Amazon, Barnes & Noble slash ereader prices amid stiff competition from Apple's iPad

 

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Posted on 22 Jun 2010 at 08:53

Amazon.com and Barnes & Noble reduced prices of their electronic readers on Monday, responding to the threat from Apple's iPad tablet computer.

Shares in both companies fell about 3 percent as investors feared intense competition could lure away buyers of e-books, the fastest-growing segment in a moribund bookselling industry.

Profit margins on Barnes & Noble's Nook and Amazon's Kindle are estimated by analysts to be relatively modest, but the devices are important to attracting book buyers.

Apple's iPad, launched in April, can also function as an e-reader. It sold more than 2 million units in its first 60 days and its own e-bookstore has quickly won market share.

That has put pressure on Kindle and Nook, said Mike Souers, a Standard and Poor's analyst.

Barnes & Noble, which has faced sales declines at its physical bookstores for several quarters, is betting on the growth of the e-book market. In March, Barnes & Noble named William Lynch, who oversaw the development and launch of Nook, its chief executive officer.

During the 2009 Christmas holiday quarter, comparable sales at Barnes & Noble's physical stores fell 5.5 percent. The bookseller is set to report fourth quarter earnings next week.

More New Entrants, Busier Market

In addition to the iPad, the Nook and Kindle also compete with Sony Corp's Reader device. Industry experts and rivals say the field will get even busier, with more e-readers expected by year-end, including one by Kobo Inc.

Borders, the No.2 U.S. specialty bookseller behind Barnes & Noble, plans to launch an e-bookstore in coming weeks that is compatible with most devices but opted not to develop its own e-reader, citing a slew of new entrants, falling prices for the devices and the high costs behind developing a device.

In a research note in April, Goldman Sachs forecast that U.S. sales of e-books would rise by 47 percent per year to reach $3.2 billion by 2015, or 12.8 percent of total book sales, up from 3 percent this year. Goldman forecast physical book sales to slip 1 percent per year over that period.

Goldman also forecast that Apple's share of the e-book market would jump to 33 percent in 2015 from 10 percent this year, while Amazon's market share would plummet to 28 percent from 50 percent. Barnes & Noble is expected to snag 15 percent of e-book sales in five years, up from 5 percent in 2010.

Some analysts say dedicated e-readers such as Nook and Kindle are appealing because they consume less power, are easier to read on, and weigh less.

Charles Wolf, an analyst with Needham and Co, said e-readers -- despite being "primitive" when compared with the likes of the iPad -- will keep a core audience.

Amazon announced its $70 price cut to $189 hours after Barnes & Noble lowered the price on its own 3G compatible "Nook" to $199. Both had cost $259.

Barnes & Noble also introduced a new Wi-Fi-only version of the Nook for $149 after it first introduced the Nook in October. The company is set to report its fourth-quarter earnings next Monday.

The first version of the Kindle sold for $399 in November 2007 when it was launched.

Shares in Amazon closed down 2.6 percent at $122.55, while Barnes and Noble stock finished down 3.2 percent at $16.53.

Author: Reuters