The Question of Price

 

That technology curve dovetails into questions about market saturation. Earlier in 2009, a report from Forrester Research suggested that e-readers were something of a niche market, predicting that some 3 million units would be sold through the end of the year. Part of the reason for that, the report explained, had to do with the price of the e-readers themselves.

"The cost of the display component is high and sales volumes are still modest, yet consumers demand and expect ever-lower prices," Sarah Rotman Epps, a Forrester analyst, wrote in a Sept. 1 research report. "The bottom line: E-reader product strategists will have to educate consumers and innovate to bring prices down. Even if they are entirely successful at both these feats, e-readers will never be mass-market devices like MP3 players."

That report was written before Barnes & Noble introduced its Nook e-reader in October, which sparked off a price war with Amazon.com. By the time holiday shopping started in earnest, the cost of both the Nook and the original Kindle had dropped to that aforementioned $259 level. Sony's e-readers also retail roughly within that range.

In October, other companies began announcing their own e-reader devices for either the holiday season or the first half of 2010, introducing further competitive pressures into the marketplace.

A Dec. 1 research note by financial advisory group Collins Stewart estimated that Amazon.com could sell as many as 550,000 Kindle devices in 2009, for total revenue of roughly $301.4 million. The note's chief author, Sandeep Aggarwal, predicted that Kindle revenue would increase to $671.4 million in 2010, $1.2 billion 2011 and $1.8 billion in 2012.

Amazon.com CEO Jeff Bezos has traditionally declined to break down actual sales numbers for the Kindle, but in a December interview with Slate he suggested that "Kindle book sales are 48 percent of the physical sales" of the online retailer's book division.

Even if Amazon.com and Barnes & Noble and Sony manage to ring up substantial revenues, and even if smaller manufacturers continue to push their own devices into the space, no indications have emerged that e-readers are on the verge of becoming ubiquitous in the same manner as portable media players; indeed, enough players rushing into the market could create a minor bubble-if that market's capacity remains the same.

The potential game-changer could come not from proprietary devices but software. Also at CES, futurist Ray Kurzweil rolled out Blio, a free e-reader application for PCs, netbooks and mobile devices that replicates the text and layout of paper-based books. Readers can insert their own voice, image, text and video notes. At first glance, Blio seems to present the most utility to readers of textbooks who want or need those tomes in their original format; but it could also be leveraged for cookbooks and other image-intensive volumes.

Barnes & Noble, Amazon.com and other companies also have software that allows e-reader functionality to be ported onto PCs, tablets and smartphones, which could broaden the technology's appeal to vital demographics such as students and people who want periodical content downloaded to their device. Add robustness through features such as note-taking and highlighting, and e-reading has the potential to become a more mainstream phenomenon. Any growing interest in tablet PCs would help fuel this.

The companies that will likely win that scenario in the longer term, though, are those with the infrastructure to support an ecosystem of libraries, software and devices. Which suggests that, no matter how the market eventually plays out, a not-insignificant portion of e-reader manufacturers currently on the market are likely doomed to failure.