15.912 Technology Strategy
Final Assignment: Amazon in the Internet Music Business
Team: Bruno Furtado, Roberto Grosman, Joney de Souza
1
Executive Summary ....................................................................................................... 2
2
Abstract .......................................................................................................................... 3
3
Analysis.......................................................................................................................... 3
3.1
3.1.1
Introduction of internet music – S curve and industry life cycle................... 3
3.1.2
Overall Industry Evolution – Effects of disruption........................................ 3
3.1.3
Outlook of the industry .................................................................................. 6
3.1.4
Internet music industry – an E-retailer perspective ....................................... 7
3.2
4
External Analysis ................................................................................................... 3
Internal Analysis .................................................................................................... 8
3.2.1
Background .................................................................................................... 8
3.2.2
Business Model and Key Competitive Advantages....................................... 8
3.2.3
Strategy .......................................................................................................... 9
3.2.4
Competition.................................................................................................. 10
Potential Strategic Options .......................................................................................... 12
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1
Executive Summary
•
In the beginning of the new millennium, the Traditional Music Industry began to observe a
new technology that could tremendously disrupt the industry, changing the relative value of
complementary assets and rebalancing the power in the value chain - internet music (IM)
•
When compared to the traditional music, internet music still lacks quality but its
convenience, easiness and flexibility to acquire and manipulate, coupled with the presence
of strong complementors such as portable and trendy player devices or cellular phones with
increasing storage capacity, make it a very compelling and potentially disruptive
technology
•
The disruption of the internet music promises to change not only the rules of the game,
empowering retailers and artists and significantly reducing the value historically captured
by record labels, but also the way the game is played
•
The Internet Music industry is still in its ferment stage, with no Dominant Design, and is
very consolidated (C5 – 5 players with more than 90% of MS)
•
Given the nature of the externalities (threshold), limited lock-in, slow pace of change (IM is
expected to represent less than 20% of industry sales by 2009) and serious conflict of
channels and interests for a forward integration of major labels there will not be a single
winner standard in this industry, but rather: two WMA (Microsoft) and AAC (Apple)
•
Amazon plans to enter the IM market, however entering this market will be quite
challenging for Amazon because, although it owns tightly held complementary assets such
as: strongest brand in e-commerce, powerful customer base, great expertise in
recommendation software, and opportunities to market through cross-selling, it will have to
overcome serious limitations due to the externalities driven nature of market, such as being
a laggard / late entrant in a market in which competitors are already riding their
externalities loop; not having a patent nor standards, nor complementary goods to fight the
standard war
•
Amazon should partner with Microsoft to entry the e-music retailing, that would
softer rivalry, provide Microsoft with complementary assets which it does not have
in the retail business, prevent Apple to take the whole market and open the “door”
to Amazon’s entry in the electronic music retailing with and edge to the competition
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2
Abstract
The objective of this paper is to recommend what Amazon should do to succeed in the
internet music business. To reach such conclusion, we will conduct a four step
methodology, where we will a) understand current market and assess its evolution, b)
analyze Amazon and its main competitors’ capabilities, c) identify potential strategic
options and d) provide recommendations.
3
Analysis
3.1
3.1.1
External Analysis
Introduction of internet music – S curve and industry background
The music industry has been through many innovations since its inception; however its
structural characteristics and value chain remained relatively unchanged, with record labels
capturing most of the rents.
In the beginning of the new millennium, though, the Industry begun to observe a new
technology that could tremendously disrupt the industry, changing the relative value of
complementary assets and rebalancing the power in the value chain. Powered by the
universal access to the Internet, the excessive and cheap availability of bandwidth, and the
evolution of compression technology, a new form of music was born, the internet music.
When compared to the traditional music, internet music still lacks quality but its
convenience, easiness and flexibility to acquire and manipulate, coupled with the presence
of strong complementors such as portable and trendy player devices or cellular phones
make it a very compelling technology. (See S curves in exhibit 1)
3.1.2
Overall Industry Evolution – Effects of disruption
3.1.2.1 Industry Structure
Historically, the music industry has been characterized by its attractiveness for the average
record labels, which used to capture most of the value, owning the uniqueness of the artist’s
songs, protected by intellectual property laws, and holding tightly complementary assets
such as brand, distribution network and key relationships in the “show business”.
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In a classical industry analysis framework we conclude that this industry was indeed very
attractive for an average record label, because it had a) relatively high entry barriers:
although this industry does not benefit from learning effects or significant minimum
efficient scale, brand and relationships are a fundamental positional competitive advantage
which 1) creates an endogenous entry barrier and 2) creates a reinforcing loop for major
record labels, in which the most talented artists are attracted by the firms relationships and
brand and which, in turn, contributes to enhance even more the brand and relationship
attracting more talented artists; b) weak substitutes; c) moderate supplier power, renowned
artists have high bargaining power but new talents do not retain much rent; d) low buyer
power (fragmented buyer base) and e) rivalry based on marketing and talent recruiting, in
addition traditionally this industry has a very heterogeneous demand allowing niche players
co-exist with industry majors and discouraging price wars.
However the disruption of the internet music promises to change the rules of the game,
empowering retailers and artists and significantly reducing the value historically captured
by record labels, namely:
•
Uniqueness is worth less given the difficulty of enforcing IP laws over the internet
•
Previous tightly held complementary assets are loosing importance (e.g. distribution
– record labels; geographic presence / brand – traditional retailers)
•
Lower entry barriers: decrease relative importance of brand / distribution and
existent relationship with traditional retailers
•
Empowerment of internet retailers: own AACess to customer; threat of backward
integration (may compete with record labels – promoting new talents); increase
concentration as mix of sales goes over the internet
•
Empowerment of artists: new talents may choose to go “directly to the consumer”
(forward integration)
Nevertheless it is always worth to mention that without an efficient method of enforcing IP
there is a risk that the majority of the value be captured by the consumers, potentially
threatening the existence and sustainability of key players in the industry.
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3.1.2.2
Value Chain
The Industry Value Chain may be greatly affected as well by the increasing importance of
internet music, presenting threats and opportunities for labels, e-retailers and artists.
The threat for E-retailers (iTunes, Wal-Mart, Microsoft, Real, Amazon etc…) is that
Record Labels might try to forward integrate, whereas the threat to the Record Labels is the
“double” integration play, where E-retailers would integrate backwards and Artists (mainly
the biggest) forward.
Addressing the first point, the reasons major labels might forward integrate are:
•
Avoid Double-marginalization and/or hold up: It is possible that some E-retailers will
have market and bargaining power. This can and will happen if there is a standard
winner in the “standard wars”. If the market continues to develop as it is now, Apple’s
iTunes, with more than 70% of market share, can become the leader and standard setter
in the industry. If this happens there will be a tension in pricing between the Record
Labels and the E-retailers (mostly iTunes), resulting in potential Doublemarginalization and /or hold up.
However, there are some major drawbacks that have to be taken into the equation before
integrating forward:
•
Conflict of interest: labels would not want to sell through their competitor’s channel
•
Conflict of channels: the slow pacing transition from CD to internet music sales will
magnify conflict with key clients (i.e. Wal-Mart, Amazon), which markets both
products: CDs and Internet Music
•
Tight complementary assets: hard and costly to construct share of mind and trusts of
internet customers
•
Lack of complementary goods (e.g. MP3 Players and Music Mgt. SW): hard to
compete in the environment in which externalities play an important role
Addressing the second point, a double play of forward integration by the Artists and
backward integration by the E-retailers might occur because:
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•
Commoditization of role of labels: While in the past and somewhat in the present the
Labels have played a major role in promoting, managing the distribution and the
launching of albums, much of these roles can be played even better either by the Artist
themselves or by the E-retailers. (Although this division would probably work for the
biggest and most famous artists, this would be much harder for smaller and not so
famous artists).
To sum up, although we believe that there potential integration in the value chain are
possible, we don’t believe they will happen in the short-term and possibly neither in the
long-term.
First, the forward integration of the labels will most likely not take place, because of the
pressure of key clients (Wal Mart, Amazon), and lack of key complementary assets. And
finally the double play is much more attractive and compelling if used as a negotiation tool
to value capture (there are no clear synergies or evidence that such integration would create
value)
3.1.3
Outlook of the industry
Looking forward, it is interesting to notice that the threat of disruption will change not only
the rules of the game but also the one being played. Below you will find the potential
change of strategy that each player is pursuing or may have to pursue to maximize each
share of value capture:
- Record labels: most affected – lost not only uniqueness (lack of enforcement of IP), but
experienced devaluation of key complementary assets. Current strategy is focused on 1)
sponsoring methods to enforce more IP over the internet, 2) forward integration to access
the customer 3) fight to create open standard for internet music
- Retailers:
a) Traditional: probable victims of disruption. Some are trying to transport model
to internet, most will milk and disappear
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b) Internet: try to capture most of the value deploying 1) proprietary standards, 2)
alliances with format owners record labels and 3) network effects (indirect –
through complementors)
- Artists: renowned artists will face a decrease in value capture over music sales and may
have to increase to mix of live presentations to recover some of the value lost. New talents
may want to integrate forward, or create alliances with known internet retailers to mitigate
the power of record labels.
- Customers: will try to maximize value capture (e.g. downloading free music as long as it
is feasible and low enforcement risk) and will bet / adopt on the standard with the largest
network effect
3.1.4
Internet music industry – an E-retailer perspective
The internet music industry, although currently representing a very small part of total
music sales approx. $ 500 million out of 11 billion (5%) is growing extremely fast (173%)
and is expected to continue to grow fast next five years (83%). It is worth to mention, that
if we consider that the major share of downloads is done through illegal or non-commercial
peer-to-peer websites (90% in 2002, decreasing to 50% in 2007 and beyond), the trend
would look much stronger (Exhibit 2). However, even considering the stronger trend, the
pace of change is not that fast, once internet music sales are not expected to surpass those
of CD in the next five years, and, thus total disruption, if it occurs, shall happen only in the
long-term.
In terms of industry life cycle, the Internet Music Business is in its Ferment stage, where
there is no clear format, price, or complementary products; in other words, there is no
Dominant Design. The biggest players in the Industry are still fighting to determine the
winner standard and it is not clear if there will be one (Exhibit 3), actually it is our belief
that this market will not have only one standard, but rather two. Our opinion is based
mainly on two issues a) it is a threshold rather than extensive network effect, as you have to
purchase your own music, the value for an incremental increase in the install base is not
that significant, users will only want to be sure that there will be music available and
complementary good available under the format chosen and b) it is and will be increasingly
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easier to swap between formats (e.g. today there is already software available that convert
from one standard from the other).
Despite the early stage of the industry, and numerous standards / formats the market is
quite consolidated, with top 5 players representing more than 95% of industry total sales,
with I-tunes being the clear market leader with 70% of market share (Exhibit 4).
3.2
3.2.1
Internal Analysis
Background
Founded as Cadabra.com by Jeff Bezos in 1994, the early days of the mainstream Internet,
Amazon is today one of the biggest e-commerce companies in the world. It begun as an
online bookstore but has grown into many areas, such as DVDs, music CDs, electronics,
jewelry, apparel, furniture, and more. At the same time that Amazon grew its offerings it
increased the number of countries it operates in. Starting only with the U.S. store it has
grown to other 8 countries: Canada, the United Kingdom, the Netherlands, Germany,
Austria, France, Japan, and China. Amazon’s overall revenues have totaled 7 billion dollars
in 2004 with net income of 600 million.
3.2.2
Business Model and Key Competitive Advantages
Amazon’s business model is to sell goods over the internet at low prices, leveraging on
operational excellence (through centralized distribution centers and low inventories),
unique recommendation software and large customer base. These main competitive
advantages are reinforced by two theoretical concepts best applied in e-commerce: Long
Tail1 and Collaborative Filtering2.
The Long Tail theory shows a known phenomenon, that demand of most kinds of products
(e.g. DVDs, CDs, books) are highly concentrated on few items and then there is a small
demand for a large number of items; whereas, collaborative filtering is a very effective way
of recommending products to an individual user mostly based on either past behavior or
similar buying pattern.
In order to fully capture the benefits of Long Tail and collaborative filtering two things are
needed for an e-commerce player a) effective software and b) scale – large user base. Thus,
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in Amazon’s case, it enacts a reinforcing loop of its leadership (more customers -> more
effective use of long tail and collaborative filtering -> more sales -> bigger gap from 2nd
place -> more awareness -> more customers) and strengthens its complementary assets.
In order to take advantage of these competitive advantages in higher margins businesses
Amazon also allows third parties such as individuals and businesses to retail their products
on the site through its auctions, zShop, Amazon Marketplace (small businesses) and
Merchants@ (larger businesses) programs. The revenues come in form of fees and
commissions for new and used products.
Amazon also operates a Syndicated Stores program where it sells its products through other
businesses’ websites. Under this arrangement, Amazon is responsible for the inventory, set
prices, fulfillment, and customer service, while the businesses hosting the links to Amazon
products receive a sales commission.
The company’s other services include merchant.com, where Amazon uses its eCommerce
services, features, and technologies to operate another business’ website, sell its products
under its brand name and URL, and occasionally offer fulfillment services. Amazon also
offers technology services including search, browse and personalization, and other
marketing and promotional services, such as its co branded credit card.
3.2.3
Strategy
Amazon’s overall strategy is to be the main destination to shopping online, in other words,
sell anything to anybody online. This means that customers might use Amazon to buy
something from the company itself, other stores, or even just search and find the best
product and buy it anywhere (hopefully Amazon or one of its associates will offer the best
price).
Following this strategy Amazon did some acquisitions that would seem weird otherwise,
such as Alexa Internet (an online research company), IMDb (Internet Movie Database),
PlanetAll, etc.
Recently the company has engaged in many initiatives related to digital content, such as
launching a9.com (a search company), Search Inside the Book and selling of book
downloads. These initiatives can be understood from two different perspectives. On the one
hand there is a pressure from investors (Wall Street) for Amazon to increase its margins
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and increase its revenue from high margin business, as does Google, eBay and Yahoo. On
the other hand it is in-line with the corporate strategy to sell anything to anybody online, so
these services can lead to better informed customers who hopefully will buy more from
Amazon.
Amazon in the Internet Music Business
As surprising as it can sound, Amazon has not entered the Internet Music Business yet. It
would be expected that as the leading online retailer it would be one of the enthusiasts of
this new industry, but this has not been the case. In the meanwhile, new companies
(Napster), companies that have no tradition in retail (Apple, Real Networks), the Internet
(Wal-Mart) or in the combination of both (Microsoft) have dominated this small but fast
growing business (Exhibit 4).
Entering this market will be quite challenging for Amazon because, although it owns
tightly held complementary assets such as: strongest brand in e-commerce, powerful
customer base, great expertise in recommendation software, and opportunities to market
through cross-selling, it will have to overcome serious limitations due to the strong
externalities driven nature of market, such as being a laggard / late entrant in a market in
which competitors are already riding their externalities loop; not having a patent nor
standards, nor a complementary good to fight the standard war and try to tip the market in
its favor.
3.2.4
Competition
As stated above, there are already various players in the market that Amazon will have to
overcome in order to exercise a leadership in this industry. They differ in many ways, from
function in the value chain to adoption of standards and production of complementary
goods. Therefore it is important to understand who they are and what are their key
strengths and weaknesses in order to analyze Amazon’s chance against them (see Exhibit 5
for a summary and exhibit 6 for relative positioning).
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Apple
Apple, with its iTunes, was the first company to legally sell music downloads in big
scale. The main reason for its success was its launch of the most successful digital
music player to date, the Apple iPod. Apple has sold already 10 million iPods and
more than 300 million songs through iTunes, making it the leader by a big margin
in this industry. iTunes offers in its website more than 1 million different songs in
the AAC proprietary format that only play in the iPod. Pros: undisputable leader,
large array of complementary goods. Cons: competition from Microsoft in the
software standard (WMA), and from the cell phone manufacturers in the hardware
(iPod) (Exhibit 7).
Real Networks
Real is one of the first online music services provider. Its Real Player is widespread
all over the world. It offers over 1 million songs for download and subscription
through its Rhapsody and Music Store products. Pros: large base of players,
experience in the industry. Cons: Lack of complementary goods, lack of financial
resources, strong competition from Microsoft and Apple. (Exhibit 6)
Yahoo!
The biggest internet portal is expected to launch its own online music store today
(5/11/05). It will, for the first time, slash subscription prices by almost 50% (it will
charge US$6.99 per month). Yahoo! will offer more than 1 million songs and it will
also sell songs for the same price most services do (US$0.99). Pros: huge portal
and instant messenger installed base, expertise in internet properties. Cons: Lack of
complementary goods, lack of control over technology (it uses MS’s WMA) strong
competition from Microsoft and Apple. (Exhibit 6)
Napster
Born as an illegal file sharing company, Napster was the creator of the Internet
Music Industry. After many legal battles its brand and assets were acquired by
Roxio Inc. from chapter 11. It offers more than 1 million tracks as a subscription
services, and it uses Microsoft’s WMA format. Pros: Known brand and some
complementary goods. Cons: Lack of financial resources, strong competition and
lack of proprietary technology. (Exhibit 6)
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Wal-Mart
The largest retailer of the world has had a successful trajectory in its Internet
venture. Its website is a destination of many customers from all social classes and it
sells mostly anything. It offers 500,000 songs using Microsoft’s WMA technology.
Pros: Financial strength, lower prices, and opportunities to cross-sell. Cons: It is
not a technology player, and has no patents or technology standards. (Exhibit 6)
Microsoft
Microsoft also entered late in this market, launching its online music store in 2004.
It currently offers more than 1 million songs and uses its proprietary standard,
WMA. Pros: Financial strength, huge Windows installed base, opportunities to
leverage other user bases’ like MSN and Messenger. Cons: Questionable brand,
lack of experience in e-commerce. (Exhibit 6)
4
Potential Strategic Options
As we already mentioned, the current market penetration for digital music is still very low,
but with a huge growth potential. From the analyses above, we can see that Amazon will
have very strong competition, especially from Wal-Mart, Apple and Microsoft – the current
strongest players. However Amazon can count on some strong competitive advantages to
lever its success in retailing electronic music: strong client base, recognized retail brand,
trustfulness in online sales and cross-selling opportunities.
Before understanding Amazon’s alternatives, it is important to understand the possible
scenarios for industry evolution. There are two major hypotheses to describe the future: 1)
There will be no disruption at this time and the market will stay concentrated in the CD’s
until new technologies emerge or 2) The electronic music will grow sustainable and creates
an industry disruption.
As we mentioned before, we believe that that the latter point will prevail (exhibit 8), and if
such it would put Amazon in a very good position in two cases:
a) The market accommodate two or more standards and all standard owners make
them available for sales in the e-retail; or
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b) Amazon establish a partnership with the winner standard
However, there are some questions whose answers can determine many different outcomes
for the industry evolution. Some important questions are related to number of standards in
market, i.e.:
-
How many standards will exist in the future, one, two or many?
-
If only one will survive, who is most likely to be the one?
Regarding the enforcement of standards:
-
How enforced will the “incompatibility” among standards be? Will the
complementors have the capability to play any standard? Will softwares to
convert music from one standard to another be widely available?
The answers for these questions will determine which layer will capture more value in the
future value chain – label companies, retail, hardware manufactures, or standards owners.
In one extreme scenario; only one player dominates the market and holds the standard
(uniqueness) therefore Amazon will have very limited upside to negotiate and sell the
winner’s format and can capture a very small portion of the total profits– for example:
Apple wins and keep selling the songs thru the iTunes, maintaining tide Uniqueness over
the AAC standard. Because of the market size and power of players, this is a very unlikely
scenario, although not impossible.
On the other extreme, two of more standards split the market with loose control over the
standard and customers have wide access to music in different formats throughout many
different channels. In this case Amazon will sell music in whatever format, have the access
to the whole market and can strongly rely only on its competitive advantages to compete
and win,
Our best guess for the future is an intermediate scenario (see exhibit 9), in which only two
standards will survive after the long battle for the standard dominance among Microsoft,
Apple and Real. The finalists will certainly be: Microsoft – because of its massive installed
base of Windows media player; and Apple – because of its current 70% market share in
electronic music sales and strong reinforcing loop with iPod. Our recommendations to
Amazon are based on the current market structure and our most likely scenario for future.
Considering that Amazon is entering “late” to this market, it will face a major competition,
(as we already analyzed in the preceding section of this paper). Thus our recommendation
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to Amazon is to enter in the market in partnership with one of the two major players (either
Microsoft or iTunes). The base for this recommendation is: 1) Competing against the two
players is much harder, and 2) Microsoft and Apple need to build allies to win the war Amazon can profit from the war of attrition and its complementary assets, highly valuable
for both sides. The pros and cons from each the companies and Amazon in maintaining a
partnership are summarized below
Partnering with Apple
Although it might seams awkward in the first view, both sides have potential benefits. To
Apple, it benefit from: 1) getting Amazon’s exclusivity and close a valuable “door” to
Microsoft; 2) increasing sales of music and devices, levered by Amazon’s opportunity to
cross-selling/channel distribution and 3) access to Amazon’s capability to e-retailing. All
these benefits would reinforce the iPods’ positive loop, helping to consolidate AAC
victory. The downslide for Apple would be losing its monopoly, cannibalizing iTunes
music sales.
In the shoes of Amazon, the advantages to have a partnership with Apple would be: 1)
access to the current e-music market leader and 2) softer competition with the market
leader. The negative side is would be: 1) get locked-in with only one side instead of
profiting from both and 2) the risk of selecting the wrong standard.
Partnering with Microsoft
From our analysis, at this point in time, Amazon would certainly create more value to
Microsoft than to Apple. But in this case, since Microsoft has less to offer, the deal should
give Amazon the outsourcing of Microsoft e-music sales. In this case, any request to buy a
given music on the MSN domain, the customer should be directed to Amazon to choose
and close the deal. A good question for all that would be; why would Microsoft ever
consider this hypothesis? Because Microsoft could use Amazon’s Complementary Assets
to guarantee that it’s standard will sell enough units to either tip the market or guarantee a
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market position. Furthermore, Microsoft can focus on software development which is the
company core business.
The negative aspect for this partnership in Microsoft’s prospective would be: 1) lose the
direct access to the customers, 2) risk of conflict with the other channels (such as WalMart, Music Match …) and 3) giving up part of the profits.
Moreover, why would Microsoft choose Amazon for its partnership? Considering that
Microsoft needs a experienced retail partner, the main candidates would be Amazon and
Wal-Mart. But Wal-Mart has lower e-retailing recognition and a much higher potential
bargain power that will certainly be used in the future. Therefore Amazon is the better of
the two options.
Finally, for Amazon the main positive points are: 1) soften rivalry, have MS as an ally
instead of an enemy, 2) leverage on the MSN and messenger huge market penetration,
(more that 100 million users), 3) ability to capitalize on MS investments to reinforce
externality loop, needed to catch up Apple in the standard wars. On the other hand, the
negative side for Amazon would be: 1) risk of selecting the wrong partner, 2) risk of
potential retaliation from Apple and 3) locked-in with only one side instead of profiting
from both.
References:
1. http://www.wired.com/wired/archive/12.10/tail.html
2. See http://jamesthornton.com/cf/ for articles on this topic.
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Exhibit 1- Potential S Curves
Performance: Availability of titles
Performance: Storage media
Players (e.g. Ipod)
Internet Music
CD (MP3)
CD
LP
Internet Music
CD
LP
Time
Time
?
Internet Music
Performance: Quality
?
CD
LP
Time
Exhibits 2 – Comparison between CD and Internet Music Sales
Music Sales Evolution - CD X Internet Music
(US$ Million)
14000
12000
10000
8000
Student's assumptions
6000
4000
2000
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003 2004* 2005* 2006* 2007* 2008* 2009*
Download/Subscriptions
Source: RIAA, Jupiter research
*Forecast
CD Sales
Digital distribution value (including illegal file sharing)
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Exhibit 5: Characteristics of Internet Music Services
Name
Apple Itunes
Market
Share
70%
# Songs
1,000,000
Price
0.99
Format
AAC
Napster (NP)
11%
1,000,000
0.99
wma
Microsoft
N/A
1,000,000
RealNetworks (RN)
WalMart (WM)
6%
6%
0.99
0,49 to
1,000,000 0,99
500,000
0.88
wma
wma
wma
Business
Model
Hardware
Compatibility
Support
Software
Sell MP3
players?
Reviews,
Playlist, Top
Charts, etc
per song
monthly fee /
per song
monthly fee /
per song
monthly fee /
per song
per song
ipod
Yes
Just Ipod
Yes
several
Yes
Yes, several
Yes
several
Yes
No
Some
several
several
Yes
No
No
Yes, several
Some
No
Exhibit 6: Uniqueness and Complementary Assets in the Internet music
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Exhibit 7: Internet Music Devices – Forecast (Jupiter Research)
Exhibit 8 – Scenarios of Industry Evolution (A)
Total
Disruption
Heaven or
Hell1
One winner
Takes the
market
Expected
future
Two stand. coexist
Amazon is ok
with CDs
Amazon plays
in both worlds
Small Niche
market
1
will depend on Amazon’s strategic positioning, i.e. “picking” the winning horse
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Exhibit 9 –Scenarios of Industry Evolution (B)
Total
Disruption
Amazon
Leads
Expected
future
Amazon
Follows
Windows
Std. wins
Apple std.
wins
Label’s Utopia
Amazon is also ok selling CD’s
Total Fad
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