Retailers Race to the Bottom on E-Reader Prices
Busy days in the e-reader universe. Apple announced it has
sold three million iPads (not strictly an e-reader) in the first 80 days the
product was on the market. Both Amazon and Barnes & Noble have lowered
prices on their electronic devices and Borders is throwing in a gift card with
every purchase of its Kobo e-reader.
"It was obvious that the price of stand-alone e-readers had to come
down," James
McQuivey, an analyst at Forrester Research, told The New York Times. "We
just never thought it was going to happen this rapidly."
Conversations RetailWire has
had around these announcements have been of the glass half-full and half-empty
variety.
The position of those positive about the developments suggest that
lower prices will democratize the e-reader universe and bring more of the public
into the market. The real money, they say, is not in the sale of the devices
but the e-books that follow.
Those with a more negative take say all the price
cutting in the wake of iPad’s impressive beginning is a sign that most of the
e-readers on the market are ready to go the way of the dodo bird.
Jason Perlow,
writing the Tech Broiler blog on ZDNet, points out that
Amazon’s Kindle started out selling for $399 a few years back. By Mr. Perlow’s
estimate, retailers may still be making money at the new lower prices (he puts
manufacturing costs at between $90 and $125 per device), but just how low will
they be willing to go?
William Lynch, chief executive of Barnes & Noble,
told the Times that
he can see e-readers going for under $100 within a year. "I don’t
see more than two, or maybe three dedicated reading companies in the market
for selling e-books. I think you are starting to see a shake-out now."
Discussion Questions: Is the e-reader market ready for a shakeout? What do
you see as the future of the market?
There aren’t enough e-readers in the marketplace to have a shakeout. We are still in the infancy of this technology. E-readers are a great tool, a tool that will have to find its place in consumers’ lifestyles.
Devices that can only display books are sure to be hit the hardest by multiple-use devices, like the iPad.
Regardless, it’s great that people are reading. This can only be positive.
The next big shakeout will be within the publishing business, as publishers fight to hold on to their margins and their control of the industry…an industry that has not seen radical change in more than a century.
I think we have learned a whole lot about the evolution of the consumer electronics marketplace and how consumers react to new products from Apple’s dominant product and marketing schemes over the last 6 years.
Apple launched the iPod at a time when mobile phones were used to make calls…and that’s about it. Consumers accepted that if they wanted to listen to music they would need to carry an MP3 player along with their phone, and if they wanted to browse their email they would have to carry a PDA as well.
The iPod, with its singular function to record and play music, completely exceeded consumers expectations and fit neatly into consumers expectations of an additional device that served a single purpose.
Over time consumers have grown to expect that their phone deliver more robust functionality including streaming video, music, email, texting, internet browsing, GPS and all kinds of other applications and, oh yes lest we forget, it also makes calls. Apple understood this and continued to innovate its product by adding functions and making it smaller, serving multiple niches while all the time developing new and more integrated solutions (iPhone, iPad).
That said it was unlikely, in my mind, that the plethora of singular functioning e-readers could hope to survive. Sure, there will be a good market for this business amongst older customers who are only looking for a reader versus a multifunctional integrated device, but this market won’t support all of the current brands of e-readers.
My conclusion: the e-reader market will be dominated by devices such as the iPad that delivers diverse functionality. The less dynamic readers will fight for the remainder of the market and will likely consolidate.
E-readers are in their infancy and the dynamics of technology and the marketplace require the innovators to move quickly and correctly if they are going to have a competitive edge. I think of the changes in movie rentals…from the store to the internet back to the store and vending machines. It happens so quickly technologically but only works if consumers adapt, because they want to.
I agree that there is a positive outcome of more readers in the universe and more books to be sold. I bought my Kindle in January and can’t believe how many books I’ve read since then. It’s not just the convenience of carrying my books wherever I go, but controlling the font that enables me to read more without tiring. Who knew? And that’s my point someone like me doesn’t know how I’ll be using technology in the future and the impact it will have on my life and lifestyle. And I’m going to guess that the sales of iPads were somewhat unpredictable, and their influence on society will be written about by sociologists and psychologists in the years to come. Regardless, iPads are being purchased and used…for many functions and satisfying many unknown and known needs.
Consumers will continue to benefit with new innovations and lower costs that all create a better value for the money. But did we think consumers would ponder the value of an e-reader, its books or an iPad? What a time to be alive. Keep it coming.
I agree with Charles–the only way to carve out a profitable slice of this market will be to differentiate on the basis of functionality. The big price cut(s) by Amazon are a signal that they’re waving the white flag on market leadership and hoping to capture the (small) part of the market that will see e-books as a commodity with little connection to other information/entertainment benefits.
Not sure that a shake out is due, but I do wonder if we will see e-readers follow the “give them the razor, sell them the blades” strategy.
I admit I was probably late to the game and do enjoy using my Nook (a gift). I did find it surprising that all B&N stores don’t carry a selection of cases for them (was told only one store did in the Chicago market). Seems logical to you would try to do an additional sale where the buyer could see and touch the cases. Ended up buying something at Best Buy so I felt comfortable carrying it in my briefcase for a trip.
I could not have said it better…Charlie is right.
The e-reader was not developed to be the next hot technological device. It was developed to sell more books. Be assured Amazon would rather see ubiquitous e-readers than be in a technology fight of device one-upmanship.
What would make Amazon happier? What would make B&N happier? One or the other controlling the reader market, or if every owner of a smart phone or some such single device could buy and download books?
Amazon was brilliant in introducing the Kindle. Look how they accelerated the idea of electronic reading? Look how they got the real technology experts to compete with what will be ever better devices. Don’t be surprised that if you looked at Amazon’s most recent long range plan that in 5 years or 10 years, they are forecasting no sales for Kindles and are forecasting their eBook business to be multiple times larger than their paper book business.
I will continue to support my locally owned and operated independent bookstores, because they are a vital part of my community. I purchase between 40 and 50 new books per year, along with a half dozen or so used ones. If the indie stores band together and come out with an e-reader, I might buy it, but only then. I realize I am a troglodyte.
Steve hits the nail on the head. This is a classic b-school case study of selling a razor cheaply and making money on the blades. E-readers will ultimately dominate reading activity, just as safety razors replaced straight razors.
Below is Seth Godin’s blog post on Kindle. It says it all. If you don’t read his blog you should.
Maybe I’m missing something here, but I don’t see such a bright future for single purpose e-readers in general. Consumers are already lugging around laptops/netbooks and/or iPads, PDAs, and iPods, plus some carry cell phones to supplement their PDAs. Seems to me that neither the iPad nor laptops/netbooks are going away, so I imagine most people who desire to read books on electronic devices will end up doing that on those devices that they already carry. For all the buzz about e-readers, I sure don’t see many of them being used in public spaces like airports, parks, and Starbucks.
Barnes & Noble has reduced Nook prices to $199 for 3G and $149 for the Wi-Fi-only version.
Competition is expected and a shakeout is inevitable, but it does seem early to be reducing prices before the product (this and others) have the chance for wider adoption.
The reason for the speedy price reduction cycle may be that the market has been populated by Sony and Amazon for several years now and iPad took another chunk away. Products that I would almost term “second tier” like the Nook have to evidence a superior feature set or offer to grab consumer attention or be relegated to price competition.
In a general way, I wonder how much power people like Walt Mossberg have to influence the life of a product like Nook. His initial review in WSJ was less than stellar and would have put off most people to at least wait for iPad intro if not choosing the Kindle.
Over 40% of Gen Y’ers are said to make purchase decisions based on friend referral and opinion. Seems that this trend might be expanding across Gen X and the Boomers as well.
Is anyone surprised the iPad is hurting the e-readers? Was there ever any doubt that the crunch was going to happen?
What does surprise me is why the prices have not dropped further. It is going to happen. The e-readers will always have a place in the market. Remember the pager? I know someone who is not a doctor and still carries a pager. I am still not sure why doctors insist on carrying them?
Next, the publishing business should get prepared for some shakeups and shake outs. It has to happen. My guess is soon.
The comparison between and iPad and the Nook is unjust. I have both and carry them both on business (over 100,000 miles so far this year). I can tell you I like the iPad, it is a big iPhone or iTouch, but I DO NOT WANT TO READ A BOOK ON IT. You cannot take it to the pool while your kids are swimming and expect to read a book. The Nook is a much more useful tool for me, but then I have read 19 books so far this year. It is SO NICE to carry the Nook and not two books.