In today’s world ‘Information’ is seen as being very valuable and knowledge is considered as a power. Amazon made it easy to increase this knowledge and power through the new innovative device we know as the Kindle e-book reader. This huge availability of information is an ongoing trend and Amazon is exploiting it to the highest potential possible with this device. Its major competitors include companies such as the Sony e-Reader, Apple I-Pad, Barnes and Noble’s Nook, and Samsungs’ Papyrus etc. However, the Amazon Kindle has highest market share in the e-book reader industry and has become a leader.
This report will analyze the Amazon Kindle strategy to achieve competitive advantage using a set of valuable frameworks such as the Porter’s five forces, Resource Based Value of the Firm and SWOT analysis. The findings of this report suggest that Amazon kindle is facing high level of Supplier Bargaining Power, Competitors and Substitutes as well as threat of e-book piracy. Also it is becoming difficult for Amazon Kindle to compete with new entrants in the market such as Apple I-Pad due to lack of experience in the hardware industry and its tendency to rely on content and service to achieve competitive advantage. However Amazon Kindle has used its Information system resources to best possible way and by making positive strategic moves, it has achieved its current leadership position in the e-book reader market.
Amazon is online retailer company of millions of products. Amazon.com started out as an online book-seller by Jeff Bezos in 1995. Now it has grown to a web selling range of products such as DVD, CD, toys, cookware, hardware and software as well as other consumer electronics and thus, acting as a virtual Walmart. However the main focus of the product still remains the books. Though Amazon started with selling printed books it is now selling more e-books compared to printed books. According to a research Amazon has sold out 143 e-books for every 100 hardcover books in 2010 (Miller, 2010). The definition of e-book according to Oxford Dictionary of English is “it is an electronic version of book.” It can be read by computers, laptops, netbooks and other electronic devices. Electronic device made specifically for reading book is known as e-book reader. The growth of Devices used for reading e-books is depicted in Figure no. 1.1.
Figure 1.1: Growth of Devices used for reading e-books.
There are many e-book readers available in the market, however, Kindle; e-book reader developed by Amazon.com has occupied highest e-reader market share. At the end of June 2012, Amazon’s Kindle family of reading devices was used to read e-books by 55% of e-book buyers, compared to 15 % of Apple through I-phone and I-pad and 14% of Barnes & Noble’s Nook (figure 1.2) according to figures compiled by Bowker Market Research (Milliot, 2012).
Figure 1.2: e-book reading market share of the Kindle, Apple, Barnes & Noble and others.
This report is going to present the strategy of Amazon in making Kindle, a leader in e-book reader industry using the Porter’s 5 forces Model framework and some points of Resource Based View of the Firm (RBVF). This report will also look at the strengths, weaknesses of Kindle and potential threats/risks to the Kindle from the existing and emerging market competitors and the opportunities to exploit advantage (SWOT analysis).
To understand the framework of Porter’s five forces and RBVF, the books available in the library, lecture notes/slides, academic article and the lecturer’s support has been used. The Information about the Amazon Kindle was collected through various academic journals and articles accessed through library search and Google scholar as well as Google search. Read also G oogle's business model relies on which of the following to generate revenue
2. Conceptual Framework:
A) Porter’s Five Forces:
Porter’s five forces framework was developed by Michael E. Porter in 1979 for the industry analysis which in turn leads to the change or development of new business strategy (Stair et al, 2008).
This framework helps the industrial organization to determine the competitive intensity and therefore the overall profitability of a market. If the combination of these five forces drive down the overall industry profitability, than it is called an “unattractive” industry (Laudon & Laudon, 2004).
B) Resource based View of the Firm:
According to RBVF a subset of the resources possessed by the firms enables them to achieve competitive advantage (Barney 1991). Resources can be defined as assets and capabilities which are available and useful in detecting and responding to market opportunities or threats (Wade and Hulland, 2004). Dynamic capability is the capacity of integrating, generating and reconfiguring competences to address the changes in dynamic environments. Dynamic capabilities focus on the development of resources and their integration within the firm so that capabilities can not be eradicated quickly in rapid changing environments of competitive market (Wade and Hulland, 2004). Wade and Hulland have addressed few Information System (IS) Resources that help in building the dynamic capabilities are: Manage external relationships
IS-Business partnerships (manage internal relationships)
IS planning and changing management
IS technical skills
Cost effective IS operations
C) SWOT analysis:
SWOT analysis is a structured planning method used to evaluate Strengths, Weaknesses, Opportunities, and Threats involved in a project, can be carried out for a product, place, industry or person, originated by Albert S Humphrey in the 1960s.
A) Porter’s Five forces:
1. New Entrants: The force of new entrants for Amazon Kindle is about Low. Amazon has created a name in the e-reader market industry though being a second mover after the Sony e-reader. It has built a reputed brand name across the world which is difficult to imitate (Barney, 1991). However the challenge is to convince and make an agreement with the publisher to release the printed material as an e-book. Amazon Kindle has succeeded in doing this. By 15th February, 2013 there were 1,715,400 books available for download (Amazon.com).
2. Industry Competitors: The degree of rivalry for Kindle is high. The major existing competitors for the Amazon’s kindle are Sony e-reader and the Apple’s I-pad with touch screen as well as other tablets with touch-screen facility. However the facility of downloading books free via kindle’s whispernet is great advantage to the Kindle. Also Kindle has now launched the Kindle Fire colour tablet to overcome the “touch feeling” advantage of other tablets over the kindle.
3. Supplier Bargaining Power: Factors determining the supplier bargaining power are the number of suppliers, substitutes and the cost associated with switching to alternative inputs. The main suppliers of Kindle are 3: screen, network technology and publishers.
Kindle has electronic paper display screen provided by E-Ink corporation. E-Ink provides this to many other E-reader manufacturers available in the market which includes iRex technology, Sony, Bookeen, Barnes and Noble, Condor Technology, Icarus readers, Jinke, Kobo, Pocket book, Onyx international and Samsung (Qian, 2011). Thus the supplier power of E-Ink is very high.
Amazon Kindle uses EVDO network technology which is provided by Sprint network. The supplier power of the Sprint is relatively low because of the availability of substitutes Verizon and Alltel who are the other EVDO network technology providers available in the market (Cuddy, 2008).
Publisher’s supplier power is also very important as Kindle is useless without the availability of e-books. To increase the size of Amazon's e-book library, it has to obtain publisher permission for each book it converts to e-book. Thus publishers are having a great deal of supplier bargaining power since they essentially decide which books will be available for the Kindle. Also the availability of other eBook providers has increased to publishers. Apple’s iBook store has taken some of the Amazon’s publishers: Macmillan, Hachette, Simon & Schuster, HarperCollins, and Penguin in 2010, which in turn have decreased the Amazon’s e-book market share from 90% to 60% (Auletta, 2012). Still Amazon Kindle is having most available titles compared to other competitors in the market.
4. Buyer Bargaining Power: Kindle buyers have very low bargaining power. Because the Kindle use DRM scheme i.e., books purchased for the Kindle cannot be transferred to other manufacturer's devices. This is advantageous from Amazon's point of view as it increases switching costs and creates buyer lock-in.
5. Substitutes: There are many substitutes for Amazon Kindle. The alternatives are paperback books, textbooks, magazines, and newspapers. The Amazon bookstore can be substituted by bookstores, and local libraries. The advantage of Kindle to these substitutes is that it is easy to carry, lighter in weight than book and can have many books in a single device.
The other substitutes are laptops, computers, notebooks and tablets as well as smart phones. However the Kindle display looks like an ink on the paper which is more comfortable to eye compared to LCD screen of laptops, computers and tablets. Also Kindle has its own whispernet to download eBook compared to these alternatives which require internet. For these reasons, Kindle compares favourably to these substitutes.
Thus Amazon Kindle has made many strategic moves to become a leader in e-book Reader market industry. Figure 3.1 represents the strategic moves of the kindle.
B) Resource Based View of the Firm:
Manage External Relationship: Strong relationship with publishers. IS Business Partnership: Connection of Kindle to Amazon’s storefront website. IS Planning and Change: Amazon’s development journey from Kindle to Kindle DX and Kindle Fire HD. IS Infrastructure: Assessing the online bookstore anytime without the limitation of Wi-Fi needs, with the availability of whispernet provided by Sprint. IS development: Development of Kindle application and Amazon’s own tablet Kindle Fire. Cost Effective IS Operations: Customer lock-in strategy by providing only AZW format eBooks from Kindle bookstore as well as allowing publishers to set the price of eBooks and in return getting the 30% commission from the sale instead of paying large amount of money to publishers to get their books converted to eBook.
C) SWOT analysis:
1. After applying the Porter’s five forces and the Aspects of Resource Based View of the Firm, it can be noticed that Amazon Kindle has medium level of Supplier bargaining power. 2. Amazon’s Kindle has high level of competitors, and substitutes available in the market due to which its e-book Reading market share is dropping and the risk of potential new entrants can increase. 3. However Amazon Kindle has used its resources and capabilities
as much as possible to get the competitive advantage. It has made significant strategic moves to become a leader in eBook Reader market industry (figure 4.1) and in the future as well by making such wise Information strategic moves Amazon kindle can still have stable and leading position in the market.
1. Marketing: The primary marketing medium which Amazon is focusing on is its own index page of the storefront website. Amazon can advertise the Kindle aggressively and can target its campaign to group of people who travels a lot or for whom travelling is the part of profession such as business managers, marketing persons, persons involved in politics. For this group of people the e-book Reader is more convenient to carry compared to printed books, thus creating more demand.
2. Pricing: Though Amazon is reducing the price of the eBooks and Kindle, overall Amazon is committed to premium prize strategy for Kindle compared to e-books (Loebbecke et al, 2010). But consumers are less sensitive to e-book prices than hardware prices, and so decision to purchase Kindle will be triggered by the cost of the Kindle itself and with the increase in number of e-book readers sold, the revenue generated by the sale of e-books is going to be higher. Thus, Kindle price still needs to be decreased in accordance with the maturity of the eBook reader market and to capture more consumers.
3. Translators: Amazon Kindle provides application to translate the paragraph into other language. This web tool supports 38 languages but not for all versions of Kindle; only 16 languages are available for the Kindle touch (Kowalczyk, 2012). Amazon can focus on providing such a translator tool compatible with all kindle versions and which can convert the whole book into another language compared to a paragraph. This can differentiate Kindle from other e-book readers available in the market and thus competitive advantage.
4. Long term positioning: In the long run the market for e-books themselves is not going to make significant profits because of the emergence of large amount of publisher bargaining power. So Amazon will face similar difficulty in getting profits from e-books. The only substantial barrier for new entrants in the e-book reader market is its reputation and ‘Brand’. Thus Amazon should maintain comparable hardware quality, switching costs and brand identity to competitors, which will allow Amazon to keep a stable customer base and to achieve sustainable profits.
5. Publisher lock-in: Amazon should create publisher lock-in strategy as of customer lock-in strategy to reduce the publisher’s bargaining power and thus can persuade them to provide their e-books exclusively to Amazon and thus to Kindle owners only. This way Amazon can get better competitive advantage.
Annual Report of Amazon (2011)
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