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.�
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