience refers to the ease with which a customer can buy and begin using the product. Sony’s products will be in 9,000 retail outlets, including all the leaders in the industry, this holiday season. Amazon sells its Kindle online. The customer can see and touch the Sony products in the many retail outlets. Seeing and touching a Kindle is much more difficult for the perspective Amazon customer. The nod in Convenience clearly goes to Sony.
Price is the last consideration. The Kindle 2 product has a price of $299. The Sony Reader Daily Edition has a price of $399. As we noted above, the Sony product offers a touch screen at this price. Kindle does not, at least not yet. The Sony product is a third more expensive than is the Kindle. This additional price is likely to make the Sony product a Performance Leader product (see Audio Tip #82: Performance Leader Products and Companies on StrategyStreet.com), rather than a true competitor for the leading Standard Leader position.
It is going to be difficult for Sony to make the $399 product the most common product in the market. Amazon’s Kindle has already established the industry standard for benefits and price. Sony would have been more successful offering its touch screen benefits at no price increase over the Kindle 2 Standard Leader product. Sony looks to be in a Leader’s Trap here. It will eventually have to reduce that price or see the product garner relatively little market share, likely well below 15% of the market.
Both Sony and Amazon would probably be better off if they responded to the content challenge each offers the other. Sony might try to license the Kindle software and offer that format, as well as the format. Then Sony could have competed on its strengths in making small electronic equipment. Amazon could add the ePub format to its software and open up a new world of content for its customers. This will become imperative for Amazon if a great deal of content comes available in the ePub format that is not also available in the Amazon proprietary format.
Sony is entering the market with three price points: a $199 entry product called the Reader Pocket Edition, the $299 Reader Touch Edition with a touch screen and the high-end Reader Daily Edition at $399 with both touch screen and wireless capability.
Very fast-growing markets see market share changes due to Function and Price innovations. Let’s use the Customer Buying Hierarchy (see Audio Tip #95: Customer Buying Hierarchy on StrategyStreet.com) to evaluate Sony’s prospects against Amazon.
The Customer Buying Hierarchy holds that customers buy using four major criteria: Function, Reliability, Convenience and Price. Customers go through the hierarchy in that specific order and purchase when there is one, and only one, competitor who can offer them a unique benefit.
Function refers to the way the customer uses the product. Function innovations in this eBook market are two types: hardware innovations and content. In hardware, Sony has two Price Points with a touch screen capability that Kindle does not offer. On the other hand, the regular Kindle 2 offers wireless downloads. The only Sony product that offers wireless is the high-end Reader Daily Edition at $399, compared to Kindles’ $299 Price Point. Without considering price, it is hard to call a winner when the Kindle 2 offers wireless connectivity while the Sony offers a touch screen.
Content is likely to be a different story. Sony has adopted the ePub format, which is an international format for digital books and publications. Amazon, on the other hand, offers eBooks which can be read only on Kindle 2 devices, a proprietary approach. Sony argues that its readers can download books from the local library using its format, saving costs. But libraries have only a limited number of digital copies of books available. And, if the market takes off, the authors and publishers are likely to severely limit the number of free library copies available to ereaders. Kindle, for its part, is the progeny of a book retailer. There are many books available through Amazon for the Kindle 2, far more than will be available for the Sony products. In addition, the Apple iPhone and the iPod Touch also allow their owners to read books in the Kindle 2 format. With its extensive experience and product platform already in the market, content providers are highly likely to choose the Kindle 2 format before choosing the Sony format, if they must make a choice. Certainly in the early going, the content, and thus the Function advantage, goes to Amazon and it’s Kindle 2.
Reliability refers to how a company keeps the promises it makes to its customers. For an end user customer, Reliability means that the product works and will be fixed promptly if it does not work. Amazon has a superb reputation for Reliability among consumers. Sony’s reputation is also good. However, since Sony produces mostly electronic gear, its reputation is unlikely to be as good as that of Amazon, who sells mostly digital products. I would guess Amazon gets a slight nod in Reliability.
Convenience refers to the ease with which a customer can buy and begin using the product. Sony’s products will be in 9,000 retail outlets, including all the leaders in the industry, this holiday season. Amazon sells its Kindle online. The customer can see and touch the Sony products in the many retail outlets. Seeing and touching a Kindle is much more difficult for the perspective Amazon customer. The nod in Convenience clearly goes to Sony.
Price is the last consideration. The Kindle 2 product has a price of $299. The Sony Reader Daily Edition has a price of $399. As we noted above, the Sony product offers a touch screen at this price. Kindle does not, at least not yet. The Sony product is a third more expensive than is the Kindle. This additional price is likely to make the Sony product a Performance Leader product (see Audio Tip #82: Performance Leader Products and Companies on StrategyStreet.com), rather than a true competitor for the leading Standard Leader position.
It is going to be difficult for Sony to make the $399 product the most common product in the market. Amazon’s Kindle has already established the industry standard for benefits and price. Sony would have been more successful offering its touch screen benefits at no price increase over the Kindle 2 Standard Leader product. Sony looks to be in a Leader’s Trap here. It will eventually have to reduce that price or see the product garner relatively little market share, likely well below 15% of the market.
Both Sony and Amazon would probably be better off if they responded to the content challenge each offers the other. Sony might try to license the Kindle software and offer that format, as well as the format. Then Sony could have competed on its strengths in making small electronic equipment. Amazon could add the ePub format to its software and open up a new world of content for its customers. This will become imperative for Amazon if a great deal of content comes available in the ePub format that is not also available in the Amazon proprietary format.
Monday, August 31, 2009
Sony in the Game Business
Sony has just introduced a new PlayStation3. This product comes in a new slim form factor. Its price is $299. This is a 25% reduction from the $399 price of the current model of the PlayStation3. The price cut comes as the PS3 has struggled against its competitors, whose products have carried lower prices. Sony was in a Leader’s Trap.
Not only is the PS3 struggling against lower-priced competitors, it is also facing the head winds of a badly depressed market. Industry sales of game hardware and software are down 29% from a year ago.
The problem? Even at the new price, the product is more expensive than the industry leader. Nintendo’s Wii console sells for $250. The wildly successful Wii sets the price bar for the heart of the market. Its total console sales have passed 20.7MM compared to just over 15.5MM for the Microsoft Xbox and about 7.9M for the PS3. A competing console price higher than $250 really focuses the customer’s attention on the value of the marginal benefits.
Sony justifies the fact that the PS3 will remain the more expensive console because it offers a Blu-Ray player. Customers may not see it that way (see the Perspective, “The Two Greatest Consultants in the World” on StrategyStreet.com). The new PS3 may end up as a high end, Performance Leader, product with limited market share.
Sony has climbed part way out of its Leader’s Trap (see Video #42: Leader’s Trap on StrategyStreet.com) but still has a way to go. You will see more of the same in our next blog.
Not only is the PS3 struggling against lower-priced competitors, it is also facing the head winds of a badly depressed market. Industry sales of game hardware and software are down 29% from a year ago.
The problem? Even at the new price, the product is more expensive than the industry leader. Nintendo’s Wii console sells for $250. The wildly successful Wii sets the price bar for the heart of the market. Its total console sales have passed 20.7MM compared to just over 15.5MM for the Microsoft Xbox and about 7.9M for the PS3. A competing console price higher than $250 really focuses the customer’s attention on the value of the marginal benefits.
Sony justifies the fact that the PS3 will remain the more expensive console because it offers a Blu-Ray player. Customers may not see it that way (see the Perspective, “The Two Greatest Consultants in the World” on StrategyStreet.com). The new PS3 may end up as a high end, Performance Leader, product with limited market share.
Sony has climbed part way out of its Leader’s Trap (see Video #42: Leader’s Trap on StrategyStreet.com) but still has a way to go. You will see more of the same in our next blog.
Subscribe to:
Posts (Atom)
>
