Amazon (AMZN) and Barnes & Noble (BKS) made peculiar moves yesterday. Rather than spark Father’s Day sales, they waited until the day after the consumer holiday to drop the prices on their respective eReader devices. Amazon lowered the price of their Kindle to $189 and Barnes & Noble dropped their Nook down to $199. Both devices — top competitors with Apple Inc. (AAPL) iPad — were previously $259.
eReaders are just the sort of tech device that typically make for great summer sales around Father’s Day, so why have the leaders of the eReader market dropped prices now? Should Barnes & Noble and Amazon shareholders be nervous about the once promising eReader market, or are they just trying to maintain an edge on Apple and its comparatively expensive iPad that starts at twice that of the Kindle or Nook?
A drop in manufacturing cost for both the Kindle and the Nook wasn’t part of the language in either company’s announcement of a price drop and there hasn’t been word of a realignment of B&N or Amazon restructuring eBook prices. This isn’t a move to bolster profits by either company. eReader sales have been healthy for an emerging technology, with 1.43 million devices sold in the first quarter 2010 alone. What are Amazon and Barnes & Noble so nervous about?
The iPad is the obvious answer. Apple Inc. has stormed the eReader market with the release of their tablet computer. Where Amazon’s Kindle sold between 1.5 and 3 million Kindles between the device’s launch in November 2007 and holiday 2009, Apple has managed to sell 2 million iPad’s in just two months on the market. Sony (SNE), Samsung (SMSN), Barnes & Noble, Amazon and every other competitor in the eReader market should be scared. Apple’s outselling them by a wide margin and their device does a whole lot more than play host to books and periodicals.
With some analysts predicting 13 million in sales for the iPad by the end of 2011, it would appear that the Kindle and Nook might be casualties in a tech war that Amazon and Barnes & Noble weren’t prepared to compete in. With the eReader a possible dead end for profits, it may be wise to look to the emerging table PC market. Dell (DELL) will launch their Google (Android) powered tablet, a 7-inch model of their smarthphone Streak, later this year. Hewlett-Packard (HPQ) quietly cancelled their iPad competitor, the Slate, earlier this year. Now, it looks like Toshiba will fill the space left by HP’s departure. Toshiba will release the Libretto W100 in Japan this August, with European and North American launches to follow soon after. A dual-screen, clamshell device running on Microsoft‘s (MSFT) Windows 7 operating system, Toshiba is looking to not only compete directly with the iPad, but provide a form factor that appeals to both notebook PC users and eReader owners as well.
Not all is lost in the eReader world, though. Tech journalist Om Malik’s GigaOM site estimates that eReaders still have the potential to capture 25% of the reading market, with Amazon potentially bringing in $4 billion a year. Whether or not that happens depends on what readers demand from their technology in the months to come.
