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INTERACTIVE SESSION: TECHNOLOGY

IS THE IPAD A DISRUPTIVE TECHN OLOG Y?


Tablet computers have come and gone several times before , but th e iPad looks like it will be different. It has a gorgeous lO-inch color display, a persistent Wi Fi Internet connection, potential use of hi gh-speed cellular networks, fun ctionality from over 250,000 applications ava ilable on Apple's App Store , and the ability to deliver video, music, text , social networking applications, and video games . Its entry-level price is just $499. The ch allenge for Apple is to convince pot ential us ers that th ey ne ed a new, expensive gad get with th e fun ctionality that th e iPad provides . This is th e same challenge faced by the iPhone when it was first announced . As it turned out, the iPhone was a smashing success that decimated the sales of traditional cell phones throughout the world . Will the iPad do likewis e as a disruptive technology for the media and conte nt industries? It looks like it is on its way. The iPad has some appeal to mobile business users, but most experts believe it will not supplant laptops or netbooks. It is in the publishing and media industries wher e its disruptive impact will first be felt . The iPad and similar devic es (including the Kindle Reader) will force many existing media businesses to change th eir business models significantly. These companies ma y need to stop investing in their traditional delivery platforms (like newsprint) and in creas e th eir inv estments in th e new digital platform. The iPad will spur people.to watch TV on the go, rather than th eir television set at home, and to read their books, newspapers, and magazines online rather than in print. Publishers are in creasingly interested in e-books as a way to revitalize stagnant sales and attract new readers . Th e success of Amazon's Kindle has spurred growth in e-book sales to over $91 million wholesale in th e first quarter of 2010. Eventually, e-books could accoun t for 25 to 50 percent of all books sold . Amazon , th e technology platform provider and th e largest distributor of books in the world, has exercised its new power by forcing publishers to sell e-books at $9.95, a pri ce too low for publishers to profit. Publishe rs are now re fusing to supply new books to Amazon un less it raises pri ces, and Amazon . is starting to comply. The iPad enters this marketplace ready to compe te with Amazon over e-book pricing and

distribution. Amazon has committed itself to offering the lowest possible pri ces, but Apple has pub lishers by announcing its intention to offer a tiered pricing system, giving publishers the opportu nity to participate more actively in pricing of their books. Apple has agreed with publishers to charge $12 to $14 for e-books, and to act as an agent selling books (with a 30% fee on all e-book rather than a book distributor. Publishers like this arrangement, but worry about long-term pricing expe ctations, hoping to avoid a scenario where readers come to expect $9.99 e-books as the standard. Textbook publishers are also eager to establish th emselves on the iPad . Many of the largest textbook publishers have struck deals with software firms like ScrollMotion , Inc . to adapt their books for e-book readers. In fact, Apple CEO Steve Jobs designed the iPad with use in schools in mind, interest the part of schools in technology like the iPad has-been strong. ScrollMotion already has experience using th e Apple application platform for the iPhone, so the . company is uniquely qualified to convert existing files provided by publishers into a format readableby th e iPad and to add additional features, like a dictio nary, glossary, quizzes, page numbers, a search func tion, and high-quality images. Newspapers are also excited about the iPad, which represents a way for them to continue charging for all of the content that they have been forced to make available online. If the iPad becomes as popular as other hit products from Apple, consumers are more likely to pay for content using that device. The successes of the App Store on the iPhone and of the iThne s music store attest to this. But the experience of the music industry with iThnes also gives all print media reason to worry. The iThne s music store changed the consumer perception of albums and music bundles. Musi c labels used to make more money selling 12 songs on an album than they did have selling popular singles. Now drastically reduced their consumption of albums, preferring to purchase and download one song at a time. A similar fate may await print newpapers, which are bundles of news articles, many of which are unread. Apple has also approached TV networks and movie studios about offering access to some of their top shows and movies for a monthly fee, but as of yet the

bigger m edia companies have not responded to Apple's overture. Of course, if th e iPad be comes sufficien tly popular, that will change, but curre n tly media networks would prefer not to endanger the ir strong and lucrative partnerships with cable and satel lite TV providers. (See the chapter-ending case study.) And what about Appl e's own business model ? Apple previously b elieved content was less impor tant than the popularity of its devices. Now, Appl e understands th at it needs high-quality conten t fro m all the type s of m edia it offers on its devices to b e truly successfu l. The com pany's n ew goal is to make deals with ea ch media industry to distribute th e content th at users want to watch at a pri ce agr eed to by th e conten t own ers and th e platform owners (Appl e). old attitudes of Apple burn,

distribute"), whi ch were design ed to sell devi ces are a thing of the past. In this case of disruptive te chnol ogy, even th e disruptors have b een forced to change their be haviors.

Sources: Ken "Publish or Peri sh ," The New Yorker, April 26 2010; Yukari l wa tan i Kane a nd Sa m Schech ner, "Ap ple Race s tr Strike Co nte nt De al s Ahead of l Pad Release," The Wall Stree Jou rnal, Ma rc h 18, 2010; Mo toko Rich , "Boo ks o n iPad Offe Publishe rs a Pricin g Edge, " T he New York Ti mes, January 28, 2010 Jeffrey A. and Yuka ri Iwatan i Kane, "Textbook Firm: Febru ary 2, 2010; Nicl Ink Dea ls for iPad ," The Wall Street Bilton, "Thre e Reasons Why th e TPad Will Kill Am azon 's New York T imes, Jan ua ry 27, 2010; Jeffrey A "Ap ple Tab let Po rte nds Rewrite fo r Pub lishers," T he Wall Stree . Janua ry 26, 2010; Brad Stone an d Ste pha nie Clifford, "Wit] Appl e 'Tablet, Pri nt Media Hope for a Payday, " Th e New York Tim es Janu ary 26, 2010; Yukari Iwata ni Kane, "Apple Big Gamble OJ Ne w iPad ," The Wall Journal, Jan uary 25, 2010; and An n: Textbooks Beyo nd Text," Th e New Yori Eise nb er g, "Dev ices to Tim es, Dec e mber 6, 2009.

CASE STUDY QUESTIONS


1. Evaluate th e impact ofthe iPad using Porter's com pe titive forces model. makes the iPad a disruptive technology ? Who are likely to b e the winners and losers if the iPad becomes a hit? Why ? 3. Describe th e effec ts that th e iPad is likely to have on th e busin ess m odels of Apple, con ten t creators, and distributors.

MIS IN ACTIO N

Visit Apple's site for th e iPad and th e Am azon .com site for the Kindle. Review th e features and specifica tions of each device. Th en an swer th e following qu est ions:

1. How pow erful is th e iPad ? How useful is it for reading books , newspapers or magazin es, for surfing th e Web, and for wat ching vide o? Can yo u identify an y shortcomings of the device? 2. Compare the capabilities of th e Kindle to th e iPad . Which is a better device for reading boo ks? Explain your an swer. 3. Would yo u like to use an iPad or Kindl e for the books you use in your colleg e courses or read for pl easure in stead of traditional print publications? Why or wh y not?

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