The Tablet Wars Get More Interesting

Kindle Fire
Kindle Fire

If (AMZN) wants a price war, Barnes & Noble (BKS) is ready to play.

The struggling real-world bookseller announced this week that it's offering an 8-gigabyte version of its Nook tablet for the same $199 price point as Amazon's Kindle Fire.

Markdown Madness

Amazon made waves this past holiday season with the entry-level tablet, a gadget that sold millions last quarter. The $199 tablet continues to sell briskly. "The #1 best-selling product on Amazon," reads a plug for the Kindle Fire on the website's homepage.

Barnes & Noble tried to raise the stakes by giving its tablet double the storage capacity, but the $249 price for 16 gigabytes probably made it a hard sell. Barnes & Noble isn't giving up on the bigger gig version: It'll continue to offer the original $249 Nook. But now it also has a tablet to meet Amazon head-on in terms of price and storage capacity.

To give the new Nook tablet some breathing room at $199, the color e-reader that Barnes & Noble was selling for $199 will drop down to $169.

For That Kind of Money, What About an iPad?

This week's Nook news isn't the only thing on the horizon.

Apple (AAPL) is widely expected to unveil the iPad 3 early next month.

It goes without saying that the iPad 3 is going to once again raise the bar on the world's best-selling tablet. The display should improve. The dual cameras should get better. Its raw processing power will surely get a boost.

However, it's not what Apple will do with the iPad 3 that will influence where Amazon and Barnes & Noble go from here. The real mystery here is what Apple will do with the iPad 2. Many are speculating that instead of retiring the older model -- as it did when the iPad 2 replaced the original iPad -- Apple will let the iPad 2 stick around at a reduced price point.

The iPad 3 is all but a lock to stick to the $499 base price, but what happens if the iPad 2 lingers at $399, $349, or even $299?

Apple isn't desperate enough to hit $299, but $399 is a strong possibility. Apple now does this with its annual iPhone updates, so it's really just a matter of time before this carries over to tablets. Shaving its price down to $399 will narrow the sticker shock that separates Apple's from cheaper entry-level tablets.

Fire's Getting Bigger

But it may not be just Barnes & Noble and Apple hitting the market with new tablets in the coming weeks.

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Asia's DigiTimes is reporting that Amazon has placed orders for a 10-inch Kindle Fire that will begin shipping next quarter. The current generation of entry-level tablets put out by Amazon and Barnes & Noble are just cheaper 7-inch versions. A 10-inch Fire would help Amazon compete with the similar iPad in terms of size.

At a time when many classrooms are considering switching to digital textbooks on tablets, it's important for Amazon to make sure that it has a product on the market that can compete with the larger iPad.

These are interesting times, indeed.
Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Apple and Motley Fool newsletter services have recommended buying shares of Apple and, as well as creating a bull call spread position in Apple.

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