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How badly do the new Kindles hurt B&N?

With Amazon pricing its new Kindle e-ink e-readers and Kindle Fire tablet so aggressively, it places Barnes & Noble in a difficult position with its Nook line. Can it respond?

Barnes & Noble is due to release a new Nook Color shortly, but can it come close to the Kindle Fire's $199 price.

For the last several months, Barnes & Noble had a nice winning streak going. Its $249 Nook Color tablet had been selling very well since its launch last October and its more recently released $139 Nook Touch was considered by many critics, including CNET, the top e-ink reader available--until today, anyway.

Of course, we, like everyone else, were waiting for Amazon's Kindle counterattack, suspecting it had some pretty good stuff up its sleeve. Lo and behold, in many ways it delivered exactly what we were expecting, but what surprised us was how aggressively it priced its new Kindles.

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While we figured its new Kindle tablet would outperform the Nook Color and a new Kindle Touch would equal or better the Nook Touch's design, we just didn't think that Amazon would be able to hit $199 (for the tablet) and $99 for the Kindle Touch (with Special Offers). On top of that, Amazon is now serving up a $79 nontouch, ad-supported Kindle for only $79. (See: New e-ink Kindles compared.)

That was another wow.

Naturally, Barnes & Noble execs don't live in a bubble (at least we don't think they do), and they, too, were well aware that Amazon would come out swinging this holiday season and have been planning the release of the next-generation Nook Color this fall. However, I don't think they were planning for Amazon to put the Fire out at $199 (at least one analyst is claiming that Amazon may take a $50 loss on each tablet it sells).

Barnes & Noble has plenty of customers who are loyal to the company and will buy its products so long as they're good and within $20 of competing models. But things start to turn ugly when you're looking at a $40 to $50 difference. The Nook Touch costs $139, or $40 more than ad-supported Kindle Touch (the Nook Touch is ad-free) and the current Nook Color costs $50 more than the upcoming Kindle Fire. With a big pricing difference like that--and the huge media attention Amazon is getting from the new Kindles launch--it doesn't take a genius to figure out that Nook sales are going to take a hit.

So what should B&N do? Well, it has to stay in the same ballpark as Amazon on pricing. Ideally, of course, it would match Amazon dollar for dollar, but that's probably not realistic. It needs to shave at least $10 off the Nook Touch right now and drop the price of the original Nook Color to $199 or even less.

As for the next-generation Nook Color, it has to offer some feature and design advantages over the Kindle Fire and cost $239 (maximum). Aside from an expansion slot for more memory, we're not sure what features Barnes & Noble could offer in the next-generation Nook Color that would make it more enticing than the Kindle Fire. Its app store is growing but it doesn't have near the amount of selection that Amazon Appstore for Android has. And right now it doesn't have the audio, video, and cloud services Amazon is delivering in the Fire.

Would partnering with Netflix or a music service like Spotify help? Maybe. (The Nook Color already has Pandora, which is good.) And what about adding Bluetooth and a Skype app? The Fire doesn't have Bluetooth or a built-in microphone listed among its specs. Some folks are going to really miss the Blueooth option if indeed it's missing. Sp Barnes & Noble could play up Bluetooth-related features, including the ability to connect to Bluetooth speakers.

While it doesn't have to necessarily match Amazon feature for feature, it does have to show that it has enough there for someone to feel comfortable buying it over the Fire (if you already have a big collection of Nook e-books, obviously that's a big incentive to stay with B&N, but you still need to ratchet up the deal sweeteners).

The company seems to have a little more wiggle room with the Nook Touch's pricing, although we have seen some refurbished Nook Color's being offered for as low as $169, which we assume is slightly more than what it costs to build the unit.

Is Barnes & Noble in deep kimchi if it can't approach Amazon's prices? In a word, yes. However, we'll wait to see what its new Nook Color has to offer--and for what price--before awarding Amazon the knockdown. For the moment, anyway, it seems to be up against the ropes. As it already learned with the Nook Color, price packs a big punch, and $199 hurts. But that doesn't mean it can't come back with a flurry of its own.

We'll soon find out what kind of chin Barnes & Noble has. Hopefully, if it's made out of glass, it's Gorilla Glass.

Editor's note: Article was updated by the author with comments about Bluetooth.