iPad & publishers: The pricing dilemma… and what a dilemma it is

I have to make a confession. Though my background is in Communications, the P that most fascinates me when it comes to eMarketing is Pricing. And I’m especially interested in seeing how tablet-like devices like the iPad, eReaders and smartphones will change the pricing game on the internet, which is dominated by free content and applications.

The internet has changed the rules for pricing, and not necessarily in a way that benefits companies. Ironically, one of the industries that has suffered the most in these past 15 years, since the Internet became increasingly mainstream, is also the industry that set the rules in the first place: The media/publishing industry.

When the internet began to become mainstream, the average, not-very-technologically-savvy user used the internet to look for information. Content was king. So companies that already produced content found it easy to become some of the most visited sites: Newspapers, magazines and television stations. Media companies have long relied on what economists call two-sided markets. On one hand, there are the readers, who usually pay a low, subsidized fee to read the content via newspaper subscription, cover price, etc. In the case of public TV, no fee is paid by viewers at all to view content. The media companies make the lion’s share of their profits from advertisers.

The biggest mistake made by the media conglomerates was to believe that the internet was just another media channel. (Of course, it is hard to blame them for not having seen the possibilities of the medium, which still surprises us with its possibilities). These companies tried to beat each other and gain as many readers as possible by giving the content away for free, seeing display advertising on the web as the next big thing.

Clearly, a lot has changed. In the age of Web 2.0 (some even say we’ve moved onto Web 3.0), users are less interested in just reading content online, and are increasingly seeking interactive experiences like creating content themselves and interacting with each other on Social Media sites, chat applications and games. Offline, media and entertainments have suffered, as more people entertain themselves online. Last year, during the recession, media and entertainment companies especially felt the blow. Popular magazines like BusinessWeek and Forbes have made headlines for nearly going out of business, and other niche magazines have been shut down completely. As readership and viewership of traditional media channels fall, advertisers have found new ways to engage users, and more and more of their campaigns consist of communicating with them directly, and not through ads, but in the form of web-based and mobile apps, email coupons and interactive campaigns.

A fresh start?

Media companies and book publishers are hoping that the increasing popularity of mobile devices like the iPad will give them a fresh new start. Even before the iPad had been launched, some publishers even had demos of tablet versions of their magazines and websites. Their hopes are based on two assumptions: that more and more users will be reading content through reading applications on mobile devices like tablets and eReaders, and less and less through browser-based services; and that the revenue model adopted on these mobile devices will be more like eReaders, where users pay for almost all the content they use, as opposed to browsing on the web, where they usually read for free.

But both assumptions are big questions marks. It seems very feasible that mobile devices will continue being increasingly popular, especially in developing countries, where mobile phones are becoming the main channel for internet connection, especially among a new generation with more disposable income in India and China. But most mobile devices include a browser, which has become an indispensable feature on smartphones and even on the new generation of eReaders. While apps can restrict the source and type of content used, browsers (and especially search engines) open a world of possibilities for news, videos and images (much of which is free). And GenYers and those large, promising emerging markets really love free stuff. They’re also increasingly technologically savvy and better at finding content on the web.

The second assumption may be even shakier. The Kindle has become the model for eBook distribution. Though Amazon and its competitors offer free books, most of the content is not free. Amazon has two sources of revenue (as will Apple with its iBooks): the revenue from the hardware (the eReader) and from the content (the eBooks). The second is shared with the publishers. With more users on mobile devices, publishers are hoping that iBooks will be to content what iTunes was for the music industry. But there are some key differences that will make this very difficult. First, music is pretty cheap on iTunes, with singles around $0.99, enticing users to download quick, quality-guaranteed tracks on iTunes, rather than risk viruses and long download times on pirate applications. But eBooks will be a lot more expensive. Even if iBooks tries to compete with Amazon on book price, books would be around $10. This might not seem much if you’re an avid reader with an income that allows you to spend on books continually. But consider that a huge portion of iTunes users are price-sensitive students who buy as many used things as they can… including books. Second, eBooks have a series of barriers to adoption that are hard to overcome, as I mentioned in a previous post. News articles have an even tougher challenge: there’s so much of it free online. And like I mentioned, two key markets in the coming decade for devices (and content) like this are very price sensitive: the now twenty-something GenYers and the booming middle class in emerging markets.

What to do?

The truth or fallacy of these assumptions will be proved in the next few years as mobile adoption increases, and especially as devices like tablets and eReaders, which are still niche products, break into the mass market. But if publishing companies really do think that the iPad and eReaders are the only salvation for their industry, then it’s likely that we’ll continue to see more cities without a paper newpaper and the great names of the media industry disappear.

Jumping on the iPad wagon is one great way to innovate. But it can’t be the only one. These companies will have to reconcile free and paid content, which is not an easy job to do. The New York Times is a perfect example, with its confusing attempt at price discriminating for its content beginning next year. News sites will also have to find a way to create original content, which they can better control, if they don’t want readers to jump on the web and find some other source reporting on the same event. And like so many companies in the age of social networking, media companies will have to find new ways to relate to audiences and distribute and receive information, to avoid becoming one of 3,000 search results on Google.

iPad: a New Hope for Marketers?

It’s a great time to be a marketer, especially if you’re a young and digitally-savvy GenYer like myself. Though advertisers and publishers are concerned about an increasingly fragmented audience and the “death” of traditional media, technology is putting tools in our hands that we’ve never had before, and allowing us to be creative in new ways.

The iPad is seen as a ray of hope by analysts and executives of the media business. Even though the gadget hasn’t been distributed to reviewers yet and we know little about its capabilities and limitations (much less how it will be received when it goes on sale in March), publishers have already been creating tablet editions of magazines and newspapers, with the hope of finally recovering the lost revenue of the last decade, when news has been given out for free on the net.

What does the iPad mean for marketers? I’ll focus on two issues: Mobile marketing and pricing.

Mobile Marketing

In past blogs, I’ve written about opportunities in mobile marketing and how mobile advertising, content and applications will become increasingly important as smartphone adoption increases. This will be even more important in developing countries, where mobile phone penetration is growing at much faster rates than PCs, especially among lower income and price sensitive groups.

Mobile marketing is not just about SMS and smartphone apps. WiFi connections in eReaders and tablets (even in mp3 players like iPod Touch or gaming devices) are changing the way we think of the P of Placement. Shopping is increasingly being done on the go, using the internet or even SMS and Bluetooth. For some companies, like magazine and book publishers, it’s changing the Ps of Product and Price too. The increasingly digitally savvy users are also requiring marketers to rethink positioning and segmentation. And this doesn’t just refer to the GenY smartphone addicts, but to all age groups, including seniors, who were found to be the group that shopped most online, according to a recent report.

Tablets like the iPad are considered especially promising, because they continue the trend towards convergence of devices. With the smartphone (and especially since the iPhone), the mobile industry has been on the edge of its seat, waiting for the mythical device that will bring it all together. But after seeing Job’s demonstration of the iPod, I feel like we’re farther from reaching that convergence. And that might actually be a good thing.

Smartphones are currently the most converged device. They can call, send sms, browse the net, use location-based services, play music, games, video… One of their selling points- their portability (small size)-, is also an obstacle for other uses like reading, watching videos on a bigger screen, typing long documents, etc. These are the strengths of a tablet like the iPad and eReaders. But the iPad is too large and heavy to carry around, not to mention the keyboard you’d have to carry with you. And you can’t really use it as a phone. It is also not as comfortable to read from as an eReader like the Kindle. eReaders, who were the stars of CES, use a special ink that make them easy to read, but is still only available in black and white, and don’t play videos. Alas… you get the idea.

Why do I think it’s a good thing? As a consumer, I do like to have to carry the least possible amount of gadgets (especially since smaller purses are coming back in style ;-) ). But there are some features that I’m just not willing to sacrifice to accept a single device. I love smartphones, and own a BlackBerry, but also love apps and have an iPod Touch, which is great with it’s built in WiFi and GPS. I’m not too excited about tablets yet, but I guess it’s too soon. For reading, I really really really want an eReader, but as I mentioned in a previous post, the price point of over $200 seems like to much for a black and white device that really only does one thing.

As a marketer, having a single platform would reduce development costs for apps, advertising and ecommerce, but the different capabilities of each device can be appealing and more suited for different products. The Absolut Drinkspiration app is a great way to engage consumers and take advantage of the GPS of the iPhone, when they are in a bar, showing it off to their friends, while racing apps like the one developed by Audi are more likely to become popular on the iPad. Browsing capabilities on all these devices also allow users to take advantage of links and find common content on websites and social media sites.

In my next post, I’ll look at the implication that the iPad has on one the trickiest P of internet and mobile marketing: Pricing.

I'll be posting iPad and mobile marketing-related news on Twitter @alicemchacon.

eMarketing in Action: Online Marketing Plan for Kafka’s Coffee and Tea

As I mentioned in previous posts, I have been working on an eMarketing plan for a local café called Kafka’s Coffee and Tea as part of my Internet marketing course in my MBA program. The business, which is scheduled to open in the first quarter of 2010, is run by Aaron Kafka, a young coffee enthusiast who wants to have coffee shop where the menu is simple, but the quality of the beverages is outstanding.

Like many young entrepreneurs in the business he has several challenges. First, though he is opening in a great location –a central hub of transit and businesses –he has several coffee shops in the vicinity which will mean tough competition. He is opening in the same location as a very well-known neighborhood café called Lugz. This café was damaged by a fire in early November which destroyed nearby buildings and has pushed the opening date of Kafka’s back by several months. Finally, he has resource constraints. Besides a limited budget, he is pretty much running the show on his own. That means he will likely have limited time to Tweet and write blogposts, but even less time to plan the overarching marketing communications strategy.

A fellow classmate of mine, Prasanna Raviraj, and I, began with the basics: what marketing objectives will drive our strategy? The first one is clearly creating awareness for this new brand. The second, inducing trial. Because Kafka is focusing on quality of products and service in the store, this second objective is especially important. Third, customers need to come back for repeat purchase. We also tried to think who our target customers are. Some groups that are likely to be target customers are commuters and people who live nearby. Demographically, we could split them up into students, professionals (workers) and families.

Then, we began looking at some of the eMarketing tools out there. The list was so long, it was overwhelming. To filter down the ideas, we looked at feasibility of resources (time and money) and at what tools would make sense for the type of consumers that Kafka is trying to attract. We came up with a three-phase plan. Creating a roadmap makes it easier for Aaron to plan and execute the communications. It also spreads out investment. Stage one will take place from now and until the first few months after the opening of the café. Stage two will take place in the next 6-12 months. Stage 3 could occur as far out as one year after launch, depending on how the mix of eTools has worked so far. We also recommended that he take on an intern to help him with the workload. A young student will have the technological savvy and time to keep the different forms of communication current.

Aaron still has several months before the store opens. Feel free to make any comments and suggestions on this plan!

My Twitter Feed

I've been trying to keep a stream of my Twitter updates running alongside my blogposts. I'm very active on Twitter, and find it to be a great tool to share news and links about Marketing, sustainability and technology.

I've had some trouble lately with the Twitter app for Blogger, which means the feed will be hidden until it's repaired (I'm getting someone else's updates on it).

In the meantime if you want to follow me and see news regarding eMarketing, social media, mobile marketing and more (as well as receiving updates on my blogposts) you can follow me on Twitter.

Unlike many people on Twitter, I'm not trying to hoard followers. I really just want to share information about using online and mobile tools, as well as offline strategies to make brands more relevant. According to some, the more followers you have, the less effective your strategy may be. Here's an interesting article by AdAge: "Chalk Up Twitter's Decline to Ghost Followers" (it's already on my Twitter feed: @alicemchacon).

Emarketing for SMBs: The myth of free

When small companies, cash-strapped and with huge setup bills think about marketing, they increasingly look to online marketing. For a lot of people, eMarketing = Free. Unfortunately, it’s not that easy. Online strategies can be a great way to reach customers in a more personal way, building a relationship with them that large corporations often leave out of their massive ad budgets. But online marketing mediums, including the sexiest of them all –social media –are far from free, as I have been learning with an eMarketing plan that I’m designing for a local Vancouver business.

The biggest challenge small businesses face is resources… and I don’t mean just money. Many small companies (under 100 employees) may have a small, if any, marketing team. The marketer may be the owner, and he or she may not be trained to design a marketing plan that can guide the way. The key of success in any marketing communications campaign is in the essentials (which are also the hardest part of all): segmentation, choosing target markets and positioning. These essentials affect all the business, from the product to the pricing and distribution. But it can make or brake advertising and promotions, whether it’s on a billboard or on a Twitter feed.

The second scarce resource is time. Social Media success is a lot harder than people think. There are no rules, and putting too much time and money into wrong strategies can make other aspects of the business (like bad customer service or a faulty product) give you a bad name. In some cases, it can become so big that it can even jump to media, like the "United Breaks Guitars" video on Youtube. That I wrote about in a previous post.

My advice: if you're a small business and thinking of Social Media as a strategy then you need to:

1.) Analyze who your customer (or who different segments are) and what their lives are like. What do they want to talk about or read about? When will they be tuning in?

2.) Make sure your feed engages them in different ways and is not always a sell message, but a conversation about topics that fit your brand and their lives (people want to see tweets that excite them, not buy, buy, buy, as successful strategies by SMBs show)

3.) Make sure you have someone who can spend enough time Tweeting or uploading content to the SM pages and feeds, so that your messages don't get buried in their newsfeed and you keep that online relationship through time. Also, make sure this person can speak "social media" language - that is, casual and in the tone of your audience.

Marketing eBooks: Breaking into the mass market

In my last blogpost I mentioned some of the biggest barriers to adoption for eBooks:

1. There is no physical ownership of the book and no bookcases to show off
2. There is no “touch and feel” of the book, which is especially important for hardcovers
3. Consumers fear that reading on screen will be tiring
4. Very high prices for e-readers, added to additional spending on eBooks

How will manufacturers of eReaders and distributors of eBooks get past this? I’ve outlined some ideas to overcome these barriers:

1. Go offline to get users online: As I mentioned in my previous post, one of the exciting things about eBooks is that all 4Ps of marketing take place mostly online. However, in such a new market and with a gadget that is competing with such popular consumer electronics like touchscreen mp3s, portable video game consoles and smartphones, companies have to go offline to get online customers.

eReaders are an experiential product. I told my story of how seeing an eReader piqued my interest in the category for the first time. It broke my main fear: that the screen would be like computer screens, which are very tiring. The reader I saw was a Sony eReader and one of the bigger ones. However, by actually seeing it, I could appreciate how handy it is for taking on trips. Though there is a lot of hype online about the product, it will not reach the mass market until people see other people using it. eReaders need the “white earbud effect” of the iPod. As more iPod users climbed on the bus with white earbuds, people became curious about the gadget. Though mobile apps have proved very successful for Barnes and Noble, you can’t tell if the person on the bus is playing a video game, checking emails or reading an eBook on his BlackBerry. How to do this? I suggest:

a) Improving distribution: Where is the eReader section in my local electronics shop? Is it even available in electronic shops in the city? I don’t think I’ve ever seen one in a store that I can play with. According to the Forrester study that I mentioned in the last post, distribution is one of the challenges for the market, which industry players are trying to improve. Big chain stores like Best Buy are also training personnel about eReaders, so they can be more useful to holiday shoppers.

b) Samples: Manufacturers won’t like this at all, but one suggestion is to plant samples of their products among users that are representative of their target groups. If they can show the gadget to their friends or just use it in a place where they will be seen by others, it can give target customers the opportunity to dispel myths, ask questions, and interact with the product.

2. Segment the market: Segmentation of the market doesn’t seem very clear. Students are an interesting target, because they need to read so much and love gadgets. But they are also price sensitive and until most textbooks can be read on them (and hopefully at a fraction of the price), it is unlikely that they will adopt, unless there is a steep price drop. Travelers are also an intuitive target. They have a lot of downtime, and only so much of it can be spent on the laptop and phone (especially because radios have to be turned off during flights). They also have to pack light and would appreciate a wide choice of books instead of the typical paperbacks you can find at airport bookstores. But with so many electronics already (laptops, smartphone, mp3 player), why carry another gadget? Also, WiFi downloads would become a must on all devices, or even a data plan, which is still being worked on by manufacturers. One interesting target are users who want to purchase books in other languages but don’t want to pay expensive shipping costs or higher prices in the local market. A friend recently told me she is very interested in buying one, but would really like the opportunity to see one before she picks the brand. In her case, buying eBooks makes sense because she can buy English-language books from Amazon, without paying the expensive shipping to Mexico. She also doesn’t have to wait months to have it delivered. This would only work for English-language books, at least until enough eBooks are available in other languages and eReaders have better distribution.

3. Lower prices: This is the single most important factor for widespread adoption, according to academic studies I’ve seen during my MBA. eReaders have an additional hurdle to high prices –they are competing (whether they like it or not) in the consumer electronics category. As mobile devices, including phones, video game consoles and mp3 players continue to converge, holiday shoppers will be deciding among the whole category when choosing a gift. Imagine my dilemma: should I buy a smartphone ($99-$200) which does a LOT of things, including an eReader app or an eReader that goes for over $149 and ONLY reads books. I’d have to pay significantly more to get WiFi service. And additionally, I’d have to purchase books, because –let’s be realistic –there’s only so many of Google’s 500,000+ free books that I really care to read. Kindle-level premiums will leave it in the “early adopter” phase for a long, long time. Especially considering that most users expect to pay closer to $99 for an eReader (according to Forrester’s study). Some analysts say consumers are expecting prices as low as $50. Because prices are so high, some analysts expect adoption of eReaders to follow the trend of digital cameras: it will take a decade to reach widespread adoption (and now these cameras are being replaced by mobile phones).

Analysts expect the eBooks industry to continue to grow. I’m sure that it will, considering the growing interest in consumer electronics. But I’ll keep waiting for that eReader that will cost close to $99 and have WiFi and that I can hook up a data plan to (or at least my cell phone, so I can get the data plan from there). I hope I don’t have to wait much longer.

If you’re curious about eReaders, here’s a good review of current products by David Pogue, from The New York Times: http://video.nytimes.com/video/2009/11/19/technology/personaltech/1247465674780/pogue-friends-2009-holiday-guide.html

eBooks: Reinventing an industry

When you mention Internet marketing, people immediately think of search marketing, brands on Twitter and email newsletters. In other words, it’s usually the P of Promotion that jumps to mind. When asked to think of other aspects of marketing online, people will think of online shopping, or the P of Place (distribution). But some industries have been changed entirely –that is, all four Ps have been changed as they move online.

One case is eBooks. The product itself is mostly a digital experience, with the exception of the hardware used to read it with –an eReader like the Amazon Kindle or laptops and mobile phones. Its distribution is also an internet experience. Users can either buy them from a provider like Amazon or Barnes & Noble, or download them from Google. Until now, eBook communications depended heavily on online mediums, with online advertising, PR and word of mouth being key drivers in this niche industry. Pricing also follows the standard models of digital downloads: most of the money is made from hardware sales and the books themselves are priced lower in digital form, or may even be free.

Until now, the market has remained a niche. Though the Kindle has some devoted followers, the mass market has not adopted eReaders yet. Some market analysts say that may change soon. Forrester predicts that eReaders will be a “breakout success” this holiday season, stating that lower prices for hardware, more titles and hype around new products will push sales. Forrester expects sales of eReaders this year to jump to 3 million units (Emarketer.com shipment estimates for 2008 are close to 1 million). But despite the excitement, there are some important barriers to adoption to consider and issues with other technologies that will influence adoption.

Barriers to adoption

The most obvious barrier is the trade-off that consumers will have to make when using an eReader. EReader manufacturers and eBook distributors highlight convenience: whether it’s the Kindle, nook or your mobile phone, you can read on the go without the weight of a book (especially if it’s a hardcover). If you’re traveling or away from a store, you can just buy books through an internet connection.

But what are people losing? First of all, the experience of owning a book and a library. Books are often emotionally-involved purchases and can be a sign of status. Showing off a bookcase full of Tolstoy and Shakespeare makes many people happy. And though technically you “buy” eBooks, Kindle users were shocked to see that Amazon actually erased books from their Kindles earlier this year, because the company that was distributing them did not have the rights to distribute them. Though Amazon refunded them, this raised discussions about ownership of digital content.

There is also the touch and feel of the book, especially hardcovers. As someone who loves to cook, I wouldn’t trade my cookbooks for eBooks even if they cost one-fifth of the price. There’s nothing like having that heavy hardcover on the counter and flipping through recipes in my free time.

Another issue is the display. I’ve thought of downloading the Barnes & Noble app for BlackBerry, but then I think: “I spend so many hours watching a screen as it is, why would I do this to myself?” However, everything changed when I actually saw an eReader. I was sitting in a bus stop and a girl was reading a book using a Sony eReader (similar to the one in the picture). The E-Ink technology that the Kindle, Nook and Sony eReaders have is actually a lot more reader-friendly than most computer and mobile phone screens. That was the experience that made me really, really want one.

But I was faced with the fourth issue: eReaders are very expensive. When you realize that they can cost the same as a BlackBerry or iPhone, often require subscription or ongoing purchases or eBooks to be worthwhile and that they don’t have nearly as many functions as most smartphones (or touch screen mp3 players like the iPod Touch) then you wonder if it’s worth investing so much in them. Manufacturers have realized this and are dropping prices. But according to Forrester, most users think that they have to be around $99 (the cheapest ones available right now are refurbished first-generation Kindles for $149). Considering all the subsequent expenses that an eReader brings, it makes sense. Even if you consider this as a replacement for buying books, it can still be cheaper to share books with friends and borrow some titles from libraries –two functions which eBooks can’t provide.

The fifth issue is that many publishers still refuse to convert to the online model, so best-sellers like the Harry Potter books are not available for download on any format.

In my next post, I’ll give some ideas on how online distributors and eReader manufacturers can overcome these barriers.