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Report: Rivals can exploit Kindle shortcomings

Amazon's Kindle will face increasing competition from cheaper and more versatile e-readers over the next few years, says a new Forrester report.

Companies are likely to challenge the Amazon Kindle by unveiling cheaper, more versatile e-readers, moving beyond books, and striking better deals with publishers, according to a report released Monday by Forrester Research.

", leveraging its position as a dominant book retailer, has catalyzed the market for eBooks, but that's just the beginning of the eReader revolution," writes Forrester media and technology analyst Sarah Rotman Epps in the report. "Competitors will attack Amazon's market position by launching new features, expanding content beyond books, dominating markets outside the U.S., reducing costs, and improving relationships with publishers."

The eReader market has been hot, notes the report, thanks to consumers who are hungry for portable and convenient media devices. Around 14.9 million U.S. households regularly buy books online. Among that group, 48 percent earn more than $70,000 a year and spend $28 a month on books, half of them online.

Though Amazon's Kindle and Sony's Reader have carved out the biggest chunk of the market--Forrester estimates sales for the two units hit the million-dollar mark for 2008--other companies have entered the fray. Fujitsu has released a color e-reader in Japan, while Samsung plans to unveil a touchscreen e-reader in South Korea this year. In Europe, Irex Technologies makes a versatile line of e-readers with touchscreens and Wi-Fi.

The Kindle's limitations also pave the way for newcomers, says Forrester. The Kindle is geared toward reading books, but other content can work on an e-reader, including textbooks, newspapers, magazines, comics, and even blogs. Much of that will fuel the need for larger screens, color displays, and the ability to highlight text and write notes. Amazon CEO Jeff Bezos has warned not to expect a color Kindle for many years.

Besides color and bigger screens, the competition will try to distinguish itself from the Kindle by offering touchscreens, animation, and eventually video. Forrester expects color displays to be available by the end of 2010, with video following in 2011 or 2012. The Kindle's lack of social networking also is a weakness, says the report, since people who buy books often like to discuss them with others and offer their reviews and recommendations.

There are other areas where the Kindle faces competition, notes Forrester. Amazon's price tags--$359 for the Kindle 2 and $489 for the Kindle DX--are beyond the budgets of many consumers. Even Sony's e-readers start at $299. With a decent Netbook selling for $300, the report says, e-reader prices will need to come down.

The Kindle is a sales hit in U.S. but lags throughout the rest of the world. Sony and other companies, such as Fujitsu and Irex Technologies, are better positioned to gain from higher worldwide demand for e-readers.

Publishers also have a love/hate relationship with Amazon, says Forrester. They love the Kindle as another profitable way to package their content. But they don't like the way Amazon hoards 70 percent of the profits, leaving publishers with only a 30 percent cut. The report expects other e-reader vendors to slice out better deals with publishers.

Overall, the next five years should see even stronger demand for electronic reading devices, says Forrester, with a large portion of that driven by students once textbooks are more prevalent on the portable format. Global demand, which now adds up to one-third of all e-reader sales, is likely to surge as well.

Research company In-Stat also predicts a soaring e-reader market ahead. As more e-readers are produced, their raw manufacturing costs will drop by 23 percent between 2009 and 2013, according to a new In-Stat report. Technology also will improve, the research firm says: today's e-readers use display technology from E Ink, but the future may see OLED screens to deliver higher-quality readers.