Abstract

Main Product Benefit of E-Readers Moving from Functional Reading Service towards "Personal Library" Concept

Based on the prices and product benefits of key e-reader vendors' mainstream models, dummy variable multiple linear regression analysis is performed. Through this process, product benefits are identified that are best able to explain price differences of e-readers. The key product benefit of e-readers has changed from functional reading services mechanisms to the "personal library" concept. The key factor in this change is the product benefit generated for users by e-readers' ability to read PDF file formats.

The key in the product benefit changes is thus the installation of free, open, and compatible PDF file formats on e-readers. The reading content scope of e-readers can thereby be expanded. Furthermore, the application scope of reading activities can be expanded from leisure reading to work-related document reading and study-related reading. This also creates increasing demand among users for touch input and writing input, memory card slot, large display sizes, and personal virtual libraries.

Therefore, business models in the e-reader market do not all have to follow the reading service business model of Amazon.com. The number of companies that can create the same business model as Amazon.com is limited. If e-reader vendors in regions outside of the United States follow the reading service business model of Amazon.com, with the premise that users have to pay monthly fees for 3G wireless transmission services, vendors will encounter challenges.

E-Reader Industry Supply Chain Value to Move from Software, Content, Services to Hardware-related Manufacturing

With aggressive development by the key e-reader vendors Amazon and Sony, and the growing environmental awareness of global consumers in recent years, demand for non-paper electronic reading devices has grown. As for the large amounts of electronic reading content that can be downloaded for free or for fees, regardless of whether content is downloaded through broadband networks or wireless networks, basic infrastructure and business model development are already mature.

The product benefit with the most explanatory power for price differences is display size with 94.2%. Therefore, it is expected that in the coming years, e-reader industry supply chain value will start to move from software, content and services to production and assembly in the hardware arena. This development will involve e-reader contract manufacturing, 9.x" and larger monochrome e-reader display, 9.x" and larger color e-reader display, driver IC, controller IC, USB controller IC, wireless communication IC, etc.

E-Readers Moving to Middle Part of Growth Phase in Product Lifecycle; More Competitors Entering Market; Price Pressure

Furthermore, in the coming years e-readers are expected to move from the initial period in their growth phase to the middle part of their growth phase in their product lifecycle. Products in this part of the product lifecycle are characterized by a quickly increasing shipment value CAGR.

In the coming years, more vendors will enter the competition, but not to such an extent that fierce price competition will emerge. The main reason for this that before 2011, production and sales of e-paper displays used in e-readers will still be controlled by Prime View International, which cooperates with the US company E-Ink.

Even though AUO (cooperating with SiPix) and Delta Electronics (cooperating with Bridgestone) have stated that they will deliver large-scale supplies of e-paper displays for e-readers by 2010, several technology bottlenecks still have to be overcome, such as excessively high driving voltages. Due to these issues, the e-paper displays produced by AUO and Delta Electronics are not expected in the near-term future to be able to rival the e-paper displays produced by Prime View International in terms of display performance and cost competitiveness.

It is expected that in the coming two years, Prime View International will still be the main supplier of e-paper displays used in e-readers launched by Amazon.com and Sony. Therefore, in the near-term future significant oversupply for e-paper displays used in e-readers is not expected to emerge.

The existence of market opportunities will attract more competitors, and the presence of more competitors will lead to price competition. Amazon.com and Sony are both trying to effectively expand their share in the e-reader market. As a result, these two key vendors are expected to continue to pressure Prime View to lower prices. This trend will lead to a situation in which shipment volume growth is higher than shipment value growth. Overall, price pressure will exist in the e-reader market in the period 2008-2013.

Through Low-priced Kindle 2, Amazon.com Aims to Expand Market Share; Other Vendors Will Be Hard-pressed to Compete in the US Market

Through the price-benefit competitive positioning analysis of key e-reader vendors' mainstream models, it can be seen that even though the Kindle 2 rolled out by Amazon.com is positioned in mid-range to high-end market segments, its sales price is much lower than the PRS-700, which is positioned in similar market segments. The price difference with e-reader products in mid-range market segment is not large either.

Evidently, through the low-priced, high-performance Kindle 2, Amazon.com aims to invade the market and accelerate the expansion of its market share in the United States. Actually, the major goal of Amazon.com is to expand the economic benefit of its reading service business model. For Amazon.com, the Kindle is only a supplementary product, while Kindle Store constitutes its main product.

If the reading service model pushed by Amazon.com is to generate economic benefits, first a sufficient number of Kindle users needs to be accumulated. Kindle users can then connect to the Kindle Store through wireless connections and download electronic reading content on a large scale. Therefore, from the perspective of Amazon.com, the company first has to produce sufficient Kindles before large economic benefits can be generated.

Faced with the market competition strategies of Amazon.com, it will be very hard to compete in the US market for other vendors.

With the e-reader market about to take off, Amazon.com will aggressively try to expand its market. In this way, it will be able to safeguard and expand the economic benefits of the reading service business model.

Large Vendors Have Competitive Advantages with their Reading Service Business Models; Other Vendors Can Adopt Market Segmentation Strategies

Relying on its rich resources and market understanding, Amazon.com entered the e-reader market in 2007 and adopted a reading service business model. This allows Kindle users to quickly download purchased electronic reading content to their Kindle through free 3G wireless transmission and downloading services. This provides Kindle users with a simple, easy, and user-friendly reading mechanism and experience.

This innovative business model caused the original leader in the e-reader market - Sony - to retreat. With the e-reader market about to take off, Sony faced a market decision: would it retreat to niche markets or would it defend and attack and meet challengers head-on? The answer came on August 25, 2009, when Sony held a news conference and announced its new e-reader the Reader Daily Edition. This new product comes with free 3G wireless transmission and downloading services.

The functions and characteristics pursued by Sony's Reader Daily Edition are thus not very different from the reading service model pushed by Amazon.com. Sony's new product is expected to officially hit the market in December 2009.

According to these industry competition trends, it could seem to be necessary that other vendors investing in the e-reader sector would have to adopt models similar to Amazon.com's reading service business model. But this is not necessarily true. Taking the US market as an example, looking at how US citizens of 15 years and older spend their leisure and primary activity time, people aged 55 and younger tend to not enjoy spending time on reading activities in their leisure time. By contrast, people older than 55 tend to enjoy spending their leisure time on reading activities.

Furthermore, primary activity time of people in the 15-19 age group is mostly spent on education activities, while primary activity time of people in the 20-54 age group is mostly used for work-related activities.

Therefore, if the scope of reading activities is divided into study-related reading, work document reading and leisure reading, the 15-19 age group has the most demand for study-related reading, the 20-54 age group has the most demand for work document reading, and the 54 and older age group has the most demand for leisure reading.

In other words, if a company's resources cannot compare to those of Amazon.com and Sony, and if the company follows the reading service business model to enter the e-reader market competition, challenges and problems will be plentiful. However, perhaps companies can adopt market segmentation strategies and focus on specific consumer groups in the educational market (study-related reading), business market (work document reading) or leisure market (leisure reading), and not develop the costly reading service model.

For example, a company could roll out an e-reader product with a display of 9.x" or larger in the educational market, and focus on reading demand for educational textbooks. The company could target specific consumer segments among students aged 15 and older.

Another example could be launching an e-reader product with display sizes of 9.x" and larger in the business market, and focus on reading demand in the research material market. The target market could be specific groups among working people that need to read work-related documents for an extended period of time.

Lastly, companies could roll out 5.x" e-readers in the leisure market, focusing on reading demand in the pocket-sized book segment. In this case, companies could target students aged 15 and older as well as working people that commute to work. Even though these students and commuters do not tend to spend large ratios of their leisure time on reading (on average approximately 0.13-0.36 hour), perhaps it can strike a chord with the pocket-sized book demand: convenient and simple. This is a niche reading application market that awaits further development and is worthy of being explored.

Appendix

Research Scope

This report focuses on ten e-reader products released by six vendors, including: Amazon.com, Sony, Foxit, Endless Ideas, Bookeen, Tianjin Jinke. As part of this research, user evaluations and opinions of these e-reader products were collected, with 205 effective samples. Through a dummy variable multiple linear regression analysis model, e-reader prices and benefits are examined, in order to identify key product benefits that influence e-reader price differences. This provides understanding of consumers' usage preferences for e-readers. Furthermore, electronic content development in the book market is analyzed. Based on the product lifecycle theory, an e-reader market scale forecast model is created in order to provide a forecast of e-reader market scale for the period 2009-2013.

Glossary of Terms

List of Companies