Sarah Clark
MGT 401
Audible Case

General Environment

Founded in November 1995 by Donald Katz, Audible.com has grown to become a diverse and relatively well known provider of audio content. And the popularity of this Internet company is not surprising considering the trends in the general environment of this society. In regards to sociocultural trends, the demand for new media has continued to grow, and a study by Veronis, Suhler & Associates in 2003 estimated that U.S. consumer spending on media and information would rise at a rate of 5.6% per year, while spending on books was expected to grow at 2.8% per year (Barnes & Noble, 2003). This provides an opportunity for Audible to create more demand for the product because people are becoming more inclined to purchase media, and specifically books too. A second sociocultural trend in the market is that consumers who use audio content have adopted audio books as an alternative to radio and music. Phillop Hostein of Emerson College found that 97 million people drive to work alone with an increased commute time of 50 minutes, and that more than 50 million people exercise regularly in the U.S. (Honstein, 2000). These two very large segments provide a big opportunity for audible to gain a larger customer base and create a substitute to music and radio for the market. Another prominent trend in the general environment that puts Audible at an even higher advantage in the marketplace is the emergence of Internet and wireless technology and the increase in the number of different mediums in which people can access the Internet with smartphones, iPads, etc. One threat of the general environment however is that customers are expecting to receive media content without paying for it and with the accessibility of the Internet, many people can find the content for free even though it is illegal. This is possibly harmful to Audible because the company needs to charge customers to cover expenses and make profits. Another threat is the possibility of copyright infringement, which Audible has addressed by limiting the number of times content could be downloaded.

Porter’s Five Forces

Audible competes with traditional and on-line retail stores, catalogues and libraries. The largest retail competitor is Barnes & Noble, which is the number one bookseller in the country that also sells audiobooks and has a well-known, prestigious brand image. This creates a strong rivalry because customers are loyal to that brand and getting them to switch to buy from Audible and buy on an entirely new platform is expensive and difficult. These retailers provide substitutes for Audible’s product including books and books on tape, which many customers have used for some time and have grown accustomed and loyal to. There is also a strong threat of potential entrants in the audiobook industry because other established Internet companies like Pressplay, Yahoo!, and MSN could create similar products. In it’s 2002 Annual Report Audible said, “Many of these companies have significantly greater brand recognition and financial, technical, marketing and other resources than we do” (Audible, 2002). Amazon, who has a strategic partnership with Audible, could launch its own direct-to-consumer service and severely damage Audible’s market opportunities. Buyers have a relatively high bargaining power because the Internet has made it easier to find free alternatives and also because there are so many substitutes for Audible’s product. Because Audible does not own the content of its products and must pay royalties, the supplier relationship Audible has is important. However, because there are so many suppliers of content and the products are not significantly differentiated, the bargaining power of publishers is minimal.

Internal

Internal strengths of Audible start with the founder, who is an author, media consultant, and business journalist, and the eventual President, Robert Kramer, who had been an executive for similar software companies. These two key employees brought expertise and industry experience, which were crucial to grow Audible. Another internal strength of Audible is that unlike other book companies, Audible did not have the same conventional cost constraints of managing an inventory. Its costs included paying royalties to publishers, the cost of hardware, production costs associated with hosting and Internet band-with costs, development costs, and sales and marketing costs. An internal weakness of Audible is that the company is largely owned by Microsoft and therefore must depend on that partnership to survive, and also the company does not have a large pool of financial, technological and marketing resources to sustain and grow the business.

Value

Audible creates value for its customers by creating an accessible and convenient means of purchasing and downloading audiobooks and other media content that could otherwise be reached in retail stores and played on a limited number of devices. With Audible, customers can carry around hours of media content on their personal devices and use the service anywhere. With regards to the value chain, Audible cuts costs in its inbound logistics by not having to manage inventory or ship products, as traditional book retailers must do. Furthermore, the company has created value for itself by forming relationships with multiple content providers like Random House Audio in order to have an expansive and diverse library of more than 34,000 hours and 5,000 audiobooks. This diverse selection and convenience allows Audible to differentiate itself from competitors and attract and retain customers. Another valuable characteristic of the company is that it creates a more effortless way of acquiring media content and customers who need their hands free or are visually impaired can listen to books in more situations, cars, the gym, at the beach, than with regular books.

Audible’s 5 Elements of Strategy

1. Arenas: Audible focuses on the product category of audio content, which includes mainly audiobooks and some news publications. The company focuses on the United States market and the target segment is expansive to include all ages of customers who not only read but also have a general interest in media content. The core technology of the company is the software and Web platform for which customers can purchase and use the product from a variety of devices.

2. Differentiators: Audible was one of the first companies to create audiobooks that could be downloaded from the web and accessed on personal computers and mobile devices. This new concept put the company at a competitive advantage in this digital age as more and more people owned smartphones and demanded more convenient access to media.

3. Vehicles: In order to get the company started and growing, Audible looked to a number of business partners and venture capitalists to put money into the business. Eventually in 1999, Audible filed for a $46 million initial public offering and in 2002 Microsoft was the largest shareholder of the company with one-third of the stock (PR Newswire, 1999).

4. Staging: Initially, Audible created and marketed the AudiblePlayer, a device that could download audio from the Internet. The management team further marketed Audible online and created strategic alliances with cable operators, CD burning software providers, and retail partners. Eventually, the company expanded the capabilities of the product past playing on the AudiblePlayer to cell phones to give customers more access to the service.

5. Economic Logic: Audible has a differentiator approach to the market and focuses on audiobooks specifically. It differentiated itself by providing an Internet based platform to purchase and download books opposed to traditional retail stores where customers buy regular books and books on tape and then download them to their personal devices.

Issues and Options

There are serious threats to the company from potential competitors who have more resources than Audible and a larger customer base and a well-defined brand image. Audible lacks financial resources and must rely on partnerships and outside financing to sustain the business, which creates more issues. Going further, Audible must seek additional financing and find ways to increase the number of users and steer them away from traditional bookstores to audiobooks that can be downloaded over the Internet. Audible must focus on the mobile phone application because customers are more and more interested in reaching media content easily on their phones from any location. Furthermore, customers want to be able to buy and download books without connecting to a wireless Internet source so that while driving home from work for example, they can buy and play a book within minutes.

Conclusion

Audible is worth saving because society is becoming more and more dependent on the Internet and their mobile devices to acquire media content and as more people have access to smartphones, the demand for audiobooks will continue to increase. Companies with a large pool of resources, like Amazon, would be interested in purchasing Audible especially since Amazon already has an exclusive relationship with Audible. Also, since Microsoft has a large percentage of shares in the company, it might be interested in acquiring Audible as well. Other interested companies could be content providers like Random House that would want to forward integrate themselves in the audiobook realm instead of solely providing the content and collecting royalties. These same aforementioned companies would be likely to invest in Audible because their products and services are complements to Audible’s services in many instances. Publishers want to sell their books in as many forms as possible and would want to invest in a company that would encourage that. To be profitable going forward, Audible must differentiate itself and find more ways to appeal to a larger customer segment whether that be with a larger variety of media content or with more retention incentives like book clubs.

References
Barnes & Noble Annual Report. (2003). Retrieved from: www.sec.gov.

Honstein, P. (2000). Publishing audiobooks in the information age. Emerson College.

(1999). Audible files for $46 million IPO. PR Newswire.