E-Business In Practice - Essay Example

Executive summary This paper looks at the new market created by e-books and e-readers and their impact on the conventional publishing industry. In the introduction section, the terms e-book and e-reader are defined. The paper then makes critical analysis of this market with the focus on detailed market analysis, customer needs’ analysis and the impact of e-books on the publishing value chain. In order to project the direction of this new market in future a strategic analysis is also done. The paper then concludes by suggesting recommendations for publishers to ponder about if they seek to remain relevant in this industry in the nearest future. Table of Contents Executive summary 1 Table of Contents 2 1.0.Introduction 3 1.0.Critical Analysis of E-books and E-readers 3 1.1.Market Analysis of E-books and E-readers 3 1.2.Customer Needs and Wants from E-books and E-readers 4 1.3.Value Chain Analysis from Author to Reader 6 1.4.Strategic Analysis of the Future Direction of This Market 7 2.0.Conclusions and Recommendations 8 8 References 10 1.0. Introduction E-books and e-reading peaked as a phenomenon in 2008 with the rapid development of the Amazon Kindle. The reasons behind this were the fall of e-reader prices, better retail distribution, more diverse content and media buzz. E-books are digital versions of printed books distributed through the Internet; they can be read on computers, tablets and smartphones. On the other hand, PwC (2010) defined e-readers as devices that use the so-called electronic ink which ensures an experience similar to that of reading a real book as a result of its precise and stable characteristics. This paper begins with conducting market analysis of e-books and e-readers. It then proceeds to evaluate the needs of customers with regards to e-books and e-readers. Further, the paper continues to analyse the disruptive effect of this technology to the publishing industry’s value chain. Finally, the paper conducts a strategic analysis of the future direction of this market and makes recommendations for conventional publishers to undertake in order to remain competitive in future. 1.0. Critical Analysis of E-books and E-readers 1.1. Market Analysis of E-books and E-readers Books are big business. According to PwC (2010) in 2009 people globally spent $108 billion on books. Already, readers in the twenty-first century use an increasing amount of electronic texts in the form of e-mails, web pages, text-messages, online catalogues, databases and e-newspapers (Brown, 2001). E-books are a natural extension to this move towards electronic text. In the United States the Association of American publishers reported revenues of $969.9 million in 2011 for e-books excluding the religious category and sales from smaller, independent publishers (McLaren, 2012). In Europe, the e-book and e-reader market is still in its infancy though it holds promise, especially in the UK, which stands to benefit from the extensive range of English-language e-books available. The growth of e-books in the UK is expected to be driven by two factors: the proliferation of multifunctional devices, such as tablets and smartphones that can be used to access e-books, and the rising importance of the electronic special interest book market. The sale of 55 million iPads (Elmer-DeWitt, 2012) and the corresponding 180 million book downloads from iBooks (Chaffin, 2011) are clear indicators of a growing market for e-books. Also, according to a recent poll by Harris Interactive (2012) three in ten US adults are using at least one electronic reader device to read books. More importantly, the poll found that unlike the trend in other new technologies, there is no significant difference across the age groups in the uptake in the use of electronic readers. Though this data is based on the US market, PwC (2010) argues that there is no reason why the trend should not be replicated in the growing UK and European e-book markets. Whereas e-readership has yet to have a big impact on the mass market category, it is performing quite well in the special interest book market. In 2009, e-book sales on the special interest book market were 5% of that book category sales in the UK as compared to 0.5% for the mass market (PwC, 2010). E-books are particularly attractive to this market segment because they allow the development of new revenue models, such as the sale of individual sections or chapters separately, and price discrimination based on customers’ need for additional content. 1.2. Customer Needs and Wants from E-books and E-readers The technology acceptance model (TAM) by Davis (1989) is a popular model in studies focusing on factors that affect users’ adoption of technology. According to him there are two key factors that determine whether users will adopt a new technology or not: perceived usefulness and perceived ease of use. Perceived usefulness refers to “the degree to which a person believes that using a particular system would enhance his or her performance” (Davis, 1989). Perceived ease of use refers to “the degree to which a person believes that using a particular system would be free of effort” (Davis, 1989). This means that with regard to TAM’s perceived usefulness customers expect that they will obtain more value from using e-books and e-readers than from using traditional printed books. And with regards to perceived ease of use, the same customers expect using an e-reader to be as easy as flipping the pages of a hardcopy. To make e-readers easy to use, device manufacturers designed their e-readers to resemble the devices that customers are accustomed to use daily, such as smartphones and laptops. E-readers, therefore, come with touch screens, four-way scroll buttons, QWERTY keyboards, wireless and cable interconnectivity to computers. This minimizes the learning required to operate e-readers that may act as a barrier to consumer adoption. On the other hand, the onus of the usefulness of e-books and e-readers falls on both the device manufacturers and the e-book publishers. Device makers have concentrated on the e-reader’s storage capacity, electronic ink, file formats, weight, and battery life and so on. For example, the Kindle Wi-Fi is lighter than a normal book, can store up to 10,000 e-books, 1 month battery life, can be read indoors, as well as outdoors, and costs only $79 (Amazon, 2012). Likewise, publishers increase the value of the e-book experience by adding multimedia content such as sound or music in order to create a new reading experience. For example a title from the children’s “Hairy Maclary” series is sold as an app for the iPad that has a paint function which lets children colour the books’ original drawings themselves (Fowler & Baca, 2010). 1.3. Value Chain Analysis from Author to Reader The major players in the e-book value chain are publishers, authors and intermediaries. The emergence and growth of e-books has disrupted the erstwhile relationship among these players and as such they would each need to modify their roles and possibly business models. Authors and publishers are the most affected. Conventional publishers face three major challenges. First of all, they have to contend with demand for cheaper prices by e-book readers who believe that their logistics and distribution costs have been minimised to nearly zero. Naturally, this has led publishers to reduce the advances and royalties they pay to authors (Trachtenberg, 2010). Secondly, they are likely to face pressure from mass aggregators, such as Amazon, Barnes & Noble to lower their costs price rather than raise consumer prices. Thirdly, there has emerged competition in the form of Internet-only publishers such as Online Originals and Hard Shell Word Factory. These new players have a lower cost structure and as such may attract e-book authors through higher royalty rates than the conventional publishers (Siegel & Gibbons, 2009). Nevertheless, conventional publishers could exploit the digital environment to develop new sources of income, such as selling apps and special eBook editions enriched with music and video (PwC, 2010). They could also develop their own platforms or share platforms to sell their content directly to consumers to increase their profits. Special-interest publishers could also benefit from selling individual chapters and sections from their books to create more revenue. Authors are probably the players in the value chain with the most to gain from the disruptive effect of the e-book industry. They can opt to work with conventional publishers for reduced royalties and benefit from editing, marketing, and other services or they may be bold enough to pursue self-publishing and/or self-marketing. PwC (2010) states that well-known authors are best placed to succeed from self-marketing. On the other hand, new authors with limited finances to use the services of conventional publishers should benefit from the advancements in desktop publishing systems provided on the Internet by third parties, such as Lulu.com. Intermediaries in the traditional value chain who provided services, such as storage and transportation, will experience reduced business as publishers move part of their business to the digital platform. However, even the digital environment will require the services of intermediaries for functions, such as establishing digital content systems, online payment, online selling platforms and so on. 1.4. Strategic Analysis of the Future Direction of This Market An analysis of the macro environment of the books industry strongly suggests that the e-books are not only here to stay but also that their market will continue to grow. The current global economic squeeze has made consumers to be more discretionary in their spending. The dollars saved by purchasing e-books rather than printed books and the reduced cost of e-readers will persuade a number of consumers to go the e-book way. The social status associated with owning an e-reader or a tablet especially in the developed world puts pressure on consumers to own these gadgets and use them. On the technology front, development of interactive e-books, improvement of user interfaces and the reading experience for customers, and potential for low cost structure, as well as increased margins for publishers, makes e-books and e-readers an attractive industry to invest in for businesses and enjoyable for consumers. Finally, the environmental benefits of consuming e-books in contrast to printed books cannot be gainsaid. However, industry profitability may remain low for the near future because of its industry structure. According to Porter (2008) industry profitability can be predicted from an analysis of five forces: power of buyers, power of suppliers, threat of entry, threat posed by substitutes and competitive rivalry. When looking at the industry from the perspective of the publisher, with e-books the power of authors (suppliers in this instance) is high, and power of buyers is also high because of the high availability of substitutes which for e-readers includes apps, games and even movies. It is easy for new entrants, such as Internet-based publishers, to set up and the forward integration by device manufacturers, such as Apple and Sony, and backward integration by mass aggregators, such as Amazon with its large resources, increases the competitive rivalry. Conventional publishers will therefore need to go back to the drawing board, re-evaluate their core competencies and come up with well-crafted strategies to survive in the competitive e-book industry. Suggestions on possible strategies are highlighted in the following section. 2.0. Conclusions and Recommendations From the discussions above it is clear that e-books and e-readers have radically changed the publishing industry such that conventional publishers will have to shift their business models to accommodate for this new mode consuming books. There growing demand for e-books and e-readers across most age groups implies that this will grow to be a significant market in future. However, the industry analysis paints a gloomy picture in terms of profitability because of very strong forces. Nevertheless, conventional publishers could still sustain their profitability and maintain their relevance by pursuing the following recommendations. First, they should leverage their industry experience and resources to craft strong packages that will attract authors to their fold. Whereas self-publishing is an alternative to authors, the huge demands for marketing, advertising, proof-reading and editing are not their core competency and may prevent them from focusing on producing good literature. This may require publishers to lower their margins from the book which they should recover by releasing different book versions with differentiated pricing models. Publishers should use their resources to create interactive e-books to increase their margins. Secondly, publishers should seek entering into strategic partnerships with either mass aggregators or device manufacturers in order to develop unique market positioning or customer value propositions. References Amazon (2012). Kindle E-reader with Wi-Fi, 6" Display. [Online]. 20 March 2012. Amazon.com. Available from: http://www.amazon.com/Kindle-eReader-eBook-Reader-e-Reader-Special-Offers/dp/B0051QVESA. [Accessed: 20 March 2012]. Brown, G.J. (2001). Beyond Print: Reading Digitally. 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[Online]. 8 March 2012. Harris Interactive. Available from: http://www.harrisinteractive.com/NewsRoom/HarrisPolls/tabid/447/ctl/ReadCustom%20Default/mid/1508/ArticleId/979/Default.aspx. [Accessed: 20 March 2012]. McLaren, G. (2012). E-book Sales Up to 17% In 2011. [Online]. 27 February 2012. Publish Your Own E-books. Available from: http://www.publishyourownebooks.com/ebook-sales-up-117-percent-in-2011/. [Accessed: 20 March 2012]. Porter, M.E. (2008). "The Five Competitive Forces That Shape Strategy." Harvard Business Review Online. R0801E, pp. 1–18. PwC (2010). Turning the Page: The Future of eBooks. PricewaterhouseCoopers. Siegel, M. & Gibbons, F. (2009). Apple Inc and the E-book Reader. Trachtenberg, J.A. (2010). Authors Feel Pinch in Age of E-Books. [Online]. 27 September 2010. WSJ.com. Available from: http://online.wsj.com/article/SB10001424052748703369704575461542987870022.html. [Accessed: 20 March 2012]. Read More