Sony E-Reader Report Assignment #1 VRINE, PESTEL, Five-forces & Complements, Value Curve, Profit Pools

Team 5 Taylor Kucera Cassandra Pastore Nicole Coumou Kara McDonald Pavel Lubov
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About Us Sony Corporation focuses on electronics, entertainment and financial services sectors. We represent a wide range of business and focus to remain globally unique. Our aim is to fully leverage our strategy to continue to emotionally touch and enthuse customers. Sony Corporation is a leading manufacturer of audio, video, communications and information technology products for the consumer and professional markets. Its music, motion picture, television, computer entertainment and online businesses make Sony one of the most widespread entertainment companies in the world. Our Mission Our mission, as Sony Corporation, is to provide our customers with a variety of innovative products, content and services world-wide. Our goal is to pursue the dreams of our customers. To adapt our unique products to individual needs of varying demographics by bringing to our customers advanced technology at economic value. Our Vision

Sony Corporations vision is to generate the largest market share by becoming the leading provider of the electronic book industry. In order to establish this vision we will partner-up with diverse publishers, which will provide customers with intellectual content at affordable prices. Our electronic readers will offer customers resourceful and sophisticated technology useful for everyday life. Values and Strategic Objectives Sony Corporation values a variety of products and services to which we provide to our customers. As a company we take into consideration the needs and wants of our customers in order to make available the best products suited for an individual lifestyle. Sony Corporations value is based on our commitment to produce the most pioneering, well-rounded technology at an affordable price suitable for every individual. VRINE: Valuable Are Sony e-books valuable? Some say, electronic e-books are the future of text-books. As the e-book industry emerges, more and more consumers are buying ebooks. One reason e-books are popular is because the electronic devices can hold up to 2,000 books. E-books are cheaper to create due to the fact that publishing and marketing costs are minimal, while traditional books have a higher cost because of profit margins from bookstores as well as distribution costs. The e-book can be written and published

within 7 days, while printed books can take up to 8 months to publish. Ebooks are more versatile than traditional books, which make e-books valuable. The e-book may be sold on the Internet to any consumer who can purchase the electronic version at a standard price of $9.99. Rarity Are e-books rare? As e-books become a trend many electronic competitors of Sony are creating their own versions of the product. Other models include Apples iPad Tablet, Amazons Kindle, and Barnes & Nobles Nook. As competitors, such as Samsung, produce E-Readers, Sonys competitive disadvantage increases in the market. Since the e-book market is fairly new, the demand for this product is scarce. This is due to the fact that the e-book market is not completely recognized. This may be because many people are not aware of these devices, or older generations are not acquainted with up and coming technology. Inimitability and Non-substitutability Can competitors imitate? Can they substitute? In the technological industry there are many aggressive companies producing electronic products. Diverse competitors are always producing new innovative products and constantly changing the face of technology. Pioneering companies continuously come up with better products to compete with. Due to the fact that technology is changes, competitors produce and imitate products in order to acquire a piece of the market share. The perfect example of this chain reaction

between competitors is seen through the e-book industry. For instance, the Amazon Kindle was the first E-Reader to come out on the market. Although there are many versions of the e-book, each version has different cosmetic styles and is equipped with original features. These features can range from internet capability to the number of books the e-book can hold. As e-books become more recognized they may substitute hard copy books. E-books have a capacity to hold multiple books and can be added and deleted from the e-book frequently. This means that as ebooks gain popularity consumers will recognize its versatility and will exchange their hard books for electronic versions. Exploitability Can Sony exploit it? The Sony E-Reader has great value and can be exploitable. Sony is a company that uses its resources and capabilities to serve as an advantage to their customers. The Sony E-Reader provides customers with innovative technology that is useful for everyday life. Due to its lightweight and small size it can be taken anywhere and everywhere. It is easy to use and multifunctional. This technology not only benefits Sony Corporation through its sales and services but also to the customers who will be using the product.

VRINE MODEL FOR SONY E-READER

VALUABLE:

Electronic versions are cheaper to create than printed books. Published quicker than standard books. Versatile than traditional books. Fairly new market. Not recognized by many consumers. Capacity to hold up to 2,000 electronic books. Many other styles and brands available (ex: Amazons Kindle) Some versions provide similar applications. Competitors in the market with similar products. E-books substitute

RARE:

INIMITABILE:

NON-

SUBSTITABILITY:

standard printed books. No other product on the market that provides electronic versions of books than ereaders. Versatile to customers, can be used in everyday life. Anyone can use it. Currently on the market.

EXPOLTABLITY:

PESTEL: Political Sony is one of the top selling brands in electronics; but why is Sony different than its competitor Samsung and the following store brands? This is because Sony has been around for many years and throughout the technology era they have built up a reputation in the technology industry. Sony has captured consumer confidence and is available in all local retail stores as well as Sony Style stores. There are other companies entering the electronic market trying to compete such as Vizio, Tosihiba, Magnovox, Element, Dynex, etc. Sony must keep its strong reputation to survive through this technology era. Saying this, Sony must make sure they are selling topnotch products and mistakes are not acceptable because they could possibly lose their reputation. They recently had a recall of all laptop batteries since a few caught on

fire, but Sony made the correct move and had the recall as soon as they found there was an issue with the batteries. Currently, Sony is still the leading provider for laptop batteries, and politically Sony is doing better than they were a year ago. Given President Barak Obamas stimulus bill that was passed a year ago, the Stock Market has shown an increase. Environmental Society has taken an interest in recycling. This is known around the world as going green. The concept of going green has caused many companies and industries to become more eco-friendly. Sony is one of the few companies that offer service to properly dispose the vacuum tube televisions that consumers are now replacing with a LCD or Plasma. Also the LCD and Plasma TVs are energy efficient. We can say Sony is the main manufacturer of batteries, which are used in all laptops today. Sonys stride is to create more greener batteries by being energy star certified or to consume less power. Being environmentally friendly is a big deal for the technology industry and Sony has done a great job satisfying the consumers in the going green movement. Sociocultural Technology has consumed society and wherever electricity exists technology is right behind. As of now, society has a need for the use of computers, cell phones, PDAs, laptops, ext. These are all ways that society accesses specific programs, and the internet for communication,

networking and business usage. A great example of society using devices for social use is a person playing PS3 online could be playing in Massachusetts and playing against another consumer in china. Technology revolves and works around different languages and cultures. Technological In todays era, companies and business are taking advantage of technology from telecommuting from home via laptop or showing presentations on plasma screens or having multi-personal conferences via internet from different remote locations. Sony has focused its products to the personal consumer by manufacturing everyday technologies such as TVs, cameras, DVDs players, video game consoles, E-Readers, ext. We can see how technology has changed every few years. Such as going to the bookstore to pick out a book, then being able to order books online and have them delivered to your house, now you can have electronic books (e-books). Technology is growing every day and is a major part of our world. Economic One thing we can say about technology is that it is growing and electronics are becoming much cheaper, running much faster, while becoming smaller and more efficient. Ironically, the price of the new and improved technology is dropping. Today, a standard 42 inch 720 plasma screen cost roughly $500-$600. About five years ago, it cost about $1,500-$2,000. About ten years ago, it cost up to $10,000 or more. We

can observe how the company must adapt to the previous changes, helping develop better strategies for new changes that will come. Another economic factor to observe is with technology becoming cheaper; it is becoming a higher demand. Saying this we need to make sure that Sony is keeping up with the demand in creating new technology at a higher quantity and best quality. The average consumer will replace the laptop, camera and ext. usually every five years. Saying this Sony must make sure that in that next five years, it has a better, cheaper and more efficient product for the consumer. Economically we are still in a recession, however, the economy is better than it was a year ago and companies have learned to outsource and can become more efficient with less employees. Legal With new ideas and technologies being invented, Sony needs to be aware of patents and the patent law. Sony has a direct relation with the government in their legal department making sure all of their ideas are safe and secure. Sony also has to understand different country or state laws because they are not only selling products within the US. They also need to be aware of the copyright laws when they are dealing with E-Readers.

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Five-forces Model Michael Porter, creator of the five-forces model, discovered a method to determine how appealing a particular market is. Porter utilizes industry economics to establish market competitiveness, which is derived by the five-forces model. The model suggests that in order to develop effective organizational strategies of a company, managers must understand the external forces within an industry that determine a companys level of competitiveness. Porters five-forces is characterized by degree of rivalry, threat of entry, supplier power, buyer power, and threat of substitutes. The five-forces model can evaluate Sonys EReader industry structure. The model will draw attention to Sony EReaders strengths and weaknesses in relation to the E-Reader industry as well as other business within the industry. Degree of Rivalry For the E-Reader industry, the intensity of competitive rivalry is high-pitched. Sonys E-Reader approaches a market that is booming with aggressive opponents. Amazons Kindle holds a significant edge in the industry. Apple recently announced its new iPad device that is going to

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give Sony and Amazon a run for their consumers. Competitive rivalry is based on attributes such as price, quality, and innovation. When there are numerous competitors in the industry or entering the industry, price wars become intense. Currently, the Sony EReader is less expensive than the Amazon Kindle. The Sony E-Reader seems to be desired by consumers who are price conscious. As the Apple iPad moves full force into the E-Reader industry, Apple will assumedly price its product at a higher fee. Technological advances are additional strong influence on the degree of price competition. Companies that are successful with introducing new technology and who develop a product different from those of competitors are able to charge higher prices. Apple is notorious for being a leader in innovative technology. The rivalry Apples iPad is creating is powerful and will likely force Sonys E-Reader to compete. Threat of Entry There are two conditions to consider when evaluating an industrys threat of entry. First, the threat of new entry, defined as the degree to which new competitors enter an industry and intensify rivalry. Second, barrier to entry, defined as the degree to which it is more difficult to join or compete in an industry. The threat of new entry for the E-Reader industry is relatively high. E-Readers are devices that eventually will chance the face of learning and there are many companies looking to be apart of this wave of profitability. Sony is a

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pioneering company that created one of the original E-Readers. Sony EReaders have attracted the attention of other firms, such as Apple, to compete in this industry arena. Likewise, the barrier to entry is high. Some of the strong characteristics that contribute to the barrier are brand names, technologies, and product differentiation. Sony, Amazon, and Apple are powerfully built labels, making it difficult for a new forthcoming company to enter into the E-Reader market and successfully compete. Also, it may be difficult for a new company to find the resources, technologies, and ideas to create an E-Reader product that is different from the devices already out in the market. Supplier Power Suppliers of an industry are powerful when they control such factor as prices, delivery lead times, orders, and payment terms. The supplier power in the E-Reader industry is low to moderate. Before manufacturing E-Readers, the suppliers will need to send the company with components. In order for the companies to have a finished product the suppliers could impose a payment term that raises the cost of resources, which makes the suppliers of E-Readers some-what dominant. However, it is not difficult for a company in the E-Reader market to switch from one supplier to another supplier and the cost of doing so is insignificant. Buyer Power

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Buyer power describes consumers abilities to put a firm under pressure. Buyer power can affect the customers sensitivity to price changes. The buyer group is powerful when it has numerous choices. The existence of products in E-Reader industry is minimal, which decreases the propensity of customers to switch to alternative brands. Since there are few devices for buyers to choose from, industry prices are likely to increase. The power of consumers in the E-Reader industry is low to moderate. Sony, Amazon, and Apple all have a strong brand identity in the E-Reader market, naturally giving the consumers less power to set industry prices. Threat of Substitutes Threats of substitutes exist when a product in another industry can satisfy the same demand as the product of the focal industry. The existence of products outside of the E-Reader industry can increase the tendency of customers to switch to alternative products. If the alternative product is lower in price and is used for the same purpose, than there is a threat of substitute. The threat of substitutes in the EReader industry is moderate to high. Paperback books are a strong alternative to E-Readers. Books, newspapers, and articles could potentially attract a portion of the E-Reader market and reduce sales. Similar to the threat of entry, the threat of substitute is determined by factors like brand loyalty, price performance, and current trends. The price of obtaining an E-Reader is more than the price of paperback

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books. Nevertheless, the current trend of E-Readers is becoming more and more admired and can dominate paperback books.

The Five Forces of E-Readers Industry Structure Threat of New Entrant (and Entry Barriers)

HIGH

Supplier Power Low Medium

Degree of Rivalry HIGH Threat of Substitutes

16 Medium HIGH

Buyer Power Low Medium

Compleme nts
Value Curve Analysis

Competing brands that challenge Sonys E-Reader value curve is the Amazon Kindle and the Apple iPad Tablet. The value curve charts have many similarities and differences. For instance, the price of an Amazon and Apple product is similar. There may be a difference in the exact amount, but generally the prices are around the same. The technological terminology of Sony, Amazon, and Apple products is comparable. Many, if not all of the product descriptions inform

Computers

consumers about the technical intricacy that is involved in producing the actual product. The product description is prepared to help guide interested customers to better understand technical definitions. As a group, we concluded that Sonys marketing schemes are not as high as their competitors. For one, Apples advertisements are everywhere. Their marketing department advertises to all ages, all over the world. Conversely, Sony does not seem to advertise as much as Apple. Compared to Apple, Sonys marketing is not as effective and creative. The aging quality of Sony verses other competitors is about the same. It is likely for all technology to age within a few years, depending on how well the customers take care of their products. To us, Apple 17

products last a tad bit longer than Sony products. It may not have to do with quality, but rather the difference in software. The prestige of Sony is less superior to Amazon, and Apples status is more enhanced than Sonys status. In line with Amazon and Apple in the E-Reader industry, Sony would be the third company that people would buy from. Furthermore, the complexity of the products between Sony and its competitors is slightly different. Sonys products have the exact amount of technology needed to satisfy consumer demand. Most of the time Sony products do not have extra features, while Apple is continuously striving to add more than the consumer needs. Apple products compete to be on top of the line. Sony, Amazon, and Apples range of products are somewhat corresponding. With the exception that Apple may develop fewer products than its competition. Sony offers a different variety of products, as does Amazon. Both Sony and Amazon offer different sizes in their EReaders. In fact, Sony and Amazon offer a selection of less advanced EReaders to more advanced E-Readers. Sony is certainly an innovative leader in the E-Reader industry. In spite of the scrutiny faced in this industry all of the companies create well-developed and good products. To conclude the value curve analysis, the success between the three competitors within the E-Reader industry is dependent on, and may come down to, the consumer brand preference.

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S o n y R e a d e r v s . A m a z o n K in d l e a n d A p p l e T a b l e t
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Profit Pool Analysis A profit pool is an analytical tool that quantifies profits at various points along an industry value-chain, it is usually illustrated in a barchart diagram. The bars in the diagram represent the size of value-chain segments according to their respective volume of sales and thereby highlight the attractiveness of each sector within an industry. In order to conduct a profit pool analysis, Strategic Management by Carpenter and Sanders outlines six steps. These are; defining the profit pool and the relevant value-chain activities, estimating the size of the profit pool, estimating the distribution of profits along the chain, verifying the values, graphing the profit pool, and finally evaluating the results. The following is a step-by-step profit pool analysis of the Sony Reader. The Sony Reader is an electronic device used for the storing and displaying of ebooks. Its value-chain activities relevant to profit creation can be split into two segments; virtual content and Reader production. The virtual content value-chain is made up of three phases, first the author, then since there arent yet any exclusively electronic books, the author goes to a publisher, the publisher then distributes its copyrights to ebook retailers, and finally the ebook retailers sell the ebooks to Reader owners. The second value-chain, which is Reader production, is made up of a number of stages; manufacturing, distribution, retail, and advertising. Since Sony Corporation is such a large corporation, most of the stages of this value-chain are integrated into their business,

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therefore the value-added for this product can be analyzed in one profit pool, from raw materials to the finished product. The next stage was estimating the size of each profit-pool activity. This stage is beset with assumptions and relatively loose figures, nonetheless it provides a good industry overview. Starting at the bottom of the chain; how much do authors make? According to an article on author-publisher contracts by Barbara Brabec, a major author, the average commission of an author makes up 10% to 15% of every book sale. Then the publisher goes on to publish and sell the books in hardcopy at around a 30% markup rate on every hardcopy, this is derived from and supported by numerous major publishers income statements. Since the cost of ebook creation is much less than the cost to publish tangible books, I estimated the earnings from each electronic book sale to be worth 60% for the publisher. So how much does the Sony owned Reader Library make of the sale of every ebook? Well according to an article by Peter Kafka, Like Your Kindle Books Cheap, Dont Get Used to It the average price of ebooks sold is $10 and of that the ebook retailer makes 60 cents, which is 6%. Concerning the market sizes, according to the Association of American Publishers the market cap of tangible books sales was $24,3 billion, and the market cap of ebook sales was $53.5 million in 2008. Since the difference in tangible and intangible book market sizes is so gigantic it is not possible to graph both on the same chart, so I only took the relevant ebook industry into consideration. The second value-chain, which is the

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Reader gadget itself, I estimated to be a 5% percent profit-pool. This number is derived from looking at Sonys consolidated financial statements on consumer products and devices, where an average electronic device (television, camera, computer) earned Sony 5%, so I applied the number to the Reader as well. Sony estimated the Reader market to be around 3 million units, with the average Reader priced at $300 this adds up to a Reader market cap of $900 million. According to a study by Cleantech Group, Sony holds 30% of the US Reader market. The profit pool chart summarizes my estimates for each value-chain segment.

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The chart shows the profitability of the different segments along with the sales volume values of each individual sector. From this diagram it is easily visible that the primary profit pool for Sony Corporation is the production and sale of the Readers, even though the profit mark-up is not as great as those in the ebook creation segment its market cap size makes up for larger overall profits. The company should look into entering the ebook publishing business, as the profit mark-up on that particular segment of the industry is the greatest.

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Works Cited Brabec, Barbara. "Author-Publisher Contract Tips." Barbara Brabec's World--Information & Inspiration for Home Business Owners and Authors. Web. 21 Feb. 2010. <http://www.barbarabrabec.com/writing_publishing/authorpublisher-contract-tips.htm>. "Consolidated Financial Results." Sony Corporation. 04 Feb. 2010. Web. 21 Feb. 2010. <www.sony.com>. Kafka, Peter. "Amazon Kindle: E-Book Prices Likely to Go Up |." MediaMemo. 19 June 2009. Web. 21 Feb. 2010. <http://mediamemo.allthingsd.com/20090619/like-your-kindlebooks-cheap-dont-get-too-used-to-it/>. Sibley, Lisa. "Cleantech Group report: E-readers a win for carbon emissions | Cleantech Group." Cleantech Group | Accelerating the next wave of innovation. 19 Aug. 2009. Web. 21 Feb. 2010. <http://www.cleantech.com/news/4867/cleantech-group-findspositive-envi>.

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