Jag Venugopal's Blog

September 29, 2010

The coming shakeout in eReaders and eBookstores

Filed under: Digital Living — Jag @ 12:10 am

The eReader market is a tough one to be in. For one, each vendor has to compete with the 800-pound gorilla in the room, Apple. While eReaders are dedicated devices, Apple’s device is more general-purpose. The iPad is more expensive than eReaders, and is heavier. Nevertheless, for an occasional reader, a general-purpose device is all they need to read eBooks. Additionally, the iPad provides something that is not available from anyone else: the ability to purchase from multiple stores (Amazon, B&N, Kobo, iBooks).

A dedicated eReader makes sense to bookworms, who read much more frequently than the average reader, and who prefer a light, dedicated device without the bells and whistles. Being less expensive than an iPad, it is also likely to appeal to the price-conscious reader. The problem with this niche is that it is hyper-competitive with Amazon and B&N duking it out. Right now, Amazon has won significant points with Kindle 3. B&N’s response remains to be seen. Another difficulty in this space is the rapidly evolving technology… it seems to change every six months or so. At the very least, a vendor has to sell enough in a six month time frame to recover their costs. An analysis by iSuppli of the previous generation of Kindle revealed that it cost around $185 to build. Assuming manufacturing efficiencies, etc. we can surmise that Amazon is selling the $139 Kindle 3 (Wi-Fi only) for close to its cost of manufacturing.

A third factor making the eBook market a tough one is the immense competition in eBook pricing. While publishers have tried to form a quasi-cartel, like all cartels it will eventually fall apart. Amazon is the big kahuna in the eBook marketplace with its ability to push pricing lower and lower. Amazon has made no secret of its desire to see eBook prices go below $9.99, and is willing to offer better terms to authors and publishers who agree.

In this scenario, my reaction to Kobo’s new book reader (with Wi-Fi, priced on par with Amazon) was “why do they even bother?” The Kobo reader has no features that would put it over the Kindle — none whatsoever; it costs the same,  in fact, as pointed out by Wired, it is missing a feature essential to buying books online: a keyboard. Why would anyone pay $139 for a Kobo reader, when better functionality can be had from Amazon for the same price? Both Kobo and its American partner, Borders need to answer this question in a satisfactory way before their eReader finds significant adoption.

Pay close attention to Apple and Amazon (and perhaps B&N). They are the only two (or three) likely to survive the eReader wars.


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