'Digital copies' strategy not for Asia e-commerce yet

Giving customers free digital versions of physical books or music CDs purchased could be a successful strategy for e-commerce companies to boost sales and retain customers. However, for now it is unlikely to take off in Asia now due to differences in online shopping behavior, piracy proliferation and background of current incumbents.

Last month U.S. e-commerce giant Amazon unveiled its "AutoRip" service where it will now provide free Mp3 copies of all CDs purchased since 1998. The digital files are automatically stored in Amazon Cloud Player for free and are available for play or download. The service is currently available only in the United States.

Kevin Der Arslanian, business analyst at China Market Research (CMR) said AutoRip makes sense for Amazon because it wants to grow its market share in the digital music space dominated by iTunes, by leveraging its past success of physical CD sales to steer users to its Cloud Player service.

But in China, for example, it is not likely local e-commerce players will adopt a similar tactic anytime soon, he emphasized. Online CD sales in China are nowhere as high as compared to the U.S., so there is only a small base to begin with. Furthermore, Chinese consumers rarely buy music online, since they can directly download songs for free, legal or otherwise.

In addition, the main businesses for the big Chinese e-commerce players, including 360Buy, Dangdang and Yihaodian, are typically physical goods that do not have a digital variant such as electronics, clothes and groceries, he added.

As such, the threat of the Apple iTunes Store's recent aggressive expansion into Asia is also unlikely to worry them at this point, Der Arslanian noted.

Traction and credibility more feasible approach
John Brand, vice president and principal analyst at Forrester Research, said the underlying concept of AutoRip is to lock the consumer to the Amazon store with "golden handcuffs" of simplicity and convenience.

While it is an interesting value proposition few rivals can match at this time, he cautioned that consumers are also often wary of any service that may not offer them long term flexibility or may lock them in to a vendor. Instead of simply following Amazon's lead, e-commerce companies in Asia should note that gaining traction and credibility with the right product mix is ultimately the key to success, he noted.

The e-commerce space is such that "there is only room for a few large players globally", so companies need to think about finding their own niche and play to the particular strengths of their business, products and services, the analyst said. Piracy is also still a big problem, although the entry of the iTunes into Asian markets would help reduce piracy in the music space, he noted.

The majority of Asian consumers will eventually accept the value of convenience, and overall piracy will certainly start to take a back seat, but this would take a good ten or so years before at least some headway is made, Brand added.

Good for books?
While Amazon has not said if its AutoRip service will apply to books and movies as well, the swelling mobile device proliferation in Asia is expected to drive expectations of ubiquitous access to music and book content. That may in turn eventually motivate e-commerce stores to bundle online and offline media to keep customers from straying, say industry watchers.

"You can see a time, for instance, where everyone will [not only] have all the music they like on their own personal devices but can also "broadcast" it to anyone else's device," said Brand.

Offering digital copies of physical books is a "natural reflection of the digital evolution", according to Philip Koh, managing director, convergent media division at MediaCorp which owns ilovebooks.com, a Singapore-based e-book store.

"With the proliferation of multiple devices owned by a single person, people will want to have their content available across all their devices--besides the hardcover or paperback--to "flip" through at their leisure.

"People are also less willing to pay multiple times for the same content in different formats," he said.

Koh added the company worked with international and local publishers to provide more than 600,000 e-books. It also comes up with thematic pricing promotions to incentivize buying across a wide genre of titles.

A spokesperson from Chinese e-commerce giant Alibaba declined comment on a future strategy of handing free digital copies, saying its Taobao store already has partnerships with publishing houses to sell e-books.