Ebooks: Now what?

Well we all knew it was coming. The arrival of the iPad and the pressure that Apple suddenly began to apply to the Ebook Reader market was bound to have an effect, just as Apple and the iPhone forced the telecom industry to respond just be being there. I was also pretty sure that the first thing that the iPad would affect would be price. After all, it is the easiest thing for most tech vendors to change as it simply means cutting the margin finer, and it was sure to have a major effect on consumer and the tech press.

Of course, what we didn’t expect was how quickly the price war would ramp up and pull the major players in. Borders introduces bare bones (no wireless) Kobo reader for $149, which B&N matches a few weeks later with a Wifi only Nook for $149 and challenges Amazon with a price drop on the full Nook to $199. Sony Readers apparently ALSO drop their prices to match (though no one noticed it at the time, which says something). Amazon responds by dropping the Kindle 2 to $189 the same damn day, which means Amazon was just waiting for B&N to announce the new pricing to pull that trigger.

So, what have we learned in the first salvos of the Ebook Reader price war, and where will things go from here?

Many analysts (the same ones who have been saying that the incredible iPad will eliminate netbooks, notebook computers, passenger trains and the letter M from the civilized world) are saying this “race to the bottom” spells the beginning of the end of ebook readers (and good riddance, they usually add). I disagree. Certainly the market is changing due to competition and we are seeing the major players responding to that..what else would they expect? Ebook readers are not going the way of the dinosaur, just the way of every other niche technology. As they become more mainstream and their functionality is incorporated into more devices, the price they can charge drops. There ARE lessons to be learned from this, but “Ebook Readers are Dead” is not one of them.

Rather, one thing we can learn from this, well, really it is more something we are being reminded of, is just how high the profit margins are on these devices. B&N took a fifth off the price of the full Nook, and Amazon knocked a full THIRD off the price of the Kindle just like that. Also, everyone always says the screen is the most expensive part of an ebook reader, but B&N removed the 3G antenna from the Nook and dropped the price by nearly HALF. Clearly these devices cost far less to produce then previously assumed.

Which of course also means we can expect the prices to drop even further. If we assume that both Amazon and B&N are working from the classic “Give away the razor and sell the blades” business model, then the prices are going to drop A LOT more. After all, both companies (and soon Borders) are making most of their money off selling the blades, that is, the books and not the readers. They all provide their software free for other devices specifically to encourage you to shop in THEIR online book store for books, where the real money in this business is.

If Amazon, Barnes & Noble and Borders are really looking at the bottom line realistically and understand that the serious profits are from book sales, then over the next few months we will likely see the Nook and Kindle drop to the point where they are just breaking even on them. Loss leaders. Borders is at a disadvantage on this one as it does not have it’s own Ebook Reader but is licensing readers from other companies, and it’s main device, the Kobo Reader, has it’s own library to feed.

To be honest, I would not be shocked if down the line, both the Kindle and the Nook end up being free, or with free versions that don’t allow sideloading your own books or PC syncing. Do you think Amazon would accept giving away a few bucks worth of tech if you could only use it with books from their own online store? Is Jeff Bezos annoying? (the answer to that is DAMN RIGHT).

I feel that the whole “It is easier to read on E-ink Displays” argument, which doesn’t hold up too well already, is going to carry less and less and weight over the next few months as more tablets appear. In the end, I think both Amazon and B&N will give up on trying to say their devices are better for reading than a tablet and focus completely on leveraging their enormous libraries. I think they already view the Kindle and Nook as simply a platform to sell books, the whole “reading experience” thing is just marketing blather for them. Therefore, expect them to price the platform as low as they need to, even free, to move more ebooks.

However, that move is a little bit down the road I think. What will be the next step in the price war? Well, pity poor Borders. They made a big noise about the fact the readers they were selling (from Kobo and Aluratek) were a bit limited (no wireless), but the cheapest out there…now they are not looking so cheap as the Kindle and the Nook price down, and they aren’t even on sale yet! Borders is also scrambling to push their software on Apple products, just like Amazon and B&N, only with less success.

Therefore, before the July roll out date for Borders’ new AreaE ebook strategy, expect the prices of the Kobo and Libre readers to drop further. I would imagine when they are actually released the Kobo will be the one selling for 119 bucks…and the Libre? 89.95 baby, plus tax. Let’s see how Amazon and B&N like THOSE apples

Piece posted by Zealot and can be found here: http://www.mobilitysite.com/2010/06/ebooks-now-what/