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The Honolulu Advertiser
Posted on: Sunday, April 25, 2010

Experts still see hope for e-readers


By Dan Gallagher
MarketWatch

Hawaii news photo - The Honolulu Advertiser

The iPad, with a price of $499, is a full-on portable computing device with a high-definition LCD touchscreen.

Associated Press photos

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Hawaii news photo - The Honolulu Advertiser

Amazon.com's Kindle rules the e-reader market with an estimated 60 percent share.

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SAN FRANCISCO When Apple Inc. launched its touch-screen tablet device known as the iPad earlier this month, some analysts began ringing the death knell for so-called e-readers most notably, the popular Amazon Kindle.

After all, the two devices seem hardly comparable. The Kindle uses a black-and-white screen and is designed primarily for reading books. The iPad, by contrast, is a full-on portable computing device capable of reading, watching video and playing games as well as sending e-mails and typing up documents all from a high-definition, 9.7-inch LCD touch-screen.

On top of that, Apple managed to surprise the market by bringing in the iPad at a starting price of $499 well below most estimates before the product was announced in late January.

"The iPad makes things much more difficult for e-reader devices," said Colin Sebastian, an analyst with Lazard Capital Markets who has followed the e-reader market. "Especially when you're a higher-priced e-reader, then the value proposition becomes less clear."

Still, many companies are making bets on the e-reader business. And analysts say those bets could still pay off, depending on how they are executed. IDC estimates that about 2.5 million e-readers were sold in 2009, and that number is expected to double to 5.1 million this year.

Those estimates have attracted several players to the market, with more coming. This year's Consumer Electronics Show, which took place in January, showcased several such devices, which targeted market niches that ranged from book readers to newspapers to devices that are designed primarily for business uses.

Still, the Kindle from Amazon.com rules the e-reader market with an estimated 60 percent share, according to estimates from Forrester Research. Sony Corp. is believed to have accounted for another 35 percent of the e-readers sold last year, with other vendors splitting the rest.

Worries about the iPad's effect on the Kindle have helped to weigh down Amazon's stock this year. The shares are up 4 percent since the first of the year an underperformance compared with the Nasdaq Composite, which has gained more than 8 percent in the same period.

"The market fears that the iPad will materially undermine the value proposition and growth prospects for the Kindle," Mark Mahaney of Citigroup wrote in a note to clients on March 25.

Many analysts still see a strong future for dedicated e-readers depending on price, content and other factors that could help them stand out to consumers.

First and foremost, most e-readers are still priced at a sharp discount to the iPad. The Kindle and its rival device called the Nook sold by Barnes & Noble both start at $259. Sony sells a model for $199 called the Pocket Edition, with another touch-screen version priced at $299.

But others have little space from the iPad. IRex, a reader that went on sale at Best Buy earlier this year, sells for $399. Plastic Logic, a venture-backed startup, introduced an e-reader at CES that it planned to start at $650 for a model that only offers Wi-Fi connectivity, and $800 for one that can access a 3G wireless network.

The Plastic Logic Que was originally planned to launch this month, but the company delayed the release until June 24 "in order to fine-tune the features and enhance the overall product experience."

Forrester analyst Sarah Rotman Epps says e-readers will have to compete with the iPad mainly on price, since there is no way for them to offer the same capabilities.

"We do see a role for a stand-alone e-reader, but it's not going to be a premium price point," Epps said. "They will have to get under $99 to get the mainstream market."

Ross Rubin of the NPD Group agrees, adding that markets such as textbooks remain largely untouched by e-readers, and have a lot of potential.

"We are still very early in this market, which is still expanding," Rubin said.

Besides price, analysts believe e-readers can set themselves apart from the iPad in other ways.

Product design is one area. While the iPad is widely hailed for its sharp design, one disadvantage is its 1.5-pound weight, which is more than double the weight of the 10.2-ounce Kindle. This would be a serious issue for those looking to use a Kindle or iPad for long-form reading.

"Weight is an attribute that's easy to overlook," Rubin said. "If you have an extra pound on your laptop, you won't be feeling it most of the time. But if you have an extra pound on a tablet device, you will certainly feel that."

Adding a color screen is another. While fine for book reading, devices with black-and-white screens are unlikely to be a draw for readers and publishers of newspapers and magazines, who are all gravitating toward the iPad. Color screens using E-Ink technology are not available yet, but are in development.

E-readers will have another advantage through ties to big retailers. The Alex will be sold through retail chain Borders later this year. The iRex and Sony e-readers are sold through Best Buy.