Amazon's Kindle in Crosshairs as Barnes & Noble Cuts Nook Prices

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 |  Includes: AMZN, BKS
by: Larry Dignan

Barnes & Noble (NYSE:BKS) cut prices for its nook e-reader from $259 to $199 and introduced a $149 Wi-Fi version in a move to put pressure on Amazon’s Kindle and grab more market share.

The move is likely to put Amazon (NASDAQ:AMZN) on the defensive and the e-commerce giant appears to have been either caught flat-footed or resting on its early Kindle lead. Many folks have noted that Apple’s iPad is a dedicated e-reader killer, but let’s exclude Steve Jobs & Co. from the picture. Even excluding Apple, Amazon looks a bit behind the curve on e-readers.

Consider the following:

  • Barnes & Noble is using its stores for nook distribution and has integrated the device with its retail experience nicely. Barnes & Noble also inked a distribution deal with Best Buy.
  • Sony’s Reader franchise also enjoys broad distribution and hits multiple price points ranging from $169.99 to $349.99.
  • Meanwhile, Amazon lacks a Wi-Fi only option and will run you $259. Amazon did do a retail distribution deal with Target and has only just started running ads to promote the Kindle. These ads also indicate that Amazon needs to promote the Kindle more. Before the nook, iPad and better competition, you’d never see Amazon promoting the Kindle in the back of Business Week and other magazines and on TV.

And now Amazon is going to look like its playing defense again. Amazon will have to cut prices. I’ve been researching e-readers for a few weeks now. The difference between the $259 price point and $199 is huge. At $199 and lower, you figure you can get ROI in a year while you ponder whether you want or need an iPad (assuming you primarily intend the device to be for reading). Sony (NYSE:SNE) with its multiple price points was gaining traction in my little buying/research experiment.

Now the nook may be back on the table. The Wi-Fi version—the current nook minus 3G—will offer complementary AT&T (NYSE:T) hotspots and at $149 looks like a good deal.

The big point here is that Amazon’s Kindle is off the table at $259—unless of course that price falls.

Simply put, price matters, but ultimately Amazon needs to cook up Kindle 3 and quickly. If Amazon doesn’t move the needle again on e-reader innovation it’s going to be stuck playing a game where price is the only real differentiation.

Stifel Nicolaus analyst George Askew said in a recent research note:

We believe Kindle’s retail presence signals a need for Amazon to combat the popularity of Apple’s iPad. The Target partnership provides Amazon the ability to display the Kindle to consumers in a physical retail environment. We believe that Kindle’s availability at Target should mitigate competition from Sony’s eReaders. Sony sells multiple eReaders through Target at price points of $169.99 and $199.99. The pricing difference notwithstanding, we believe that Amazon’s eBook network, and wireless connectivity, make it an attractive alternative to Sony’s eReaders.

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