Digital Bait Or Hook

Michael Hedges September 20, 2012 Follow on Twitter

The blur between content and technology is giving the public a remarkable array of choices for entertainment and information. Rather than salting out some grand unifying business model platform providers are offering a little bit of this and a little bit of that. Content providers have choices, too; pick a platform carefully, take them all or, well, give up.

“We want to make money when people use our devices, not when they buy our devices,” said Amazon CEO Jeff Bezos to the fall season product launch party (September 6). Amazon sells stuff, from books to garden tools, arguably the world’s best-known online retailer. Its first Kindle e-book reader appeared in 2007. By the end of 2010 Amazon’s sales of e-books in the US passed sales of the printed kind.

“The Amazon Kindle Fire HD isn't a tablet,” noted PC World (September 11) on the latest release announcement. “It's more like a shop window onto the world's biggest content department store.” The 7-inch Kindle Fire HD shipped in the US last week (September 14) with limited European distribution in October, important for that holiday buying season.

Amazon’s business model is a rather straightforward version of the classic bait and hook model, sometimes referred to as the Gillett razor and blades model that first appeared more than 100 years ago. Consumer purchase is stimulated – the bait - by a price-subsidized product for which a high-profit recurring product or service – the hook – is necessary. Printer manufacturers have used the bait and hook model – cheap printer, expensive ink refills – as have mobile telecoms. Google applies similar thinking with its Nexus 7 tablet, released in June, with a price point similar to the Kindle Fire HD. Google’s business is selling advertising in search results.

Apple’s business model combines premium product manufacturing with a reverse bait and hook. Its smartphones and tablets are not cheap and carry caché with many consumers. Applications – like iTunes ten years ago – are the bait. Apple’s iPad is far and away the biggest global tablet seller. More than a few technology business watchers question whether or not Apple can withstand competition from highly subsidized devices.

Microsoft – oh, yes; they have a tablet, too – is pursuing a slightly different business model, playing to their strength as a network software provider for offices. And there’s Samsung, LG, Sony, Blackberry and more, more, more.

Tablet sales have been brisk in the richer and tech-happy markets; North America and Asia/Pacific. Global sales in 2011 were 64 million units, reported Futuresource Consulting (April 2012), which forecast 232 million unit sales for 2016. Apple has 58% of the global tablet market and Amazon 10%, all of which is in North America.

Sales in Europe have been slower, blamed partly on economics and more so on a lack of content. “Content availability is a key driver for pads,” said Canalys analyst Tim Coulling, quoted by  Computer Weekly (May 1). “US users can choose from many content aggregation services, such as those offered by Netflix, Hulu, Xfinity, Apple, Google and Amazon. Having to negotiate digital rights across multiple countries, combined with the variety of languages and cultures, makes it complicated and more costly to deliver similar services consistently across Europe.”

The European Commission (EC) seems ready to tackle the rights problem. “How can we expect pan-European companies to succeed, if in practice they have to deal with 27 different sets of rules, even if based on a supposedly common European framework?” asked EC vice president for the Digital Agenda Neelie Kroes to the Lisbon Council (September 10). “How can we expect them to compete against American platforms that can easily market to hundreds of millions? If it took the BBC years of paperwork to market a TV program across the EU: how does that help repay their creative investment?”

Apple’s e-book pricing arrangement with major publishers Simon & Schuster, Harper Collins, Hachette Livre and Verlagsgruppe Georg von Holtzbrinck is being scrutinized by the EC after a proposal from the five companies to “terminate existing agency agreements and refrain from adopting price most favored nation (MFN) clauses for five years,” said the EC statement (September 19), which invited comments from interested parties. “If a company breaks such commitments, the Commission can impose a fine of up to 10% of its annual worldwide turnover, without having to find an infringement of the antitrust rules.”

Competition and copyright rules have prevented development European equilivent of TV portal Hulu, widely seen as hampering tablet sales. Near-term opportunities – as tablet prices are certain to fall – may be in branded devices. French children’s TV channel Gulli is coming out with it own kid-friendly tablet later this month, priced at €199, about the same as the Amazon Kindle Fire HD, just in time for the holidays.

See also in ftm Knowledge

Digital Transitions

Media's transition from analogue to digital has opened opportunities and unleashed challenges beyond the imagination. Media is connected and mobile yet fettered by old rules and new economics. Broadcasters and publishers borrow from the past while inventing whole new services. This ftm Knowledge file explores the changes. 75 pages PDF (March 2012)

Order here

We've Gone Mobile - And Nothing's The Same

Consumers have taken to smartphones in huge numbers. Competition among device makers, telecoms and content producers has created an insatiable demand. With so much volume markets are fragmenting... and nothing's the same. 132 pages PDF (February 2011)

Order here

Media in Spain - Diverse and Challenged – new

Media in Spain is steeped in tradition. yet challenged by diversity. Publishers hold great influence, broadcasters competing. New media has been slow to rise and business models for all are under stress. Rich in language and culture, Spain's media is reaching into the future and finding more than expected. 123 pages, PDF. January 2018

Order here

The Campaign Is On - Elections and Media

Elections campaigns are big media events. Candidates and issues are presented, analyzed and criticized in broadcast and print. Media is now more of a participant in elections than ever. This ftm Knowledge file reports on news coverage, advertising, endorsements and their effect on democracy at work. 84 pages. PDF (September 2017)

Order here

Fake News, Hate Speech and Propaganda

The institutional threat of fake news, hate speech and propaganda is testing the mettle of those who toil in news media. Those three related evils are not new, by any means, but taken together have put the truth and those reporting it on the back foot. Words matter. This ftm Knowledge file explores that light. 48 pages, PDF (March 2017)

Order here

More ftm Knowledge files here

Become an ftm Individual or Corporate Member to order Knowledge Files at no charge. JOIN HERE!