The struggle to control prices of digital content sold online continues, with producers and distributors battling over prices for downloads of books and music.
In the latest skirmish, Amazon removed Macmillan books from its website after the company protested that online retail was using monopoly power to force publishers to accept prices no higher than $9.99. Macmillan and other publishers have now signed distribution deals with Apple that allows them to price downloads at $12.99 and $14.99.
Producers, of course, want higher prices because they produce higher revenue and better profits.
The struggle to control prices is not unique to the online environment. In the offline world, producers of books, magazines, CDs, and DVDs have long struggled to gain limited shelf space because there is a large oversupply of products and retailers’ have selection preferences for popular, rapidly selling products.
Large national and retailers have also used their bargaining power to push wholesale and manufacturer suggested retail prices downwards. Wal-Mart, now the number one music retailer in the World, uses its purchasing and sales power to sell large quantities of music at the lowest price possible—the basic price/quantity model for all the products it carries.
What is new in the offline world is that the conflict does not merely involve struggles over the price and quantity strategies of retailers, but that the retailers are using the media content as a joint product with their proprietary digital hardware.
Amazon wants content prices low not merely to sell more books, but because it helps it sell Kindle, its e-book reader. To date, it has been able to do so because it was the leading seller of both products—something it learned from Apple’s strategy with i-Tunes and i-Pod.
Competition in distributing content, even just a little competition, helps shift some of the power away from the retailer and back to the producer. Apple was forced to back away from its enforced price of 89 cents for a download when recording companies made deals with other download providers and threatened to end the rights for Apple to see their popular music. Apple is now playing spoiler to Amazon in the book downloads and Amazon has agreed to carry Macmillan books again.
Newspaper publishers are now seriously testing and considering a variety of e-readers as ways to reduce production and distribution costs. As part of their strategies, however, they would do well to learn from the experience of the music and book business. They need to remember that a basic rule of business is that if you don’t control price, you don’t control your business.
Showing posts with label Amazon. Show all posts
Showing posts with label Amazon. Show all posts
Tuesday, February 2, 2010
Thursday, December 10, 2009
Business Model Examples
There are many examples of inspiring business models and business model innovators described and referenced on this blog and elsewhere. To provide a quick read with popular examples, a list of business model innovators is presented below. Please feel free to comment or contact me on great business model examples that you find missing.
Amazon - Leveraging assets
Launched in 1994 as an online book seller, Amazon has constantly altered its business model leveraging its assets and capabilities to generate new business… Read more
Apple - Providing convenient solutions
Apple has revolutionized the computer industry, the music industry and now the mobile phone industry, and the classic example is iPod and iTunes… Read more
Better Place aims to use the margin between electricity and gas to subsidize the cost of new electric cars, even providing electric cars for free... Read more
Etsy - Mass customization of artsAggregating the long tail in an online marketplace for handmade goods with the goal to enable people around the world to make a living making things… Read more
Gillette - Razor and blades
Gillette's success with its razors and blades is a story about superior technology, design and the use of control mechanisms, foremost patents… Read more
Lego - Turning users into developers
Lego has turned its most loyal users into designers and co-creators of their own products. More than 30000 kits have been shared so far… Read more
Tata Motors - Modular distribution
Tata Nano is not only cheap to buy it is constructed of modules that can be built and shipped separately to be assembled in a variety of locations.… Read more
Threadless - Dressing the long tail
Threadless was one of the first firms to systematically mine a community for designs, a trend that today can be seen in various industries… Read more
Xerox - Business Innovation in 1959
The company decided to lease the equipment, instead of selling it, at a relatively low cost and then charge a per copy fee for copies in excess of 2000 copies per month… Read more
Zara - a devastating business model
Zara has managed to substantially shorten the time to develop a new product and get it to stores, and in doing so it can react quickly to changing market trends… Read more
More inspiring examples will come, send me your suggestions!
Further reading:
Business model example: Amazon - Leveraging assets
Amazon was launched in 1994 and established itself as an online book seller providing books but also an online community for customers to share information and opinions about books with one another. The company soon realized the potential in leveraging the platform and infrastructure to offer new categories of products, turning into an online department store. Amazon also supplies e-commerce services and features to power other companies' web sites. Another way of leveraging its software is the supply of e-commerce services to syndicated stores that sell Amazons products on other companies' web sites resulting in distributed distribution channels. To provide the largest catalog possible on its platform, other companies including competitors are allowed to utilize the platform establishing Amazon as a broker of transactions and leaser of web space to other retailers. By bringing buyer and seller together, collecting the buyer's funds when the order is placed, and maintaining advantageous payment terms with suppliers, Amazon has done with online retailing what Dell did with computers. Further leveraging its assets and capabilities Amazon started to offer a number of services such as storage services, the lease of computing power, together with an end-to-end product sales and logistics platform, handling orders, payments and shipments.
Further reading:
Tuesday, October 13, 2009
Music 2.0 Business Models from Future of Music Coalition
Below is a great collection of business models including information on revenue models and how much musicians, labels and songwriters are compensated. It has been put together by Future of Music Coalition, a nonprofit organization that works to ensure a diverse musical culture.
There are many great examples in the presentation and attached pdf files from services such as: CD Baby, TuneCore, ReverbNation, Nimbit, The Orchard, iTunes Music Store, Amazon Music Store, Amie Street, Rhapsody or Napster, eMusic, Magnatune, ArtistShare, Kickstarter, Sellaband, Rumblefish/Pump Audio, Pandora, Last FM, MySpace Music, KEXP, Sirius XM Satellite Radio and MusicChoice. Also, examples from artists such as Issa/Jane Siberry, Radiohead, Nine Inch Nails and Jill Sobule.
Download pdf documents:
Video presentations:
Related posts:
Related videos:
Thursday, January 15, 2009
The Requester Pays Business Model
Amazon has presented a new, very interesting, business model for its S3 web services. Amazon S3 provides software developers with a highly-scalable and reliable data storage infrastructure at low costs. Usually the owner pays for its storage and transfer costs inhibiting the owners of data to open up to others because they will have to pay every time the data is accessed and downloaded, but with the new business model, Requester Pays, this will change. The owner of the data can now decide if a user requesting access and transfer of data will have to pay for that service. Owners of large amounts of data can now reinvent its business models and generate revenues by making data public.
Sunday, December 14, 2008
Amazon's platform business model
Dr Werner Vogels, CTO at Amazon, describes the benefits of platform business models and Amazon’s ‘flywheel’ for growth. Recorded: 20/11/2008 - Telco 2.0 5th Executive Brainstorm
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