CORPORATE ENVIRONMENT

Introduction

Ebook reader is an electronic device which enables its user to read books in digital format.
The concept of ebook reader was introduced in 2004 by Sony Corporation, Japan. After
Sony, many other came with their eBook reader including iRex, Plastic logic and Amazon
Kindle by Amazon.com, the largest online retail store of books and house of thousands of
best known ebooks available to man.

Amazon kindle was introduced commercially in November of 2007.The concept behind the
product was to make the user read the books in a completely new way and the user can use
this handy device to read books of any size instead of carrying bulky books. The device uses
tailored technology to give high battery life, low eye strain and high user interface to give the
best reading experience to the user. This device is very sleek and light with size just over one-
third of an inch. This device also support 3G network spread around 100 countries and
enables it to download books at any time. Along with this, Kindle has a very good paper like
display thus giving an experience of reading an actual book or magazine and can save up to
1500 books in digital format in this device. Kindle is based on the E-ink technology and
downloads contents from Sprint EVDO network which is called as whisper net.

The analysis of any business is done to determine the opportunities and threats and also to
analyse the strength and weakness to survive in the competitive market. This can be done by
using two techniques i.e. internal and external environment analysis which gives an overview
of an organisation’s performance. Each firm has some unique aspects and it can be
understood from the difference in firm’s performance.

External Analysis

The external environment of any organisation is determined by the intense competition

between the competing firms in the market. The external analysis is done to determine the
threats and opportunities in the external environment in order to implement strategies to tap
the available opportunities and to minimize the threats to the organisation. External analysis
is done by applying the technique of Porter’s Five Forces Analysis along with PEST Analysis
to determine the impact of political, economical, social and technological factors on the
organisation.

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Porter’s Five Forces Analysis of Amazon Kindle:

Porter explains the Five Forces Analysis to understand the industry dynamics to determine
the industry’s attractiveness and profitability in the long run.

Threat of new entrants:

The threat to entry depends upon the height of barriers to entry. The higher the degree of
barrier the lower is attractiveness of product in the market. The barrier to entry differs from
industry to industry. The barrier to entry in the eBook industry is relatively low due to lower
production cost. Most of the eBook suppliers in the market including Kindle, Sony Reader,
Plastic Logic etc. Uses the same technology of electronic paper manufactured by the E-ink
Corporation.

The only barrier to entry is the signing of agreement with the publishers to publish the books
on eBook.

Bargaining power of suppliers:

Suppliers are the one who supply raw materials for the production process. The degree of
suppliers bargaining power depends upon the number the number of suppliers available in the
market and also the availability of substitutes and the switching cost. Kindle uses the screen
technology of digital paper display supplied by E-ink Corporation. E-ink Corporation has a
kind of monopoly in this industry due to lack of development in the sector. Most of the
eBooks available in the market use the E-ink technology, therefore the bargaining power is
relatively low for the digital paper technology and hence the switching cost is also low. This
trend may change in future depending upon the development and with the entry of new
suppliers for digital paper technology. Amazon kindle also uses the EVDO network
developed by Sprint networks. Amazon is not required to pay any cost to connect to the
network as it is covered by latter. There are other providers of large EVDO network like
Verizon and Alltel. The choice for network providers is fairly limited and hence there is low
bargaining power to Amazon and also the switching cost is low.

Amazon has to obtain special permissions from the publishers to convert the book into digital
format s Kindle is useless without digital book. Publishers have a special bargaining power
for each specific title of book and in order to get the permission Amazon has to part with the

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profits with the publishers. The publishers have a huge bargaining power as they decide
which book is to converted into digital format and for this the publishers sign Digital rights
management(DRM) with Amazon in order to get the copyrights for the books.

Buyer Bargaining Power

The users of Amazon kindle have a little bargaining power as the books purchased on
kindle cannot be transferred to any other eBook reader and vice versa due to the DRM
schemes of the manufacturer. Thus due to DRM, users of kindle cannot switch to any
other device other than Kindle. The switching cost to the kindle users increases to a
great extent and Amazon remains a profitable side.

Threat of substitute

The main substitutes to Amazon Kindle are Sony Reader, Plastic Logic, Google books and
brick and mortar libraries. As Google Books require a desktop or laptop to get access to the
online libraries and also the brick and mortar libraries require physical access by the user to
read books which is time consuming, but with Kindle, Sony Reader and plastic Logics are
also available in the market which allows the user to access the books online and also
download the books with the help of wireless technology at a faster rate. Due to to the
availability of different e-readers in the market, there might be a threat to the existing market
of Amazon Kindle.

Rivalry:

As the eBook market is relatively in its early stage so the rivalry is not much in this
industry as the eBook providers are developing new technology and not pulling the
customers from other manufacturers. The price level is also very uncertain for
different eBooks. Amazon is priced at $259 while Sony reader is priced at $349. So
due to lower price of Kindle there is less possibility for users to switch to any other
eBook provider.

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PEST Analysis:

It is tool to determine the wide spread effects of external environment like political, economical,
social and technological environment on the organisation and to make future strategies for the
organisation. (Johnson et al, 2000)

Political:

The international government policies have a strong effect on the growth and development of
organisation. Different countries have different policies regarding consumer protection,
copyrights, taxation etc. The differences in various policies have adverse effect on the cost to
the organisation while maintaining the data and consumer protection rights. The political
effect on Amazon kindle might be high due to its multinational status and the import schemes
in various countries.

Economical:

Due to the fluctuating currency rates in comparison to the dollar, there will be additional cost
to the company thereby, increasing the price of product and affecting the low price feature of
the product. And also due Amazon Kindle is technologically well developed product, its
demand may increase in international market and there may be increased pressure on import
of product thereby, adding cost to the product due to import duties.

Social:

Being high technology product, Amazon kindle can increase the standard of living of
consumers. The consumers can easily have access to thousands of books, magazines,
newspapers online using this hand held device. There will be increased demand for the
product in the future and there is possibility of Amazon Kindle replacing study books for
students in schools and colleges.

Technological:

Amazon is highly technological oriented company and a lot is spent on the technological
development of kindle. Technology is developed to lower the cost of production and to
achieve economies of scale. With the advancement in technology, the size of kindle is
reducing and thereby, kindle is getting lighter and smaller in size and more user friendly.

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Generic Strategy:

It is the technique to develop competitive strategies in order to make offensive or defensive

action in order to create a defendable position the industry. The generic strategies can be
three type namely; cost leadership (develop a price lower than the competitors thus reducing
the profit margin), differentiation (develop a product line with price at a competitive level)
and focus (target a market segment without considering the cost constraints).

Amazon Kindle is adopting technique of cost leadership in order to compete with its rivals in
the market by reducing the price of the product in comparison to its competing products.
According to www.ebook88.com, the price of Amazon kindle2 is $249 whereas price of
Portable Reader System PRS-500 by Sony is around $349.99.

Delta Model:

Delta model is strategic framework in order to develop and implement effective business and
corporate strategies. Delta model contains the following elements:

Strategic triangle: it is used to define the strategic positions in order to determine the new
sources of profitability. Strategic triangle has three positions namely; best product, total
customer solution and system lock-in.

Best product is the product with features better than other products available in the market.
Total customer solution refers to product offering the features which give the customer total
satisfaction about the product and the consumer doesn’t have to depend on other
complementary products. System lock-in refers to when the product completely dominates
the market and the complementors are not competitors but they enhance the product and
service of company offering.

Amazon Kindle is developed as a product which gives total customer solution by offering the
consumer to access thousands of books online and also to store around 1500 books in the
device at very low cost. The user can use whispernet Wi-Fi service to have access online
libraries anytime and anywhere. The books downloaded on Kindle cannot be transferred to
any other device thus locking-in the customer to use only kindle eBook reader due to
copyright agreement with the publisher and DRM schemes. Thus Amazon is aiming to lock-
in the customer and avoid the user to switching to any other eBook reader.

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Internal Environment

Internal environment analysis is done in order to determine the strengths and weakness of the
organisation.

Resource Audit:

The ability of Amazon to generate internal funds is mainly because of cost cutting activities
such as downsizing and closure of inefficient distribution and warehouse. With reference to
the financial resources, the patents and stock of technology gives the Amazon 20% share of
web development towards total revenue but also it gives the firm a competitive advantage of
the web-based services from Apple as a back-up for its browsing and searching services to its
customers and provide them with more convenience. The organisation also have set-up
partnership with Dell and various auction houses in order have better borrowing capacity
from the public offerings and utilize the funds for technological development of Amazon
kindle and making the shareholders the key financers for the innovative endeavours.

Value chain analysis:

Value chain analysis was propounded by Michael Porter in order to determine the activities in

and out of the organisation.

The primary activities in Amazon are well complemented by the secondary activities like the

selective procurement as well as technological development. The value chain provides with a

cheap and supportive environment of the Amazon headquarters in Seattle, USA in order to

develop technology along with effective procurement, storage and delivery of products by

closing down the inefficient warehouses and replacing them with efficient and value adding

stores.

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Competence:

The unique feature of Amazon Kindle is its patent protected software technology. The

software will lead to industry standards and Amazon will have the exclusive rights to make

use of it as well as sell the technology.

Core competence:

The concept of core competence is to achieve a competitive advantage over the rivals in the

market. The core competence gives the firm an edge over other competitors in the market.

The lower price of Amazon Kindle gives it a competitive advantage over Sony Reader,

Kindle’s main rival in the market. The exclusive DRM rights given to Kindle by various

publishers also make it ahead of other eBook readers in the market.

SWOT Analysis:

SWOT analysis is a framework to determine the strengths, weakness, opportunities and

threats to the organisation after analysing the internal and external environment affecting the

organisation. SWOT analysis is done by the management to make future strategies and

predict the market position of the organisation in the long term or short term course of time.

Strength:

Amazon has flourished into a big brand name in the online world only after Google. Amazon

started with selling books online and slowly diversified its product line to music, videos and

also apparel and beauty products. Amazon is using its already established popular website to

advertise extensively for Kindle. As soon as anyone log on to Amazon’s website, the user

will be prompted about their eBook reader Kindle. Amazon already has a ready-made

platform for selling physical books which makes it easier for Kindle user to search and access

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the bookstores online. The user can easily integrate its Amazon user profile to find and

manage contents of books and the user can place the order online with ease. Amazon has

already established a very strong network with the publishers to integrate the books with

Kindle and thus have a strong customer base eager to get access to it wide spread book titles

using Amazon’s hand held portable Kindle. With Amazon’s partnership Sprint network, the

user can download and access the online books from anywhere even if there is no Wi-Fi

hot-spot service.

Weaknesses:

The major weakness of Amazon with its eBook device Kindle is that Amazon does not have

any prior experience of developing and selling any kind of consumer durables. Amazon being

predominantly an online retailer is new to the concept of technology hardware as compared to

its rival Sony who has years of experience of making revolutions in the digital hardware

industry. There are also criticisms regarding the user interface of Kindle which makes it

difficult for the user to browse files on the electronic device. The page turning button is bit

nuisance to the user as it is difficult for the user to browse files without accidently hitting on

it. Amazon is very much relying on its service in order to overcome the hardware problem.

Opportunities:

Amazon entered the eBook market at a very nascent stage thereby giving itself plenty of time

to make a foothold in the eBook industry. Amazon entered this industry at such a time when

there were not many competitors in the market; therefore Amazon Kindle was able to

establish itself as a big brand name in the eBook industry. The DRM scheme and the system

Lock-in enabled Kindle to take advantage of the available opportunity and book long-term

profit in the media coverage. Due to fewer competitors, Amazon kindle is able make a strong

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market presence and increase its customer base and significant share in the industry. The

opportunity makes Amazon invest a lot of time to develop its existing product and deliver its

customer with better product and avoid its customer from switching to any other eBook

reader.

Threats:

The technology industry is very unpredictable with new devices being invented every day. It

will be difficult for Amazon to constantly modify its eBook reader in order to stay in the

competition. The biggest threat to kindle is from piracy of technology and software. With the

competitors getting familiar with Kindle’s technology, there is huge threat of someone

coming up with product similar to Kindle at a very cheaper rate. Thus this could be disastrous

in the long run.

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Conclusion:

With the appropriate strategy, Amazon can achieve a dominant position in the eBook

industry. Amazon should spend considerable time to develop and modify Kindle in order to

survive in the extremely dynamic technology market. The pricing of Kindle is extremely

competitive and Amazon follows cost leadership but with increasing competition Amazon

should lower Kindle’s price in order to attract more price sensitive customers. By requisite

investment in research and development of Kindle, Amazon can overcome the design

drawback in the device. The eBook industry being not very developed, Amazon should take

advantage of this situation to lock-in more customers and giving them a complete package of

product to avoid the customer from switching over to other competitive product. There is a

need of intensive advertisement of Kindle in order to make people understand and know more

about the product. With Amazon as a brand name and with proper planning and research,

Kindle has the potential of being the market leader in the eBook industry and in the coming

years we may see Amazon Kindle as the best selling product in market.

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References;

1. Exploring corporate strategy text & class, 8th edition, Johnson, schools whittingon.
2. The competitive balance argument for mergers Gans, Joshua S 2000 Australian
Economic Review, Blackwell Publishers Ltd.
3. Strategic Group Analysis, Stephanie Richardson, Elena Wellard.
4. Laurie Schatzberg, PhD, Don McCandless, Anderson School of Management,
University of New Mexico, Albuquerque, NM 87131-1221.
5. Vipul Kumar Gupta. Ph.D. University of Texas - Pan American College of Business
Administration University of Texas - Pan American Edinburg, TX 78539-2999
6. http://ezinearticles.com/?The-E-Ink-eBook-Reader---A-Short-History-on-the-Origins-
of-Digital-Book-Readers&id=2955249
7. http://EzineArticles.com/?expert=Noel_K._Swinton
8. http://ezinearticles.com/?Amazon-Kindle-Digital-Ebook-Reader---Learn-About-
History,-Popularity-and-How-it-Works&id=1966420
9. http://jobfunctions.bnet.com/abstract.aspx?docid=87926
10. http://www.mcafee.cc/Classes/BEM106/Papers/2008/Kindle.pdf
11. http://www.marketingteacher.com/Lessons/lesson_generic_strategies.htm
12. http://www.valuebasedmanagement.net/methods_hax_wilde_delta_model.html
13. http://tutor2u.net/business/strategy/core_competencies.htm
14. http://ivythesis.typepad.com/term_paper_topics/2008/02/amazon-case-ana.html

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