Comparison of the Apple Ipad and Amazon Kindle

During this report we have analysed the industry structure of the tablet PC market. We have examined the current strategies adopted by the current market leaders, Apple and Amazon, and their tablet PCs, the iPad and Kindle Fire. Having highlighted issues within the strategies they are operating, through the use of a SWOT analysis, we have identified key strategic issues that are affecting the sales and growth of each of these companies. By examining the value chain of each company we are able to justify the strengths of each company and suggest ways in which they can adjust their strategy to utilize these strengths for future growth. Having identified these key issues we were then able to provide recommendations for each company for better performance in the future; the key recommendation to Apple was to focus more on the developing business and enterprise market segments. The key recommendation to Amazon was to consider a more global strategy by expanding the markets they currently sell the kindle in; this should in turn provide them with global economies of scale allowing them to operate a more sustainable long-run strategy.

Industry analysis

Although tablet hardware has been around for many years, the modern tablet PC that we know today has only recently been developed with Apple at the forefront of this; the iPad was the first innovator in this industry to truly realise the potential that tablet PC’s could have. The versatility of tablet PC’s and limited function ability makes them useful for content use only, meaning that at present they pose no immediate threat to the laptop market. Tablet PC’s are designed to be lightweight, small and convenient to use; qualities which Apple perfectly adopted in the first iPad.

At present it is possible to divide the tablet market into the following main segments, each with different requirements and specifications.

At present the consumer market is flooded with many ‘copycat’ products of similar quality and technology. This has been recently publicised in the high profile patent battles between Apple and various other tablet manufacturers, notably their case with Samsung in which they won their battle of infringement of various patents; Samsung were as a result fined millions in damages. The consumer market is still relatively new having only established and expanded properly at the end of 2010 with the success of the iPad. Both the professional and Enterprise markets provide large possible demand as many multinationals purchase tablets as mandatory office technology, the medical tablet market also provides great potential. These markets provided great potential for expansion and growth. According to recent estimates, the US tablet PC market is expected to grow at around 11% annually from 2012, with at least a 30% increase in demand driven by the business sector over the next five years; highlighting the great potential in increased demand these markets could provide.

During July-September period, the overall tablet market grew by 50 per cent to nearly 28 million. Samsung’s market share comes second and grew to 18%; the number of tablets shipped almost the same as that of Apple (see graph 1). Amazon was in third with its Kindle Fire, which managed a 9% worldwide share even though the Fire was available only in the U.S. during the third quarter. Apple is still the market leader and has sold around 70 million iPads worldwide since its launch in March 2010. The third quarter of 2012 showed the company’s share of the market for the tablet pc fell to 50.4% compared with 87% and 60% market share in the same period of 2010 and 2011.

Graph1: source from mailonline <http://www.dailymail.co.uk/news/article-2228953/Apple-iPad-overtaken -market-share-Samsung-Google-devices.html>

Value Chain

The above value chain for Amazon and Apple states the process of each company in the production of their tablet PCs, from the primary to tertiary services. Here we can examine the advantages that each company has at various points within the value chain. For instance, Apple has a strong relationship with their OEM partners meaning that they acquire higher quality resources at a lower cost; Amazon have 24-hour online services meaning that they can provide greater levels of customer satisfaction.

Apple strategies

On the current era which focuses on the brand, it is difficult to appeal the customers only by special functional characteristics. As a result, the Apple Company has searched out the right development orientation during the significant changes of PC industry. To be specific, Steve Jobs’s success is inclined to customer orientation, being the strategy of humanity marketing, which is based on the understanding of humanity and the grasp of human desire rather than technology orientation.

* Creating momentum before marketing
According to Peter F. Drucker, the Father of Modern Management, the target of marketing is to make sales promotion unnecessary. Therefore, being swayed loss of psychology of consumers and the mystique to seek the unknown outcomes are the most valuable marketing tools to promote the products and the brand.

The Apple Company achieves the essence of marketing. During the one year of awaiting Apple’s product appearance, the discussion never stops. However, when the products come out, almost nobody guesses the modelling and functioning correctly, thus attracting everyone to Apple’s products. The aim of creating momentum is to assure the products to be the topic of consumers. The company advertises the products to be the goods of times significance and boasts its advanced technology.

* Hunger type marketing
Apple products are so popular because the company always limits the sales. It sells the products before the products leave the factory. No matter how high voice of the commodity, the Company always insists the strategy of restricted supply after coming into the market. Such a strategy utilizes the psychology of chasing fashion which leads many people to queue up throughout the night for the release of new products. Such an arrogant and mighty style makes consumers try to stop indulging in the magic of Apple products but cannot do that.

* Experience marketing
There is the Introduction Commend Conference which is full of mystery in order to arouse strong curiosity so long as the new product is promoted. The apple products are impressed by superior performance, special appearance and perfect design. * Brand marketing

The cult of celebrity contributes to the brand development of Apple products. Most of the celebrities in movies or in reality use the Apple products now. Building Apple culture and fostering crazy Apple fans are the purposes of the Apple Company. The Apple products are the fashion of cool rather than the ordinary. Every kind of Apple product makes the customers happy and occupies the first place in product innovation and building the Apple culture which contributes to setting up the starting point of marketing unlike the other brand.

* Humanity marketing
Releasing new products of Apple can bring about the crazy purchase, widely report and the influence to stock market. The marrow of Humanity marketing is to understand consumers’ mentality and use the consumer’s views to find out the true consumer preference. The philosophy of Jobs is to do the right thing which is humanity rather than technology, design and aesthetics. In reality, the right thing of Jobs is opposite to the tradition at that time. However, the huge sales volume proves the correctness of Apple’s strategy.

In the SWOT analysis (Appendix 4) we see some key strengths with Apple’s current strategy such as their strong brand loyalty, high levels of
technology integration across the platform of Apple products and the numerous patents that Apple currently possess.

Amazons Strategy

The key reason behind Amazons apparent predatory pricing strategy could be that in the tablet pc market only Apple has succeeded at charging premium prices. For instance, take Samsung, who also sell an identical product to Apple (highlighted by the recent patent infringements Samsung made), that sold their tablet at a substantially lower price than the iPad. Amazon’s strength as a media business could therefore make up for their low margins on the sale of Kindle Fire. This strategy could prove beneficial as Amazon compete on a media basis rather than on brand name and price premiums; a strategy that the Apple brand is incredibly tailored to. On a cost basis, Amazon produce the Amazon kindle for a total of $150 (See Appendix 3) and sell the product at $199 making just a $49 profit per unit. This pricing strategy at near break-even is useful for market penetration, and to gain a rapid market share.

However, because of this pricing strategy Amazon have incurred a net loss of $274 million in the third quarter of 2012; this loss is attributed to the current low price of the Kindle Fire. The CEO of Amazon, Jeff Bezos recently summarized the current strategy that Amazon is adopting “Our approach is to work hard to charge less. Sell devices near breakeven and you can pack a lot of sophisticated hardware into a very low price point”. With the Kindle Fire priced at just $199 Bezos has also said “the devices aren’t meant to be profit devices but rather conduits for the online sales of digital books, songs, games and videos.” Amazon has made it publicly clear that their goal is to get customers to purchase more content from their online stores. The low price of the Kindle Fire facilitates this strategy by increasing the size of their market share and creating a larger ‘rich ecosystem’ of content and users to encourage this. Amazon wants their devices to be “services not gadgets” by creating an ecosystem of content, the small margins on the hardware will be supported by the larger complementary profit margins of content sales.

In the SWOT analysis (Appendix 5) for Amazon, we can see the strengths of Amazon’s current strategy such as their competitive pricing of the Kindle HD meaning that it can easily be replaced; the expansion of their online library content and the Kindle eco-system provides a USP for Kindle. Amazon’s rapidly expanding market share will also help increasing these benefits.

Issues of strategies and products of each company

Apple

Even though Apple is the giant in the tablet market now, it still faces some issues. Apple is shifting from the position of market leader with increasingly shrinking market share. It also faces a big challenge from its competitor, Amazon. Further, technology limitations slow down the pace of developing products which also means there is a loss in product innovations.

The Apple iPad is the most in-demand tablet pc since its debut in the market two years ago, but now it’s shifting from the market leader. Apple and the iPad. From Apple’s 2012 annual financial report we can see that net sales of the iPad (and related products and services) were $32.4 billion. iPad net sales have increased by 59% on the previous year’s figures, whilst Apple have sold a total of 58.3 million iPads in 2012. As competition intensifies in the consumer market, Apple may well see a decreasing market share. Unfortunately, they have been losing a lot of market share to Google-based Android devices like Kindle. In the Third quarter of 2012, the company’s market share fell to 50.4% compared to 87% in the same period of 2011.

Apple encounters a big challenge from Amazon. Since Apple is more interested in catering to high-end customers, the company builds quality products that are more expensive than their competitors. As the largest online retailer, Amazon has launched a budget £159 tablet Kindle Fire HD in UK whilst the iPad mini costs £269. Amazon isn’t just a bookstore or a music store, shoe store, video streaming service, or newsstand. Amazon has wrapped all of these things together into a rich, easy way to suck down almost every conceivable form of media with one key: Prime. The Kindle name is well known and the most potential owners probably already have some Kindle books or have bought content from Amazon.

In the SWOT analysis (Appendix 4) we can see some key issues with Apple’s current strategy such as their high production costs, decreasing market share, threat of imitation of their product and low replacement rate due to a relatively high price.

The iPad is, essentially, a version of Apple’s ultra-successful operating system for the iPhone and iPod Touch, tacked onto a larger, more powerful device. Among the device’s many bells and whistles are Bluetooth, wireless and cellular network connectivity. All the Apple products have similar functions which make them less attractive to those who already own one Apple product. The high speed of the previous years’ development of the technology may result in the loss of technology innovation in the next few years. Ultimately, however, the tablet doesn’t represent a revolutionary step forward in Apple’s product line because of the technology limitations; it cannot handle multitasking and also is unlikely to replace products such as the laptop.

Amazon

Although Amazon is the runner-up in tablet pc market, Kindle Fire still faces many problems when competing with the iPad. The market share of Kindle is limited; the predatory price makes it lose even in sales which are not sustainable for the company; the competitors in low-cost tablet PCs market upspring.

In the SWOT analysis (Appendix 5) we see the key weaknesses and threats to Amazon such as their low, unsustainable profit margins, their lack of features when compared to the iPad and the strong competition within the Tablet PC market.

In the fourth quarter of 2011, Apple still was the overlord on the tablet PC market, market share up to 59.1% while Amazon came in second place with only 16.7% market share. Amazon has started the low-cost race to expand its market share since late September 2011 when its $199 Kindle Fire tablet was released. Recently, Amazon also dropped the entry-level Kindle to $159 and added an 8.9-inch model at $299 (Tanous, 2012). But its market share is still far below Apple. According to the Pew Research data (see graph 2), by August 7, 2012, Amazon had accounted for 21% tablet market share which is less than half of the Apple market share (52%).

Graph2: source from <http://www.macobserver.com/tmo/article/low-cost-android-tablets-level-market-share-with-apple-ipad>

Amazon is working hard to charge less and sell devices near breakeven. However, the low-cost race is dangerous since the sales must meet the cost. If the sales are not large enough, it will face losses. In 2012, the net income of Amazon has declined gradually during last three fiscal quarters (see table 1). According to the Q3 report, the net loss was $274 million in the third quarter compared with net income of $63 million in third quarter 2011. Net income decreased 35% to $130 million in the first quarter and decreased 96% to $7 million in the second quarter. Kindle Fire only charges $159, while the total costs of its components are $150 (Reedy, 2011). The tiny profit margin makes Amazon incapable of reaching break-even and less sustainable as even other sections may be affected by the loss.

Table1: 2012 Amazon 3 fiscal quarter net income (million $) | Q1| Q2| Q3|
net income| 130| 7| -28|
Source from: Q1, Q2, Q3 Amazon Financial Results

Amazon also faces challenges from other competitors in the low-cost tablet markets. For example, although Barnes & Noble was never trying to become the Tablet PCs market leader like Apple, it has recently taken steps to compete with Amazon in the low-cost tablet PCs in the market. The Samsung Galaxy Tab and the Barnes & Noble Nook tablet took third and fourth positions in the market with 8 percent and 7 percent shares respectively. Low price means the technology is easy to imitate and copy, so there will be a large space for rivals to compete. Major Android players Google, Barnes & Noble, and Samsung have all released low-cost tablets at price points less than half of Apple’s iPad. Hence, the cost leading position of Amazon is challenged.

Recommendation

Apple

A key issue with Apple’s current situation is that its share in the consumer market is diminishing as the market becomes saturated with similar products at competitive prices; Apple is beginning to lose its competitive edge as the iPad’s innovative appeal diminishes. They need to focus on other market segments like the business and enterprise sectors that provide possibility for strong growth with at least a 30% increase in demand driven by the business sector over the next five years. Our recommendation is that Apple focuses on increasing their market share within these expanding sectors to help offset an inevitable loss in market share within the consumer segments. As this market continues to become saturated with competitors and consumer behaviour becomes more price elastic with increase in supply to the industry; Apple will be unable to continue earning its high profit margins since they can no longer compete on price. We also believe that Apple needs to focus on regaining their competitive advantage through differentiating their product by regaining the innovative edge they once had, which could be achieved by allocating more resources into research and development (insert figures about apples low r and d levels)

Amazon

Since Amazon are competing effectively within the consumer sector, we would recommend that Amazon continue to focus on the consumer segment as their product lacks the features necessary to compete in the business and enterprise segment. We would therefore advocate that they continue to focus purely on specialising in the consumer segment and developing their kindle ecosystem. A key issue with Amazon’s current strategy is that, it is not sustainable in the long-term. We, therefore, feel that Amazon need to find ways to drive down costs, allowing them to increase profit margins and increase their production levels. This could be achieved by expanding into global markets because, at present, Amazon only sells the kindle in the US and UK market. Were they to expand the Kindle into global markets, we feel they would benefit from economies of scale, reducing their overall costs and allowing them to operate with much needed greater profit margins, therefore making the strategy more sustainable.

Reference

Reedy, S. (2011). Amazon’s $199 Tablet Is No Loss Leader. [Online] Available at: < http://www.lightreading.com/document.asp?doc_id=212876&> [Accessed 4 December 2012]

Tanous, J. (2012). Low Cost Android Tablets Level Market Share with Apple’s iPad. [online] Available at: < http://www.macobserver.com/tmo/article/low-cost-android-tablets-level-market-share-with-apple-ipad > [Accessed 4 December 2012]

Associated Press. (2012). Is Apple losing the tablet wars? iPad overtaken in market share by Samsung and Google devices. [online] Available at: <http://www.dailymail.co.uk/news/article-2228953/Apple-iPad-overtaken-market-share-Samsung-Google-devices.html> [Accessed 4 December 2012]

David Willden. (2012). Example of a Strategic Plan Model – Amazon Internal Analysis.[online] Available at: <http://www.strategy-keys.com/example-of-a-strategic-plan-model-amazon-internal-analysis.html.>[Accessed 11 December 2012].

Apple Computer. (2006). APPLE INC.-industry analysis_ value chain analysis_ BSC_ strategies. [online]Available at:<http://bx.businessweek.com/valuechain/view?url=http%3A%2F%2Fwww.docstoc.com%2Fdocs%2F23801574%2FAPPLE-INC-industryanalysis_-value-chain-analysis_-BSC_-strategies.>[Accessed 11 December 2012].