Sunday, February 28, 2010

Kindle, iPad .... iTunes replayed?

A couple of months back, we were discussing the Ipod – Itunes phenomena in one of our classes. We were discussing the game changing effects of the Ipod – Itunes Combo which has completely re-organized the  entire value chain of the music industry.
Today, is the publishing industry poised for a similar shake up? The Kindles and the iPads are competing with each other coming up with new models and arrangements. The way customers approach books and other published content has been constantly changing over the years and these devices seem to be accelerating the pace.

Our class discussion on the music industry started with the traditional value chain of the music industry:
Artist >>> Recording Companies / Labels >>> Distributors / retailers >> Customers (as cassettes, CDs etc.).

This model has traditionally favoured the big label and has been working well for more than 50 years. But this was suddenly threatened by online music sharing ventures such as the ones promoted by Napster. The music industry successfully killed Napster and contented that a major threat has been eliminated. Then Apple burst into the scene with its path breaking Ipod – Itunes Combo.

In my opinion, Ipod is the new age version of the ‘Walkman’. It is just a high quality digital version of the famed walkman. But the real game changer here was the ‘iTunes’. This application in conjunction with the online music stores set up by Apple completely changed the way people bought music. They no longer had to buy whole CDs or Cassettes, but download individual songs for just 99 cents. Very soon, Apple signed contracts with most of the major label and built up a huge repository of songs. This huge collection maintained by Apple also served the long tail of music lovers. In addition to this, the ability to just drag and drop MP3 songs into Ipod through iTunes also made things much easier.

Initially, the music industry looked at this arrangement as the ultimate panacea for their piracy issues. But over time, they realized that they have put all their eggs in one basket. The songs downloaded via iTunes can only be played in iPods. The huge economy of scale ensured that no label can afford to not place its songs in the Apple stores. Apple has become the master of the game. This tie-in now made the record companies look around for new alternatives. They tried bringing in their own products in the market to compete with Apple. When that failed, they approached other possible competitors such as Nokia to introduce new music apps for mobiles and other media. Apple responded with the iPhone now putting itself in direct competition with the mobile industry. Whether the record labels like it or not, the game has totally changed. So many different players from different industries have now converged into one common area bringing about new business models.
Today, I came across an article (Could the Kindle and iPad Kill Quality Content?) in gigaom talking about the publishing industry in a similar fashion. Amazon has started an initiative of offering ebooks for its Kindle for just $9.99. This has given rise to many opposing voices in the publishing industry. They argue that the amount of effort and expenses that the writers incur while writing a book does not justify such low prices.

To me and as pointed out in the article, this just appears to be an attempt to preserve existing model of the publishing industry.
  • In today’s world, the electronic media has become an important part of our life. More and more people are moving towards e-books. I myself have read a number of books in PDF format. Day by day, more books are becoming freely available across the net as PDFs and other documents. I remember the day the last Harry Potter book was released. Within hours of its official release, I got the soft copy version of the book. The battle against this cannot be won.
  • On the other hand, products like Kindle and iPad are offering a legitimate means of selling these books. The low price means that at least a certain segment of the population can be weaned away from pirated copies. This might also rope in people who previously abstained from buying books due to their prohibitive cost.

 Rather than totally opposing the new business models, what can the publishing industry do?
  • Unlike the music industry, they should avoid putting all their eggs in one basket – be it Kindle or iPad or anything else. They should ensure that no one player has too much power to manipulate the industry.
  • They should aim at establishing certain open standards for the format and encryption of e-contents. An open technology standard will ensure a level playing ground for any future players and also ensure portability of data (e-books) across devices. Establishing or enforcing standards is easier when the new model is nascent. 'ePub' - the open e-book standard is a good initiative in this standard. iPad is compatible with ePub, while Kindle is not (I expect it to become compatible soon). The publishers should be able to enforce these standards.
  • Each major publisher or a consortium of publishers can establish a global database of the e-books in a standard format and provide an online store for the users. The open standards will ensure that users using any reading device can access these books. This will essentially loosen the stranglehold of applications like iTunes and give more power to the publishers.
  • Right now, when there is some manipulation space, the publishers can try to bring in a differential pricing scheme. The prices can vary by time of publication, author, subject etc.