MNGT 481.103

A Kindle in Every Backpack

ContentsExecutive Summary.............................................................................................................3

Issue Identification...............................................................................................................4

External Analysis.................................................................................................................4

Industry and Life Cycle Stage.........................................................................................4

Opportunities...................................................................................................................5

General Environment.......................................................................................................6

Five Forces Framework...................................................................................................7

Internal Analysis..................................................................................................................8

Amazon’s Resources and Internal Strengths...................................................................9

Weaknesses....................................................................................................................11

SWOT Analysis.............................................................................................................12

Recommendations..............................................................................................................13

Executive SummaryThe impact of the recession has been felt across the nation, particularly in the

education sector. As of the end of 2008, 22 states in the U.S. have cut their education

budgets by a total of $12.1 billion. As such, many municipalities are looking for areas

where they can cut costs, and e-Readers can fill this space as an alternative to more

expensive and shorter-lived print textbooks.

Throughout Amazon’s history, the company has been willing to take

entrepreneurial risks hoping for a “seed to turn into a tree.” Amazon is often willing to

wait years for these seeds to grow, which is one of Amazon’s biggest strengths. Keeping

this in mind, Amazon is in a perfect position to help municipalities to fill the budget gap

in the education sector. This will result in increased long-term revenues for Amazon as

well.

There are many advantages for entering the educational sector, mainly attracting

customers at a younger age, which can result in long-term loyalty from those customers.

Secondly, the transfer to e-Readers in the classroom will also allow school systems to

increase the publicity of their environmental programs, while also increasing the brand

image of Amazon as well.

Issue IdentificationAmazon continues to be a strong player in the e-reader market; however, some of

this market-share is being eclipsed by Apple’s iPad, but it is also feeling the impact of the

national recession. If Amazon is able to capitalize on both its internal strengths and the

strength of its position in the marketplace, it can ensure its dominant place in the e-reader

market. It is our opinion, that in order to do so, Amazon should market the Kindle as an

educational tool to replace print textbooks, which have a limited life. By accomplishing

this mission, Amazon will create a foothold in the educational sector that is ensured to

remain strong, even through further economic downturns.

External AnalysisAs a growth industry, the e-Reader market has a lot of room for additional

competitors, many of whom will be price-sensitive. However, the educational sector for

e-Readers is in the embryonic stage, which can allow Amazon a first-mover advantage.

Amazon’s position as a price leader in the e-Reader market will allow the company to

maximize both its opportunities and internal strengths to create long-term competitive

advantage in the classroom.

Industry and Life Cycle StageEven though the e-Reader industry is a growth industry, the e-Reader in the

education sector is an embryonic industry that will hopefully see growth in the next

couple years. The increased general use of e-Readers will have a positive effect on the

initial setup and growth for the product in the classroom.

A growth industry has several key characteristics such as increased spending of

research and development, market acceptance, impressive return on investment, declining

cost of production, stiff competition and reduction of price due to competitive pressures.

In particular, Amazon’s e-Reader segment has experienced stiff competition and a

reduction of prices due to competitive pressures. Apple’s introduction of the iPad has

threatened the need for an e-Reader due to the additional features provided by a tablet. As

a price leader in the e-Reader market, Amazon has also cut prices even lower on the

Kindle in order to compete with rivals. For instance, the Kindle is now selling for as low

as $114, however, Apple’s iPad 2 is selling for $499.

On the other hand, the e-Reader as an educational tool is in the introduction or

embryonic stage of the product life cycle. The embryonic stage can be characterized as

having very low sales, high cost per customer, low to zero profits, and demand has to be

created. Amazon will definitely need to create the demand for an e-Reader in schools

because teachers and students alike are so accustom to using hardcopy textbooks.

However, we feel that Amazon can succeed in creating a sustainable advantage in this

sector.

OpportunitiesBy focusing its attention to the educational sector, particularly with e-readers,

Amazon can create many opportunities for economic growth and expansion. The main

opportunity is that attracting customers at a younger age, all using the Kindle, the

students are more likely to continue to use the Kindle and other Amazon products and

services into the future. With today’s youth becoming technologically savvy at younger

and younger ages, exposure to the Kindle throughout their schooling will increase

Amazon’s customer base. Additionally, other opportunities will arise, such as:

Helping school districts “Go Green” will increase Amazon’s environmental

image.

Eliminating heavy backpacks of textbooks for students will increase Amazon’s

brand image.

An increase in digital media sales in the US will generate additional profits

without increasing shipping costs.

The Kindle is strictly a reading platform. As such, it does not possess the many

distractions of an Apple iPad, which will create additional goodwill among

instructors attempting to keep students on task.

General EnvironmentAmazon’s environment in elements such as technological change, demographic

trends, and economic climate all impact the progress of Amazon’s Kindle being

introduced as an educational tool. The element that is affecting Amazon’s environment

the most is economic climate. After a deep recession, state governments had to cut

spending on education which has led to schools seeking innovative ways to save money

but also maintaining quality in its education system. Amazon’s Kindle offers a way for

schools to save money, especially in the long-run, on education material and textbooks.

Cultural trends are also strongly influencing the switch to e-Readers in the

classroom because of a growing concern for student health and the environment. Students

of all ages are faced with the weight of multiple textbooks causing back, neck, and

shoulder pain. A study reports that students in pre-K through 9th grade showed that

unhealthy changes in posture are a result of backpacks weighing more than 10 to 15

percent of the student’s body weight. (MSNBC, 2007) The use of e-Readers will

consolidate all textbooks onto a light tablet that will certainly have an effect on student’s

back, neck and shoulder pain. Currently, a strong trend is for people to live a “green” life

and put a bigger effort on helping the environment. If schools were to use e-Readers,

instead of hardcopy textbooks, it would align the school’s goals more with society by

helping the environment. A summary of the general environment can be found in Figure

1.

Figure 1: General Environment Analysis of Amazon, Inc.Element As Pertains to Amazon, Inc.Technological Change

eReader are becoming more accepted and beginning to replace standard book formats. The change is slowly making its way into the classroom.

Demographics Trends

Children are becoming more technologically centric at a younger age, resulting in steeper adoption curve. Plus, reaching children at a younger age can lead to long-term customer relationships.

Cultural Trends Health concerns, going greenEconomic Climate As the global recession has deepened, state governments have had to cut spending

on education, which has resulted in school systems seeking additional cost cutting measures that will not result in a reduction in education efficiency. If marketed correctly, the Kindle e-Reader can be used to reduce the annual expenses school systems incur for textbooks.

Legal and Political Conditions

Amazon has been in the news recently with ties to recent changes in tax legislation in certain states. Currently, Amazon is only paying taxes in the five states where it has physical offices established. The recent tax changes in such states as Illinois will have an effect on the overall condition of the company. (Novack, 2011)

Specific International Events

Risks of operating internationally has increased since the recession due to “business licensing, foreign currency exchange restrictions, restriction on sales on certain products, and limited fulfillment and technology infrastructure” in some international markets. (Amazon.com Inc., 2011)

Five Forces FrameworkThe overall threat level that Amazon faces in the educational sector is medium.

This means that Amazon can expect threats to come from many directions. A summary of

these threats as they relate to Amazon and this market can be found in Figure 2. The

highest threats are the threats of substitutes and rivalry.

Amazon will also face a threat from substitute products, which are, and will

continue to be, printed copies of textbooks and periodicals. However, environmental

initiatives that are currently spreading across the nation will necessitate a further

reduction in paper usage. This will create a stronger demand for e-reader devices.

Amazon has many major big name competitors who already have contracts with

school districts, and a strong and loyal customer base that prefers to use competitor’s

products over Amazon’s. Some of the competitors include, but are not limited to, Apple,

Barnes and Noble, and Sony. Each of these companies has released an e-reader or tablet

computer. The tablet computers incorporate many of the same features of a laptop

computer without the weight or size, and most possess an e-reader application.

Figure 2: Porter’s Five Forces FrameworkType of Threat Threat

LevelReason for Threat Level

Threat of Entry Medium Low barriers to the production of an e-reader in general, however, it is much more difficult to generate the relationship with book publishers

Threat of Rivalry

High Apple’s entry into the tablet market with the iPad has eroded some of Amazon’s eReader market-share and analysts predict this rivalry to continue although Amazon currently has a MASSIVE price advantage

Threat of Buyers

Medium There are a lot of educational buyers but currently not much product differentiation. Amazon could take advantage of a device geared to a more controlled setting.

Threat of Substitutes

High The e-reader is battling with print books and periodicals that have dominated the education systems for generations.

Threat of Suppliers

Low As there are currently few major producers of eReaders, the threat of suppliers is not geared to any one company.

Internal AnalysisAs a result of its many resources on which it can capitalize, Amazon finds itself in

a very advantageous position compared to its competitors, such as Barnes and Noble and

Apple, for the major share of the educational e-reader market. As Figure 3 illustrates,

despite recent market-share loss to the Apple iPad, the Kindle continues to dominate the

e-Reader market and could benefit from a first-mover advantage into the educational

sector. Despite its many advantages, however, Amazon needs to be aware of its

weaknesses and plan strategies with those weaknesses in mind.

Figure 3: Amazon Kindle vs. Apple iPad (Source: Download’s Edge)

Amazon’s Resources and Internal StrengthsThe most important of Amazon’s resources is its corporate culture. Throughout

its growth, Amazon has thrived by keeping alive both the entrepreneurial attitude and

customer-focused strategy with which it started, thereby keeping Amazon at the forefront

of both Retail and Internet innovation. (Llopis, 2011) This spirit is evident throughout

the organization in continued expansion into new, and sometimes surprising, markets

despite apparent negative impacts on immediate company financials. (Kirby & Stewart,

2007) Amazon is “willing to plant seeds and wait a long time for them to turn into trees”,

often asking “is it big enough to be meaningful to the company as a whole if we’re very

successful” instead of asking why. (Kirby & Stewart, 2007)

As one of the world’s largest online retailers (Datamonitor, 2010, p. 2), another of

Amazon’s resources is its inventory of books, movies, and music, both in digital and print

format. Coupled with Amazon’s vast data mining capabilities, such as its collaborative

filtering mechanisms, this inventory allows the company to assist customers in finding

exactly what they are seeking. Amazon, like many other major websites, has determined

that information is its key resource, and Amazon has more information that many people

are aware. (Clicking for Gold, 2010) As such, Amazon is uniquely positioned to assist

school-systems in determining which textbooks are most effective in classrooms

throughout the nation.

In the midst of each of these resources is Amazon’s strongly imbedded brand

image. Amazon will also be able to use its strong brand image, which ranked 43rd on the

list of the Best 100 Global Brands for 2009 by the BusinessWeek (Datamonitor, 2010, p.

6), to enhance bargaining power with publishers. Already, BookSurge is courting

publishers to have their products scanned into digital files, of which over 950,000 are

currently available to customers. (Click to Download - Amazon.com, 2006)

The impact of each of these resources on Amazon’s competitive advantage is

dependent on four factors:

Is the resource valuable? Is the resource rare compared to its competitors? Is the resource costly for competitors to imitate? And Is the resource exploited successfully by Amazon?

As shown in Figure 4, most of these strengths are sources of a sustainable competitive

advantage. It is therefore possible to assume that Amazon’s internal strengths, combined

with its willingness to “wait for seeds to develop”, long-term earnings potential are very-

high.

Figure 4: VRIO Analysis of Amazon’s Internal Resources

Resource Valuable? Rare?Costly to Imitate?

Exploited by Organization?

Competitive Implications

Corporate Culture

Y Y Y YSustained

Competitive Advantage

Digital/Print Inventory

Y Y Somewhat YTemporary Competitive Advantage

Data Mining Mechanisms

Y Y Y YSustained

Competitive Advantage

Computing Capacity

Y N Y NCompetitive

Parity

Information Database

Y Y Y YSustained

Competitive Advantage

Strong Brand Image

Y Somewhat Y YSustained

Competitive Advantage

WeaknessesAlthough Amazon possesses many internal strengths, there are a few weaknesses

that are a vital aspect in a SWOT analysis of the company. For example, Amazon offers

free shipping, which may have a negative financial impact on the company going

forward, particularly with increasing fuel prices.

Additionally, Amazon has continued to add new products and services to

customers, despite the fact that these additions may seem illogical. (Kirby & Stewart,

2007) However, due to the fact that Amazon is well known for great customer service

and quality products, the sole item that Amazon needs to consider is any potential impact

on its brand image. (OP Papers) In order to be competitive with other companies,

Amazon must continue to broaden the range of products it offers, but cannot become a

swap meet either. This fear was considered prior to allowing third-party sellers to use

Amazon’s website, and thus far has not impacted Amazon’s brand image in any

appreciable manner. (Kirby & Stewart, 2007)

The Kindle, which currently maintains the dominant position in the e-reader

market, has not maintained its position technologically compared to its main competitors.

The lack of a color screen, for instance, can be detrimental for any reader. When reading

a magazine or book, color images often bring the topic to life. If a consumer is deciding

between the Kindle, the Barnes and Noble Nook, or the Apple iPad, a color screen can

easily be a deciding factor. However, the sheer volume of material that is available on

the Kindle can also far outweigh any perceived design defects.

. Since Amazon’s business is primarily conducted online, the company needs to

ensure security, reliability, and assurance. (Amazon.com: its Strong Points and Pitfalls in

the e-Business Environment, 2009) As such, the company needs to continuously spend

money on system maintenance and upgrades in order to ensure customer and data

security.

SWOT AnalysisFigure 5 illustrates Amazon’s strengths, weaknesses, opportunities, and threats.

As shown in the graphic, Amazon possesses many advantages on which it can capitalize

far into the foreseeable future. In order to create and maintain a sustainable advantage

over is competitors, Amazon must ensure that it is using its strengths and opportunities to

their full advantage, while also minimizing any impact caused by its opportunities and

threats.

Figure 5: SWOT Analysis of Amazon, Inc.

RecommendationsBased on the analyses conducted, Amazon should focus on two technological

improvements to the Kindle, both of which can be performed simultaneously. Initially,

Amazon should redesign the Kindle with a color screen and a touch-screen interface,

which will allow the Kindle to be more directly competitive with the Apple iPad, while

giving it an additional design benefit that Barnes and Noble’s Nook does not possess.

Any costs to redesign the Kindle can be made up in two ways:

Direct sales to consumers, and

Sales to municipal school districts.

Following its redesign, Amazon should create a new market focus for the e-

reader, the as-of-now untapped educational sector. In this arena, the new design will

allow textbooks to appear approximately as the print counterparts. Furthermore, the use

of the Kindle in the educational sector will provide school-systems with a cost-cutting

measure that will counteract budget cuts that have been occurring nationwide, while also

creating health and environmental benefits for both the students and school-systems.

If Amazon follows through on these recommendations, they will be able to

benefit from a first-mover advantage into the educational market. As such, they will be

able to generate additional brand recognition and loyalty from students, school-systems,

teachers, and parents alike. Also, with continued technological updates to maintain the

Kindle’s popularity, long-term sales of the Kindle will continue to generate long-term

profits for Amazon into the foreseeable future that will more than offset any additional

costs of redesign.

Works Cited

Amazon.com Inc. (2011). 2010 Annual Report. Seattle: Amazon.com Inc.Amazon.com: its Strong Points and Pitfalls in the e-Business Environment. (2009, April 16). Retrieved May 10, 2011, from Thinking Made Easy: http://ivythesis.typepad.com/term_paper_topics/2009/04/what-are-the-strengths-and-weaknesses-of-the-e-business-amazon-you-may-choose-to-focus-on-amazoncom-andor-amazoncouk.html

Click to Download - Amazon.com. (2006, August 19). The Economist .

Clicking for Gold. (2010, February 27). the Economist .

Datamonitor. (2010, April 9). Amazon.com, Inc. Corporate Profile. New York, New York, USA.

Download's Edge. (2010, December 3). iPad Closing In On Kindle eReader Market Share. Retrieved May 5, 2011, from Download's Edge: http://www.downloadsedge.com/ipad-closing-in-on-kindle-ereader-market-share/2010/12/03/

Kirby, J., & Stewart, T. A. (2007, October). the Institutional YES. Harvard Business Review , 85 (10), pp. 74-82.

Llopis, G. (2011, February 7). What we can learn from Amazon about seeing business opportunities others don't see. Retrieved May 4, 2011, from Forbes Online: http://blogs.forbes.com/glennllopis/2011/02/07/what-we-can-all-learn-from-amazon-about-seeing-business-opportunitiies-others-dont-see/

MSNBC. (2007, August 30). Retrieved May 7, 2011, from Kids and parenting: http://msnbc.com/id/20515585/ns/health-kids-parenting/t/keep-kids-heaving-hefty-backpacks/

Novack, J. (2011, February 27). Retrieved May 2011, from Forbes: http://www.blogs.forbes.com/janetnovack/2011/02/27/are-amazon-coms-days-of-tax-free-selling-numbered/

OP Papers. (n.d.). Retrieved May 5, 2011, from Strengths and Weaknesses of Amazon: http://www.oppapers.com/essays/Strenths-And-Weaknesses-Of-Amazon-Com/233821