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Sept. 29, 2011, 8 a.m.

Amazon enters the tablet battle: It’s all about the shopping

What the aggressively-priced Kindle Fire will mean for news publishers.

In February 2010, before the first iPad shipments, I went out on a limb here (in a post about iPad strategies for publishers) with this prediction:

I believe the biggest transformation that will be wrought by the iPad will be to bring an enormous increase in online shopping.

How have things turned out so far? What might the results have to do with Amazon’s new tablet? And, most importantly for the Nieman Lab audience, what new disruptive challenges does all this throw at the elusive and precarious business models for news?

First, it turns out that tablets indeed push much more online shopping, as Dana Mattioli reported in the Wall Street Journal yesterday. In a story entitled “Tablets: Ultimate Buying Machines” — quoting info from Forrester Research, Macy’s, and others — Mattioli reported these findings:

  • Tablet shoppers make purchases in 4 to 5 percent of shopping site visits, compared to about 3 percent for consumers visiting shopping sites on PCs. That’s about 50 percent more purchases.
  • Tablet shoppers, according to many retailers, spend 10 to 20 percent more per order than PC shoppers or smartphone shoppers. Combined with the first finding, that means 65 to 80 percent more spending.
  • Tablet shoppers who shop via apps tend to spend much more than tablet shoppers on websites. (At TheFind, they’re spending three times as much through the app compared to the website.)

There’s also this, from Forrester:

  • 60 percent of all tablet owners have used the devices for shopping.
  • 20 percent of all mobile commerce sales is now happening on tablets.
  • Total mobile commerce will reach $10 billion next year (although Forrester’s trend line is conservative compared to other forecasts).

Why might consumers be willing to do so much more shopping and buying via their tablets, as opposed to their PCs? Let’s count the ways:

  • Social: Tablets are mobile, so people have access to them at more hours and more places than their PCs, particularly in social situations. Having a drink after work and somebody mentions a product you might like? You’re not going to unpack your laptop, but you’ll check it out on your smartphone or tablet. And you probably prefer the tablet because of the screen size and ease of use.
  • Leisure: Tablets are used much more during leisure time periods like watching TV than PCs are, so consumers shopping on tablets are in a better, more relaxed, frame of mind, more receptive to shopping suggestions, and less likely to be distracted or hurried by being in a work environment. If you see an intriguing product on TV, you can go straight to the vendor’s app on that tablet on your lap. (That glass of wine or two you may have consumed doesn’t hurt in breaking down resistance, either.)
  • Graphics: Tablet screens are better than PC screens (on average), so illustrated merchandise and services look better. Plus, tablet shopping can happen via apps not available on PCs, and those apps generally present merchandise and services with more compelling graphics than websites do.
  • Psychology: Tablets with touchscreens are more tactile than PCs, so psychologically the experience of shopping on a tablet is closer to in-store shopping than PC shopping is. This means merchants need to rethink site design to optimize for touch navigation rather than mouse pointing and clicking (as the WSJ article above mentions Macy’s is doing).
  • Demographics: For now, at least, tablet ownership is skewed toward higher-income demographics, meaning that tablet owners have more disposable income.
  • Time: Tablet ownership increases consumers’ total time online, which makes them more predisposed to online shopping (and reduces the time they have available for in-store shopping).

Which brings us to the Kindle Fire, the new $199 tablet announced yesterday by Amazon CEO Jeff Bezos. Amazon, of course, is a selling machine, and Bezos and his crew are no doubt keenly aware that the tablet is turning out to be a buying machine — a match made in heaven.

“We don’t think of the Kindle Fire as a tablet,” Bezos said in introducing the gadget. “We think of it as a service.” A service that begins, of course, with an Amazon-driven, Amazon-curated app store offering intuitive access to Amazon’s books, games, movies, and shopping catalog, with all of the user’s data backed up in Amazon’s cloud. (And with a cloud-based browser called Silk, through which Amazon can track the user’s every move.)

With a price that’s most likely below Amazon’s cost of production, clearly the company expects the Fire to drive an enormous new revenue stream by serving as a more direct, more effective conduit to its consumers — one that can reach them (as outlined above) with sexier sales pitches at more hours of the day, in more social and leisure situations, and with greater predispositions to buy. In other words, it’s all about the shopping.

The Fire comes with an Amazon shopping app prominently installed on its home screen. The app is optimized for the device and offers a clutter-free way to browse merchandise and services. Buyers get a 30-day free trial of Amazon Prime, which gets them free 2-day shipping and instant streaming of a huge catalog of movies and TV shows. (After that, Prime costs $79 per year, and apparently “tends to convert members into Amazon addicts who triple or even quadruple the amount of time they spend on the site.”)

Currently, Apple’s iPad enjoys an 80 percent share of the tablet market. But with its low price, its “good enough” functionality, its free content offerings, its slick and fast Silk browser, and its direct ties to Amazon’s worlds of merchandise and services, Fire stands a good chance of leveling the playing field. (And it runs, by the way, what you’re missing on your iPad: Flash.)

So get the popcorn ready for what will be a fascinating asymmetrical fight between Apple and Amazon (and, as side shows, between Apple and Android and between Amazon and Netflix).

The impact on news and advertising media

Besides Apple and Netflix (which will be impacted by the video streaming that comes with the Prime membership — and at a much lower cost than Netflix’s recently hiked prices), who else will see their business model disrupted by Bezos & Co.?

Not just newspapers, which get impacted by anything that enhances digital consumption of content. Not just news media, more broadly defined. Here comes my new out-on-a-limb prediction:

The advent of the Kindle Fire will impact every business engaged in advertising, from your local weekly newspaper to Google, Yahoo, Microsoft, AOL, and Groupon, because it will vastly accelerate the transformation to direct-to-consumer marketing by merchants, manufacturers, and service providers, without the traditional interpolation of advertisements to drive buyers to sellers. 

This is a long-term transformation; it won’t happen overnight and it won’t kill those impacted businesses overnight. They may have time to innovate, to find ways to adapt. But it clearly means that news publishers, who dream about finding the holy grail of an ad-supported business model that works for online news, must change their thinking.

Let’s talk about why.

First, the 80 percent rule. The tablet is one hot item, and before long “everyone will have one.” Even though right now only 9 percent of consumers have tablets, we can now predict with confidence that eventually, tablet penetration will reach 80 percent, and the Fire will accelerate progress to that level.

Why 80 percent? Because that’s the saturation level for every new digital breakthrough. First, PCs in the US have approached a household penetration of about 80 percent, and have leveled off there. The same goes for Internet penetration (actual connections, everything from dial-up and north), which is approaching the same level. Broadband penetration (actual connection, not accessibility) is still somewhere in the 60-percent range, but is also trending toward reaching and leveling off at close to 80 percent. Cellphone are used by over 85 percent of adults, and smartphones will hit 45 percent this year or next year, on their way to 80 percent or more.

In other words, 20 percent of households will stay non-digital for whatever reason, but every major new digital product trends upward to 80 percent household penetration. (And probably more slowly beyond that to 90 percent or higher.)

So with tablet penetration now at 9 percent just 18 months after the first shipment of the $500 iPad, I expect tablets to hit 80 percent within five years, if the price is right.

And the price is now right. At $199, Amazon is delivering a robust tablet and making it affordable to a lot more consumers than the elite-oriented iPad (with its stratospheric $500 starting price). Fire is priced in the same range as a lot of smartphones (if you were to buy them for cash rather than getting them free as part of a contract commitment). The price will be seen as accessible by a lot of folks and will likely go on their Christmas lists. Maybe on 80 percent of Christmas lists.

So imagine a world (or at least a US), not too far off, in which 80 percent of consumers are carrying around a tablet of some kind, a big fraction of which (I’m going to guess half) are Amazon tablets. And imagine you’re a Main Street merchant, restaurant, bank, or car dealer — in other words, you’re the traditional funder of local journalism via the tithes you pay to the local newspaper, radio station, or hyperlocal publisher for your ads.

Do you:

(a) Continue to try to reach consumers through the traditional mix of local print, radio, and TV media, plus their affiliated web sites?

(b) Try to reach consumers where they’re spending most of their digital hours — on their tablets surfing the web, social networking, texting and emailing, shopping via apps, reading books, watching video, listening to music, playing games?

Cheap but robust tablets will have built-in means of delivering advertisements during nearly all of those activities — because that’s the new bargain offered by Amazon. “A service, not a tablet.” Amazon’s giving away the razors in order to sell the blades. Besides books, movies, and music content, Amazon’s service will include ads, including local “Kindle Special Offers,” Bezos said during yesterday’s announcement.

(c) Figure out how to reach your consumers directly, or allow them to reach you directly, via a shopping app or HTML website, and via social recommendations?

Obviously (a) is a non-starter, so you’re going for some combination of (b) and (c). And that’s where the challenge as well as the potential opportunity for news publishers lie — but to be a player in either channel, the change from traditional advertising is like night and day, and the challenge of transforming news businesses to adapt to them is huge and daunting.

Newspaper publishers have actually tried to anticipate some of these challenges, but their reactions have mostly been too little, too late. For example, they recently announced an initiative called iCircular, an effort to create the digital equivalent of preprints — newspaper advertising inserts —  in the form of an iPhone app.

After the obliteration of classified ads by Craigslist and the decimation of retail ads by online ads, preprints represent the last category in which newspapers still enjoy some pricing power, because the big-box stores and supermarkets haven’t yet figured out a reliable digital replacement for them. But they’re looking. And unfortunately, iCircular is still only a pilot project; it’s for phones, not for tablets; and it promotes prices and coupons, but doesn’t offer ways to complete transactions. (It’s also a free trial for retailers right now, so it’s not even making any money.)

What else can news publishers do? Let me offer an update of the tablet strategies for publishers I offered early last year at the dawn of the tablet era.

  1. Embrace the mobile web and the tablet. The slim opportunity for publishers here is to lead their audiences, rather than belatedly to follow them. Go beyond Digital First; move to Mobile First. This is very hard for newspapers because, honestly, most of them are still mainly Print First, slogans notwithstanding. And traditional publishers are going to be up against nimble, mobile/tablet-native startups. Even web-only hyperlocals need to adapt, shifting from Web First to Mobile First.
  2. Reinvent content for the mobile web and tablet. To do this, publishers need to invest in new, innovative design capabilities. This is hard, too, because it means actually spending more money on news. But it’s critical, because it’s going to be critical to build a mobile/tablet audience for news. The good news is that tablet users spend more time on news than PC users; the challenge is to attract and keep their attention.
  3. Challenge journalists to develop new streams of content, in new formats and with new kinds of interactivity that will attract new readers and build new relationships of trust with them. As part of that, publishers and journalists may need to establish separate identities, with journalists building up their own brands, and publishers serving as curators and aggregators of content from many sources.
  4. Work with marketers to invent new ways to interact with customers: to facilitate conversations, to blend news, social media and brand messages, to actually sell stuff and facilitate transaction — in short, to leverage those new relationships of trust into brand new streams of revenue. (This is happening, for example, with BANG’s Bay Area Tapin app.)
  5. Get your piece of the transactional pie. If Apple can skim 30 percent, and if Amazon gets to sell tablets that direct consumers straight into its own stores, then publishers must find ways to be part of the transaction, as well. Typically, publishers want an easy solution — something they can introduce to the ad sales department in one hour and shove them out the door to sell — but this one just won’t be easy. Still, newspapers have, until now, been valuable intermediaries, delivering droves of buyers to local car dealers, supermarkets, and other retailers via printed advertising. There’s no eBay or Amazon (yet) that completes transactions for that kind of retailer. Can publishers find ways to make it happen digitally, and get paid for making it happen? (Look, for example, at how Australia’s Fairfax Media has gotten into the holiday rentals market.)
  6. Be ready to shift gears often. The job is not just to create a presence on tablets, but to adapt to the new mobile landscape as it develops and changes. Like the saying goes about the weather in various localities (and as today’s Amazon announcement shows), if you think you have your tablet strategy figured out, wait five minutes.


POSTED     Sept. 29, 2011, 8 a.m.
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