Sep 22

Consumers in the shadows of corporate battles

There is an African proverb that “Where elephants fight, the grass suffers.”

In an article titled “Wal-Mart, Apple, Amazon and Google: In corporate Battles, Customers May Be Casualties,” the Washington Post reports on the impact of two corporate struggles on the innocent bystanders:  Apple’s decision to dump Google Maps in the iPhone 5 in favor of a seriously flawed mapping app of its own and Wal-Mart’s decision to stop carrying the Amazon Kindle, a product that might threaten Wal-Mart since this tablet can be used to facilitate online shopping on the go.

How effective will these seeming “boycotts” be in fighting potentially serious competitives threat?

In the case of the mapping software, the stakes could potentially be very large.  Although access to Google Maps is free, in the long run, there may be significant opportunities to derive advertising and commission fees from this type of application.  Thus, although the prestige of the two brands–Apple and Google–are significant issues in their own right and may have implications for the growth opportunities for both, direct revenue could also be at stake.  Although the iPhone, being outsold by phones using the Android operating system, does not entirely dominate the cell phone market, “diverting” its many users to a new mapping app is significant.  Even more important, this “jump start” of the new app might allow it to spread to other uses–i.e., other gadget manufacturers may elect it over Google Maps and consumers used to the Apple product on their cell phones may head to Apple’s rather than Google’s map when using their regular web browsers.  It will be interesting to see how long consumers’ memories of the bugs in a map made by a firm normally known for quality will be remembered.  Apple is not exactly off to a good start when its map even gives incorrect directions to the Apple Store in Sydney.  If Google Maps becomes available as an iPhone app, how many people will simply switch back this way?  A lot of consumers will not.  We know that a lot of web surfers stick with Internet Explorer in large part because that is what comes pre-loaded with Windows.

In the case of Wal-Mart, it is certainly understandable that the Kindle is seen with frustration.  Now that Amazon is increasingly faced with having to collect sales tax in more and more areas, it may no longer have as much of a cost competitive advantage–and now Wal-Mart can now compete on a more level playing field if it chooses to ramp up its online presence–but shopping online, even if actually more expensive in some cases, is convenient, and this is what Amazon is known for.  Even if Wal-Mart increases its online presence, it may take years for the perception among consumers to catch up.  Here, a really interesting question is whether, as a matter of pragmatics, the mere refusal of Wal-Mart to sell the Kindle can significantly hold it back.  Target recently stopped carrying the Kindle as well, but there are likely a number of other opportunistic brick-and-mortar chains that would jump on the opportunity to carry and prominently display the Kindle.  Wall Street does see Wal-Mart’s actions as significant in view of the serious hit that Amazon stock took upon this announcement, but the flip side here is that this gives Amazon an opportunity to spread the word about how “scared” Wal-Mart is of its might.  Continued exposure of the Kindle in Wal-Mart stores would unquestionably have speeded up awareness building and would have resulted in a large number of impulse purchases, but consumers can buy and see the Kindle elsewhere.  It will take somewhat longer, but it is rather difficult to put the genie back into the bottle.

 

Sep 20

Why does Amazon depend on Wal-Mart to sell its Kindle?

Business Week reports that Amazon stocks are down after Wal-Mart announced that it would stop selling Amazon’s e-reader, the Kindle, when current inventories are sold hold.  This is an especially serious blow at a time when Amazon is attacking Apple’s iPad with new $499 tablet that is reported to offer performance comparable to the iPad at lower purchase and an offer of steeply discounted 4G for the first year.

But why does Amazon, a firm that prides itself on selling other firms’ electronics online, need a traditional brick-and-mortar distributor of a product that requires online purchases of books, movies, and other media?  This is quite ironic!

There are a number of reasons why having the Kindle available in brick-and-mortar settings is important:

  • Although very reasonably priced at $119-$499 depending on the model, a Kindle is a significant purchase that many potential customers would like to check out in person.  How does this tablet feel to hold in one’s hand?  How easy is the screen to read?  Although, in principle, one can return items to Amazon, shipping these back is a hassle.  It helps to have a brick-and-mortar point where these can be dropped off.
  • Many Kindles may be bought as gifts.  Grandparents who are givers may not be comfortable shopping online, but their grandchildren generally are.
  • Although Amazon prominently features the Kindle of its pages, many potential customers are not necessarily frequent shoppers there.  When they do come to Amazon, they may be in a rush to make a specific purchase and may not take the time to read about this new product.  Some may be more receptive seeing the actual device during a store shopping occasion.  Here, store personnel and/or other shoppers may demonstrate how to use this product in practice.
  • Although UPS shipments from Amazon are likely guaranteed in practice, some consumers may be uncomfortable having an expensive product shipped to their homes.  They may face a choice between unattractive options of arranging to be home for the next delivery attempt, hoping that a neighbor will be around to sign for the delivery, or making a trip to the local UPS facility to retrieve the package.
  • Procrastination in gift shopping may require that a gift be available for pickup immediately.
  • As an impulse purchase, a Kindle that can be taken into possession immediately seems more attractive than one that will arrive in days.