For e-Book Readers, the Price Is Not Right

ebookThe introduction of e-book readers to challenge Amazon’s Kindle has brought new price competition to the market. The launch of Sony’s $199 Reader and Interead’s $249 Cool-er prompted Amazon to drop the price of its introductory-level Kindle 2 to $299 from $359 within months of its debut. But prices still have a long way to go before e-book readers get beyond the early adopter demographic, according to a study released this week by Forrester Research.

Even among frequent readers with a household income above $75,000, current prices put e-book devices firmly in the expensive luxury category. Forrester’s survey of 4,700 online consumers in the U.S. found average consumers believe the value of e-book readers to be between $50 and $99, well below the cheapest reader on the market today. Only 14 percent of consumers said that prices of $199 or higher fall even within the “It’s expensive but I might consider it” range, according to Forrester.

“The maximum addressable market for e-readers as they are currently priced is substantial — but to reach the largest market possible, the prices will need to come way down,” Forrester analyst Sarah Rotman Epps wrote in a blog post about the report. “And even then, e-readers are never going to be as big a market as MP3 players, which 110 million U.S. consumers own.”

So how quickly will e-book reader prices come down? Probably not very. The most expensive component in an e-book reader is the electrophoretic electronic paper display (EPD) that gives the screen its ink-on-paper look. Most of the technology underlying EPDs is controlled by E-Ink, a spinoff of the MIT Media Lab that was acquired in June by Prime View International of Taiwan. Nearly all EPDs used in e-book readers today are made by E-Ink, including those in the Kindle, the Sony Reader, the Cool-er, and the Plastic Logic reader slated to launch next year. Most of the devices themselves are assembled on an OEM basis by Prime View. Beyond the display, most of the other components in an e-book reader, such as the battery, the NAND flash memory chips and processors, are off-the-shelf. While the cost of manufacturing EPDs will surely come down as volumes increase, prices aren’t likely to decrease substantially until someone besides E-Ink starts making them.

The one component in an e-reader where manufacturers have some cost flexibility is the wireless broadband module (GigaOM Pro, subscription required). The Cool-er and the low-end Sony Reader lack wireless modules, allowing the manufacturers to take some cost out of the finished good. But sacrificing the wireless module also means giving up one of the most attractive features of the Kindle and other high-end devices: the ability to download e-books directly from the device.

Asking consumers to pay the full price of an e-book reader is not necessarily the only model available to device makers, however. Plastic Logic, for instance, is looking to target enterprise buyers by tailoring its reader for business applications, much as Research In Motion targeted corporate buyers in the initial phase of BlackBerry sales. Today, most BlackBerrys are purchased by consumers.

Another option is for 3G wireless providers to subsidize the cost of e-book readers to consumers in exchange for extended service commitments, just as they do today with the mobile phones. Perhaps the best model for device makers, though, is to add functionality to e-book readers, such as support for subscription services, social networking and document annotation, which could add value even if prices can’t come down. If e-book readers can become more than single-purpose devices for reading the latest Stephen King novel, they may not need to break the $100 price barrier to catch on with consumers.