E-Readers: The Fun Is Just Starting

The interest in e-readers, or e-books as they are called now, has reached a fever pitch. Amazon CEO Jeff Bezos fields nothing but Kindle questions at the company’s shareholder meeting. Prime View picks up E Ink, the company that supplies the screen to Amazon’s Kindle, for $215 million. And companies ranging from Google (GOOG) to Interead are aiming to upset Amazon’s (AMZN) early advantage.

Why? There’s money in those hills. After years of false starts, the e-reader market has arrived. Oh sure, today it’s just a bunch of book lovers and early adopters willing to pay top dollar for a device. In two years, the price equation will blow as the number of devices beyond the Kindle explode, according to a Forrester Research report.

How crowded can this market get? Check out Forrester’s map. In a report, Forrester analyst Sarah Rotman Epps has a bevy of graphics that are useful, but this one summarizes how crowded the e-reader world will become.

If you buy that future landscape, it’s pretty obvious why Prime View gobbled up partner E Ink. Prime View can get an early edge in the market—before the pricing floor falls out.

Forrester outlines the following timeline:

• 2007-2009: E-reader adoption is driven by early adopters.
• 2009-2011: More mainstream folks buy e-readers as features like animation, content ports to other wireless devices and the $199 price point is breached.
• 2011 and beyond: Video and color appear and the $99 price point becomes reality.
• 2013-2020: The green movement drives e-reader usage.

The key element player in the market—and driving down the price will be China. Consider the textbook tipping point:

The textbook tipping point won’t come from Harvard, MIT,or even Stanford: We think it will come from developing nations like China and India, whose universities will use technology to leapfrog ahead of Western counterparts. China especially is already a fast-growing market for eReaders like Jinke Electronics’ HanLin eBook, which sells for US$299 and includes 600 free books. We expect the textbook eReader market to start this year with modest sales of content through the Kindle DX, with greater adoption starting in 2011 and reaching more sizable numbers by 2013.

Examining the players

Forrester acknowledges that the e-reader market is currently captured by Amazon—at least in terms of buzz. The killer app for Amazon is its store more than the device. But things are brewing.

Epps notes that Fujitsu launched a color e-reader in Japan (right), Samsung is launching a device in South Korea and iRex has Europe targeted. Meanwhile, there’s Sony (SNE), Amazon, FirstPaper, Plastic Logic and Bookeen Cybook — all with devices planned or launched for the e-reader market today. Tomorrow, you can count on Google, Apple and publishers to join the fray.

Epps writes:

The earlier versions of the Kindle, despite their initial success, were far from perfect. Amazon has done Sony and its future competitors a great service by making consumers more familiar with e-readers; six months after the Kindle launched, more than half of US online adults said they were aware of e-readers. The Kindle’s weaknesses, however, leave room for competitors that want to improve the device experience itself.

These Amazon rivals want to expand content beyond books, launch new features, enhance sharing and add color, video and other perks, argues Epps.

The plan for many of these rivals is to open up in markets abroad and then swoop in on Amazon. Epps writes:

While Amazon is the largest eReader vendor in the US, it doesn’t have a strong presence in the rest of the world. Sony is better poised for success in Europe and Asia. iRex Technologies, a spinoff of Royal Philips Electronics (one of the initial investors in E Ink), has a B2B eReader business in Europe and elsewhere, with a strong presence in the Netherlands and France. Jinke Electronics, which produces the HanLin eBook, is a major player in the Chinese market. Fujitsu (which doesn’t use E Ink technology) is focusing on the Japanese market, and Samsung is starting with South Korea. Brazil and India have huge potential demand for eReaders and currently are not served by any vendor.

Nothing but Kindle…for now

Does Amazon have a blind spot with its Kindle? Perhaps. Epps notes that the market of frequent book buyers—the same folks buying e-readers today—is a market of 5 million households in the U.S. That market will be saturated by 2011. These frequent readers justify the cost of the Kindle based on the cheaper books they can buy. If a consumer buys two to three books a month the Kindle or Sony Reader pays for itself in 18 months, says Epps.

Going forward, however, e-reader devices will aim to go beyond books.

In other words, Amazon’s focus on books may ultimately be a Kindle handicap. If that’s the case you certainly wouldn’t know it judging by Amazon chief Bezos.

At Amazon’s shareholder meeting last week, Bezos fielded mostly questions about the Kindle. For a device in “investment mode” that contributes little to Amazon’s top or bottom lines, the interest was telling.

Here’s what we learned:

• Bezos will never reveal Kindle units shipped. “I’m not sure we ever will reveal all the numbers,” said Bezos, who noted there’s competitive advantage in “keeping the numbers close.” “You may just have to remain curious. I understand the curiosity—especially since I look at the figures avidly every morning,” quipped Bezos.
• There are environmental benefits to the Kindle. Rest assured, Bezos will let you know about them when the time is right.
• Kindle will matter to Amazon’s economics—in a few years. “If something is successful it takes 5 to 7 years before there’s a meaningful contribution,” said Bezos.
• Color screens aren’t ready for prime time, according to Bezos, who has seen a few prototypes in Amazon’s labs.
• Bezos is steadfast in his belief that 3G wireless—not Wi-Fi—is the differentiator for the Kindle. Also see: Revisiting the ROI of the Kindle DX: Why is Amazon blind to Wi-Fi?
• Prices for e-readers will come down at scale.

When those prices come down are anyone’s guess, but when they do the e-reader market is going to get very interesting.

Comments

[logicalthought:]

Just watch as, over the next few years, the publishers (or maybe even the bestselling authors themselves) disintermediate Amazon and start selling their books directly from their web sites.

Jun 02 11:03 AM

[jayminho:]

yeah, yeah, i do agree with the author, we are still in very early days of e-readers, it reminds me of a mp3 player from creative sounds called RIO. it was so revolutinory, that was back in 99.
512mb a blue screen, that looked like my alarm clock screen.

thats what we will see in near future when we look back, we will say "ohh my god, e-readers black and white?"

acctually, that wont even take longer, this will happen sooner than we think, i say 18 to 24 months and color will be default. black and white will be unthinkable.

this kindle 2 and then.. kindle dx, is the beggining of death for amazon, people will exploit this huge flaw, users are pissed, to the fact that they just got a product, ano now... one week later, there is already something new in the market, and amazon doesnt even mind in a rebate-exchange policy.
this will them .

last but not least: why microsoft didnt get included in your list of possible e-readers makers ?

their soft only mentality is long gone.
just look at zune.
a msft reader, wouldnt be surprise. :)

Jun 02 12:02 PM

[raytayzmd:]

...for most serious reading, color is not a requirement...and currently, color is expensive -- Fujitsu's device costs around a grand and they're probably losing money even at that price...right now Amazon is king of the hill and everyone else are just "wannabe"'s...ultimately, I think the "green factor" will be most important...just consider the energy and other natural resources that must be used to make and deliver a hard copy as well as the pollution and other waste disposal required...

Jun 02 12:28 PM

[Ludwig Bers...:]

I think we need audio readers. Convert the book text to speech ... listen to it. Or better yet, smart software tools that can summarize the book up, so I can read 100s in a day!

L. Berstein
- ludwigreport.com

Jun 02 02:21 PM

[Roger Knights:]

The Kindle 2 has a text-to-speech feature.

Jun 02 03:25 PM

[speeddaimon:]

Roger makes a good point in that the new Kindle does have text to speech, however publishers elect whether or not to have it enabled for their intellectual property.

I would be classified in the "heavy" ready category, and I did consider buying a Kindle 2 recently. It would save me a bunch of money, however, I like being able to buy first editions. I like the feel of the book in my hands, and I like the sight of it on my shelf. I've decided that I can save more money by going to Half Price books (or buying them used on Amazon) if I'm buying throw away books.

Another though is about color. I see why it would be important in magazines, and perhaps textbooks if there are color coded charts and graphs, etc. But I fail to see how its going to be important to those of us classified as "heavy" readers. Further, if you think pictures in books are important, are you really going to be reading books to your kids at night from a Kindle?

Thats just my .02.

Jun 02 04:32 PM

[Network Effect:]

This industry is application based, not hardware based. Therefore, a large manufacturer (aka Apple) with a large ecosystem around their devices will win the hardware end of game. I agree, eBooks is going mainstream, just not as a standalone device. It is going mainstream as an application that will be a part of a larger ecosystem. As for the application side, my instincts tell me content providers will eventually go direct through the ecosystem because there will be too many mouths to feed. But they may win this game for a little while and may in fact be the software provider who wins this game. But there are some big names (aka Google) going after this space as well so we will see.

Jun 02 04:39 PM

[Dean M:]

359 for an ereader is ridiculous. 199 would be pushing the upper boundaries for what I think it's worth. I'm surprised not to see Microsoft on your list of potential future players, they seem like a natural given that they developed the true type fonts - also, what good in an electronic device if it doesn't lock up and make you want to smash it.

Jun 02 10:22 PM

[debtacid:]

Imagine how easy it would be to provide a complete K thru university education using this platform. Just add audio and color and there would be no need for the expense and waste of public education.

Jun 03 12:44 PM

[Roger Knights:]

"359 for an ereader is ridiculous. 199 would be pushing the upper boundaries for what I think it's worth."

Then why aren't any of the Kindle's competitors underpricing it?

(Because e-Ink is expensive.)

Jun 07 12:46 AM