Price war, iPad rapidly reshaping young e-book market
amid stiff competition, newer devices struggle to stay afloat
WASHINGTON — The e-book market created by the Amazon.com Kindle just a few years ago already is undergoing a shake-up and soon could see a shakeout.
Just six months ago, at least a dozen companies were preparing to launch, or had already launched, new e-readers in the U.S. to challenge Amazon and grab a piece of a small but rapidly growing pie. Now, it appears several e-readers will never make it to the market while others could die a quick death.
Last month, for example, iRex Technologies filed for bankruptcy protection owing to poor sales of its e-reader. Another company, Plastic Logic, delayed the release of its own device called the Que, casting doubt on whether it will ever see the light of day.
What’s going on? Simple. Prices of e-readers have fallen faster and further than anyone expected. Amazon, for instance, has slashed the price of the popular Kindle to $189 from $359 just one year earlier.
The catalyst for the sudden decline can be directly tied to two companies: mammoth bookseller Barnes & Noble and computer and consumer electronics giant Apple Inc.
Late last year, Barnes & Noble introduced its own e-reader, the Nook, for $259, and it quickly sold out. The Nook had the added advantage of being available in physical stores, which allowed shoppers to actually see and handle the device. Until its recent launch with Target, the Kindle has only been available on the Amazon website.
Last month, Barnes & Noble cut the price of the Nook to $199, and Amazon responded the same day by dropping the Kindle to $189.
The cuts are so deep, market-research firm iSuppli calculates, that the cost of making the e-readers is virtually equal to their price. The result: Amazon and Barnes & Noble can’t make money on the sale of devices, so profits will have to come from the sale of digitized books and other content.
“This is the same razor/razor blade business model successfully employed in the video game console business, where the hardware is sold at a loss and profits are made on the sale of content,” said William Kidd, an iSuppli analyst.
While Barnes & Noble has pushed prices lower, the iPad has given consumers another option while setting a ceiling on how much manufacturers of e-readers can charge.
At just 1½ pounds, the iPad is the first truly functional tablet computer. It can perform similar functions as a laptop, but it’s much thinner and lighter — and costs $499, just $100 more than the original Kindle. Apple sells books for the iPad through its own online store, and customers can even download Kindle software to read books bought on Amazon.
The revolutionary nature of the iPad — never mind the pricing — immediately cast doubt on the future of high-end e-readers such as the Que or even Amazon’s supersized Kindle DX reader. Amazon cut the price of the DX to $379 from $489.
Plastic Logic, for its part, had planned to sell versions of the Que starting at $650 and reaching as high as $800.
“Plastic Logic got much acclaim, but the price was too high, especially after the iPad came out,” said Avi Greengart, director of consumer devices at Current Analysis.
What’s less clear is whether there’s an appetite for a midpriced hybrid device that combines some functions of a computer with a basic e-reader. California-based Spring Design makes a snazzy device called Alex ($399) that looks like a Kindle, but it also includes a small LCD color screen for surfing the Internet and checking e-mail.
Spring Design spokeswoman Pat Meier-Johnson said the company has no plans to reduce its price. She asserts there is a market for a device that combines easy Internet browsing with the small size of an e-reader, which weighs half as much as an iPad.
“The iPad is fantastic, but the Alex is very different than other devices,” she said.
Many analysts are skeptical. Allen Weiner of Gartner Inc. calls devices like the Alex a “tweener” that is unlikely to carve out a successful niche between the iPad and Kindle. The price of those devices would have to come down sharply, making it difficult for new companies to recoup their development costs and turn a profit, he said.
Price cuts on the Kindle and Nook, meanwhile, will make it harder for new rivals, especially little-known ones, to break into the market at the low end. Both Amazon and Barnes have powerful brand names in the book business, massive marketing muscle and huge distribution networks — not to mention big head starts.
“When you go into Best Buy, are you going to buy an e-reader from iWho or are you going to buy a Kindle or a Sony?” said analyst James Brehm with Frost & Sullivan. “You are going to buy the Kindle or Sony.”
Apple has offered customers another e-reader option with its iPad, which weighs just 1½ pounds. Apple sells books for the device – marketed primarily as a tablet PC – through its online store.
Amazon.com has dominated the electronic book market for the past few years with the Kindle, but recent releases from Barnes & Noble and Apple are offering formidable competition.