Survival of the Fittest Device: Will iPad Kill the Competition?
By: Institute for Media and Entertainment in Uncategorized
Within two months of its April launch, the iPad had already sold more than 2 million units, scored some 8,500 iPad-specific apps which have been downloaded over 35 million times, and grabbed about 22 percent of e-book sales, says Apple CEO Steve Jobs. And that’s just the beginning: Market research firm iSuppli pegs total iPad sales to reach 12.9 million units by end of 2010, 36.5 million by 2011, and 50.4 million by 2012.
“The iPad is shaping up to be the ‘Tickle Me Elmo’ of the 2010 holiday season, with product demand expected to vastly exceed available supply,” said iSuppli Director of Monitor Research Rhoda Alexander. Indeed, iPad’s current status as the “it” gadget has led many to ask: Can similar devices — be they e-reader or tablet — stand the heat and remain competitive in the long run?
iPad vs. E-Readers: The Fight Over Territory
There are those, including Amazon CEO Jeff Bezos, who prefer to differentiate the multi-functional iPad from dedicated e-readers like Amazon’s Kindle, and insist there is room in the market for both. And perhaps this is true: As some studies show, e-readers seem to appeal to more mature consumers and avid readers, while the iPad attracts a younger audience.
Recent research by chipmaker Freescale Semiconductor, for instance, found that the average e-reader buyer is 43 years old, earns $72,000, buys two e-books a month and sees reading as his or her primary entertainment activity. Meanwhile, tablet users are younger and use their devices not just to read books but also to keep up with their Facebook pages and Twitter feeds. Another survey, this time from advisory firm Changewave, yielded similar findings: In terms of preferred activity, iPad users primarily surf the Web (83 percent of the time), check e-mail (71 percent), use apps (56 percent) and watch videos (48 percent). They spend less time reading e-books (33 percent) or magazines and newspapers (28 percent).
Regardless of the target audience, however, the iPad — which can be, and is indeed also being used as, an e-reader — now appears to be gaining market share in the e-reader market. The above-mentioned Changewave survey shows, for instance, that while the Kindle commanded 62 percent of the U.S. market as of May, the iPad is fast gaining ground, netting 16 percent of the market within weeks of its release and eclipsing other dedicated devices like the Sony Reader (7 percent) and Barnes & Noble’s Nook (3 percent).
Indeed, whether they compete directly or not with the iPad, some e-reader manufacturers are feeling the strain. Already, several have closed up shop (Audiovox and Plastic Logic both canceled their devices, while iRex filed for bankruptcy). Moving forward, research firm Forrester estimates that tablets will likely outpace e-readers in overall sales, and that 59 million tablets may be sold by 2016, compared to 29.4 million e-readers.
Because single-purpose devices are typically less expensive to produce than multi-functional tablets with computing abilities, one way dedicated e-readers could still thrive and protect their “territory” is through pricing. So it’s no surprise that the Kindle, Sony Reader and Nook have all recently slashed prices. The newly-launched next-generation Kindle, for instance, now sells for as low as $139 (a fraction of the iPad’s $499 starting price), and has quickly become Amazon’s fastest-selling Kindle device.
iPad vs. E-Readers: The Fight Over Functionality
Aside from target market and cost, another essential difference between the iPad and dedicated e-readers is in overall user experience. Not only does the iPad have a color display, but it’s also more “interactive,” allowing users to surf the Web, play songs and movies, run a multitude of apps, etc. Likewise, now that publishers like Penguin Books, Simon & Schuster and HarperCollins are offering “enhanced e-books,” iPad users have access to additional material (such as audio and video files, maps, live links, etc.) to complement their reading.
Dedicated devices like the Kindle, on the other hand, focus only on one purpose — long-term reading — and the Kindle does it well. For instance, compared to the iPad, the Kindle has a longer battery life (lasting weeks, not hours), a hi-contrast e-ink screen which mimics printed paper, and a no-glare display which can be read even under bright sunlight. Furthermore, at 8.5 ounces, it’s about the third of the weight of an iPad and easier to carry around.
Indeed, Amazon says the Kindle’s lack of “bells and whistles” (such as color, touch-screen controls and computing capabilities) is intentional, as these could compromise the reading experience. As CEO Jeff Bezos said in a recent Wall Street Journal interview: “For the vast majority of books, adding video and animation is not going to be helpful. It is distracting rather than enhancing. You are not going to improve Hemingway by adding video snippets.”
The question, then, is: How will consumers react to the functionality differences between these two devices? Could the iPad’s added features change “the e-reader game” as well as consumer reading habits, or will it simply open up a new market that didn’t previously exist (say, those who wouldn’t necessarily read traditional books, but would be attracted to the interactive e-book format)? For now, it’s too soon to tell. As Penguin Books CEO John Makinson said during a recent company announcement: “We don’t know or understand at the moment what the consumer is prepared to pay for. We will only find answers to these questions by trial and error.”
iPad Vs. E-Readers: The Fight Over Content
Finally, when it comes to iPad vs. e-readers, there’s the question of content availability. The Kindle catalog, for instance, currently boasts more than 670,000 books, newspapers and magazines. Meanwhile, Apple’s iBooks, the iPad’s own e-book reader app and store, reportedly only had 60,000 e-books at launch. However, because Amazon has released a free Kindle app for the iPad, iPad users can access the entire Kindle catalog. This is in addition to accessing content directly from Apple’s iBooks. The reverse, however, isn’t true: iBooks are only exclusive to the iPad.
So, technically, iPad users have access to more content than other e-readers. However, it’s important to note that by making the Kindle catalog available not just on the iPad, but also on as many devices as possible (iPhones, Blackberries, PCs, Macs, etc.), Amazon has a better chance of holding on to the lion’s share of e-book sales. And perhaps this is Amazon’s real strategy — wherein the fight isn’t necessarily about e-reader sales, but about sales of e-books themselves.
iPad vs. Tablets: The Fight over “Value Chain” Partnerships
Meanwhile, companies like Microsoft, HP, Dell, Best Buy, RIM, Google Android, Samsung and even start-ups like JooJoo are hard at work on their own multi-purpose tablets, designed to compete directly with the iPad. In a July meeting with financial analysts, for instance, Microsoft CEO Steve Ballmer says the company has a lot of software knowledge and intellectual property from the decade it has spent in the tablet business, and that their yet-to-be-released tablet will boast features like a Windows 7 operating system and printing capacity.
The question is, can these devices really hold their own or even overshadow Apple’s offering? On one hand, while the aforementioned Changewave survey shows that 74 percent of iPad owners are satisfied with their purchase, the iPad is not without its flaws — lack of Flash support, Internet connectivity issues, poor screen visibility, no camera or space for removable media, and a high price point. These drawbacks could pave the way for other manufacturers to compete.
On the other hand, coming up with a "better" and more affordable tablet isn’t the only hurdle for iPad rivals: Apple also has a powerful “ecosystem” that allows different Apple devices to work together and to access the company’s wide range of apps, software and services. This appeals not only to Apple’s consumers, but also to its partners in the digital media value chain. For instance, during its Worldwide Developers Conference this June, Apple reported that it has paid over $1 billion to app developers so far, and CEO Jobs even noted that the developer of the Elements app for the iPad has e-mailed him to let him know that he has earned more money in the first day of iPad sales than he did in five years from Google ads on his periodictable.com site.
This win-win reciprocity with its partners could help solidify Apple’s lead. As Tim Bajarin, President of research firm Creative Strategies, writes in PCMag.com: “Even Apple’s detractors have to admit that the company’s forward thinking with things like iTunes and the App Store have given it quite an edge over potential competitors. And if Apple keeps tweaking and adding more products to its ecosystem, it will be hard for future tablet vendors to catch up.”
Top-ranked IESE Business School's Institute for Media and Entertainment (IME) is the leader in media and entertainment executive education. Our intensive programs for executives and thought leaders include Advanced Digital Media Strategies, and the world's first global Advanced Management Program in Media and Entertainment (Media AMP). These programs attract executives from top media companies around the world, including Time Warner, Google, Disney, Fox Entertainment Group, NBC Universal, MTV Networks, and many others. IESE-IME helps media professionals gain industry-specific business knowledge and real-world insight to help them think like CEOs and advance their media and entertainment careers. For more information, visit www.ime.edu
15 Sep 2010 | 
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