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Competition Drove Kindle Price Cut

Fri, 07/10/2009 - 9:27am
Mark Long,
Editor's Note: Normally I'd put this in the "duh" file, but business basics sometimes need repeating. Just because you have a cool product does not mean you do not have or are not going to have to worry about competition.

Amazon's decision to shave $60 off the price of its Kindle 2 this week caught some industry observers off guard. But Forrester Research analyst Sarah Rotman Epps said she wasn't surprised.

"It's predictable that prices decrease for consumer electronics as manufacturing volume scales up -- just ask those poor saps who paid $499 for a 4GB iPhone in 2007," Rotman Epps said. "But there's also some pricing pressure specific to the e-reader category that Amazon is responding to."

Avoiding Gadget Clutter

Amazon's price change to $299 neatly repositions the Kindle 2 between Sony's PRS-505 and its touchscreen-capable PRS-700BC, which Amazon currently prices at $269 and $349. Last month's introduction of the $249 Cool-er by U.K.-based startup Interead also signals that the barrier for entering the market is dropping.

"Taiwanese manufacturer Netronix is cranking out stripped-down, less-expensive e-readers for companies like Interead and Borders UK," Rotman Epps said. "Neither has wireless connectivity, but they each expand consumer choice for a lower price. What's more, they were developed and brought to market rapidly -- the Cool-er Reader took only six months from concept to retail."

Amazon also has to deal with reluctance by some consumers to increase their gadget clutter. Rotman Epps observes that multi-function devices such as smartphones and netbooks have put a ceiling on how much e-readers are worth. "If you can buy a fully functioning netbook for $300, it makes consumers think twice about shelling out even close to that much for a single-function device like an e-reader," Rotman Epps said.

Netbooks represent yet another low-cost platform on which eBooks can be read using software from Sony and other vendors. "Google announced yesterday that it will be launching an OS for netbooks -- it already has Android for smartphones -- so I wouldn't be surprised to see Google partnering with a device manufacturer to get a Google OS e-reader on the market," Rotman Epps said.

Only a Matter of Time

Forrester data show that this year, 83 percent of U.S. adults own a mobile phone, and they're also using these multi-functional devices for reading, Rotman Epps said.

"Undoubtedly that's why Amazon bought Lexcycle, whose Stanza iPhone app was downloaded one million times in 2008," Rotman Epps said. "And leading Canadian bookseller Indigo has launched Shortcovers, whose apps for the iPhone, BlackBerry and Android had more than 300,000 downloads in the first 120 days."

It's also only a matter of time before E Ink technology becomes a feature in multi-function products such as Web tablets and even netbooks.

"Pixel Qi -- an outgrowth of the One Laptop Per Child initiative -- debuted a low-power color screen hooked up to an Acer netbook at Computek in June, trying to encourage Taiwanese netbook manufacturers to use their display technology," Rotman Epps said. "Another likely scenario is E Ink accessory screens for smartphones."

Smartphone users would then be able to buy and organize reading material, but actually read on an E Ink screen if they wanted to, Rotman Epps explained. "If these came in at a $99 price point, they could be successful," she said.

A survey that Forrester conducted in the second quarter shows that 24 percent of U.S. online adults remain very interested in learning more about e-readers -- up 16 percent from one year earlier. What's more, six percent say they intend to buy an e-reader in the next six months -- up from two percent in 2008.

"So interest and purchase intention of these dedicated devices is growing, but it's true that these devices don't -- and won't -- appeal to everyone," Rotman Epps said. "It's worth noting that there are more installed apps for e-books on iPhones than there are Kindles and Sony Readers combined."

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