Geoff Anderson back for his regularly scheduled installment of technology marketing observations at TMC.
Today we will be focusing on the concepts around the whole product, and how important a complete ecosystem is in modern product marketing. No, I am not going to talk about the razor blade model per se, but merely invoke it as a reference point. For the record, Gillette pioneered the razor blade model. Give away the shaver, and keep control of the IP around the blades. Continuously improve the blades, providing consumers with motivation to repeatedly purchase the pricy blades. The same model is being used in the inkjet printer world (where HP sells ink for more than $1400 an ounce). But does this translate as well to consumer technology goods?
Moving to the topic of the day: Amazon launched and recently started shipping a product called the Kindle Fire. It is a 7” color, Android OS based tablet designed to spar with the heavyweight in the market, the Apple iPad. The technical details: $199 price tag (estimated to be $10 to $50 less than the cost to produce, hence sold as a “loss leader”), 7” touchscreen, customized Android OS, two ports (one USB and one headphone jack), 8G of flash storage, and WiFi network connectivity. There are a lot of concessions to meet the price point over a $500 iPad2, twin cameras, microphone, option for a cellular connection, a minimum of 16GB storage, and of course, the Apple ecosystem of applications and media.
Amazon is betting that the Kindle Fire will drive an expansion of sales and use of their media offerings. If you are an Amazon Prime customer, you get access to streaming video, similar to what Netflix offers. If you buy your music from Amazon's MP3 store, you will be able to access that wirelessly on your Kindle. You will be able to buy applications from the Amazon Android market (but curiously, not Google’s Android market). You will be able to buy and read books just like you can on the current Kindle. All this sounds great, but, there is a dark cloud on the horizon. Amazon has architected the device to make it difficult if not impossible to venture outside their walled garden of media options. There is no memory card expansion, so it is difficult to get non-Amazon purchased media on the device. Additionally, one of the strengths of the Android operating system is the ability to use the Google App store, and that will be stifled (naturally, the the technically minded users will figure out how to break the handcuffs to the Amazon media markets) leaving users with a limited horizon of use. In short, Amazon is subsidizing the sale of the devices to drive their core competency, media consumption, and the attendant revenues that generates.
Compare this with Apple. The iPad is wildly popular, highly profitable, and by any measures a huge success. Apple indeed runs the Itunes music store, and has sold many billions of songs, movies, TV shows, books, applications. It is THE platform to develop for, as many success stories have painted in past writings. However, if you read Apple’s annual report, the ITMS is profitable, but it is barely a blip on the radar screen with their revenues. Apple has always been, and continues to be a hardware company that gets the whole product concept. Build great products, with a set of features that entice consumers. Wrap it in services and value added offerings. Grow an independent ecosystem of interested entrepreneurs, and people will flock to your products. Apple is the anti-razor blade model. Make your money on the hardware, add value to lock users to your world, but make it as non-obtrusive as possible.
Time will tell whether Amazon can drive enough content revenue with the Fire to justify the offsetting subsidization that they are doing on the hardware. There is no doubt that the Fire is going to be a hot seller for this holiday season, but will the initial surge last, and will Amazon be able to continuously improve the package and platform to match the pace of Apple? Will they engender the same loyalty and passion of the Apple iPad users? Will they prove that the consumption of media can subsidize hardware? Or will the restrictions and limitations around media and apps hamper customer satisfaction?
As a product manager, the concept of the whole product, and the trappings that go with it are core to my belief system and, as is proven over and over again, ultimately the success of a product offering. Do it well, and you will easily navigate the minefield of the competitive landscape. I will be certainly be watching the introduction, and the initial trajectory of the Kindle Fire to see if Amazon can wrap the whole product into an ecosystem where their success is on how much adoption of the ancillary product offerings (the media). Exciting times indeed.
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