Poll Results: The eReader Market

Recently, we have discussed the coverage of Apple’s new iPad, and we asked our readers, “In three years, who will dominate the eBook market?” We got a lot of responses, and there wasn’t really a consensus, but a narrow majority felt that Apple would be dominant:

• 35%: Amazon
• 53%: Apple
• 3%: Sony
• 8%: Other

Follow-Ups

The eBook Battleground
Following last week’s report on the Apple iPad media frenzy, there has continued to be a lot of press, with the focus shifting mostly to one part of the fallout – the battle between Amazon and Macmillan over eBook pricing. After Amazon briefly yanked all Macmillan titles (not just eBooks) off their site, they caved and accepted Macmillan’s terms.

Under Macmillan’s new terms, which take effect at the beginning of March, the publisher will set the consumer price of each book and the online retailer will serve as an agent and take a 30 percent commission. E-book editions of most newly released adult general fiction and nonfiction will cost $12.99 to $14.99. Those terms mirror conditions that five of the six largest publishers — Hachette Book Group, HarperCollins Publishers, Macmillan, Penguin Group and Simon & Schuster — agreed to with Apple last week for e-books sold via the iBookstore for the iPad. For more than a year, publishers have been fretting about the price of digital books, which Amazon, as the dominant player in the fast-growing market, had effectively been able to set.

The setting of prices by the manufacturer has led some to question the legality of the arrangement:

Individually, Macmillan may be able to prevail under Leegin standards. A supplier can refuse to deal with retailers who do not follow suggested pricing. Further, Macmillan is only one publisher. Should all six follow suit, however, and attempt to enforce a retail price minimum across the board, Amazon would be in a much better position to argue that the publishers have tacitly created a horizontal cartel to artificially set prices above market conditions.

However, it appears that Macmillan is basing their position not on the Leegin case, but on establishing Amazon as their agent for eBook sales, rather than as their retailer.

SKU Rationalization: Glad & Hefty Get the Boot at
Wal-Mart
Among the latest victims of SKU rationalization are Glad and Hefty, whose sandwich bags have been rationalized right out the door at Wal-Mart.

The move follows a shootout in a series of store tests starting late last year, which appear to have prompted the Glad, Hefty and Ziploc brands to hike ad spending dramatically, despite a deep recession and flat to falling category sales, in efforts to stave off de-listings. The contests had high stakes for the brands, given that Wal-Mart makes up a third or more of their sales. Walgreens and CVS, too, have significantly pared their trash and food bag brand lineups in recent months. In food bags, Wal-Mart has consolidated nationally with one brand, SC Johnson's Ziploc, and its own private label, Great Value, wiping Glad and Pactiv Corp.'s Hefty off its shelves, according to a person familiar with the matter. (Pactiv confirmed the move for its brand, while spokespeople for Wal-Mart, Clorox and SCJ declined to comment.)

Digital Signage
A few weeks ago, we discussed an initiative by Intel and Microsoft to develop software and hardware for interactive digital signage that would, among other things, identify physical characteristics of customers nearing the sign. NEC has announced a similar device:

The company embeds a camera into their monitors, allowing them to constantly film people walking by. NEC takes that footage and applies a program that can automatically scan each person's face, calculating the individual's rough age and gender. While not accurate to the year, the program is fairly good at placing a person within a 10-year range. Incredibly, an NEC official contends "that the system is designed to be anonymous." The program tracks a person's age and gender and throws out the footage, keeping only the macro data, he told the Journal, adding that no individuals are singled out. And I believe this just like I believe that when Marisa Miller steps toward one of those new full-body airport scanners, there won't be a stampede of security guys into the screening room.

While I don’t think most people will react as strongly as the author of that article, there clearly will be privacy concerns about these devices, which must be addressed by anyone developing or deploying such signage.

All iPad, All the Time

You’re not alone if you feel the title expresses what the media, including the marketing trade publications, have been like for the past week. TPMA Outlook will play along, with the exception that we’ll try to cut through the hype a bit and examine some of the points we’ve been reading about, in light of trade marketing issues.

Ready for the Splinternet?
This interview on American Public Radio examines the idea that the internet, which has been based on standards for the past fifteen or so years, is splintering into various non-compatible formats (similar to the early days of CompuServe and AOL), based on the devices used for access – computers, smartphones, and now iPad and other tablets to follow.

For advertisers, tablets have a very obvious advantage – they simply have a much bigger screen than other mobile devices:

…the new device will give advertisers and agencies a larger canvas for creating messaging and content for consumers on the go. That's the early takeaway from digital advertising executives and analysts… A consensus was that the iPad is essentially a bigger iPod touch - with all the advantages that implies, as well as the drawbacks - chiefly, the lack of Flash support for powering rich media ads, video and games.

The failure to support Flash is the complaint I’ve heard most often about iPad, and it will be a big problem for advertisers. But the ‘Splinternet’ problem is more general – content or ads created for iPhone may not work with Android, things that work on laptops may not work on iPad, and so on – what’s a marketer to do?

The Effect on Print Media
Some newspaper and magazine publishers, desperate to find a savior, have been hoping that the iPad might be it. Probably not – this analysis in Media Daily News does the math on what might be reasonably generated by tablet subscriptions, and advertising to reach those subscribers, and comes up with a figure, far short of what newspapers are currently bleeding:

Adding it all up, very successful newspaper subscription and advertising sales on various e-reader devices including the iPad, Kindle, and others might produce new circulation revenues of $325 million and new advertising revenues of $150 million, for a grand total of $475 million for the entire industry. While every little bit helps, this is still a small sum compared to the roughly $24.5 billion in circulation and ad revenues the industry has lost since the middle years of this decade, the almost $10 billion it lost in 2008-2009 alone, and the additional $2.2 billion it is projected to lose in 2010.

To look at it another way, though, I think the newspaper industry has figured out (belatedly) that nothing is going to save it – in its present form. What tablets may give them is another format in which to sell their content, and another way to reach the news consumer.

Of course, they still haven’t figured out a way to monetize their existing digital audience, and another means to grow that audience is meaningless until they solve that problem.

A Battle Looming with Kindle?
Steve Jobs had nice things to say about Kindle, praising it for creating the eBook market, but then warned that iPad was intended to be the next step.

At first glance, the multimedia iPad - with its fast, colorful touch screen and built-in Web browser and video player - would seem to outshine the slower Amazon device.

On the other hand, Kindle "is optimized to do one thing and do it very well, and that is reading. If the user is interested in buying a device for books, the Kindle is a no-brainer." Plus, Kindle costs $259, while iPad starts at $499. Kindle has a long battery life, and for now at least, a much larger inventory of books. Apple, of course, counters with marketing genius and their legions of crazed fanatic followers.

This is going to be fun to watch for marketers, and the consumer will probably be the winner, as companies battle to offer better features at better prices. The parallel is the iPhone/Android battle in the smart phone space.

Gadget Overload?
How many devices can we handle? This article says the average household has twenty-four, and points out that it isn’t just a matter of paying for all of them (and their associated monthly fees):

For others, it's also a matter of scarcity, not of money but time - time to set up and really learn how the things work. "Every new device is an investment in time," says Marchenese, 36. "The whole power of the device is that you can set up all these apps - but that doesn't happen by itself. And if you're not going to make the most of it, why have it?"

But that may be part of the power of an iPad, or of future refinements of the tablet-style device, under whatever brand – if it can combine laptop, music player, reader, and phone into a single device.

In any case, it has been an interesting week, and it will be fun to watch the developments, and how they play out for us as marketers and consumers.

Exit Question: In three years, who will dominate the eBook market?

Apple to Open Dozens of Stores Next Year

Apple is increasingly transforming itself into a retailer, with plans to open fifty new stores next year. Half of the new outlets will be outside the US, with stores planned in Shanghai, Paris, and London.

Laptops' Price Slide Continues

The inevitable has happened, Best Buy has introduced a laptop at a netbook price of $280 for an Acer laptop with a 15.6” display, 2gig memory, and a 160gig hard drive. When netbooks began eating seriously into laptop share last year it began to seem likely that there would be some form of convergence, of price or features or both. What will this do to manufacturer and retailer margins?

Best Buy Increases Its Emphasis on Private Label

A couple weeks ago, we had an item in our newsletter about the possible spread of private label into automobiles (if Saturn dealers get their wish to buy the brand name from GM). One of the things that has been fascinating in recent years has been the spread of private label out of the fast-moving consumer goods category. As the recession bites and people are looking for savings, many more are experimenting with private label products in grocery and often finding that they are satisfied with the quality. I wonder if their experiences will make them more willing to try private label products in other categories.

Best Buy seems to be betting that they will, and are expanding their PL offerings with significant success. Their own brands of TVs (Insignia and Dynex) now account for about 5% of the total flat-screen market. One effect of this has been to freeze out low-priced suppliers, such as Vizio, whose products might compete with Best Buy's.

The Irvine, Calif., television maker has talked with Best Buy about selling in its stores, but worries that Best Buy would give its products short-shrift. "We couldn't go in and be constrained by comments like, 'Don't hurt my house brand,'" said Vizio co-founder Laynie Newsome.

Best Buy acknowledges that it is choosing not to carry some low-priced electronics brands that would compete with its private-label offerings.

One of the big differences between private label CPG and electronics or some other consumer products is that there's a certain amount of ego wrapped up in owning a prestige brand of TV or cell phone (or shoes or cars) that is considerably less of a factor with mayonnaise or ibuprofen. Another difference is that private label CPG has had its greatest success in products viewed as commodities by consumers; in non-commodity categories, brand name suppliers have managed to maintain share in many cases by innovating. Categories, such as consumer electronics where innovation is so rapid, seem like unlikely places to find private label success. But it appears that Best Buy is actually doing some innovating.

Best Buy believes it can prosper in private-label electronics -- an area that has historically flummoxed U.S. retailers -- by using the mountains of customer feedback it collects from its stores to make simple innovations to established electronic gadgetry. […]

Popular products included a global-positioning system with Google Inc. search capabilities, a high-definition radio receiver that displayed the names of songs, and stripped-down digital picture frames without pricey extras such as music-players.

It seems to be working: "Sales of Best Buy private-label electronics soared 40% during the past fiscal year…"