A good old fashioned price war a day keeps competitors away. At least that’s what Amazon (Nasdaq: AMZN) and Barnes & Noble (NYSE: BKS) are hoping by slashing prices of their e-readers in response to Apple’s (Nasdaq: AAPL) game-changing iPad.
Unfortunately, making the Kindle and Nook cheaper harms Amazon and Barnes & Noble more than it helps for the following 5 key reasons:
- The premium branded e-readers now feel like discount electronics which can be found in the sketchy no-name shops in New York City;
- Amazon and Barnes & Noble have essentially admitted they are second tier players in the e-reader game and their devices cannot compete head-to-head with the iPad;
- Current Kindle and Nook owners will feel as though the deep price cuts make them stupid for paying a premium for what’s now a significantly cheaper device while their buddies show off the superior features of the iPad;
- Wall Street will now expect both companies to scurry to release a device with the same capabilities of the iPad; and,
- Profit margins on the core devices will now recede faster than the hairlines of Jeff Bezos and Steve Jobs.
At the moment, I imagine Amazon and Barnes & Noble have their R&D teams working around the clock to create a competitor to the iPad. It will be interesting to see if at least Amazon will ironically emerge as a competitor despite Apple’s intention to bury the now seemingly clunky Kindle. Hopefully these price wars will be good for The People.
Disclosure: No positions.