Tuesday, November 20, 2012


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“Amazon and Google are undermining mobile pricing, and that may hurt everyone” by Jon Fingas

Jon Fingas argues that the pricing war initiated by Google and Amazon, as regards to determining the low price at which tablets are sold,  “don’t bear their full costs”. The fact that two of the biggest players have decided to start selling tablets with no profit margin, might be a good thing in short term perspective however, it might prove detrimental for the industry in the long term, as it may derail the industry's’ focus away from providing quality devices and steer it to  selling cheap,  minimum capabilities ones.

It is generally accepted that competitive markets fail for four basic reasons; market power, incomplete information, externalities and public goods.

Inefficiency arises when a producer or a supplier of a factor input has market power and both
Google and Amazon undoubtedly have power. Currently, they are the two biggest market players after Apple, and Amazon is the biggest online retail and content provider. Both have decided on the output quantities of devices and at which marginal revenue to sell and have conceded that the marginal revenue is going to be equal to the marginal cost. Therefore they have squeezed their profit margin for these devices near zero, projecting that the high profit margins will come from selling content and services to consumers.
As a result, they succeed in making competitive products appear overpriced to the consumer, even if they are costly to produce.   Secondly, they force other producers to lower their selling price and subsequently their profit margins.  Further,  they  lead  producers in the  forced dilemma of choosing between quantity  and quality when designing and producing new devices.
Google is aiming to both make a profit and broaden the reach of its Android operating system, while Amazon is looking to restore the profit gap when customers buy movies, books and magazines from its store.

Andrew Rassweiler, an IHS senior director, said Google’s tablet is also clearly aimed at Amazon.com, which shook up the tablet market last year by offering its own version at $199. “Google’s Nexus 7 represents less of an attempt to compete with Apple Inc.’s market-leading iPad, and more of a bid to battle with Amazon’s Kindle Fire,” he said in a statement. While the two are “similar in many regards,” he added, the Nexus 7 “has superior specifications to the Kindle Fire, giving it a more attractive feature set that may make it more desirable to consumers.” Amazon and Google don’t care to monopolize the market but they do care to achieve a monopsony. Amazon and Google appear to be simultaneously trying to establish a wholesale monopsony and a retail monopoly in the e-book and content/ advertising sector. At the same time, it is important to note that Google and Amazon are in effect trying to apply a predatory pricing practice into the market of tablets and content. By selling a Nexus or a Kindle at rock bottom prices, they intend to drive competitors out of the market and/or create entry barriers to potential new competitors. What is even more important to realize/acknowledge is their attempt to establish in buyers’ mind the conviction, that well-known products such as the iPad mini are by default overpriced. If competitors, like Asus, Nook.  Samsung or Rim, or potential competitors, cannot sustain equal or lower prices without losing money, they are eventually driven out of business or discouraged from even attempting to  enter it.

In essence, Amazon and Google have chosen to  undergo short-term pain for long-term gain. Therefore, for both to succeed, they must have sufficient strength (financial reserves, guaranteed financial backing or other sources of offsetting revenue) to endure the initial lean period.   In our case,  it is really interesting to follow  Amazon’s steps,  since Google seems to have all the strength required  to endure the initial period . Since   Amazon had some rough quarters regarding revenues and profitability, this strategy may fail if competitors (like Apple or Samsung) are stronger than expected, or are driven out (like RIM, HTC or Acer)  only to be replaced by others. In either case, this will force the Amazon and Google  groups to either prolong or even abandon the price reduction policy. Their strategy may fail,  if  both Amazon and Google prove unable to sustain  the short-term losses, either because they last longer than expected or simply because they did not estimate  the loss accurately. Therefore it makes the whole situation inefficient because at the end of the day there is a short term better off for Amazon and Google, a worse off for other competitors like ASUS and RIM. In  the long Term, it  is  questionable whether Amazon can endure while practicing the predatory pricing and should be interesting to see how this would affect Apple and its ecosystem.  Tablet makers selling a complete range at that break-even level could ultimately whittle down the market to those who either produced a winning formula at the right time (Apple) or have deep enough content stores and bank accounts to willingly give up large parts of their potential hardware profit (Amazon and Google)


Consumers do not have accurate information about market prices or product quality.

As most consumers are price driven , they tend to ignore the fact,   that it is difficult  for companies who lack the proper profit margins, to access  the funds  required to develop new technologies and provide the market with  innovative products. It is important to stress,  that devices sold by Google and Amazon gain their value from content which  has  to be purchased. So it is quite possible  that people who actually buy a device,  because it  is significantly  cheaper than the competitions’,   find out that either the app ecosystem is not very  safe or well developed or  worse still, that in order to have the proper experience using the inexpensive device, they have to spend more money on  different kinds  of content purchases.

In our case,  market prices do not reflect the activities of either producers or consumers.
Prices are  kept artificially low,  as the producers try to earn market share and gain revenues from content sales. This has an indirect effect on other consumption or production activities that is not reflected directly in market prices. There is an externality, because the price tablets which are sold by Amazon and Google,  do not bear the true cost of producing them or having a reasonable profit margin. The profit margin allows producers to spend funds on Research and Product development so that  they can provide consumers with well designed, well made devices able to improve and optimize the experience of consuming content or services through them. This causes an input inefficiency driving other competitors to push their profit margins lower,  to be able to sell at matching  low prices like Amazon and Google and force on them the dilemma between money, potential market share and quality.

They are basically trying to equate profit margin in the table market segment, with  sin.

Because Google and Amazon are the two biggest players in the market of tablets after Apple, it is possible that the externality will prevail throughout the industry and the price of tablets will be lower than it would be if the cost of production reflected the effluent cost. As a result, competitors who struggle to remain in the market, and which will affect the experience of users will produce too many low quality tablets. There will be output inefficiency.


First, it is obvious that in the short term, lower prices for tablets are only beneficial to consumers. By setting the price around $200 for a pretty decent and well made tablet branded by Amazon or Google, consumers become able to access more content and to get a tablet much cheaper. The downturn is that people start to expect or demand products to be sold in such low range prices,  forcing producers to focus in providing cheap products over  quality ones.
Amazon and Google,  by applying predatory pricing practice might get an advantage in the short term,  but  at the same time are opening a Pandora’s box. Selling with no margin or at a  loss, as Amazon did with the first Kindle Fire , might be a good practice if you are a wealthy company but it can easily derail even the strongest plan if unexpected things happen, or markets start to ask for something more advanced or pricy than what producers are able to offer. Furthermore, a situation like that can easily turn against you when buyers expect to be able to buy more products without profit margin and cost. Amazon and Google might lean on content sales where they can still retain margins,  but consumers can as easily  leave them for someone who will come up  with an even more disruptive idea on how content can be sold or distributed. (similar to when Apple almost pushed  out of the content industry,  the mobile providers with the app store).

From the consumers ’ point, there is an important question to be answered: what is the right price for a tablet? Or what is a fair profit margin for producers to sell? In both cases the answer is conceptually Straightforward: the right price or the right profit margin will drive tablets’ price where all negative externalities, like R&D costs, design, market development,  are fully reflected on the tablet’s price. This point is not pegged where Apple sells its own tablets but for sure it is not the point Google and Amazon priced theirs. Finally, in the  long term, producers even the strongest ones,  will face  major  difficulties to keep the pace of innovation and technology development,  when they will struggle to find the necessary money to fund research and development.

Wednesday, October 3, 2012

from product oriented to customer oriented... but where the magic is?

Companies like Apple, claim that customers know nothing about the kind of products they need, therefore, their mission is to decode this unexpressed customer need,   create and  deliver a product which  customers  don't know how to ask for or even describe.  Companies like  Apple, even though  they don't admit it, run large scale market research campaigns in order to identify trends and  what people are familiar with.  They then  use this data in order to create a product which is  addressing tomorrow's needs, a product which in essence will be  able to create a market.   At least this is how it has been  up to now.

At the same time, companies such as  Google or Samsung  try to collect as much data as possible, in order to identify what users want, how they want it and when they want it.  One can say that this is like making an airplane, Boeing and  Airbus spend years with end customers in order to find out and set up the final design of a new aircraft. As a result, the create amazing products, able to serve today's needs. 

But there is a third player which takes advantage of both approaches  and this is Amazon. Amazon manages to gather a huge load of data which it then processes.   Based on this data and combining it with  its innovative skills and culture,  as a corporation, it succeeds in developing a product which  customers  didn't expect to have, but needed it for sure. 

For example Amazons'  latest  move,  to give free internet access with the product,  is something so welcomed but also so unexpected. And there is where the magic begins.  When a corporation has the ability not only to start a conversation with customers, not only to listen to what they need but also to be one step ahead of them, carefully preparing the whole customer's ecosystem for products its' going to launch.

Sunday, May 20, 2012

Brands and the Gamification thing...


Gamification is the new black!


Gamification is about challenge, achievement, success, pleasure, but most importantly it’s about engagement. it is about connecting a brand with people through the thing moves the world; competition!


According to the ’2011 Gartner Research Report’, it is estimated that by 2015 more than 50% of organizations that manage innovation processes will gamify those processes. Wanda Meloni at M2 Research, calculates that gamification industry revenue amounted to about $100 million in 2011, but she expects it to balloon to $1.6 billion in 2015.  


At the most fundamental level, gamification is the use of game mechanics to drive game-like engagement and actions....in everyday life, we are often presented with activities we hate, whether it is boring chores or stressful works.

Gamification is the process of introducing game mechanics into these abhorred activities to make them more game-like (i.e. fun, rewarding, desirable, etc.), so that people would want to proactively take part in these tasks."

For the last 40 years, consumer expectations have been fundamentally altered by exposure to games. Specifically, this means that our beliefs are about; meaning and value of fun, frequency and context of rewards, and omnipresence of sociability. The simple shorthand is; feedback, friends and fun.


The consumer has changed, and smart businesses must adapt to survive and thrive. The use of gamification to drive social change is a big movement in culture. It’s worth remembering that in early 2010 there were no hits on the term, gamification, on Google; today there are millions.


Gamification is a new discipline with deep roots and extraordinary potential…

Today’s youth mandates a more engaging experience.

Gamification makes things more engaging so people will pay more attention and stay focused for a longer period of time. Seth Priebatsch agrees. “It feels like the next natural evolution of human-technological interaction… as we complete the social layer; we’ll begin construction, in earnest, on the game layer”. The five most commonly used game-mechanics are;points, badges, levels, leaderboards, challenges.  


According to Zickerman, “It’s easier than you think to bring the power of games to your business by adding game-mechanics to your marketing mix with these steps”:

        Ask: What consumer behavior are you trying to drive?

        Assign points to those behaviors.

        Create a leaderboard to display points.

        Develop challenges and message them.

        Make ‘fun’ your goal!

For anyone unfamiliar with gamification, it’s the application of game-like elements, such as; challenges, points, badges and levels to business and other non-game websites.


An estimated 70% of the top 2,000 public companies in the world will have at least one gamified application by 2014, predicts Gartner.


Patrick Salyer believes there are two keys to success with gamification:

One is making sure that all gamified elements are inherently social.

That is, don’t restrict engagement to the internal site community. 

 Award points for activities that reach users’ social [networks] to bring in referral traffic.

The other is to focus on rewarding activities that create value for your businesses.


Companies should weigh a number of factors before deciding whether to get into the gamification game.  

Dustin DiTommaso, suggests that companies think seriously about why they’re interested in gamification and how it could help them meet their business goals.


Before gamifying, he says, a business should be able to answer these questions:

         What is the reason for gamifying your product or service?

         How does it benefit users? Will they enjoy it?

         What are your business goals?

         How do you get users to fulfill those business goals?

         What actions do you want users to take?

Gamification, it’s really not about gaming; it’s about good old behavioral economics using game-mechanics.


According to John Bell; the world of ‘gamification’ is certainly buzzy if not frothy.

Many marketers are talking about it and startups are employing it, as if it were the magic sauce that could overcome anything even a bad business plan. We can easily identify these techniques throughout the history of business and marketing as tools for getting users engaged.


There is wisdom underneath it all and gamification, as a sometime appropriate feature to stimulate behavior change, is here to stay.  


This surge of game-mechanics is all over the Web and is being applied to many things including; brand advocacy, environmental, health behavior, fundraising…


But, how did you sell the company management on the idea of games in a very non-gaming business?


According to Le-Te;  “This is not about games… it’s about strategy and tools for engaging customers and reaching business goals”.

The benefit to successful gamification is that you see an uptick in:

        Repeat visitors/

        Unique visitors

        membership acquisition

        Page views per visitor

        Time spent on site

        Time spent per user

        Depth of visit (which is different than just page views as this implicates an exploration further into the site’s architecture)

        Social sharing (Likes, +1, etc.)


5 brands using gamification well

In the article below there are 5 amazing gamification projects listed.


and of course 4 successful facebook gaming contests


Therefore A brand can increase efficiency in the three areas below.

         Innovation: website modernization can increase brand awareness, loyalty and customer engagement. Much more than your traditional loyalty program Microsoft, Google, Playboy, Ford and others have realized these benefits by adopting game dynamics.
         Monetization: DevHub increased engagement rate of 300% and increased revenue for virtual goods grew to 30% of overall revenue within 3 months.
         Productivity: Microsoft gamified software development testing to drive significant improvements and user participation. Microsoft’s Beta1 Game from the Vista release increased beta testers by 400% and their Language Quality Game for Windows 7 had users provide feedback and commentary on 500,000 screenshots.


The primary goal will be not only to increase customer base but also to interact more with existent email receivers, engage them more with places we share and last but not least to increase the value of each email receiver as participant in something which combines social, mobile and location.


Last but not least it can be the marketing and engagement tool in brands and agencies hands aiming to achieve having more loyal customers and returning audience