Amazon.com and Barnes & Noble may be engaged in an intensifying price war for their respective e-readers, with prices for the Kindle and Nook dropping, respectively, to $189 and $199. While some pundits have predicted that prices could drop even further, pressured by the companies' competition with each other and the Apple iPad, one analyst suggests that e-reader prices can only fall so far, and the technology's slow evolution might inhibit increased sales. Stripped-down e-readers currently sell for just under $150.
Amazon.com and Barnes & Noble might be heating up the e-reader wars this
week, with tit-for-tat price cuts on their respective Kindle and Nook devices,
but at least one analyst thinks the companies' current strategy can only extend
so far.
On June 21, Barnes
& Noble announced a price reduction for its Nook e-reader from $259 to $199,
along with a WiFi-only version of the device for $149. The original Nook
leverages a 3G connection to download ebooks from the retailer's online store.
Not to be outdone, Amazon announced that same afternoon it would do a little
cost-cutting of its own, resetting the price of the original Kindle from $259
to $189.
A few e-readers already exist at that lower price point, including the Kobo, which
is marketed through Borders and sells for $149. Sony's
Reader Pocket Edition retails for $169. Amazon and Barnes & Noble also
seem determined to add new software features to their respective platforms,
including Android-based games for the Nook and some social-networking
functionality to the Kindle.
Both companies are responding to not only each other, but also the growing
threat presented by Apple's iPad, which includes a full-color e-reader
application. During Apple's Worldwide Developers Conference earlier in June, CEO
Steve Jobs indicated that some 5 million ebooks had been downloaded through the
company's iBookstore, roughly 2.5 per iPad.
Despite predictions by some analysts that the price of e-readers might
continue to dive, one suggests a limit to how low manufacturers can go.
"With these cuts, eBook readers from Barnes & Noble as well as Amazon
now are priced at about the breakeven level with their Bill of Materials (BOM)
and manufacturing costs," William Kidd, director and principal analyst of
financial services for iSuppli, wrote in a June 24 statement. "With zero
profits on their hardware, both these companies now hope to make their money in
this market through the sale of books."
Whether that strategy proves successful, it does have a precedent in the
tech world, according to Kidd: "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 sales of content."
The larger problem facing the e-reader industry, Kidd added, is how soon it
can add new features, such as color e-ink displays, that significantly boost
demand: "There is no visible short-term solution to drive significantly more sales
of ebook readers, except to use price as a tool."
The breaking of the $200 price point for e-readers, combined with the
enormous amount of marketing muscle that both Amazon and Barnes & Noble can
apply, also means that smaller competitors could be soon forced out of
business.
"I don't see more than two, maybe three dedicated reading companies in the
market for selling ebooks," William J. Lynch, CEO
of Barnes & Noble, told
The New York Times on June 21. "I think you are starting to see a shake-out
now."
Nicholas Kolakowski is a staff editor at eWEEK, covering Microsoft and other companies in the enterprise space, as well as evolving technology such as tablet PCs. His work has appeared in The Washington Post, Playboy, WebMD, AARP the Magazine, AutoWeek, Washington City Paper, Trader Monthly, and Private Air. He lives in Brooklyn, New York.
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