At January’s Consumer Electronics Show in Las Vegas, tablets and e-readers seemed all the rage. Samsung, Amazon.com, Barnes & Noble, Plastic Logic, Spring Design, a Heart subsidiary and a host of others all used the convention to debut their own take on the e-reader. And why not? Amazon’s Kindle and Barnes & Noble’s Nook had stoked a seemingly inexhaustible demand for the device among holiday shoppers; surely this was a market that could accommodate a few more players, no?
No.
What a difference a few months can make. By July 28, as Amazon unveiled the third-generation Kindle alongside the Kindle WiFi, most of those smaller manufacturers had ceded the field. Delays in rolling out Plastic Logic’s Que, a higher-cost e-reader marketed to business travelers and executives, reached the point where customers’ preorders were canceled in June. The Skiff e-reader? Stiff as a corpse. Sony remains a presence in the market, but without the mind share enjoyed by Amazon and Barnes & Noble.
“I don’t see more than two or maybe three dedicated reading companies in the market for selling ebooks,” William J. Lynch, chief executive of Barnes & Noble, told The New York Times in June. “I think you are starting to see a shake-out now.”
In that interview, Lynch also predicted that the market would eventually see e-readers costing less than $100.
That prediction may be coming true. On July 29, a spokesperson from Copia e-mailed eWEEK, suggesting the company would deliver a 5-inch color e-reader for $99 sometime this fall. That spokesperson declined to answer questions about Copia’s business model, namely whether an e-reader at that price point would sell at a loss.
That question becomes relevant when you consider the seemingly ever-dropping costs of both Kindle and Nook.
“With these cuts, ebook readers from Barnes & Noble as well as Amazon now are priced at about the break-even level with their Bill of Materials … and manufacturing costs,” William Kidd, director of 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 sale of books.”
Both Amazon and Barnes & Noble can leverage their existing infrastructure and customer base to make those sales happen, but smaller e-reader manufacturers lack that brand awareness and marketing millions. Lacking high-volume ebook sales, and manufacturing devices with either nonexistent or negative margins, the latter could find itself pushed out of existence in short order.
On top of that, both Amazon and Barnes & Noble seem capable of adding new features to their devices relatively quickly. Amazon’s third-generation Kindle includes a Webkit-based browser, text-to-speech, and the ability to listen to music and podcasts; recent Nook updates have included Android-based games. The ability to quickly upgrade their devices’ functionality also makes it difficult for tiny players to sell a new device based on “unique” capabilities, as they run the risk of being matched or exceeded within a few quarters.
What about color screens? Both Pandigital and Copia have been exploring that idea. Any such device, however, faces the prospect of both higher costs and competition from tablet PCs such as the Apple iPad-not to mention the prospect of a full-color Kindle or Nook. The crushing could be immediate and brutal.
The third-generation Kindle retails for $189, and the Kindle WiFi for $139-the latter undercutting the price of the Nook WiFi by $10. Will Barnes & Noble and Amazon slash those prices to hit the $100 price point, ensuring a broader audience at the cost of even steeper per-unit losses? It could happen, particularly if those companies start feeling too threatened by the iPad’s expanding customer base. But they’ll also be two of a few-if not the only-e-reader manufacturers capable of playing on that level for long.