Tuesday, November 8, 2011

"Netflix service" for book

Amazon added value to its prime members---- “Netflix-for-book”

Week 2’s focus is competitor analysis. By investigating competitors and sizing them up, companies should draw out a landscape that has a position at which its competency can be maximized. At the same time, good competitor analysis could also help companies to secure its position in the market place by not losing customers.

The readings from this week made me think of the recent news of Amazon: Amazon prime rolls out kindle book lending service. Prime membership can previously enjoy service such as free two day shipping, discounted overnight shipping and getting access to many streaming movies and TV shows (Although the library is smaller than Netflix but still should be regarded as a direct competitor). Now, the new service gave additional values to the membership by allowing them to borrow books to kindle device. The lending library offers more than 5,000 titles that include 100 current and former New York Times Bestsellers.

Apparently, it is a move to compete against Netflix. However, it’s not just a simple competition imitation. In my opinion, Amazon did include a long process of market trend and customer preference analysis as well as a self-analysis regarding what is their competitive advantage and how to stand out to differentiate from the current competitors from this move.

There is an old saying in China from Sun Tzu: Know your competitor and know yourselves and in a hundred battles, you will never be defeated. The strategy art of war can still be applied in today’s business world. Bearing in mind the growing trend for online book lending as well as the quick growth of Netflix, Amazon clearly knows it’s the time to create new model service to allow their customers to the online book reading. However, I don’t think Amazon completely copied Netflix’s business model but instead, it caters to its own ability and set some limitations to the newly added service. For example, the amount limit that can be borrowed is one book per month and customers can only borrow it to Kindle device, which means customers can not borrow book from Iphone or IPad Kindle applications. On the other hand, one of the advantages of the book borrowing services is the fact that no due date exists. Customers can keep the book as long as they want until the date they borrow the next book, when the previous book will disappear automatically.

These limitations are also attributed to the current ability of Amazon investment. The company has already undergo a fairly thin-margin due to the expansion of network of distribution centers, digital content library as well as the new low-margin product Kindle fire. Although set a limitation for the newly added service, stock market still came down a little bit one day after the announcement of the book lending service. I think Amazon considers it as a long term strategy and will finally adds value to its position in the marketplace by the boost of membership and new product sale.

This new act is also aimed to link Amazon’s new product launch Kindle fire with the prime membership service. It pushed customers who are prime members already to buy Kindle device in order to get access to the book lending library and on the other end, it pushed Kindle users to register for the $79/year membership right. I believe the direct aim of Amazon is to increase the number of prime members as well as increase the sales of new Kindle fire. From this point, we can see the companies took consideration of its own development needs as well as capability when looking at the competitive landscape and trying to come up with its own strategies.

Further thinking can continue based on the following question mark:

· The new service surely adds values to people that are already be prime members but how can amazon justify the values to people who are not members? With one book limit per month, will they feel motivated to register for a $79 annual membership?

· In the real world, does company have any method to avoid the ignorance of “knowing youself” in face of fierce competition?

· A lot of companies, in order to beat their rivalries, are taking brave actions towards new product launch/ new service added with low cost—low margin for company itself but how can companies justify the long-term goal of margin profile rising?

Sources:

News article-

http://www.pcmag.com/article2/0,2817,2395796,00.asp#fbid=ebwpV9S8eEX

http://blogs.marketwatch.com/thetell/2011/11/03/does-amazon%E2%80%99s-e-book-lending-bring-more-pressure-to-margins/

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