Sony E-Reader

Report Assignment #1

VRINE, PESTEL, Five-forces

& Complements, Value Curve,

Profit Pools

Team 5

Taylor Kucera

Cassandra Pastore

Nicole Coumou

Kara McDonald

Pavel Lubov

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About Us

Sony Corporation focuses on electronics, entertainment and

financial services sectors. We represent a wide range of business and

focus to remain globally unique. Our aim is to fully leverage our

strategy to continue to emotionally touch and enthuse customers.

Sony Corporation is a leading manufacturer of audio, video,

communications and information technology products for the

consumer and professional markets. Its music, motion picture,

television, computer entertainment and online businesses make Sony

one of the most widespread entertainment companies in the world.

Our Mission

Our mission, as Sony Corporation, is to provide our customers

with a variety of innovative products, content and services world-

wide. Our goal is to pursue the dreams of our customers. To adapt

our unique products to individual needs of varying demographics by

bringing to our customers advanced technology at economic value.

Our Vision

Sony Corporation’s vision is to generate the largest market

share by becoming the leading provider of the electronic book

industry. In order to establish this vision we will partner-up with

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diverse publishers, which will provide customers with intellectual

content at affordable prices. Our electronic readers will offer

customers resourceful and sophisticated technology useful for

everyday life.

Values and Strategic Objectives

Sony Corporation values a variety of products and services to

which we provide to our customers. As a company we take into

consideration the needs and wants of our customers in order to make

available the best products suited for an individual lifestyle. Sony

Corporation’s value is based on our commitment to produce the most

pioneering, well-rounded technology at an affordable price suitable

for every individual.

VRINE: Valuable Are Sony e-books valuable?

Some say, “electronic e-books are the future of text-books.” As

the e-book industry emerges, more and more consumers are buying e-

books. One reason e-books are popular is because the electronic

devices can hold up to 2,000 books. E-books are cheaper to create due

to the fact that publishing and marketing costs are minimal, while

traditional books have a higher cost because of profit margins from

bookstores as well as distribution costs. The e-book can be written

and published within 7 days, while printed books can take up to 8

months to publish. E-books are more versatile than traditional books,

which make e-books valuable. The e-book may be sold on the Internet

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to any consumer who can purchase the electronic version at a

standard price of $9.99.

Rarity Are e-books rare?

As e-books become a trend many electronic competitors of Sony

are creating their own versions of the product. Other models include

Apple’s iPad Tablet, Amazon’s Kindle, and Barnes & Noble’s Nook. As

competitors, such as Samsung, produce E-Reader’s, Sony’s

competitive disadvantage increases in the market. Since the e-book

market is fairly new, the demand for this product is scarce. This is due

to the fact that the e-book market is not completely recognized. This

may be because many people are not aware of these devices, or older

generations are not acquainted with up and coming technology.

Inimitability and Non-substitutability Can competitors imitate? Can

they substitute?

In the technological industry there are many aggressive

companies producing electronic products. Diverse competitors are

always producing new innovative products and constantly changing

the face of technology. Pioneering companies continuously come up

with better products to compete with. Due to the fact that technology

is changes, competitors produce and imitate products in order to

acquire a piece of the market share. The perfect example of this

chain reaction between competitors is seen through the e-book

industry. For instance, the Amazon Kindle was the first E-Reader to

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come out on the market. Although there are many versions of the e-

book, each version has different cosmetic styles and is equipped with

original features. These features can range from internet capability to

the number of books the e-book can hold.

As e-books become more recognized they may substitute hard

copy books. E-books have a capacity to hold multiple books and can

be added and deleted from the e-book frequently. This means that as

e-books gain popularity consumers will recognize its versatility and

will exchange their hard books for electronic versions.

Exploitability Can Sony exploit it?

The Sony E-Reader has great value and can be exploitable. Sony

is a company that uses its resources and capabilities to serve as an

advantage to their customers. The Sony E-Reader provides customers

with innovative technology that is useful for everyday life. Due to its

lightweight and small size it can be taken anywhere and everywhere.

It is easy to use and multifunctional. This technology not only benefits

Sony Corporation through its sales and services but also to the

customers who will be using the product.

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VRINE MODEL FOR SONY E-READER

V ALUABLE: Electronic versions are cheaper to create than printed books.

Published quicker than standard books.

Versatile than traditional books.

R ARE: Fairly new market.

Not recognized by many consumers.

Capacity to hold up to 2,000 electronic books.

I NIMITABILE: Many other styles and brands available (ex: Amazon’s Kindle)

Some versions provide similar applications.

Competitors in the market with similar products.

N ON- SUBSTITABILITY:

E-books substitute standard printed books.

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No other product on the market that provides electronic versions of books than e-readers.

E XPOLTABLITY: Versatile to customers, can be used in everyday life.

Anyone can use it.

Currently on the market.

PESTEL: Political

Sony is one of the top selling brands in electronics; but why is

Sony different than its competitor Samsung and the following store

brands? This is because Sony has been around for many years and

throughout the technology era they have built up a reputation in the

technology industry. Sony has captured consumer confidence and is

available in all local retail stores as well as Sony Style stores. There

are other companies entering the electronic market trying to compete

such as Vizio, Tosihiba, Magnovox, Element, Dynex, etc. Sony must

keep its strong reputation to survive through this technology era.

Saying this, Sony must make sure they are selling topnotch products

and mistakes are not acceptable because they could possibly lose

their reputation. They recently had a recall of all laptop batteries

since a few caught on fire, but Sony made the correct move and had

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the recall as soon as they found there was an issue with the batteries.

Currently, Sony is still the leading provider for laptop batteries, and

politically Sony is doing better than they were a year ago. Given

President Barak Obama’s stimulus bill that was passed a year ago, the

Stock Market has shown an increase.

Environmental

Society has taken an interest in recycling. This is known around

the world as “going green”. The concept of “going green” has caused

many companies and industries to become more eco-friendly. Sony is

one of the few companies that offer service to properly dispose the

vacuum tube televisions that consumers are now replacing with a LCD

or Plasma. Also the LCD and Plasma TVs are energy efficient. We can

say Sony is the main manufacturer of batteries, which are used in all

laptops today. Sony’s stride is to create more “greener” batteries by

being “energy star certified” or to consume less power. Being

environmentally friendly is a big deal for the technology industry and

Sony has done a great job satisfying the consumers in the “going

green” movement.

Sociocultural

Technology has consumed society and wherever electricity

exists technology is right behind. As of now, society has a need for the

use of computers, cell phones, PDAs, laptops, ext. These are all ways

that society accesses specific programs, and the internet for

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communication, networking and business usage. A great example of

society using devices for social use is a person playing PS3 online

could be playing in Massachusetts and playing against another

consumer in china. Technology revolves and works around different

languages and cultures.

Technological

In today’s era, companies and business are taking advantage of

technology from telecommuting from home via laptop or showing

presentations on plasma screens or having multi-personal conferences

via internet from different remote locations. Sony has focused its

products to the personal consumer by manufacturing everyday

technologies such as TVs, cameras, DVDs players, video game

consoles, E-Readers, ext. We can see how technology has changed

every few years. Such as going to the bookstore to pick out a book,

then being able to order books online and have them delivered to your

house, now you can have electronic books (e-books). Technology is

growing every day and is a major part of our world.

Economic

One thing we can say about technology is that it is growing and

electronics are becoming much cheaper, running much faster, while

becoming smaller and more efficient. Ironically, the price of the new

and improved technology is dropping. Today, a standard 42 inch 720

plasma screen cost roughly $500-$600. About five years ago, it cost

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about $1,500-$2,000. About ten years ago, it cost up to $10,000 or

more. We can observe how the company must adapt to the previous

changes, helping develop better strategies for new changes that will

come. Another economic factor to observe is with technology

becoming cheaper; it is becoming a higher demand. Saying this we

need to make sure that Sony is keeping up with the demand in

creating new technology at a higher quantity and best quality. The

average consumer will replace the laptop, camera and ext. usually

every five years. Saying this Sony must make sure that in that next

five years, it has a better, cheaper and more efficient product for the

consumer. Economically we are still in a recession, however, the

economy is better than it was a year ago and companies have learned

to outsource and can become more efficient with less employees.

Legal

With new ideas and technologies being invented, Sony needs to

be aware of patents and the patent law. Sony has a direct relation

with the government in their legal department making sure all of their

ideas are safe and secure. Sony also has to understand different

country or state laws because they are not only selling products

within the US. They also need to be aware of the copyright laws when

they are dealing with E-Readers.

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Five-forces Model

Michael Porter, creator of the five-forces model, discovered a

method to determine how appealing a particular market is. Porter

utilizes industry economics to establish market competitiveness,

which is derived by the five-forces model. The model suggests that in

order to develop effective organizational strategies of a company,

managers must understand the external forces within an industry that

determine a company’s level of competitiveness. Porter’s five-forces is

characterized by degree of rivalry, threat of entry, supplier power,

buyer power, and threat of substitutes. The five-forces model can

evaluate Sony’s E-Reader industry structure. The model will draw

attention to Sony E-Reader’s strengths and weaknesses in relation to

the E-Reader industry as well as other business within the industry.

Degree of Rivalry

For the E-Reader industry, the intensity of competitive rivalry is

high-pitched. Sony’s E-Reader approaches a market that is booming

with aggressive opponents. Amazon’s Kindle holds a significant edge

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in the industry. Apple recently announced its new iPad device that is

going to give Sony and Amazon a run for their consumers.

Competitive rivalry is based on attributes such as price, quality,

and innovation. When there are numerous competitors in the industry

or entering the industry, price wars become intense. Currently, the

Sony E-Reader is less expensive than the Amazon Kindle. The Sony E-

Reader seems to be desired by consumers who are price conscious. As

the Apple iPad moves full force into the E-Reader industry, Apple will

assumedly price its product at a higher fee. Technological advances

are additional strong influence on the degree of price competition.

Companies that are successful with introducing new technology and

who develop a product different from those of competitors are able to

charge higher prices. Apple is notorious for being a leader in

innovative technology. The rivalry Apple’s iPad is creating is powerful

and will likely force Sony’s E-Reader to compete.

Threat of Entry

There are two conditions to consider when evaluating an

industry’s threat of entry. First, the threat of new entry, defined as the

degree to which new competitors enter an industry and intensify

rivalry. Second, barrier to entry, defined as the degree to which it is

more difficult to join or compete in an industry. The threat of new

entry for the E-Reader industry is relatively high. E-Readers are

devices that eventually will chance the face of learning and there are

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many companies looking to be apart of this wave of profitability. Sony

is a pioneering company that created one of the original E-Reader’s.

Sony E-Reader’s have attracted the attention of other firms, such as

Apple, to compete in this industry arena.

Likewise, the barrier to entry is high. Some of the strong

characteristics that contribute to the barrier are brand names,

technologies, and product differentiation. Sony, Amazon, and Apple

are powerfully built labels, making it difficult for a new forthcoming

company to enter into the E-Reader market and successfully compete.

Also, it may be difficult for a new company to find the resources,

technologies, and ideas to create an E-Reader product that is different

from the devices already out in the market.

Supplier Power

Suppliers of an industry are powerful when they control such

factor as prices, delivery lead times, orders, and payment terms. The

supplier power in the E-Reader industry is low to moderate. Before

manufacturing E-Readers, the suppliers will need to send the

company with components. In order for the companies to have a

finished product the suppliers could impose a payment term that

raises the cost of resources, which makes the suppliers of E-Readers

some-what dominant. However, it is not difficult for a company in the

E-Reader market to switch from one supplier to another supplier and

the cost of doing so is insignificant.

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Buyer Power

Buyer power describes consumer’s abilities to put a firm under

pressure. Buyer power can affect the customer’s sensitivity to price

changes. The buyer group is powerful when it has numerous choices.

The existence of products in E-Reader industry is minimal, which

decreases the propensity of customers to switch to alternative brands.

Since there are few devices for buyers to choose from, industry prices

are likely to increase. The power of consumers in the E-Reader

industry is low to moderate. Sony, Amazon, and Apple all have a

strong brand identity in the E-Reader market, naturally giving the

consumers less power to set industry prices.

Threat of Substitutes

Threats of substitutes exist when a product in another industry

can satisfy the same demand as the product of the focal industry. The

existence of products outside of the E-Reader industry can increase

the tendency of customers to switch to alternative products. If the

alternative product is lower in price and is used for the same purpose,

than there is a threat of substitute. The threat of substitutes in the E-

Reader industry is moderate to high. Paperback books are a strong

alternative to E-Readers. Books, newspapers, and articles could

potentially attract a portion of the E-Reader market and reduce sales.

Similar to the threat of entry, the threat of substitute is determined by

factors like brand loyalty, price performance, and current trends. The

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price of obtaining an E-Reader is more than the price of paperback

books. Nevertheless, the current trend of E-Readers is becoming more

and more admired and can dominate paperback books.

The Five Forces of E-Reader’s Industry

Structure

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Degree of Rivalry

HIGH

Supplier Power

Low -Medium

Threat of New Entrant

(and Entry Barriers)

HIGH

Threat of Substitutes

Medium -HIGH

Buyer Power

Low - Medium

Value Curve Analysis

Competing brands that challenge Sony’s E-Reader value curve is

the Amazon Kindle and the Apple iPad Tablet. The value curve charts

have many similarities and differences. For instance, the price of an

Amazon and Apple product is similar. There may be a difference in the

exact amount, but generally the prices are around the same. The

technological terminology of Sony, Amazon, and Apple products is

comparable. Many, if not all of the product descriptions inform

consumers about the technical intricacy that is involved in producing

the actual product. The product description is prepared to help guide

interested customers to better understand technical definitions.

As a group, we concluded that Sony’s marketing schemes are

not as high as their competitors. For one, Apple’s advertisements are

everywhere. Their marketing department advertises to all ages, all

over the world. Conversely, Sony does not seem to advertise as much

as Apple. Compared to Apple, Sony’s marketing is not as effective and

creative. The aging quality of Sony verses other competitors is about

the same. It is likely for all technology to age within a few years,

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Complements

- Computers

depending on how well the customers take care of their products. To

us, Apple products last a tad bit longer than Sony products. It may not

have to do with quality, but rather the difference in software.

The prestige of Sony is less superior to Amazon, and Apple’s

status is more enhanced than Sony’s status. In line with Amazon and

Apple in the E-Reader industry, Sony would be the third company that

people would buy from. Furthermore, the complexity of the products

between Sony and its competitors is slightly different. Sony’s products

have the exact amount of technology needed to satisfy consumer

demand. Most of the time Sony products do not have extra features,

while Apple is continuously striving to add more than the consumer

needs. Apple products compete to be on top of the line.

Sony, Amazon, and Apple’s range of products are somewhat

corresponding. With the exception that Apple may develop fewer

products than its competition. Sony offers a different variety of

products, as does Amazon. Both Sony and Amazon offer different sizes

in their E-Readers. In fact, Sony and Amazon offer a selection of less

advanced E-Reader’s to more advanced E-Reader’s. Sony is certainly

an innovative leader in the E-Reader industry. In spite of the scrutiny

faced in this industry all of the companies create well-developed and

good products. To conclude the value curve analysis, the success

between the three competitors within the E-Reader industry is

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dependent on, and may come down to, the consumer brand

preference.

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Sony Reader vs. Amazon Kindle and Apple Tablet

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3

4

5

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Price Use ofTechnicalProduct

Teminology

Above the LineMarketing

Aging Quality ProductPretige

ProductComplexity

Product Range

Sony

Apple

Amazon

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Profit Pool Analysis

A profit pool is an analytical tool that quantifies profits at

various points along an industry value-chain, it is usually illustrated in

a bar-chart diagram. The bars in the diagram represent the size of

value-chain segments according to their respective volume of sales

and thereby highlight the attractiveness of each sector within an

industry. In order to conduct a profit pool analysis, “Strategic

Management” by Carpenter and Sanders outlines six steps. These are;

defining the profit pool and the relevant value-chain activities,

estimating the size of the profit pool, estimating the distribution of

profits along the chain, verifying the values, graphing the profit pool,

and finally evaluating the results.

The following is a step-by-step profit pool analysis of the Sony

Reader. The Sony Reader is an electronic device used for the storing

and displaying of ebooks. Its value-chain activities relevant to profit

creation can be split into two segments; virtual content and Reader

production. The virtual content value-chain is made up of three

phases, first the author, then since there aren’t yet any exclusively

electronic books, the author goes to a publisher, the publisher then

distributes its copyrights to ebook retailers, and finally the ebook

retailers sell the ebooks to Reader owners. The second value-chain,

which is Reader production, is made up of a number of stages;

manufacturing, distribution, retail, and advertising. Since Sony

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Corporation is such a large corporation, most of the stages of this

value-chain are integrated into their business, therefore the value-

added for this product can be analyzed in one profit pool, from raw

materials to the finished product. The next stage was estimating the

size of each profit-pool activity. This stage is beset with assumptions

and relatively loose figures, nonetheless it provides a good industry

overview. Starting at the bottom of the chain; how much do authors

make? According to an article on author-publisher contracts by

Barbara Brabec, a major author, the average commission of an author

makes up 10% to 15% of every book sale. Then the publisher goes on

to publish and sell the books in hardcopy at around a 30% markup

rate on every hardcopy, this is derived from and supported by

numerous major publishers’ income statements. Since the cost of

ebook creation is much less than the cost to publish tangible books, I

estimated the earnings from each electronic book sale to be worth

60% for the publisher. So how much does the Sony owned Reader

Library make of the sale of every ebook? Well according to an article

by Peter Kafka, “Like Your Kindle Books Cheap, Don’t Get Used to It”

the average price of ebooks’ sold is $10 and of that the ebook retailer

makes 60 cents, which is 6%. Concerning the market sizes, according

to the Association of American Publishers the market cap of tangible

books sales was $24,3 billion, and the market cap of ebook sales was

$53.5 million in 2008. Since the difference in tangible and intangible

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book market sizes is so gigantic it is not possible to graph both on the

same chart, so I only took the relevant ebook industry into

consideration. The second value-chain, which is the Reader gadget

itself, I estimated to be a 5% percent profit-pool. This number is

derived from looking at Sony’s consolidated financial statements on

consumer products and devices, where an average electronic device

(television, camera, computer) earned Sony 5%, so I applied the

number to the Reader as well. Sony estimated the Reader market to

be around 3 million units, with the average Reader priced at $300 this

adds up to a Reader market cap of $900 million. According to a study

by Cleantech Group, Sony holds 30% of the US Reader market. The

profit pool chart summarizes my estimates for each value-chain

segment.

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The chart shows the profitability of the different segments along with

the sales volume values of each individual sector. From this diagram

it is easily visible that the primary profit pool for Sony Corporation is

the production and sale of the Readers, even though the profit mark-

up is not as great as those in the ebook creation segment its market

cap size makes up for larger overall profits. The company should look

into entering the ebook publishing business, as the profit mark-up on

that particular segment of the industry is the greatest.

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Works Cited

Brabec, Barbara. "Author-Publisher Contract Tips." Barbara Brabec's

World--Information & Inspiration for Home Business Owners

and Authors. Web. 21 Feb. 2010.

<http://www.barbarabrabec.com/writing_publishing/author-

publisher-contract-tips.htm>.

"Consolidated Financial Results." Sony Corporation. 04 Feb. 2010.

Web. 21 Feb. 2010. <www.sony.com>.

Kafka, Peter. "Amazon Kindle: E-Book Prices Likely to Go Up |."

MediaMemo. 19 June 2009. Web. 21 Feb. 2010.

<http://mediamemo.allthingsd.com/20090619/like-your-kindle-

books-cheap-dont-get-too-used-to-it/>.

Sibley, Lisa. "Cleantech Group report: E-readers a win for carbon

emissions | Cleantech Group." Cleantech Group | Accelerating

the next wave of innovation. 19 Aug. 2009. Web. 21 Feb. 2010.

<http://www.cleantech.com/news/4867/cleantech-group-finds-

positive-envi>.

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