Amazon is testing a $7.99 monthly price point for Prime which currently only offers a $79 annual option. As I’ve written on in the past, Amazon has added a variety of services and offerings to Prime. While Prime started with a focus on shipping options, it has blossomed into much more While many have focused on Amazon’s push into the video streaming market through Prime, I question what Prime might mean for the future of the broader OTT market. The OTT market is a competitive (and arguably crowded) space. Netflix has some 25 million subscribers in the United States. Hulu Plus has over 2 million subscribers. With about 116M U.S. households there is some upper-bound on the possible number of subscribers. Backwards deduction would suggest that in order to remain a viable competitor in the competitive and crowded OTT space we will see an expansion of services and offerings. As opposed to focusing on Amazon’s push into the OTT market, I expect to see others push into non-traditional services and offerings.
Amazon is now a library – sorta. Last week, Amazon launched the Kindle Owners’ Lending Library which gives Kindle users who own an actual Kindle device (and not just use the Kindle app on other devices) AND are Amazon Prime subscribers access to 5,000+ books they can “borrow.” A few things worth noting:
1) this is probably the first example of a subscription service for digital books. We have subscription services for other digital content (music, video, games) so books are a logical step. I assume all digital content will eventually be available either through a unit price or through a subscription service.
2) Amazon is quickly making all of their subscriptions a part of their Prime offering. Prime subscribers now have a digital video subscription (instant streaming of movies and TV shows), a digital library subscription, and a free two-day shipping subscription. With each addition, Prime subscription becomes more attractive to two audiences, the first audience is the group that actually wants the new additional offering and the second audience is the group that finds the new addition attractive on the margin (and of value when coupled with the entire suite of services). Ultimately this raises the number of overall Prime subscribers which in turn provides Amazon with more collective bargaining power and consequently the ability to increase the value of what is offered. In other words, Amazon can go to the studios or publishers or whomever and say, “hey we have XXX million subscribers to our video/book/fill-in-the-service and we’d like you to do/provide/settle for….”
At the end of the month, Toys“R”Us will begin selling Amazon’s Kindle (see Retailing Today, Mashable, Reuters, LA Times). This is a natural extention of its existing non-Amazon retail strategy (which already includes Target, Best Buy, RadioShack and AT&T stores). More importantly, I think it targets an important segment of the population primed for an e-reader experience but who haven’t had the chance to express that interest.
What happens when eReaders grow up to be tablets? This morphing is already well underway. Barnes & Noble has always referred to the Color Nook as a tablet eReader – with tablet being the operative word. At their event this week. B&N claimed the Color Nook is the top selling android tablet in the market. Amazon – the current king in e-ink eReaders – is getting set to launch potentially two new tablet-oriented devices. E-ink is actively working to bring to market color e-ink screens and other eReader players are treading towards tablet-like devices. But this evolution has important implications.
First, network economics for text are very different than they are for video and more data-intensive applications. One of Kindle’s opening hallmark features was the ability of the user to download books via the cellular connection without having to independently contract with the service provider. In fact, at one point Amazon switched Kindle cellular service from Sprint to ATT and users never took notice.
This won’t be the case as users gain access to more data-intensive offerings. These services are more bandwidth intensive (and therefore costly) than delivering text over the network. Even though our research has constantly shown most tablet users primarily connect via Wi-Fi, the existing service contracts can’t work when devices are more than books. This will be a key element in the new tablets being launched by Amazon.
App usage on apps-enabled devices will crowd out book usage. This has ramifications for device pricing. In the early days of Kindle, Amazon subsidized the content instead of the hardware. This changed as Apple moved into the book business and subsequently eReader OEMs began selling ebooks at the publisher price and subsidized the hardware prices (or atleast began selling them at very low margin). If the margin is made on the ebooks and their are less ebooks sold as a result of changing use-case scenarios – OEMs will be in search of a new business model to driven margin.
This week Ba
rnes & Noble upgraded the software running on their Nook Color e-reader tablets. Users can now access apps, have email pushed to the device and watch flash videos.
There are a variety of reviews on the web (see: here, here, and here) discussing the anticipated update so here I’ll take a differ tack and discuss two things: what we learn about the evolution of technology in the Nook and what it means for adjacent categories like tablet computers (as opposed to tablet e-readers).
While their initial foray into personal electronics with the original nook might have been more than just an experiment, B&N moved relatively quickly onto the Nook Color. The original Nook was launched in November 2009 and while it was largely sold out during that introductory holiday season, there was likely very little opening stock available. By June 2010 the price had been cut consistent with pricing cuts across the entire e-reader category. Within a year of the initial Nook launch, B&N had a higher-end, full color screen e-ereader tablet and the Nook line collectively was “the company’s biggest bestseller ever in its nearly 40-year history.”
On Monday Amazon premiered a new Kindle commercial during Good Morning America. The ad (above) portrays two individuals trying to read poolside – one on an iPad and one on the new Kindle. The essence of the commercial touts the relative readability of Kindle’s e-ink display in direct sunlight.
Commentary (for example: here and here) on the new ad suggests a Kindle v. iPad strike. But the pundits miss the quintessential goal (and subsequent achievement) of the marketing spot. The Kindle ad isn’t about besting the iPad, it is about showing the consumer a discernible value. In the past brands created a value proposition, but moving forward they will increasingly create what I refer to as a value position…..