Vision for Smart Wearable Device 2.0

The current generation of Smart Wearables Devices (SWD) were primarily introduced as a companion device to the smartphone. As such, SWD’s offer nothing more than the added convenience of “usability of the go” and “small form factor“.

 

Most buyers, including me, question the wisdom of owning a muted version of a smartphone on their wrist; a key reason stalling wider adoption of SWD.

To find their rightful niche in the marketplace, SWD need to evolve from a smartphone centric device to a stand-alone IoT Personal Assistant (IPA).

 

Vision for Smart Wearable Device 2.0 – The IoT Personal Assistant


 

In a follow-on post, I will outline my vision for a device coined “IoT Personal Assistant (IPA)”; one that can enhance quality of life for its users and unlock hidden value for market participants.

Mobile Platforms Update: Android has the best long-term potential.

Update to my recent posting on Platform Products & Service: A Strategic Guide to launch, sustain and build enduring leadership.

Mountain View mobile app development platform company Appcelerator Inc. said 54 percent of the 2,733 developers it surveyed said Google’s (NASDAQ:GOOG)

  1. Android has the best long-term potential how to slim down fast.
  2. Android is favored for its OS capabilities and platform openness.

Appcelerator surveyed 2,733 of its 51,000+ developers from June 15-17, 2010.

The survey results are a vindication of my statement (earlier blog posting) that the Android platform will dominate the market for Smartphones and eventually take over everything from thin-clients, cloud computing, consumer electronics and ultra mobile internet devices. We will get the why in a follow up posting coming soon, stay tuned.

AndroidLongTermPotential

Download the full report on Mobile Developer Survey, June 2010 from Appcelerator

2014: USA EBook Reader Sales: 75 Million Units, Penetration Rate: 22%

Cumulative sales of EBook readers in the USA will reach close to 75 million units by 2014 with a penetration rate of around 22% marking an inflection point for the US Book publishing industry. My preliminary projections on EBook Reader sales in the USA are based on studying similar adoption patterns.

image

The adoption of DVD Players and Digital Cameras, both of which exhibit similar dynamics, serve as a basis for predicting adoption and diffusion of EBook readers:

  1. Digital Cameras replaced Film-based photography overcoming a widely used and deeply entrenched user base. The adoption of Digital-Photo technology resulted in  significant changes to the overall ecosystem. EBook adoption will also witness similar disruption and changes to value-chain. 
  2. DVD Players replaced an incumbent technology – VCR’s and associated video library; the sunk costs weighed heavily in the minds of potential adopters. EBook adopters will also confront similar choices.
  3. Sales of DVD Players is closely tied to the number of DVD software titles available. The DVD Tie-Ratio at launch in 1997 was 18 climbing to a peak of 56 in 2008.EBook reader sales and adoption will also be tied to the number of EBook titles available.   

Note: Tie-Ratio is defined as the ratio of DVD Software Titles sales to the number of DVD players sold. A high availability of DVD titles stimulates more demand for DVD players.

Applying the Bass diffusion model and using regression analysis of historical sales data (1997 –2008) for DVD Players and Digital Cameras we obtain the following technology diffusion parameters (Table below).

   

Digital Camera
Adoption

DVD Player
Adoption

EBook Reader
Adoption*

Coefficient of Innovation

p

0.004

0.038

0.017

Coefficient of Imitation

q

0.616

0.429

0.543

Inflection Point (Yrs)

If

7.5

6

7

* Note: EBook adoption parameters are predicted.

Adoption of DVD Players was faster compared to the Digital Cameras. This can be attributed to the fact that DVD’s were an incremental innovation to an existing but familiar usage of video recording technology prevalent in VCR’s. In contrast Digital Cameras were a radical departure from existing film technology with changes in learning, usage and ecosystem requirements. As a consequence Digital Cameras adoption was slower compared to DVD Players.

The adoption of EBook Readers should follow a similar pattern, somewhere between the two extremes,reaching an inflection point by 2014, 7-years from launch. Although the technology behind EBooks has existed for years in the form of computers, laptops and net-books the changes are mainly behavioral – in the adopters reading habits.

EBook adoption may accelerate depending on the use of marketing mix elements, availability of EBook titles and how competition unfolds in the coming years all of which can significantly alter the adoption process.

Appendix: Sales Forecast of DVD Players and Digital Cameras based on Bass Diffusion Model.

1. USA – DVD Players Sales (Forecasted vs. Actual )

image

2. USA – Digital Camera Sales (Forecasted vs quick weight loss diet plan. Actual )

image

References:

  1. Digital Camera Sales (1997–2008)- PMA Marketing Research
  2. DVD Players and DVD Software Title Sales (1997-2009) – DEG, Digital Entertainment Group
  3. SPSS for statistical analysis.

New Product Design– A Toolkit for Identifying Whitespaces

When developing new products it is the job of a Product Manager(PM) to use his judgment based on inputs from market research, competitive intelligence and development teams to come with a product-mix that offers customers a compelling reason to buy.

Product-TangiblevsIntangibles

Any offering by its very existence forms a unique triangular dependence with three major constituents:OfferingTriangle

  1. Customers
  2. Substitutes (Competition)
  3. Firm’s Offering

When conceiving new products the triangular relationship is of paramount importance. A new offering can either be similar or distinct from what’s available in the marketplace.

A savvy PM will instantly think of “Differentiating” his offering in order to attract buyers and gain a footing in the marketplace.

Why Differentiate an offering in the first place ?

Differentiation makes a product/service less sensitive to price based competition by limiting the buyers choice set on substitutes. 

Differentiation is a strategic weapon whereas Pricing can be both strategic and tactical. 

Is differentiation always good ?

Differentiation is a double edge sword in that while it allows a firm to generate higher margins it has the effect of restricting sales volume due to heterogeneity in customer traits. 

In many industries the breakdown on Customer Segments and Market Size based on Price and Quality dimensions shows remarkable similarity (Table below).

   

Price

High

Low

Quality

High

Premium / Luxury
( Market Size: 15% -20% ) 

Value / Mass Market
( Market Size: 50% -60% ) 

 

Low

Arbitrage / Opportunistic
( Market Size: 5% -10% ) 

Bottom Market
( Market Size: 10% -15% ) 

Source: Creating Strategic Leverage, Milind M. Lele

Assuming you have factored all of this in, and convinced that differentiation is the way to go then the question boils down to How do you differentiate ?

Diving into Differentiation:

Broadly speaking, a Firm and its Product Manager have two basic means for differentiating a product based on either “Tangible OR “In-Tangible attributes:

Tangible
Attributes

Intangible
Attributes

1. Features

1. Aura

2. Aesthetics

2. Service & Support

 
 A. Tangible Attributes

1. Features:

Are the primary vehicle used to deliver a benefit. Features are what a product manager and all constituents internal to a company focus on. For the end user or paying customer features matter very little if they don’t confer some benefit.

This is where most Product Managers commit fallacies that result from:

(a) Scoping products with rich feature sets that drive up cost without paying attention to what benefits they deliver or the benefits that customer care about.

(b) Casting products without anticipating current/future needs or misjudging close competitors and substitutes as the only viable choice set for consideration.

(c) Failure to position and map the product features into benefits for customers and stakeholders alike during marketing and sales pitch. 

2. Aesthetics:

Aesthetics govern the look and feel for a product or service. Its sole purpose sometimes is to engage customers visually to lure them and on rare occasions invoke feelings of pleasure each time the product is used.

Are Features and Aesthetic accorded equal weight by customers ?

Not always, for some product classes customers exhibit asymmetry when weighing between aesthetics and features. Most products sold to B2C customers fall in this category.

Example: Desktop-PC’s vs. Laptop’s

All else being equal a desktop computer, usually tucked under the table, might still attract buyers even when it has inferior aesthetics. On the other hand a laptop needs to be both feature rich and visually appealing for it to sell.

 B. In-Tangible Attributes

 1. Aura:

Aura defines the cognitive feelings and responses that a product or service invokes in the customer’s mind read this article. Branding and Advertisements play an important role in creating, communicating and conditioning the attitudes and behaviors on both the demand-side and supply side of the market place.

Aura confers status, establishes identity and reassures customers of their choices.

2. Service and Support:

Not all products carry service and support, in fact most buyers prefer not to deal with it. But invariably anything that is sold needs some amount of support in facilitating its procurement, installation, usage and consumption.

A pure Service Good on the other hand has no physical product that is sold but rather solves a problem or eliminates hurdles for the end customers. Services also include ecosystems that differentiate and augment the core offerings.

7 Rules of Product Acceptability:

A new product although differentiated may still fail to gain market acceptance   if the following rules of product acceptability are overlooked.

  1. Functional Performance
  2. Acquisition Cost
  3. Ease-of-Use
  4. Operating Cost
  5. Reliability
  6. Serviceability
  7. Compatibility

Identifying White Spaces: Tangible or In-Tangible Dimension

Now that we have explored the four possible dimensions to differentiate an offering in the marketplace, lets look at how to indentify whitespaces and to go after new opportunities.

When indentifying new market opportunities a strategist should neither exclude nor focus on solely one dimension. The only thing that should matter is whether there are enough customers who given the varied choices (offerings) before them prefer one combination over others.

Matrix of Whitespaces – New Opportunities

ProdutFeatureMatrix

The number of possible combinations using different mix of tangible (product features ) and in-tangible (service) attributes yields a matrix of 16 different cells each representing a unique offering in the market place. However not all offerings are relevant to all markets. Each offering in the matrix above shares a very unique and separate triangular relationship with its customers and substitutes.

The matrix offers firms and would be entrepreneurs a blue print to evaluate market opportunities and to formulate new product strategy. Implicit in the opportunity matrix above is the assumption that the returns exceed the cost of capital.

Whitespaces in EBook Reader Market

EbookReaders-WhiteSpace

EBooks and Future of the US Book Publishing Industry (Part-I)

Part-I on this series will analyze the current state of the US book publishing industry -the key players, the value chain and profit distribution between the various players and rules that define competition within this industry.

Part-II will address the key challenges and strategic choices confronting both established and new entrants as EBook adoption accelerates. Will the EBook value chain differ significantly, how will incumbents react and who will come to dominate the landscape. Will EBooks lead to a new winner like Apple in digital music. If not why not.

US Book Publishing Industry Dynamics:

Book Publishing is essentially a “Hit-or-Miss” game of chance.Much like the movie and music industry the following rules apply:

  1. Sunk Cost Rule – All of the cost of putting together and publishing a book is fixed and up-front. Irrespective of how the book is received the costs cannot be recovered.

  2. Hit-Books Rule – There is no proven formula that will guarantee that a book will be a runaway success before its publication. Sales from a few “Hit Books” cover up for lost revenues from other not so successful books. The ratio of “Hit-Books” to “Failures” varies between 3% to 8%.

  3. Franchise and Brand Name Rule – A few well known authors enjoy cult like following based on their previous works or series of books. The lure of astronomical sales leads to a frenzy among publishers to find and sign up big name authors. 

  4. Deep Pockets Rule – Only those publishers who can sustain multiple failures for the chance of few elusive hit stand to survive. The result consolidation, enormous bargaining power and leverage enjoyed by book publishers.

  5. Retail Network Rule – Selling books requires a deep network of established relationships with book sellers and big retailers. Retail shelf space is highly contested for. Retailers have gained enormous clout from consolidation in the recent years.

  6. Book Returns Rule – The practice of allowing book sellers to return unsold inventory first instituted during the Great Depression continues till today. Book returns run as high as 20% for publishers.

Stakeholders in the US Book publishing industry:

  1. Book Publishers
  2. Book Authors and Book Agents
  3. Book Sellers, Retailers and Distributors
  4. Buyers( Consumers, Institutional Buyers and Libraries )
  5. Service Providers ( Printing, Marketing, Logistics )
The US Book Publishing Industry – Value Chain

Across the value chain, US Book Publishers and Retailers enjoy significant clout and power base when it comes to negotiating prices, striking deals, managing access to resources, cultivating readers and promoting self interest. 

BookPublishingIndustry

Distribution of Profits across the US Value Chain:

The distribution and allocation of profits (Print Books) across the US Book industry is skewed in favor of those intermediaries that can offer customer something they value, influence sales and offer value added services.

Pre-Production costs include the costs of writing, editing and reviewing manuscripts. The printing costs include the cost of physical paper, artwork and binding the book. This cost varies depending on the book size, number of pages, and illustrations used.

The publisher’s overhead includes the cost of maintaining a staff of editors, proofreaders, book designers, publicists, sales representatives and so on.

Marketing and promoting the book is another expense that include printing catalogs, media and print campaigns, sending out review copies to critics, arranging a promotion tour with the author and trade promotions for retailers all add up the cost of bringing a book to the market. 

For retailers there is additional cost of operating and staffing the store, allocating shelf space, stocking the book, maintaining inventory and servicing customers. To a certain extent they can exploit economies of scope in buying and selling books.

ProfitDistribution-HardCoverBook

* Assumes a hardcover book with a retail selling price of $29.95

The two powerful groups- “Book Publishers and Book Retailers” who stand to lose the most, with any disruption in the status quo, will explore all possible avenues to retain control over the emerging EBook ecosystem.

US Book Sales Market Size:

Forrester Research puts the overall size of the US book market at around $25 Billion. Books Sales between 2002 and 2008 have varied from a low of $22 Billion to a high of $24 Billions at a compounded annual growth rate of around 1.6% in the same period.

Over time a good chunk of that is going to migrate towards EBooks. 

Total book sales fell 2.8% in 2008, to $24.2 billion, according to preliminary estimates released by the Association of American Publishers.

AnnualUSBookSales-2008

The top categories which dominate book sales today are:

  1. Adults and Children’s Books (33%)
  2. Elhi-Elementary, High School Books (25%)
  3. Professional Books (14.25%)
  4. Higher Education – Post Secondary (15.57%)

The question confronting Book Publishers- Which category renders itself the most vulnerable from the threat imposed by EBooks.

Book Buyers: Who are they ?

According to BISG, people above the age of 50 buy more than half of all books. The older demographics of devote book readers have disposable incomes and time to read (stable customer base).

The demographic breakdown of book buyers based on 2008 population estimates puts the total market size in this segment to around 110 Million. As a customer base this segment is very important and cannot be ignored.

USPopulationEstimates 

The other major group comprises of school and college students: children, teens and younger adults. As a customer base they have the shortest lifespan correlating with the stage in their lifecycle. A few perhaps could evolve as avid readers later in their adult life.

Year

Elhi Enrollment
   %    Growth

Postsecondary Enrollment

% Growth

2008

55,879,000

N/A

18,200,000

N/A

2009

56,116,000

0.42%

18,416,000

1.19%

2010

56,400,000

0.51%

18,613,000

1.07%

2011

56,781,000

0.68%

18,822,000

1.12%

 
In 2008 revenues from book sales to Elhi and Postsecondary college students amounted to around $9.8 Billion. On an average a college students spends close to $1000 per year on textbooks. 

The challenge than for Book Publishers grappling with strategic initiatives on how to face the threat imposed by EBook adoption and penetration boils down to the following: 

You have two important customer segments:
  1. People above the age of 50, your most valuable customer base is not going to change their years of reading habits. A few perhaps YES but the vast majority will continue to consume books the old fashioned way – print bound. How to position EBooks within this segment.

  2. School and College Students, you can change and influence their book reading behavior during the formative years. The question arises who will invest and how much to promote EBooks in a big way.  Access to this segment is controlled via powerful decision makers – departments heads of schools, colleges and universities, state and federal education boards.

References:

  1. Association of American Publishers
  2. National Association of College Stores
  3. US Census Data
  4. Book Publishers websites and SEC filings.
  5. PWC: Global Entertainment and Media Outlook: 2008–2012