Amazon’s Kindle: Dominating the E-Book Market While Selling at Cost Price

Topics: Amazon Kindle, E-book, Digital rights management Pages: 24 (9156 words) Published: April 18, 2013
MarketLine Case Study

Amazon‟s Kindle
Dominating the e-book market while selling at cost price
Reference Code: ML00007-056 Publication Date: January 2013

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Amazon‟s Kindle: Dominating the e-book market while selling at cost price © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED

ML00007-056/Published 01/2013 Page | 1

OVERVIEW
Catalyst
September 2012 saw the release of Amazon‟s second generation Kindle tablet, the Kindle Fire HD, and the fifth generation Kindle e-reader, while October 2012 saw the advent of the new Kindle Paperwhite e-reader. It was revealed that these devices would be sold at cost price, with Amazon relying on the sale of digital content to fuel profits. With rivals such as Apple deriving much of their profits from the sale of devices, the iPad Mini has a 40% profit margin, this case study looks at how Amazon is approaching the market with its alternative business plan, and how business innovations, such as the Kindle app which is able to “steal” revenue while being used on rival devices, are being implemented.

Summary
 E-book sales show exceptional growth, while physical book sales are suffering. Australia, India, the UK and the US lead the way in e-book adoption rates, with the awareness of e-books registering over 80% in many countries. India leads the way in the conversion of awareness to the actual purchase of e-books, with the US coming in fourth.  The first Kindle was released in November 2007, with over 90,000 e-books made available. Currently over 1.5mn titles are available at Amazon.com, with the most recent Kindle model, the Kindle Paperwhite, offering built-in illumination for low light conditions. Amazon‟s first tablet device, the Kindle Fire, was launched in November 2011.  Dominating the US and UK e-book and e-reader markets, Amazon made the Kindle available in bricks and mortar stores in an effort to further increase revenues. Kindle devices are sold at cost price, with Amazon relying on sales of digital content for profits. The Kindle app allows sales on rival devices, eliminating any costs associated with selling devices at cost price.  Amazon‟s Kindle devices, both e-readers and tablets, dominate the e-book market in terms of e-reader utilization, capturing over half of it. The nearest rival, Barnes and Noble‟s Nook devices, have over 40% less of the market. Barnes and Noble‟s Nook Media has seen significant investment in 2012 and could see the company recapturing some of its market share.  With Amazon acting as both publisher and retailer, traditional publishing houses responded to Amazon‟s growing dominance by changing the pricing model for e-books in an effort to increase competitiveness. The US government intervened and sued Apple and five of the “big six” publishers for price fixing. Three of the publishers simultaneously settled, while Penguin, in order to help facilitate a merger with Random House, agreed to a settlement in December 2012.  Continual innovation and a strong business strategy set Amazon apart from its rivals, resulting in a dominant position in the e-books market.

Amazon‟s Kindle: Dominating the e-book market while selling at cost price © MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED

ML00007-056/Published 01/2013 Page | 2

TABLE OF CONTENTS
Overview ............................................................................................................................................................................ 2 Catalyst............................................................................................................................................................................ 2 Summary ......................................................................................................................................................................... 2...
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