Case Study 2 - Is The Ipad a Disruptive Technology?

   Tablet computers have come and gone several times before, but the iPad looks like it will be different. It has a gorgeous 10-inch color display, a persistent WiFi connection, potential use of high-speed cellular network, functionality from over 250,000 applications available on Apple’s App Store, and the ability to deliver  video, music, text, social networking applications, and video games. Its entry-level price is just $499. The challenge  for Apple is to convince potential users that they need a new, expensive gadget with the functionality that the iPad provides. This is the same challenge faced by the iPhone was a smashing success that decimated the sales of traditional cell phones throughout the world. Will the iPad do  likewise as a disruptive technology for the media and content industries? It looks like it is on its way.

   The iPad has some appeal to mobile business users, but most experts believe it will not supplant laptops or netbooks. It is in the publishing and media industries where its disruptive impact will first be felt.

   The iPad and similar devices (including the Kindle Reader) will force many existing media business to change their business models significantly. These companies may need to stop investing in their traditional delivery platform (like newsprint) and increase their investment in the new digital platform. The iPad will spur people to watch TV on the go, rather than their television set at home, and to read their books, newspapers, and magazines online rather than in print.

  Publishers are increasing interested in e-book as a way to revitalize stagnant sales and attract new readers. The success of Amazon’s Kindle has spurred growth in e-book sales to over $91 million wholesale in the first quarter of 2010. Eventually  e-books could account for 25 to 50 percent of all books sold. Amazon, the technology platform provider and the largest distributor of books in the world, has exercised its new power by forcing publisher to sell e-books at $9.95, a price too low for publisher to profit. Publisher are now refusing to supply new books to Amazon unless it raises prices,  and Amazon is starting to comply.

   The iPad entered this marketplace ready to compete with Amazon over e-book pricing and distribution. Amazon has committed itself to offering the lowest possible prices, but Apple has appealed to publisher by announcing its intention to offer tiered pricing system, giving publisher the opportunity to participate more actively in the pricing of their books. Apple has agreed with publisher charge $12 to $14 for e-book, and to act as an agent selling books (with 30% fee on all e-book sales) rather than a book distributor. Publishers like this arrangement, but worry about long term-pricing expectations. Hoping to avoid a scenario where readers come to expect $9.99 e-books as the standard.

   Textbook publisher are also eager to establish themselves on the iPad. Many of the largest textbook publishers have struck deals with software firms like Scrollmotion, Inc. to adapt their books for e-book readers. In fact, Apple CEO Steve Jobs designed the iPad with the use in schools in mind, and interest on the part of schools in the technology like the iPad has been strong. ScrollMotion already has experience using the Apple application platform for the iPhone, so the company is uniquely qualified to convert existing files provided by publishers into a format readable  by the iPad and to add additional features, like a dictionary, glossary, quizzes, page numbers, a search function, and high-quality images.

   Newspapers are also excited about the iPad, which represents a way for them to continue charging for all of the content that they have been forced to make available online. It the iPad becomes as popular as other hit products from Apple, consumers are more likely to pay for content using that device. The successes of the App Store on the iPhone and the iTunes music store attest to this. But the experience of the music industry with iTunes also gives all print media reason to worry. The iTunes music store changed the consumer perceptions of albums and music bundles. Music labels used to make more money selling 12 songs on a album than they did selling popular singles. Now consumers have drastically reduced their consumption of albums, preferring to purchase and download one song at a time. A similar fate may await print newspapers, which are bundles of news articles, many of which are unread.

   Apple has also approached TV networks and movie studios about offering access to some of their top shows and movies for monthly fee, but as of yet the bigger media companies have not responded to Apple’s overture. Of course, if the iPad becomes sufficiently popular, that will change, but currently media networks would prefer not to endanger their strong and lucrative partnerships with cable and satellite TV providers.

   And what about Apple’s own business model? Apple previously believed content was less important than popularity of its devices.  Now, Apple understands that it needs high-quality content from all the types of media it offers on its devices to be truly successful. The company’s new goal is to make deals with each media industry to contribute the content that users want to watch at a price agreed to by the content owners and the platform owners (Apple). The old attitudes of Apple (“Rip, burn, distribute”), which were designed to sell devices are a thing of the past. In this case of disruption technology, even the disruptors have been forced to change their behaviors.

Case Study Questions:
1. Evaluate the impact of the iPad using Porter’s competitive forces model.

2. What makes the iPad a disruptive technology? Who are likely to be the winners and losers if the iPad becomes a hit? Why?
3. Describe the effects that the iPad is likely to have on the business models of Apple, content creators, and distributors?

Answers; 

1. a) Traditional competitors include television, printed media, radio, movie  distributors, cell phone makers and carriers, and even other Web sites.

    b) New market entrants, including e‐book readers like Amazon's Kindle and Sony's E‐book reader, are flooding the marketplace with an inevitable shake‐out coming in the future.

    c) As a substitute product and service the iPad will not supplant laptops or netbooks immediately but may take sales away from these two devices in the future. The immediate impact of substitution will be on the publishing and media industries.

    d) Customers have a new outlet in which to watch television on the go and read content online rather than in traditional print modes.

    e) Suppliers from the publishing and media content industries will have to stop investing in traditional delivery platforms and increase investments in new platforms. Apple's pricing policies are more in tune with the needs and wants of authors and publishers than with customers ‐ an interesting twist.

2.  The iPad is disruptive because it causes many traditional companies ‐ content suppliers and carriers ‐ to revise their traditional business models. That causes a ripple effect ‐ changing from printed books to e‐books affects paper suppliers, printing companies, even shipping companies. Even college campus book stores will have to re‐think their business models if students choose e‐books instead of traditional print textbooks.

   Apple has been the "second‐mover" with the current wave of tablets; Amazon can claim "first‐mover" status since its Kindle Reader hit the market just before the iPad. Even though tablets and e‐book readers have been tried before back in the 1990's, none of them contained as much functionality and available content as the current wave of devices.

Winners and losers include:

• Newspapers: If newspapers effectively change their business model, they can be winners by increasing the number of subscribers thereby increasing advertising revenue. Potential losers extend to delivery persons and printing companies.

• Television: Content producers are potential winners if they readily adapt their content to easily downloadable files and increase viewership. They are losers if they don't give people what they want, when and where they want it.

• PC makers: Hardware producers like Dell and HP, and software producers like Microsoft, are potential losers because the iPad will draw people away from traditional products like desktops, netbooks, and laptops.

• Cable and satellite providers: These industries are potential losers because they are no longer necessary conduits for providing content to viewers. The iPad uses wireless transmissions to directly beam content to iPad owners.

3.  Organizational environments rapidly change for all types of content creators and  distributors. These companies will be forced to use more task force‐networked organizations as they come together to work out initial specifications for structural changes to content. For instance, if newspaper articles were created to fit a specific format that worked well for the printing company, task forces may have to make changes that work well for the tablet.

    Textbook publishers will have to work more closely with specialty software firms to adapt books for e‐book readers. ScrollMotion software company identified in the case study could be labeled a new market entrant that is disrupting the business model of companies that have had a close relationship with the textbook printing companies. Those companies must now examine their business model to decide how they will adapt to the new disruptive technology and make up for lost business.

   Apple already changed some of its business model by willingly acting as an agent selling books rather than just a book distributor. Apple also realized that its old business model of believing that content was less important than the device itself was unsustainable. Regardless of how beautiful the device design is, if there's no content to go along with it, people won't buy the product. The company is now willing to make deals with each media industry to distribute many different types of content at a price agreed upon by the content and platform owners.