Amazon.com, Barnes and Noble Heat E-Reader Wars

Amazon.com and Barnes & Noble engaged in a rapid-fire price war June 21, with both companies announcing substantial reductions for their original e-readers. In addition, Barnes & Noble also announced a WiFi-only version of its Nook for $149. The price cuts suggest that the competition in the e-reader space, already heated thanks to the increasing popularity of the devices and the introduction of the Apple iPad, may be heating up even further. As Amazon and Barnes & Noble cut prices and improve their devices' features in order to gain more users, smaller e-reader competitors could find themselves squeezed out of the market.

The e-reader wars are heating up.

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. While owners of either device can receive a free connection at all AT&T hot spots, those with the original Nook can use its 3G connection to download their e-books.

The Barnes & Noble announcement came almost exactly two months after the bookseller announced a major software update for its e-reader, which included a Web browser (in beta) and Android-based games. Another feature, "Read in Store," allows Nook readers to browse the retailer's e-books for free at any Barnes & Noble bookstore, for an hour at a time.

By the afternoon of June 21, however, Amazon.com responded to Barnes & Noble with a little price cutting of its own, reducing the cost of its original Kindle e-reader from $259 to $189.

While the two companies necessarily see each other as prime competitors, both also face a substantial competitive threat from Apple. During the company's Worldwide Developers Conference earlier in June, Apple CEO Steve Jobs indicated that some 5 million e-books had been downloaded through the iBookstore, or roughly 2.5 per iPad.

In any case, the breaking of the $200 price-point barrier suggests that competition in the e-reader space could be reaching a new stage, one that could also potentially result in smaller competitors being forced out of business.

"I don't see more than two, maybe three dedicated reading companies in the market for selling e-books," William J. Lynch, chief executive of Barnes & Noble, told The New York Times on June 21. "I think you are starting to see a shake-out now."

Originally dismissed as a niche item by some analysts, the Nook and Kindle proved to be bestsellers during the holiday 2009 season. In turn, that led to a number of smaller competitors intensifying their efforts to take a piece of the market; during January's Consumer Electronics Show, a variety of e-reader prototypes appeared in booths throughout the exhibition hall, with airy promises that the devices would make their debut sometime in 2010.

Since that point, the iPad has made its debut, along with a set of upgrades to both the Kindle and the Nook. Meanwhile, smaller manufacturers have encountered delays; in March, the CEO of Plastic Logic, which has been planning a more business-centric e-reader called the Que, sent an e-mail to customers suggesting that shipments of the device had been delayed until summer. Other devices continue to muddle through development hell.

In the meantime, Barnes & Noble and Amazon seem determined to race for an ever-lower price point. Will Amazon find a way to match the WiFi-only Nook's $149 price point? Can a $100 floor for e-readers be far behind? If e-readers continue on a path towards becoming mass-consumer items, both those scenarios are certainly possible.