E-book expansion stalled by price

In the story of e-book readers, we're still in the first chapter.

On Monday morning Amazon unveiled its widely anticipated Kindle 2 device at a high-profile event in New York City. The updated, thinner e-book reader included some obvious cosmetic changes from its original Kindle as well as other more evolutionary tweaks. On the same day in the same city, another e-book reader maker, Plastic Logic, looked to stake out territory as the mobile device to read newspapers. Plastic Logic doesn't have a device on the market yet--not until next year--but already it's cementing relationships with newspapers and short-form content aggregators.

At long last there is finally widespread attention cast on a market that's been slowly gaining some momentum. But though the market is expanding, it's still not reached a mainstream audience, and it's going to be longer still until it gets there.

Sales continue to grow (some analysts have pegged Kindle sales at 500,000 units), but e-book readers are still not anywhere near iPod-level penetration of the consumer market. Price is a big part of it.

"The devices are still relatively expensive and appeal to a small group of affluent, avid readers, and the content available to this point has mostly been in line with that target customer," said Ross Rubin, director of industry analysis for the NPD Group.

At $359 for the Kindle, that's a luxury device anyway you look at it. Like most consumer electronic devices, getting below $200 is key to capturing a more mainstream audience. Sony is almost there at $269, but it doesn't have any way of downloading book content wirelessly the way the Kindle does.

But there's a free option now too. Last week Google launched a mobile version of its Google Book Search, giving iPhone and Android users access to more than 1.5 million public domain books. The works of authors such as William Shakespeare, Jane Austen, and Charles Dickens were optimized to be read on the small screen.

And while that was immediately read as a threat to Amazon's e-book store content, it's actually an entirely different proposition. Reading long-form content on a small screen will not appeal to a lot of people, even if it is free, and from the canon of Western literature.

The screens on mobile phones are not optimized for reading text the way e-ink devices like the Kindle, Sony Reader, and Plastic Logic's will be. IDC analyst Richard Shim says books available for free on those devices will appeal for reference, not for settling in for a long read with a cup of coffee, or on an airplane.

"What it does do is it expands the audience," said Shim. "But how much of an audience you can capture is unclear on a less-than-ideal reading device."

Amazon is also looking to make e-books more ubiquitous on other devices besides the Kindle. The company has said it will eventually make its e-books available on cell phones. But again, that's a different model than reading novels or newspapers on e-ink devices. So despite not requiring consumers to pay for a separate device like a Kindle, it's not likely to hurt e-book reader sales for those who plan to read long-form content.

Plastic Logic's plan is still unclear at this point in regard to price. The Silicon Valley company working up a reader device optimized for newspapers: a larger screen, with color displays, and wireless access to newspaper content that's constantly updated. But the looming question is the price. We do know it is aimed more at mobile professionals (it's optimized for document reading too), which signals that this could be on the pricier side. Plastic Logic will only say it plans to be competitive.

But the fact that Plastic Logic is honing in on the newspaper business could provide for some interesting possibilities in regard to business models.

"With newspapers, that's a business model that's broken. They're trying to maintain the audience for that content," said Shim of IDC. "With this technology, (e-readers are) looked at as a potential lifesaver for that industry."

In which case, publishers may want to subsidize the devices for people to keep reading the content, an idea The New York Times recently floated. That would be a great deal for consumers and certainly expand the audience if the price was reasonable.

But while customers certainly like the idea of free or almost free, the value for the content providers is still up in the air, as Shim points out.

"How do you make your money back? They have to get advertisers to buy into the concept," he said. "Plastic Logic has to understand the newspaper business and that there are a lot of question marks around it."

Plastic Logic won't come to market for at least another year, so there's still time to figure out the model. In the meantime, the golden ticket for e-books to officially enter the mainstream is the textbook market, which also appears a long way off.

Getting textbook publishers to embrace them would have the potential, said Rubin, to turn e-book readers from "something that appeals to affluent avid readers to something that could conceivably be used in every household that has a student."

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