Thursday, August 06, 2009

Rita McGrath Dynamic Strategies
Amazon, Barnes & Noble, and the Battle for E-Books
Wednesday August 5, 2009

There's a battle emerging over the industry structure of e-books: Amazon has one approach, Barnes & Noble another. Will the clash play out like the computer wars of the late 80s, or the music wars of the late 90s? Let's take a look.
Years of declining music sales reflect a grim story for the music business — the amount of music people are willing to pay for has dropped dramatically, the unit of business has shifted fundamentally to music by the song, and the preferred medium for acquiring music is now downloading individual songs, rather than purchasing a complete CD. Who is winning in the battle for the soul of the music business? The popular verdict at the moment would certainly be Apple, to the detriment of the traditional music producers and distributors, and with mixed effects for artists.

Clayton Christensen, in a terrific HBR article ("Skate to Where the Money will Be") looked at a similar conundrum in the computer industry. Way back when, in the days when mainframe computers were the only kind there were, we had a number of manufacturers. Each one controlled their slice of the business — the hardware, of course, but also the software, the middleware, the user interfaces and the applications that ran on their systems. Each system was incompatible — you couldn't run Sperry-Univac software on an IBM computer or vice versa. And yet, for many years, that industry structure produced great profits and growth results for companies structured that way. Why? Clay's analysis is that because these companies were creating a new kind of solution, many of the linkages and interfaces were simply not standardized. You had to use inputs from only one company because that was the only way of assuring that all the system's components would work well together, would be integrated, and would deliver the solution that customers sought. Vertical integration, in other words, was the only way to compete when very little about the category's inputs and outputs were standardized.

Read the full report here.

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