Nieman Foundation at Harvard
In February 2010, before the first iPad shipments, I went out on a limb here (in a post about iPad strategies for publishers) with this prediction:
I believe the biggest transformation that will be wrought by the iPad will be to bring an enormous increase in online shopping.
How have things turned out so far? What might the results have to do with Amazon’s new tablet? And, most importantly for the Nieman Lab audience, what new disruptive challenges does all this throw at the elusive and precarious business models for news?
First, it turns out that tablets indeed push much more online shopping, as Dana Mattioli reported in the Wall Street Journal yesterday. In a story entitled “Tablets: Ultimate Buying Machines” — quoting info from Forrester Research, Macy’s, and others — Mattioli reported these findings:
There’s also this, from Forrester:
Why might consumers be willing to do so much more shopping and buying via their tablets, as opposed to their PCs? Let’s count the ways:
Which brings us to the Kindle Fire, the new $199 tablet announced yesterday by Amazon CEO Jeff Bezos. Amazon, of course, is a selling machine, and Bezos and his crew are no doubt keenly aware that the tablet is turning out to be a buying machine — a match made in heaven.
“We don’t think of the Kindle Fire as a tablet,” Bezos said in introducing the gadget. “We think of it as a service.” A service that begins, of course, with an Amazon-driven, Amazon-curated app store offering intuitive access to Amazon’s books, games, movies, and shopping catalog, with all of the user’s data backed up in Amazon’s cloud. (And with a cloud-based browser called Silk, through which Amazon can track the user’s every move.)
With a price that’s most likely below Amazon’s cost of production, clearly the company expects the Fire to drive an enormous new revenue stream by serving as a more direct, more effective conduit to its consumers — one that can reach them (as outlined above) with sexier sales pitches at more hours of the day, in more social and leisure situations, and with greater predispositions to buy. In other words, it’s all about the shopping.
The Fire comes with an Amazon shopping app prominently installed on its home screen. The app is optimized for the device and offers a clutter-free way to browse merchandise and services. Buyers get a 30-day free trial of Amazon Prime, which gets them free 2-day shipping and instant streaming of a huge catalog of movies and TV shows. (After that, Prime costs $79 per year, and apparently “tends to convert members into Amazon addicts who triple or even quadruple the amount of time they spend on the site.”)
Currently, Apple’s iPad enjoys an 80 percent share of the tablet market. But with its low price, its “good enough” functionality, its free content offerings, its slick and fast Silk browser, and its direct ties to Amazon’s worlds of merchandise and services, Fire stands a good chance of leveling the playing field. (And it runs, by the way, what you’re missing on your iPad: Flash.)
So get the popcorn ready for what will be a fascinating asymmetrical fight between Apple and Amazon (and, as side shows, between Apple and Android and between Amazon and Netflix).
Besides Apple and Netflix (which will be impacted by the video streaming that comes with the Prime membership — and at a much lower cost than Netflix’s recently hiked prices), who else will see their business model disrupted by Bezos & Co.?
Not just newspapers, which get impacted by anything that enhances digital consumption of content. Not just news media, more broadly defined. Here comes my new out-on-a-limb prediction:
The advent of the Kindle Fire will impact every business engaged in advertising, from your local weekly newspaper to Google, Yahoo, Microsoft, AOL, and Groupon, because it will vastly accelerate the transformation to direct-to-consumer marketing by merchants, manufacturers, and service providers, without the traditional interpolation of advertisements to drive buyers to sellers.
This is a long-term transformation; it won’t happen overnight and it won’t kill those impacted businesses overnight. They may have time to innovate, to find ways to adapt. But it clearly means that news publishers, who dream about finding the holy grail of an ad-supported business model that works for online news, must change their thinking.
Let’s talk about why.
First, the 80 percent rule. The tablet is one hot item, and before long “everyone will have one.” Even though right now only 9 percent of consumers have tablets, we can now predict with confidence that eventually, tablet penetration will reach 80 percent, and the Fire will accelerate progress to that level.
Why 80 percent? Because that’s the saturation level for every new digital breakthrough. First, PCs in the US have approached a household penetration of about 80 percent, and have leveled off there. The same goes for Internet penetration (actual connections, everything from dial-up and north), which is approaching the same level. Broadband penetration (actual connection, not accessibility) is still somewhere in the 60-percent range, but is also trending toward reaching and leveling off at close to 80 percent. Cellphone are used by over 85 percent of adults, and smartphones will hit 45 percent this year or next year, on their way to 80 percent or more.
In other words, 20 percent of households will stay non-digital for whatever reason, but every major new digital product trends upward to 80 percent household penetration. (And probably more slowly beyond that to 90 percent or higher.)
So with tablet penetration now at 9 percent just 18 months after the first shipment of the $500 iPad, I expect tablets to hit 80 percent within five years, if the price is right.
And the price is now right. At $199, Amazon is delivering a robust tablet and making it affordable to a lot more consumers than the elite-oriented iPad (with its stratospheric $500 starting price). Fire is priced in the same range as a lot of smartphones (if you were to buy them for cash rather than getting them free as part of a contract commitment). The price will be seen as accessible by a lot of folks and will likely go on their Christmas lists. Maybe on 80 percent of Christmas lists.
So imagine a world (or at least a US), not too far off, in which 80 percent of consumers are carrying around a tablet of some kind, a big fraction of which (I’m going to guess half) are Amazon tablets. And imagine you’re a Main Street merchant, restaurant, bank, or car dealer — in other words, you’re the traditional funder of local journalism via the tithes you pay to the local newspaper, radio station, or hyperlocal publisher for your ads.
Do you:
(a) Continue to try to reach consumers through the traditional mix of local print, radio, and TV media, plus their affiliated web sites?
(b) Try to reach consumers where they’re spending most of their digital hours — on their tablets surfing the web, social networking, texting and emailing, shopping via apps, reading books, watching video, listening to music, playing games?
Cheap but robust tablets will have built-in means of delivering advertisements during nearly all of those activities — because that’s the new bargain offered by Amazon. “A service, not a tablet.” Amazon’s giving away the razors in order to sell the blades. Besides books, movies, and music content, Amazon’s service will include ads, including local “Kindle Special Offers,” Bezos said during yesterday’s announcement.
(c) Figure out how to reach your consumers directly, or allow them to reach you directly, via a shopping app or HTML website, and via social recommendations?
Obviously (a) is a non-starter, so you’re going for some combination of (b) and (c). And that’s where the challenge as well as the potential opportunity for news publishers lie — but to be a player in either channel, the change from traditional advertising is like night and day, and the challenge of transforming news businesses to adapt to them is huge and daunting.
Newspaper publishers have actually tried to anticipate some of these challenges, but their reactions have mostly been too little, too late. For example, they recently announced an initiative called iCircular, an effort to create the digital equivalent of preprints — newspaper advertising inserts — in the form of an iPhone app.
After the obliteration of classified ads by Craigslist and the decimation of retail ads by online ads, preprints represent the last category in which newspapers still enjoy some pricing power, because the big-box stores and supermarkets haven’t yet figured out a reliable digital replacement for them. But they’re looking. And unfortunately, iCircular is still only a pilot project; it’s for phones, not for tablets; and it promotes prices and coupons, but doesn’t offer ways to complete transactions. (It’s also a free trial for retailers right now, so it’s not even making any money.)
What else can news publishers do? Let me offer an update of the tablet strategies for publishers I offered early last year at the dawn of the tablet era.
