Price Drops Mark New Stage In E-Book Reader Wars

June 21st marked a key moment in the E-Book Reader Wars, when an apparent price war began between Amazon and Barnes and Noble.

It started early on Monday when Barnes and Noble announced a price cut of their nook 3G reader from $259 to $199 and then announced a new Wi-Fi only version of the nook retailing for $149. This was huge news for the market, both bringing the Wi-Fi nook in line with Border’s Kobo reader at the $149 price point, while undercutting Amazon’s Kindle 2 (the Kindle 2 was selling for $259 like the 3G nook). Wait a few hours, though, and Amazon counters the price move. They drop the price of the Kindle 2 by $70 to $189. This actually made the Kindle 2 $10 cheaper than the 3G nook, even though both use similar connection options. The move down in price is not a surprising step in the increasingly competitive e-reader market. As the market competition increases, retailers will cut device prices to try to spur on sales, especially if the readers are not very differentiated (more on this at the end of article). Second, as e-reader technology becomes more generally accepted (and as is generally the case with all technology) the sellers will want to reduce their sales price from a point where early adopters are willing to buy the product, to a price point where the mass market will want to purchase. Lastly, as the technology matures, the cost to make e-readers start to drop as suppliers becoming more efficient at making units (overcoming the production learning curve) and mass production of components leads to scale efficiencies (more components made help spread out fixed production costs over a larger base).

So, expect a continued downward trend in prices until a new technology is introduced (possibly color e-ink?) that allows retailers to justify a higher price point. In fact, the real question to ask about the e-reader market is not when, but who, will be able to introduce the first quality e-reader at the magical $100 price point, where e-readers may start becoming a true commodity product.

One final point on product differentiation is the lack of differentiation across e-readers on the market right now. Though e-readers look different, the actually technology or capabilities for each reader are pretty much the same across the board. While this is a driving factor for retailers to reduce prices, it’s interesting to see where it doesn’t cause a similar price drop…namely the Apple iPad.

Apple can maintain the current price structure for their tablet device ($499 (Wi-Fi only) and $629 (3G) for the lowest capacity ones) while marketing it as an e-reader to consumers, because it also brings with it the applications, quality web browser, email, and media players that e-reader only devices like the nook and the Kindle 2 can’t duplicate.

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