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					         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




                    1
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 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.




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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 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


                                                  3
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 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
VALUABLE:                  Electronic versions
                            are cheaper to create
                            than printed books.

                           Published quicker
                            than standard books.

                           Versatile than
                            traditional books.

RARE:                      Fairly new market.

                           Not recognized by
                            many consumers.

                           Capacity to hold up to
                            2,000 electronic
                            books.

INIMITABILE:               Many other styles and
                            brands available (ex:
                            Amazon’s Kindle)

                           Some versions provide
                            similar applications.

                           Competitors in the
                            market with similar
                            products.

NON-SUBSTITABILITY:        E-books substitute
                            standard printed
                            books.

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

EXPOLTABLITY:              Versatile to
                            customers, can be
                            used in everyday life.

                           Anyone can use it.

                           Currently on the
                            market.


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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 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




                                                6
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

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



                                               7
inch 720 plasma screen cost roughly $500-$600. About five years ago, it cost 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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9
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 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.




                                               10
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 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



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the E-Reader market to switch from one supplier to another supplier and the cost of doing

so is insignificant.

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 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.




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        The Five Forces of E-Reader’s Industry Structure


                     Threat of New Entrant
                      (and Entry Barriers)

                            HIGH




Supplier Power                                    Buyer Power
                           Degree of
   Low -                    Rivalry                  Low -
  Medium                                            Medium
                            HIGH




                    Threat of Substitutes

                          Medium -
                           HIGH                       Complements

                                                      - Computers



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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, 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.



                                               14
        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 dependent on, and may come down to,

the consumer brand preference.




                                               15
                     Sony Reader vs. Amazon Kindle and Apple Tablet


6




5




4



                                                                                           Sony
3                                                                                          Apple
                                                                                           Amazon


2




1




0
    Price     Use of   Above the Line Aging Quality   Product    Product   Product Range
             Technical   Marketing                    Pretige   Complexity
              Product
            Teminology




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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 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



                                               17
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 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.




                                               18
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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