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Ereaders and tablets

Ereaders and tablets. Michael Brandon Sarah Icke Sooyeon Kim Daniel Sussman. Overview. I. The Industry Market Overview Competition Organization of Industry II. Pricing Intertemporal Pricing Versioning Two-Part Tariffs Information Pricing III. Analysis and Recommendations .

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Ereaders and tablets

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  1. Ereaders and tablets Michael Brandon Sarah Icke Sooyeon Kim Daniel Sussman

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

  3. The industry

  4. Defining the market Tablets versus eReaders: • Tablets have apps and TV shows • Most tablets can function as eReaders, but most eReaders are not tablets Our conclusion: • Combine the most popular of both markets for our analysis • One industry, but two markets The market is… • Still in growth stage • Very concentrated with high barriers of entry • Currently divided based on function and price

  5. eReader/Tablet competitors • Amazon Kindle • Apple iPad • Barnes and Noble NOOK • Samsung Galaxy Tab • Sony Reader • No government regulation yet

  6. Global Figures: eReaders • Global eReader sales in 2011 hit 25.6 Million units, doubling the total sold in 2010. • In 2Q 2011, Kindle maintained a 51.7% market share in the eReader market, while the Barnes and Noble NOOK held the 2nd most with 21.2%. • Resulting 2Q 2011 Global HHI = 3122+ Source: International Data Corporation

  7. Global Figures: Tablets • In 2011, global Tablet sales reached 68.7 Million units, a year-over-year growth rate of 381.67%. • Apple saw their market share take a hit in 4Q 2011 dropping from 61.5% to 54.7%. Much of this was due to the release of the Kindle Fire in November, which took 16.8% of 4Q market share. Source: International Data Corporation

  8. U.S. eReader market share HHI (U.S.) 4337

  9. U.S. Tablet market share HHI (U.S.) 3948

  10. Ebook industry competitors • Physical bookstores • Online bookstores • Tablets • Smartphones • Libraries

  11. The target market • Who do these companies target? • What is the difference between tablet consumers and eReaderconsumers?

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

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

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

  15. Organization of the industry • Producers range from book stores to electronics manufacturers to online retailers • Companies produce their own eReader and have a store to purchase eBooks and applications from • Once a consumer purchases an eReader from one company, they are tied to that company to purchase eBooks and apps

  16. Distribution channels

  17. Distribution channels

  18. Distribution Channels

  19. Major companies • AMAZON: • Kindle, Kindle Touch, Kindle Fire • APPLE: • iPad 1, iPad 2, newest iPad • BARNES & NOBLE: • NOOK, NOOK Color, NOOK Tablet • SONY: • Sony Reader • SAMSUNG: • Samsung Galaxy Tab

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

  21. Electronics Manufacturer specializing in products using the iOS operating system • iPad– April 2010 • iPad 2– March 2011 • The new iPad– March 2012 Apple iPad iPad 2 The new iPad

  22. Book retailer that started producing eReaders • NOOK– November 2009 • NOOK Color– November 2010 • NOOK Tablet– November 2011 Barnes & noble NOOK NOOK Color NOOK Tablet

  23. Electronics manufacturer • 10 versions of the Reader • First eReader on the market • First sold through Borders and expanded to other retailers • Sony Reader– First launched in September 2006 • The latest model was released in 2011 Sony Sony Reader

  24. Pricing strategies Second Degree Pricing

  25. Intertemporal pricing • People value things differently depending on the point in time they will receive it • Value now > Value later (Hyperbolic Discounting) • eReader and Tablet companies exploit this discrepancy by marking up their product upon introduction • Capture the consumer surplus of early-adopters • They later lower their prices to reflect the reduction in value that occurs when the product leaves the initial market entry stage and more consumers begin to enter the market

  26. Intertemporal Pricing: eReaders

  27. Intertemporal Pricing: eReaders

  28. Intertemporal Pricing: eReaders

  29. Intertemporal Pricing: eReaders

  30. Intertemporal Pricing: eReaders

  31. Intertemporal Pricing: Tablets

  32. Competition vs. Markup power

  33. Versioning • Offer variations of eReaders at different prices • Customers will self-select into sub-markets

  34. $79 Kindle$99 kindle touch$149 kindle touch 3g$139 kindle keyboard 3g$199 kindle fire$379 kindle dx

  35. $99 NOOK Simple Touch$169 NOOK Color$199 NOOK Tablet8gb$249Nook Tablet 16gb

  36. $499 ipad 16gb$599 ipad 32gb$699 ipad 64GB$629 iPad 16gb +4g$729 iPad 32gb +4g$829 iPad 64gb +4g

  37. $129 ereader$399 tablet s 16gb$499 tablet s 32gb$549 tablet p

  38. $349-4997.0”$5997.7”$4798.9”$499-64910.1”

  39. Versioning (cont’d) • Firms need to justify charging different prices for different versions • This is done by varying the level of functionality in each version

  40. Functionality

  41. Overlap • eReaders with a Touch Screen • NOOK Simple Touch • Kindle Touch • Kindle Touch 3G • Sony eReader • eReaders with a Large Display • Kindle DX • Nook COLOR with “Tablet Essentials” • Color display • Apps and TV shows • High storage but low battery life

  42. PRICE FUNCTIONALITY

  43. Two-part tariffs • One-time large fee for the actual eReader or tablet followed by… • Marginal costs of each individual eBook and app the consumer buys • Tying of eReaders/tablets and apps

  44. Average price of ebook

  45. Information pricing • High initial fixed costs and sunk fees • Prevention of arbitrage • Network Effects • Long-Tail Effect • Lending • Lock-In sales • Cost leadership

  46. Number of ebooks in amazon’s elibrary over time

  47. eBook trends • Largest eBook and eReader combined libraries are Barnes & Noble and Amazon • Most children’s picture books and graphic books are not available in eBook stores • However, eBook retailers looking to expand into these areas • eBook inventories are different across retailers; they sometimes do not carry the same eBooks • Largest eBook library currently: Google with over 3 million eBooks

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