Product strategists struggle with the issue of value all the time: What constitutes a revenue-maximizing price for my product, given the audience I’m targeting, the competition I’m trying to beat, the channel for purchase, and the product’s overall value proposition?
There are tools like conjoint analysis that can help product strategists test price directly via consumer research. However, there’s a bigger strategic question in the background: How can companies create and sustain consistently higher prices than their key competitors over the long term?
The Mac represents a good case study for this business problem. Macs have long earned a premium over comparable Windows PCs. Though prices for Macs have come down over time, they remain relatively more expensive, on average, than Windows-based PCs. In fact, they’ve successfully cornered the market on higher-end PCs: According to companies that track the supply side, perhaps 90% of PCs that sold for over $1,000 in Q4, 2009 were Macs.
Macs share common characteristics with Windows PCs on the hardware front – ever since Apple switched to Intel processors about four years ago, they’ve had comparable physical elements. But the relative pricing for Macs has remained advantageous to Apple. At the same time, the Mac has gained market share and is bringing new consumers into the Mac family – for example, about half of consumers who bought their Mac in an Apple Store in Q1, 2010 were new to the Mac platform. So Apple is doing something right here – providing value to consumers to make them willing to pay more.
Following its acquisition of Quattro Wireless for $275,000,000, Apple has just announced the launch of iAd, its mobile advertising platform (see my colleague’s take here). Adding the $750,000,000 that Google is ready to invest in AdMob (the deal is still under FCC scrutiny), the two most disruptive new mobile entrants have invested more than $1 billion — a clear signal that mobile advertising has long-term potential. The main difference between Google and Apple is that Apple is only just entering the advertising business, while Google’s entire business model simply IS advertising. However, that potential has yet to be realized. Does that mean stakeholders can generate significant revenues in the short term and that operators will be bypassed once again? I have read in various places some strange comments suggesting that Google’s mobile ad revenue share with mobile operators would be a way to finance network evolution. Just compare the cost of a base station and the significant investment required to finance 4G with absolute mobile advertising revenues and you’ll quickly figure out for yourself that this is unlikely to happen anytime soon. This is more of an online advertising discussion around the Net neutrality debate (remember France Telecom’s CEO warning that he was not “building freeways for Californian cars”!) but it will crop up later for mobile.
Apple yesterday announced OS 4.0, it's latest iPhone and iPad operating system. This release confirms what we believed last year: that Apple is actually listening to what enterprise IT needs from iPhones. Let's review the history:
July 2007. Apple launches iPhone with OS 1.0 as a consumer device without anything that companies require.
July 2008. Apple releases iPhone 3G with OS 2.0 and introduces Exchange support, including remote wipe, but little else that companies need. Even so, some firms allowed their employees to bring their own iPhones and get email support.
July 2009. Apple releases iPhone 3GS with OS 3.0 and hardware encryption and enough policy-based control to give IT professionals the ability to more comfortably support the devices, particularly in non-regulated industries. The big remaining gaps in 3.0 from our 100+ conversations with IT pros? The inability to distribute applications wirelessly, to push software and policy updates to the device, and to manage iPhones or iPads in the same way that BlackBerry Enterprise Server (or Server Express, the $0-cost version) does.
July 2010. Apple will release OS 4.0 that includes wireless app distribution, better data encryption, more APIs for device management, and a significicant number of enterprise features that are outlined below. For other details, check out these Forrester posts on consumer functions and on mobile advertising.
It has the potential to be more valuable than inventory on many phones.
People who own smartphone devices are more active on their cell phones than your typical cell phone owner. For simpler tasks like SMS, they are moderately more active. For more complex tasks such as shopping, using maps, banking or doing product research they are significantly more active. iPhone users are some of the most active smartphone users when it comes to commerce-related activities.
Advertisers have held back on spending more on mobile marketing for many reasons. One of the primary reasons has been their inability to demonstrate the effectiveness of the medium or calculate an ROI. It gets a lot easier to calculate the ROI when consumers are buying items or using services such has mobile banking to deposit checks. Consumers are spending real money. My colleague Sucharita Mulpuru will be working on a mobile commerce forecast later this year. Anecdotally, we saw consumers spend in the hundreds of thousands of dollars with individual merchants/hotels/restaurants in 2009. We're likely to see run rates in the low millions for a few companies within a few industries by the end of this year.
The more consumers spend, the more advertisers will be motivated to spend. Consumer product and service companies will invest in mobile services such as "find the nearest," consumer reviews, available inventory, etc. to support commerce-related activities. The greater the supply of services (of great services), the more adoption and usage we'll see among consumers. Then consumers will spend more because the experiences will be convenient - it'll be easy to buy books or toothpaste.
George Colony nailed it when he wrote “the iPad signals the future of software”. So where do smart-device app’s go from here? Basically, any application that focuses on saving people time is likely to be a winner but the biggest game changer will come when consumers start to benefit from customized services that save time and money while increasing brand loyalty. For example, here’s a glimpse into how we might see applications for our phones and tablets evolve to make food shopping and preparing meals at home easier…
Let’s imagine the future of a typical suburban home. In our future world we’ll follow Mr. and Mrs. Smith, working parents with little time to spare.
Throughout, as various members of the press have mused about the death of Amazon's Kindle, I feel compelled to point out that, contrary to popular belief, Amazon is in a better position now than it was before the iPad. That's right, if Amazon comes out swinging, Round 2 will go to Amazon. Here’s why:
The mobile industry is in full swing. Its center of gravity is shifting from hardware to software, from voice to data and services, and from traditional telecom stakeholders to new entrants.
Google’s “mobile first” approach and the shadow that Apple cast over the show are forcing mobile operators in particular to redefine their position in the value chain. The traditional focus on infrastructure (LTE..) and this year’s debate on operators’ congested networks need to be put in the context of nontelecom players’ willingness to monetize mobile. Mobile World Congress is a unique opportunity to witness how mobile is reinventing itself and to see how it will become even more disruptive in consumers' daily lives in the future.
It was a surprising weekend for those of us who had naively imagined that after crossing the River iPad, we might actually get some Elysian rest. But, alas, the fates conspired against us and handed us the curious case of Amazon vs. Macmillan. Or Macmillan vs. Amazon?
For those who actually took the weekend off, let me summarize what happened. John Sargeant, the CEO of Macmillan Books, gave Amazon a wee-bit of an ultimatum: switch from a wholesale sell-through model, where Amazon buys digital books at a fixed wholesale rate and then can choose to sell those books at whatever price it deems appropriate (even at a loss, as it does with $9.99 bestsellers), to an agency model, where Amazon agrees to sell at a price set by the publisher in exchange for a 30% agency fee. Sargeant explained to Amazon that if it did not agree to the switch, Macmillan Books would make its eBooks subject to significant "windowing" wherein new books are held back from the digital store for some period, say six months, while hardback books are sold in stores and possibly, digital copies are sold through the iPad at $14.99.
This is more detail than we usually know about a negotiation like this because of what happened next. Sargeant got off of a plane on Friday only to discover that Amazon had responded by pulling all Macmillan books from the Kindle store as well as from Amazon.com. He then decided to make it clear to the industry (and his authors) that this drastic action was Amazon's fault, in a paid advertisement in a special Sunday edition of Publishers Lunch.
I have a weakness. I like to think big. And when we heard so many juicy rumors about the Apple tablet device, now named the iPad, I knew that with Steve Jobs at the helm, I could afford to think big. So big did I think, that I suggested the iPad should take media consumption to the next level and create an entirely new category of device.
At first, Jobs appeared ready to confirm my suspicions. He said seductive things like, "Everybody uses a laptop and or a smartphone. The question has arisen lately. Is there room for a third category in the middle?" I was sitting on the edge of my seat, ready to hear Jobs demonstrate that new category of device. But he didn't.
Instead, what Apple debuted today was a very nice upgrade to the iPod Touch.
Don't get me wrong. I love the iPod Touch and I was this close to getting one for myself. Now that the iPad has arrived, I can finally get one, the new, big one. But it's not a new category of device. It doesn't really revolutionize the 5-6 hours of media we consume the way it could have. It doesn't even send Amazon's Kindle running to the hills for cover. In fact, the competitor likely to take the biggest hit from the arrival of the iPad is Apple, in the form of fewer iPod Touches sold and fewer MacBook Airs sold.
A storm has been brewing at The New York Times for a while now. Ever since TimesSelect -- the paid digital version of the Times -- was cancelled back in 2007, the "content wants to be free" crowd has danced around its proverbial grave, singing the equivalent of "ding, dong, paid media is dead."
It's hard to argue against that viewpoint given the reality we're seeing: long-time newspapers closing their print editions entirely (see Seattle Post-Intelligencer), august magazines such as Gourmet shutting their doors, newspaper subscriptions at unprecedented lows, not to mention the power that Google has over the traffic that newspapers and magazines generate. Worse, our consumer surveys show us that 80% of US adults will choose not to pay for online newspaper or magazine content if they can't get it for free (see my colleague Sarah Rotman Epps' post on this for more).
It is amidst this maelstrom that nytimes.com is reportedly considering erecting a new pay wall -- one presumes a shiner, prettier one than the last wall, but a pay wall nonetheless. Read New York mag's take on the situation here. Not to put too fine a point on it, but this is a bad idea whose time has unfortunately come.