Tablet Industry
John Rodriguez, Alex Wang, Florian Lecarpentier, Steve Xu
Why the tablet/e-reader
industry?
Exciting, dynamic market evolution
Increasing demand----opportunities
Part of technological future- better alternative
Role of competitors
Pricing Strategies Implemented
Question
•
How many people own a tablet and/or e-reader?
Results among college
students
Number has more than tripled in
the last year
63% of students say tablets will
replace textbooks in 5 years
Preference of digital over
printed books
Overview
•
I. Industry
A.Market Summary
B.Competition
C.Organization and Major Players
•
II. Pricing Strategies
A.Tying
B.Price Discrimination/Inter-temporal Pricing
C.Leap-Frogging
•
III. Analysis and Recommendations
Tablets vs. E-readers
Tablet
•- More powerful and
•resourceful
-For a multitasker---functionality
•and applications
•
E-Reader
-purpose: read electronic content
-Simplistic
-Smaller and more portable
•
Technology
Started by the iPad in 2010
Emergence of Alternative
Operating Systems (OS)–
Source of Product
Differentiation Designed to
make most of touch
interface—User Friendly
Key Success Factor
Effective Advertising For
Technology
•
http://www.youtube.com/watch?v=U7UlE
-o8DQQ
Production and Distribution
• Low cost products as
driver of forecast growth
• ½ of products sold in
2012 8 inch screen or
less- ex. iPad Mini
• Impact on E-Reader
Forecasts
• Supply Chain and
Demand
• Other Economic drivers
2011
2012
2017
Target Market
Surge in past few years:
college graduates and
household income $75,000+
Different results with Ereader
Competition-HHI
(TABLETS)
Apple
43.6%
Samsung 15.1%
Amazon 11.5%
ASUS
5.8%
HHI: 2,295
11‘
Q4
12‘
Q1
12‘
Q2
12‘
Q3
12’
Q4
Competition-HHI (EREADERS)
Kindle 62%
Nook 22%
Sony Reader
2%
Pandigital 2%
•
HHI: 4,336
Competitive Landscape
Barriers to Entry: High and Steady
•
•
- Capital Intensive Market
- High Competition (especially in e-reader) & Technological
Change
Market still in Growth Stage of Life Cycle
No Government Regulation
-
•
•
•
Apple/Samsung Patent Lawsuit
August 2012-Samsung products infringed 6 of Apple’s patents
March 2013- Court Reduces Damages to $599 Million
Organization
•
Production
•
Tablets
•
Parts are produced by multiple manufacturers
•
Manufacturing outsourced
•
•
i.e.: Apple iPad includes parts made by companies such
as Samsung, Toshiba, and Dynapack International and
assembly is executed by Foxconn.
Apps
•
Produced both independently and by Apple, Inc.
Organization
Retailing
•
•
•
Manufacturer-Direct sales are prominent
•
50% of eReaders
•
30% of Tablets
Brick-and-mortar stores will be increasingly important for
distribution
•
Consumer Electronics stores (i.e. – Best Buy)
•
Bookstores
•
Cell Phone Stores
Major Companies
Apple
•
Consumer electronics and
software technology company.
•
Market Leader
•
First launched in 2010.
•
Tablet Offerings
•
iPad 2, iPad with Retina
Display, iPad Mini
•
Electronic commerce company diversifying into consumer
electronics.
•
First launched November 15, 2011.
•
Tablet Offering:
•
Kindle Fire
•
•
•
Specializes in internet-related
products and services with a growing
presence in communications
hardware.
Partners with electronics
manufacturers to produce Tablets
such as Samsung.
Offerings:
•
•
Nexus 7, Nexus 10
Android Operating System
-used in many tablets including the
Kindle Fire and Samsung tablets.
•
Android tablet launched in 2011.
•
Nexus tablet launched in 2012.
•
Well established computing company producing a wide
range of products and services
•
Newcomer
•
Offerings:
•
•
Surface RT, Surface Pro
Launched in 2012.
Price Strategy
Price discrimination
Steal consumer surplus
2nd degree pricing: Push the consumer self-select the
product that takes the most of her/his consumer surplus.
Three strategies employed:
Tying/Two Part Tariff
Versioning
Inter-temporal pricing
Tying
•
•
•
•
•
The practice of selling one product or service as a mandatory
addition to the purchase of a different product or service.
Tying of:
•
Tablets and apps
•
Apps and content
Users can’t use their tablets without apps and can’t use many
free apps without the purchase of content.
Tablet’s utility increases with the number of apps one
downloads.
Gain revenues through paid app sales as well as greater tablet
appeal with increase in free app users.
Tying
•
…Enables a Two Part Tariff
•
•
•
•
One-time large fee for the actual tablet hardware
followed by…
Marginal costs of each individual eBook, digital file, or
app the consumer buys
Form of 2nd degree price discrimination as consumer selfselects their total price while exposing their willingness to
pay through app and content purchases
Facilitated by information product characteristics
Wifi 16GB
16
Wifi 16GB
Wifi 32GB
Wifi 64GB
How many versions of iPad
are currently sold?
iPad 2
iPad mini
Wifi + Cellular
16GB
Wifi + Cellular
16GB
Wifi + Cellular
32 GB
Wifi 16GB
Wifi 32GB
Wifi 64GB
Wifi 128GB
Wifi + Cellular
16GB
Wifi + Cellular
32GB
Wifi + Cellular
64GB
Wifi + Cellular
128GB
iPad
Retina
Wifi + Cellular
64 GB
8
7
4
Surface RT
32 GB
64 GB
Surface pro
64 GB
128 GB
5
NEXUS 7
NEXUS 10
Versioning
•
Why?
“Sell variation of products at different prices at
different groups to different types of buyers”
Push the consumer to self-select the product that
takes the most of her/his consumer surplus.
Versioning
•
How?
Creates differentiation between product …:
Capacity constraint: 16GB, 32GB, 64GB, 128GB…
Functionalities: Cellular Network, Screen definition,
Applications available, Linked-Store …
… but also with competitors:
Reduced price elasticity
Create a niche market …
Price the ‘Add-ons”
Function of the willingness to pay of the consumer: value of
the add-on for the consumer.
Price of the add-on differs from one company to another,
depending on:
The target:
Amazon: Consumers using tablets as reader or to
shop
Microsoft: Internet surfing/office applications
The company philosophy:
Apple: Upscale products
Google: More accessible products
Capacity constraint
Common among competitors
Standard 16GB
Double capacity between each versions
Different price of capacity incrementation whereas
production costs are similar.
Price evolution of additional
GB
Price of doubling the capacity constraint for apple: $100
Price evolution of additional
GB
Far from the manufacture cost
Price linked to the brand:
Price linked to the brand and its target
Shop/E-reader
Competes with
Apple
Strong Marketing
Marketing of add-ons:
Push people to choose the more expensive version…
…or the more reliable for the company. (E.g. IPad Retina vs iPad
mini)
Inter-temporal Pricing
• This pricing strategy focuses on the consumer behavior
where people value things differently depending on the
point in time they will receive it
- Value now > Value later (Hyperbolic Discounting)
• E-Reader and Tablet companies exploit consumers’
different valuations for the product and different degrees
of patience (waiting costs) by marking up their product
upon introduction
Inter-temporal Pricing
• This captures the consumer surplus of earlyadopters. When low-value customers wait, they
compete for availability with high-value customers
and their willingness to pay increase
• They later lower their prices to reflect the reduction
in value that occurs when the product leaves the
market entry stage and more consumers begin to
enter the market.
Discriminating Early Adopters
Tale of Two E-Readers
*Prices based on
suggested retail
Leapfrogging
• When a company launches new tablets, it tries to add
functionalities or to improve the design, to justify a price
increase. Each company try to release a better product than
its competitors
- Used to describe the bypassing of existing technological
stages that other firms have gone through.
Playing the Leap-frog Game
• The technical aspects of implementing new “gamechanging” technological innovations in the existing
competitive environment.
-Capture competitor’s customers with new appealing
features.
- “Leapfrog” ahead of former leading firms, causing them
to lower prices.
Remember Moores Law?
• Leapfrogging is effective when it can be realized, and in
accordance with Moore’s Law, the pace of technology
in the industry will be outdated by the time they get to
the market.
U.S. Web activity from
Google Correlate
Analysis/Recommendations
Reimagination of User Interfaces
To be successful, Apple, Samsung, Amazon and
others in the industry need to anticipate future
technologies (in 5-10 years) and innovate based on
those predictions. (bigger storage, more functions).
Tablet Overtake
Market Share of Notebook PC
• Adds value to the user's life, and a strong ecosystem of
supporting applications.
• We anticipate higher growth in the multipurpose tablet
market as we move forward
Tablet TakeOver
• Tablet computers to make the Dedicated E-Reader and
Bookstores obsolete.
• EReaders marketed to heavy readers, Tablets have much
wider appeal, a part of our lifestyle.
E-Readers, Bookstore Troubled Outlook
• Closing brick-and-mortar stores
• Need might exist for “bookstore
experience”
• -A rumored plan to split the e-book
division off from Barnes & Noble's brickand-mortar stores
Increased Competition
•Early adopters mostly are already heavy users.
•Priced above most consumers’ $300 psychological threshold,
are still too expensive for mass-market adoption, need to
lower the price.
•Capitalizing on multimedia capabilities and Apps that appeal
to a broader audience and as their prices inevitably decline.
- Subsidize device by purchase of tied information goods:
EBooks, movies, and music, Apps from Online Stores
eBook/App Pricing Strategy
• Industry moving toward offering a larger scope of
lendable books
-Increase Network Externalities and effect
• Limited time offers
-“Weekly and Daily Deals”
- eBooks + Apps are free for limited time only
- Discounted best-sellers popular media
• Broad range of prices more price discrimination
A Story to Each Segment
• 1/3 of consumers in the US use their tablet to watch video.
½ of tablet owners stopped using television to watch
certain types of content.
• Portability with superior functionality is what our Generation
demands (ex. multitasking, mobility).
• User friendliness and good design unique experience
drive sales
Example
Opportunities
• Large barriers of entry
• A market in the tablets for online paid content from
increase in internet traffic.
• Offer incentives in creating applications that fully
exploit the capability of the tablets
• More investments into applications and user
interface for B2B usage (ex. Restraurants, offices,
stores, etc.)
Questions?