Amazon.com kicked off a steep e-reader price war last summer, and another may be in store following the company's announcement Monday that it would lower its price on a new Kindle that will display ads to offset the cost of the sleek device. Analysts say others in the e-reader industry may drop their own prices further, depending on the success of Amazon's (AMZN) ad-supported Kindle efforts.
"The e-reader market is expanding into more of a value-priced category that's approaching $100 [per e-reader]," says Colin Sebastian, an analyst with Lazard Capital Markets. "With advertising, it makes sense to offset the cost of the hardware."
Amazon is introducing its ad-supported Kindle with Special Offers for $114, 18% less than its regular Kindle. Competitors such as Barnes & Noble (BKS) have been toying with the idea of their own ad-supported e-readers, but concerns that the advertisements would distract readers have kept them from moving forward with the concept, says Peter Wahlstrom, a Morningstar analyst.
"A year ago, I asked Barnes & Noble's management if they planned to sell ads and they said said they didn't want to do anything that would disrupt the reading process," Wahlstrom said. "If readers are distracted by the ads, it won't do anyone any good."
But since Barnes & Noble put its Nook Color e-reader on the Android operating system, it has the flexibility to pursue advertising if it chooses to, Wahlstrom noted. He added he wouldn't be surprised if Barnes & Noble was willing to lower its Nook prices if it offered advertising on the device.
Too Small a Price Cut
While some consumers might embrace scooping up a Nook at a lower price, other Nook users say they'd need a much larger price cut than $25. On an independent Nook forum called Nookboards, users chimed in after Amazon unveiled its ad-supported Kindle plans.
Becky, in a post, says:
I wouldn't buy an ad-supported e-reader. It isn't worth it to save only $25 on the device.
Asawi, in a post, says:
Nope! If price was MUCH less, say half price, maybe, but maybe not even then. Hate ads!
Jeffthree, in a post, says:
Dear god no! I remember when SONY started with dynamic IGA (in game advertising), it didn't make me buy anything, it made me play less video games. There's a reason ad-blockers are some of the most popular web-browser add-ons out there. Sure I know there's a history of integrating advertisements with books (almost every '60s pulp paperback in my fathers collection has a full page cigarette ad halfway through) but this is terrible. Sure right now it's not going to be interrupting my reading experience, but what next, how am I to believe that this is where it will end?
I will gladly pay more to have ads kept as far away from my nook as possible. Remember when internet videos (all of them) were entirely ad free, wasn't it nice? Now they're not always just at the beginning, sometimes they interrupt the middle of it and make one wait for it to resume. I sincerely hope others hate the prospect of ads on the Nook as much as I.
During last summer's e-reader price wars, prices fell by roughly 20% to 25%, Wahlstrom said. Barnes & Noble, which sells refurbished Nooks for less than the critical $100 price point, prices its standard Nook at $149 and the Nook Color at $249. The Kobo Wireless Reader, the closest Amazon.com competitor in terms of price, costs $139. The Sony (SNE) Reader Pocket Edition retails for $179, while its Sony Reader Touch Edition sells for $229.99.
While Amazon and its competitors are capable of cutting prices as swiftly as a food processor, retooling their devices for ads and lining up advertisers would take time, Sebastian says. He added that Barnes & Noble, with its Nook Color, may be especially careful as it evaluates such a move, given that it wants to protect its healthy profit margins on the device.
Nonetheless, if Amazon has success with its ad-supported Kindle venture, Sebastian notes: "It'll be a land grab among the e-readers."
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