This last week, Barnes & Noble announced its soon-to-be-released Nook e-book reader. While many have seen this as just another entrant into the already crowded market, I believe it represents a potentially significant shift in the industry. Strategists suggest that in order to successfully compete with a company in Amazon’s position, companies must embrace standards. And, in fact, Amazon’s competitors have done this. In August, Sony announced that its library would be converted to ePub, and last week, Barnes & Noble reiterated a similar, previously made commitment. However, despite this common commitment, Sony and Barnes & Noble’s strategies are very different from one another. This difference can be seen in analyzing the industry’s capability stack.

Stack analysis is a representation of the capabilities needed to deliver value to a consumer. At the bottom of this stack are those elements furtherest away from the consumer and those whose technical details the consumer is least concerned with. Additionally, each layer in the stack can use only those below it to transform data and increase overall value.

Within this framework, a company’s primary strategic decision concerns where it will compete in the stack and whether it will focus on a single layer or integrate across multiple. Amazon, for example, has chosen to integrate across multiple layers.

While this strategy of multiple level integration has brought Amazon considerable success, it can be difficult for multiple companies to follow because it often leads to significant network effects and considerable platform lock in. Recognizing this, Sony decided to alter its strategy and is currently operating in the following stack model:

While this strategy of market modularization is logical, it is certainly not the only option. Barnes & Noble, for example, is taking a considerably different approach. The c ompany, with its Nook e-reader, now has a dedicated device, additional e-book software (for the PC, Mac, iPhone, etc.), and its own content library.

However, as the above diagram shows, Barnes & Noble’s involvement in the ebook market does not end here. The company has chosen to compete not only through vertical integration but also within a single layer of the capability stack. The company sells content and makes available its platform to users of IREX and Plastic Logic devices.

Not only does this stack architecture provide Barnes & Noble additional sources of revenue, but it also provides the company options unavailable to Sony, Amazon, and other industry players. By integrating across multiple layers while simultaneously competing within a single capability, Barnes & Noble may be able to provide more value to its consumers. While the device is unproven and the performance of the overall ecosystem is completely unknown, it is possible that this stack architecture will allow Barnes & Noble to provide the benefits of an open format standard (multiple devices with no significant lock in) with those of vertical integration (solid user experience and multiple connected, synchronized devices).

A few days ago, The Atlantic ran an article titled “The Kindle Problem.” In it, author Kevin Maney gives his thoughts on why many consumers have not yet purchased one of Amazon’s e-readers. His basic premise is that when developing products, companies should focus on either providing an excellent experience or being extremely convenient -- but not both. He states:

...in aiming to provide both a great experience and supreme convenience, [the Kindle] has achieved neither. And unless it can be revamped to truly distinguish itself, either as the best reading experience around (superior to the old-fashioned book), or as the cheapest and most convenient reading outlet available, it may be doomed to fail.

Maney continues by stating that Amazon’s pursuit of both elements has required the company to charge a price too high for the majority of consumers. While this has some merit, such a view is far too simplistic to be useful. After all, those companies following Maney’s advice have sold far fewer devices than has Amazon.

This is not to say that price does not matter. It does. Price undoubtedly has an impact on purchase decisions. However, as Everett Rogers describes in his research and in his book “Diffusion of Innovations,” consumers’ adoption of innovation is impacted by numerous factors. According to Rogers, a new innovation’s rate of adoption can largely be explained by five variables: the perceived attributes of the innovation, the type of innovation decision, the communication channels used, the nature of the social system, and the extent of change agents’ efforts.

Within these five variables, Rogers identifies the perceived attributes as being most significant. These attributes -- relative advantage, compatibility, complexity, trailability, and observability -- together tend to explain anywhere form 49 to 87 percent of variation in consumer adoption of a new innovation.

When interpreted through this framework, Maney’s argument centers around the Kindle’s relative advantage, with a heavy focus on economic costs. However, Maney’s focus on these costs does not include proper attention to perceived benefit or to the other sources of relative advantage. Rogers states:

Diffusion scholars have found relative advantage to be one of the strongest predictors of an innovation’s rate of adoption. “Relative advantage” is a ratio of the expected benefits and the costs of adoption of an innovation. Subdimensions of relative advantage include economic profitability, low initial cost, a decrease in discomfort, social prestige, a saving of time and effort, and immediacy of reward.

In other words, consumer behavior cannot be explained through a dichotomous product development strategy of providing experience versus convenience.

About a month ago, Daisy Whitney over at the New Media Minute sent me a copy of “Personal Effects: Dark Art.” It was the first print book I have read in a long time (since I got my Kindle, in fact). And, picking it up and turning the pages felt kind of strange. However, it made me appreciate the vast differences between print and electronic books.

The book, for those who have not read it, is about an art therapist named Zach Taylor who is trying to solve a bizarre mystery involving murders supposedly committed by a blind man with air tight alibis. Zach interacts with his patients (who are all suspected or convicted criminals) primarily through art. He asks them to draw, sculpt, and compose pieces of art which he believes reveal information about the individuals and the crimes that landed them there. The book, both directly and indirectly, suggests that images and sound contain a great deal of information that cannot simply be communicated by speaking. This message is reinforced by the multimedia elements throughout the book. Physical clues are included that readers can sort through -- pictures, business cards, and a drivers license. Individuals can also call phone numbers and listen to characters’ voicemails and visit websites that offer additional information and images. Even the look and feel of the pages in the book communicate something and help set the tone for the story.

The book’s use of visual and auditory elements to enhance the communication between the author and the reader brings to mind Jerry Zaltman and his consumer behavior research. The premise of Zaltman’s work is rooted in cognitive psychology which reveals that individuals generally do not think in terms of words or numbers, but rather in terms of images and metaphors. This poses a challenge to any company (or psychologist, in the case of “Personal Effects”) that wishes to understand what someone truly thinks.

Historically, companies have attempted to understand and predict consumer behavior by asking questions and measuring responses or by observing behavior (for example in focus groups) and trying to extract generalities. Zaltman, however, believes that these methods yield a poor understanding of consumer behavior and result in suboptimal business decisions. These traditional methods are insufficient because there is a disconnect between how people think and how companies have traditionally attempted to measure those thoughts. To remedy this, Zaltman developed the ZMET test which asks consumers to spend some time thinking about a product and gather or produce a series of images that represent their thoughts and feelings. Individuals then have a conversation about these images with trained interviewers who attempt to discover underlying thoughts (what Zaltman terms deep metaphors) and their relationship to one another.

After finishing up "Personal Effects: Dark Art", I went back to reading on my Kindle. And, while I love the device, it lacks a traditional book’s ability to set the tone and to otherwise communicate a message through cover art, font selection, and even paper choice. Because individuals think in terms of images and metaphors, it is not surprising that some individuals have been hesitant in adopting the ebook platform. According to Imran Khan, 72% of individuals cite the look and feel of paper books as a reason not to purchase an e-reader. While this number seems large, the statistic (and the overall study) are subject to the same shortcomings that Zaltman discusses in his research. For example, this figure does not reveal the intensity of the feeling or its underlying emotional motivation. These hidden factors, if properly understood, could help ebook companies to increase consumer adoption.

Changes to new technologies always bring about costs and benefits that consumers must weigh. Other forms of media have experienced similar consumer reservations in their transition to digital. While these reservations are important, their significance cannot be understood solely through traditional forms of market research.