Future of M92

[Jmirko]

Originally Posted by FinancialWar

The higher the price, the more ereaders Onyx are willing to supply. The supply curve is upward sloping.

The best way to reduce price is to get more company into the market.

I think the problem is not lack of supply, but lack of demand :-)

[FinancialWar]

Originally Posted by Jmirko

I think the problem is not lack of supply, but lack of demand :-)

An increase in demand will increase shift the demand curve to the right, and because the supply curve is unchanged. Ceteris paribus, both the price of the M92 and the quantity supplied will rise.



from an consumer's perspective, I want the demand to fall so that the demand curve would shift to the left or the supply curve to shift to the right either by a falling production cost or increased competition from other companies. Either way, the price should fall.

[pdurrant]

Originally Posted by FinancialWar

That's a rather odd supply curve. Surely the price-per-product should decrease, not increase, with quantity sold, as the fixed costs get spread across a greater number of the product.

[FinancialWar]

Originally Posted by pdurrant

That's a rather odd supply curve. Surely the price-per-product should decrease, not increase, with quantity sold, as the fixed costs get spread across a greater number of the product.

That supply curve is not odd, that is a normal supply curve. You're confusing supply curve (supply and demand analysis) with economies of scale.

A supply and demand analysis is a partial equilibrium analysis, that is ceteris paribus (as I have stated) meaning all other things held constant. It does not take into account the product average cost which is what you're suggesting.

[pdurrant]

Originally Posted by FinancialWar

That supply curve is not odd, that is a normal supply curve. You're confusing supply curve (supply and demand analysis) with economies of scale.

A supply and demand analysis is a partial equilibrium analysis, that is ceteris paribus (as I have stated) meaning all other things held constant. It does not take into account the product average cost which is what you're suggesting.

OK, obviously a bit of economic theory I'm unfamiliar with. Unsurprising, since I'm unfamiliar with it all.

[Mono]

Originally Posted by FinancialWar

That supply curve is not odd, that is a normal supply curve. You're confusing supply curve (supply and demand analysis) with economies of scale.

A supply and demand analysis is a partial equilibrium analysis, that is ceteris paribus (as I have stated) meaning all other things held constant. It does not take into account the product average cost which is what you're suggesting.

The best will be not to buy at all. The price drops close to zerro. The company will go bancrupt, but it does not mind.....

I am not economist, but I guess that that graph is valid only for strictly rigid (non-flexible supply). But it is assumption that is not valid. The supply side is flexible and so the higher demand the lower price.

Your model works for Logitech Squeezebox devices. The production has been stopped and the demand is relatively high. The price of seconhand devices is higher than used to be for new devices. But your model would not work for device in production. Maybe few weeks/months but not longer.

[Jmirko]

Originally Posted by FinancialWar

An increase in demand will increase shift the demand curve to the right, and because the supply curve is unchanged. Ceteris paribus, both the price of the M92 and the quantity supplied will rise.



from an consumer's perspective, I want the demand to fall so that the demand curve would shift to the left or the supply curve to shift to the right either by a falling production cost or increased competition from other companies. Either way, the price should fall.

If I understand correctly, you are suggesting that if Onyx did a fantastic job at marketing the M92 and increasing the demand, then it could (and would) sell it at a higher price.

I disagree - I think that this approach is too simplistic and does not properly describe the current situation. Don't forget that Onyx is trying to maximise its total profit, simply put: (unit price - variable cost per unit ) x units sold - fixed costs. In my opinion, this would be maximized if the improved marketing came hand-in-hand with a price decrease - the potential new market would not respond at the current price.

What we don't know is the relationship between manufactured volume and cost/unit. It is possible that the economies of scale are not great and therefore Onyx cannot significantly reduce the price (even at larger volume) without hitting the limit (variable cost / unit). I am really hoping this is not the case, because I dread ending up with an oligopoly of ereader manufacturers and their boring products...

[Nil Einne]

Originally Posted by Jmirko

As a first step, Onyx should modify the M92 (software, stylus) and position it as an affordable digital notepad for students and office workers - anyone who uses paper notebooks daily. It's a potentially huge market, but it can only be tapped if Onyx can break out of the vicious cycle of "low volume - high price - low volume". I think it must cost less than 200 (USD/EUR/GBP). If this product is successful, it will provide Onyx with the brand recognition, user base, and - hopefully - cash to pursue the strategy further.

I think a big question here is how do they get there in the first place? Saying the product needs to cost less than 200USD is fine, but unless they're producing them in high volumes this may be difficult (possibly even if they're in volumes), and even if we assume there is guaranteed market demand, they still need the money to makes those large orders. Of course this highlights another problem, if there is that guaranteed market demand, then getting the money should be easy, a venture capitalist firm or heck even a bank would jump at the chance to give them the money, but in reality there's no way you can guarantee market demand, in this particular case even Onyx must know it's likely such a risky more. (In fact if somehow there is 'guaranteed' market demand, the funders may consider the risk that someone else would notice and fill that demand first or better.)

In other words, it's a chicken and egg scenario. Onyx may be able to do good things if they had lots of cash, but without lots of cash, most scenarios you can come up with for how they can make lots of cash fail because they need lots of cash or at least credit to make that cash. This is of course a common problem in business. (I'm not saying it's impossible, clearly many companies do it all the time, that's how they get successful.)

[FinancialWar]

wow, look at all the people here who acting like some kind of hot shot CEO but does not even understand the law of diminishing marginal returns and most basic economics.

[Jmirko]

Originally Posted by Nil Einne

I think a big question here is how do they get there in the first place? Saying the product needs to cost less than 200USD is fine, but unless they're producing them in high volumes this may be difficult (possibly even if they're in volumes), and even if we assume there is guaranteed market demand, they still need the money to makes those large orders. Of course this highlights another problem, if there is that guaranteed market demand, then getting the money should be easy, a venture capitalist firm or heck even a bank would jump at the chance to give them the money, but in reality there's no way you can guarantee market demand, in this particular case even Onyx must know it's likely such a risky more. (In fact if somehow there is 'guaranteed' market demand, the funders may consider the risk that someone else would notice and fill that demand first or better.)

In other words, it's a chicken and egg scenario. Onyx may be able to do good things if they had lots of cash, but without lots of cash, most scenarios you can come up with for how they can make lots of cash fail because they need lots of cash or at least credit to make that cash. This is of course a common problem in business. (I'm not saying it's impossible, clearly many companies do it all the time, that's how they get successful.)

I agree, this is probably the problem Onyx is facing. However, if the demand exists, then it should be possible to prove this using market surveys. The results can then be used to obtain funding. Of course, it is certainly possible that I am only imagining the demand based on my own preferences, and the demand is not really there :-) Would be fun to know.

[Jmirko]

Originally Posted by FinancialWar

wow, look at all the people here who acting like some kind of hot shot CEO but does not even understand the law of diminishing marginal returns and most basic economics.

Oh Wise One, please forgive us our ignorance and shine the light of your infinite wisdom upon us!

This is called irony. The real message is: Either be constructive or get lost. Maybe take an English course too, in addition to the Econ 101 that you're obviously studying.

[FinancialWar]

Do you know a good book on English grammar, maybe I thought put it on my M92.

[slex]

Originally Posted by FinancialWar

wow, look at all the people here who acting like some kind of hot shot CEO but does not even understand the law of diminishing marginal returns and most basic economics.

The law of diminishing marginal returns is valid only in the short term when there is only one variable factor of production.

And as far as basic economics goes, a shift in the demand curve to the right will lead to a price increase, ceteris paribus, but going beyond basic economics and to the real economy, we can afford to discard the ceteris paribus, and in this case, I would say - we should.

What you are missing in your analysis is that a secular increase in the demand for 9,7 inch readers will allow Onyx and other producers to respond by varying production not only within current capacity, but also by changing capacity and choosing an optimal production plant size. This is something they can't do now, as they are constrained by the limited demand.

Of course, this means that we are entering the long run and then the curves you see are different. In principle, a firm's supply curve is the upward sloping part of the marginal costs curve above the average variable costs curve (MC above AVC). But a firm can change it's plant size and so it will face different MC curves (hence it will have different supply curves, too). So, the relevant graphic is here:


An increase in the demand for large screen readers will allow the producers to increase the plant size and to produce not with the size shown on the left, but with the one shown in the middle. The new MC (here SRMC) means that there will be a new supply curve, which, as you can see, has now shifted to the right.

You can also check this graph:


As others have written, there are economies of scale, which are not utilized when the demand is low. Hence, producers can't reach the minimum efficient scale of production. If the demand curve shifts to the right, most probably the supply curve will shift to the right, too.

[por]

Is this the economics thread or what


The thing is, this product has critical bugs when it comes to usage scenarios that can really make the device stand out from all other devices on the market (like taking notes and annotating pdfs). The bugs have been discovered by users years ago but there are still there. In this way the device loses its advantage over other products on the market and can't really become a big commercial success. The unique usage scenarios are so buggy they can't really be relied upon. Onyx had to try and stick to their strengths (like taking notes and annotating pdfs) but I guess the managers were taking a nap during these marketing classes.

I think ONYX were really close to making that killer product that could make them a big company but they seem to have missed their chance.

[slex]

Originally Posted by por

Is this the economics thread or what

The thing is, this product has critical bugs when it comes to usage scenarios that can really make the device stand out from all other devices on the market (like taking notes and annotating pdfs).
...
In this way the device loses its advantage over other products on the market and can't really become a big commercial success. The unique usage scenarios are so buggy they can't really be relied upon.

I disagree on two counts. First, that Onyx M92 doesn't stand out from other devices on the market. Second, that if the bugs are handled, it will become a big commercial success.

On the first point, as far as I know, the only competitors in this class are Pocketbook 912, Kindle DX and Ectaco JetBook. The Kindle DX has no annotation functions at all, as far as I know, and Ectaco's firmware is very rudimentary. The only real competitor is the Pocketbook. I've never used one, but from what I've read on the internet, it has its own problems when it comes to highlighting and annotations and the process is not very smooth. Besides, Onyx has better hardware (the Pocketbook has no Pearl screen, unless I am mistaken) and even if they are on par with the Pocketbook when it comes to notetaking, Onyx excels elswhere. So, its not perfect, but is better than the competitors. I should also say that I personally haven't had any problems whatsoever with highlighting and annotating. For the most part and for most users these features will work as expected.

Which brings me to the second point. Even if some users face some problems in some cases, they are not in the majority. And so we are talking about a small group in a niche market. Let's face it, even if all bugs are sorted out, Onyx will not see anything but a marginal increase in their sales. At least at the current prices. The majority of the people who read will not buy it anyway, because they read fiction and 6 inches are enough. The target group are academics and other professionals. And even among them many will be put off by the slower response and lack of colour of e-ink devices relative to that of LCD tablets. But this is limitation of the technology as a whole, not a problem of Onyx and its software. In my opinion if the price falls enough, it will entice some of those who go for tablets from the above mentioned group and also from others (e.g. comics and manga readers), but this will have to be a significant fall.

Which will most probably not happen. IMO prices of 6 inch readers are largely determined by the big players - Amazon, BN and Kobo - who sell them only slightly above cost (and maybe even at a loss?), as they don't rely on making profits from the devices themselves, but from sales of content. You can't have cross-subsidization of that kind when it comes to large readers simply because they don't go hand in hand with the market for content. I guess that this is why Amazon abandoned the DX - they saw no point in selling a device that doesn't guarantee them a subsequent stream of revenues.