Amazon is part of the answer: in Japan no one offered a large selection of e-books to feed the devices, write Mark E. Parry and Tomoko Kawakam

Kawakami, Tomoko

Parry, Mark E.

LSE Research Online

3/7/2017Why e-readers succeeded as a disruptive innovation in theUS, but not in Japanblogs.lse.ac.uk /businessreview/2017/03/07/why-e-readers-succeeded-as-a-disruptive-innovation-in-the-us-but-not-in-japan/The concept of disruptive innovation has captured the attention of executives around the world. As explained byClayton Christensen, a disruptive innovation is initially seen as unattractive by mainstream customers and by theleading firms who serve those customers. Eventually, however, those firms lose their leadership positions to newentrants who are willing to develop and improve the innovation in ways that make it more attractive to mainstreamcustomers.Concerns about potentially disruptive innovations have prompted studies of the speed with which they penetrateestablished markets. In part, such assessments analyse the degree to which a disruptive innovation depends on theavailability of complimentary products, which are designed to be used with the innovation and which play a majorrole in users assessments of its value. For example, the value of a game console depends on the number ofavailable game software titles. For simplicity, we will refer to these kinds of disruptive innovation as bundleddisruptive innovations, because their value depends on the bundle of available complimentary products.One intriguing example of a bundled disruptive innovation is the e-reader. Many American consumers respondedenthusiastically to Amazon’s introduction of the Kindle reader in 2007, in part because, in a relatively short amountof time Kindle customers were able to choose from hundreds of thousands of titles. In contrast, Japanese e-readersintroduced both before and after the U.S. Kindle launch received a lukewarm response from Japanese consumers.One obvious explanation was the relative lack (compared to the US) of best-selling novels and other popular booksin e-book form. To try and understand the reasons for the disparity in e-book availability between the U.S. andJapan, we interviewed key figures from both the American and Japanese book industry. Our research revealed anumber of interesting insights, which we organise into three categories: organisational, environmental andtechnological factors.Organisational factors1/3In part, the limited availability of e-books in Japan reflected industry perceptions of Amazon’s critical role in thesuccess of the Kindle. Our informants did not believe any single Japanese company could play an Amazon-like rolein Japan, in the sense of developing a Japanese e-reader and securing a supply of hundreds of thousands of e-books for that reader. For this reason, publishers and retailers were unwilling to invest large amounts of moneydeveloping e-book editions of popular Japanese books.The availability of Japanese e-books has also been influenced by the interdependence among book retailers,wholesalers, and publishers in Japan. Japanese wholesalers were most likely to be hurt by the introduction of e-books. Publishers and retailers were heavily dependent on the two major wholesalers for sales of paper books.These concerns were amplified by pricing concerns. In Japan, publishers had the legal right to set the prices ofpaper books, which eliminated price competition for new books. Although the resale price law does not affect thepricing of e-books, Japanese publishers worried about the potential impact of e-book discounting on theperformance of wholesalers and other industry players. For this reason, many publishers were reluctant to offerdiscounts on e-books, despite the success of Amazon’s aggressive discounting in the US.Environmental FactorsCopyright law has also influenced the availability of e-books in Japan. Since the 1990s, American publishers havetypically secured the rights for paper and e-book publication at the same time. In Japan, however, books are oftenpublished based only on verbal agreements. Moreover, even with a written contract, authors generally retain thecopyrights to their works. As a result, the publication of an e-book edition of a paper book typically requires aseparate agreement with the author or authors. One publisher told us that in most cases these agreements must benegotiated in face-to-face meetings. Moreover, concerns about piracy often make authors reluctant to permit thepublication of e-book editions of their works. As a result, relative to the US, the process of bringing an e-book editionto market is often more expensive and time-consuming in Japan.Another factor that emerged in our research involved differences in the perceptions of Japanese and Americanconsumers. Amazon marketed the Kindle as a “library in one’s pocket.” A number of our informants believed thatJapanese readers place less value on this benefit because Japanese publishers already sell paperback books in asize that fit easily in a jacket pocket, and book stores are conveniently located within or near major train stations.Japanese publishers believe that e-readers were more attractive to American consumers because they felt lessattachment to paper books than the Japanese, who appreciated the quality paper and construction of books printedin Japan.Technological factorsOne example of a technological factor that influenced consumer adoption decisions was the existence of twoincompatible file formats, both designed to accommodate unique aspects of written Japanese. As a result, filesdesigned to be read on a Sony e-reader could not be read on a Sharp e-reader and vice-versa. This incompatibilitydecreased the perceived value of e-readers for many Japanese consumers.SummaryWe believe our research has important implications for firms seeking to introduce bundled disruptive innovations, aswell as for those seeking to forecast the rate at which these new market entrants will take share from existingproducts. Our findings also suggest potential strategies for firms seeking to slow the market penetration of suchinnovations and for policy makers seeking to promote the adoption of socially beneficial disruptive innovations byencouraging the provision of complementary products.♣♣♣Notes:2/3This blog post is based on the authors’ paper The Encroachment Speed of Potentially Disruptive Innovationswith Indirect Network Externalities: The Case of E-Readers, Journal of Product Innovation Management,2017, 32(2): 141-158.The post gives the views of its authors, not the position of LSE Business Review or the London School ofEconomics.Featured image credit: Kindle, by webvilla, under a CC0 licenceBefore commenting, please read our Comment Policy.Mark E. Parry holds the Ewing Marion Kauffman/Missouri Endowed Chair in EntrepreneurialLeadership and is professor of marketing in the Bloch School at the University of Missouri–KansasCity. Prior to joining the Bloch School, he was a professor of business administration in the DardenSchool at the University of Virginia. His research has won several awards, including the 2005Excellence in Global Marketing Research Award from the American Marketing Association. Hiscurrent research interests include innovation strategy, opportunity assessment, new productadoption, and word-of-mouth marketing.Tomoko Kawakami is Professor of Marketing and New Market Creation at Waseda UniversityBusiness School in Tokyo, Japan and a research fellow of the Institute on Asian Consumer Insightat Nanyang Technological University, Singapore. She received her M.B.A. in BusinessAdministration from Osaka University and her Ph.D. in Marketing from Kobe University. Herresearch articles have appeared in Journal of Product Innovation Management and theproceedings of AMA Educators’ Conference and IPDM conference, among others. She receivedthe Best Research Award from the Japan Society of Marketing and Distribution (JSMD) and theJapan Society of Business Administration (JSBA) in 2006. Her research interests includeinnovation management, diffusion of products, hospital management, and digital marketing.   Copyright © 2015 London School of Economics3/3

Why e-readers succeeded as a disruptive innovation in the US, but not in Japan

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