at&t is most likely to offer a new data plan at lower price for its iPhone subscribers. Previously I wrote that they should not simply cut the price of current plan. Such a price cut would require them to add subscribers at a much higher rate than they are adding today to recoup lost profits. Obviously at&t is considering price discrimination using multiple data plan versions. As the saying goes, if one price is good two prices are better. Reuters reports that at&t executive confirmed versioning:
The executive said it would be costly for AT&T to cut the price of its unlimited Web surfing service. The minimum plan for iPhone users is $70 a month, which includes unlimited Web surfing and a certain amount of voice calls.
at&t is probably looking at consumer surplus for different segments for these two plans to set the price of the new plan. The new version will come with severe bandwidth restrictions – it will be designed such that the new subscribers will self select themselves when presented with the two versions.
Those who want iPhone for its simplicity, cool-ness, music and games capabilities but do not care for bandwidth most likely did not get iPhone until now because of their lower willingness to pay for data plan. These will now be incented to pick the low-priced data plan despite the restrictions. (These could be customers who would prefer an iPod Touch that has mobile phone capabilities)
Serious iPhone subscribers with need for email and extensive web surfing will be nudged to pick the current data plan and not the low priced restricted option.
In fact if at&t’s market research data indicates that there is a higher percentage of the first segment then they might even increase the price of current data plan while introducing the lower priced version.
Back in July 2008 I wrote about Amazon’s Kindle Strategy. I said they are not in it to capture the devices market but rather win the distribution platform market.
It is driving the new format, reduce the value captured by publishers and position itself to be the distribution medium of choice. The goal is to capture the format market and control the value chain and not the devices market. Since no one else s making such devices amazon.com took this on itself.
There is news today from Amazon that signals the move in that direction. Amazon announced today that they will release a Kindle iPhone Application that lets iPhone and iPod Touch users read Kindle books on their devices instead of Kindle. This program is available for free, a right move that fits with the platform strategy to increase footprint. The Kindle App will be a bit with iPhone users and it will reach top 10 among most downloaded.
Is this program targeted at its existing Kindle customers or new customers? While Amazon says it is adding convenience to Kindle owners allowing them to read books while they are away from their Kindle device, it is directly targeted at converting new users and increasing Kindle format footprint. For the very near term (within days) even if 1% of 10 million (approximate) iPhone/Touch users bought just 1 book at $9.99, that is $1 million in new revenue. For the long term this translates into not only more revenue from repeat purchases and new customers but also delivers on Amazon’s goal to win he platform war.
Questions do arise on why Amazon introduced Kindle at all and why it did not go for iPhone application in the first place. I think Amazon’s strategy evolved since the introduction of Kindle. The biggest factor of Kindle device is the readability with its e-ink technology, there will always be a segment willing to buy this device for this factor alone. Techcrunch downloaded Kindle App for iPhone and reported they had same reading experience on iPhone as on Kindle. Amazon probably also wanted to be negotiating with Apple from a position of strength having a powerful BATNA (Best Alternative To Negotiated Agreement).
Other Winners and losers? By giving the program away for free Amazon denied any revenue to Apple. Authors and Publishers stand to gain more from increased book sales. Magazines and Newpapers that received subscription revenue from Kindle subcribers stand to lose any additional revenue from new subscribers. This is because iPhone readers can access the content using the browser and with existing online subscription instead of paying a separate subscription fee for reading on Kindle. To some extent Sprint Nextel that has the contract with Amazon to deliver books on-demand to Kindle devices stands to lose.
Overall, Amazon will win because of its clear strategy and flaw less execution.
Book Review:Warren Buffett and the Interpretation of Financial Statements: The Search for the Company with a Durable Competitive Advantage
I do not recommend this book. It is one thing to explain things in simple terms and another to make it appear that there is nothing more to a complex concept. This book goes over the line items of the three financial statements and explains things like what is COGS, SG&A, etc. It says everything with a prefix, “What Warren looks for is “. It makes certain absolute claims like a high percentage of gross profit spent in SG&A and R&D is bad, a company with large R&D spend obviously does not have competitive advantage (the book reasons, otherwise they would not be spending so much will they?). It misses the point that where the companies choose to spend most indicates its competitive advantage.
Another egregious error is ignoring the footnotes that has the most convoluted language and hide many truths. The book makes no attempt to even point out the existence of footnotes. In fact Warren has said before how he reads the 10-Ks fully in valuing a target. If you want to see a goo reference on interpreting footnotes, check out http://footnoted.org
The net is, don’t waste time reading this book and definitely don’t buy individual stocks based on the methods described.