E-book market could fizzle out


WASHINGTON — The e-book market created by the Amazon.com Kindle just a few years ago already is undergoing a shakeup — and it soon could see a shakeout.

Just six months ago, at least a dozen companies were preparing to launch, or had already launched, new e-readers in the U.S. to challenge Amazon and grab a piece of a small but rapidly growing pie. Now, it appears several e-readers will never make it to the market while others could die a quick death.

Just last month, for example, iRex Technologies filed for bankruptcy protection owing to poor sales of its e-reader. Another company, Plastic Logic, delayed the release of its own device called the Que, casting doubt on whether it will ever see the light of day.

What’s going on? Simple. Prices of e-readers have fallen faster and further than anyone expected. Amazon, for instance, has slashed the price of the popular Kindle to $189 from $359 just one year earlier.

The catalyst for the sudden decline can be directly tied to two companies — the big bookseller Barnes &Noble and the computer and electronics giant Apple Inc.

Late last year Barnes &Noble introduced its own e-reader, the Nook, for $259, and it quickly sold out. The Nook had the added advantage of being available in physical stores, which allowed shoppers to actually see and handle the device. Until its recent launch with Target, the Kindle has only been available on the Amazon website.

Last month, Barnes &Noble cut the price of the Nook to $199, and Amazon responded the same day by dropping the Kindle to $189.

The cuts are so deep, market-research firm iSuppli calculates, that the cost of making the e-readers is virtually equal to their price. The result: Amazon and B&N can’t make money on the sale of devices, so profits will have to come from the sale of digitized books and other content.

“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 the sale of content,” said William Kidd, an iSuppli analyst.

While Barnes &Noble has pushed prices lower, the iPad has given consumers another option while setting a ceiling on how much manufacturers of e-readers can charge.

At just 1 ½ pounds, the iPad is the first truly functional tablet computer. It can perform just like a laptop, but it’s much thinner and lighter and costs only $499 — just $100 more than the original Kindle. Apple sells books for the iPad through its own online store, and customers can even download Kindle software to read books bought on Amazon.

The revolutionary nature of the iPad — never mind the pricing — immediately cast doubt on the future of high-end e-readers such as the Que or even Amazon’s supersized Kindle DX reader. Amazon cut the price of the DX to $379 from $489.

Plastic Logic, for its part, had planned to sell versions of the Que starting at $650 and reaching as high as $800.

“Plastic Logic got much acclaim, but the price was too high, especially after the iPad came out,” said Avi Greengart, director of consumer devices at Current Analysis. “You could buy an iPad and a Kindle for the price of one Plastic Logic reader.”