E-Readers: The Multipurpose Competition Heats Up

Electronic book readers aren't just for books anymore. Just how widely e-book readers may soon be used became clearer on Sept. 23. That's when news that a little-known electronics manufacturer plans to enter the market in November was quickly overtaken by leaked photos that indicated Microsoft (MSFT) has also set its sights on the e-book market.

First came the announcement that iRex Technologies will soon release the first device that lets users wirelessly download books from anywhere in the world. The $399 iRex reader will feature an 8.1-inch screen and run on the Verizon Wireless network in the U.S. Using technology by chipmaker Qualcomm (QCOM), the device will also be capable of tapping into content from other wireless networks. "IRex's strategy, based on giving consumers choice, and the partnerships we have in place make it easier for them to purchase a device, access content, and enjoy it wherever they are," says Kevin Hamilton, CEO of the company's U.S. division.

Hamilton and his cohorts didn't have long to bask in the publicity, though. The same day, online tech-gadget site Gizmodo reported that Microsoft is working on a dual-screen booklet-shaped device code-named Courier that uses both a stylus and finger gestures to operate. Microsoft's device appears to boast touchscreen capabilities similar to those in Sony (SNE) electronic book readers, but in color.

More Tablet-Style Readers Expected Just three years after Sony launched the first widely available reader and accompanying e-book store, announcements of these new tablet-style gadgets are coming fast and furious. Apple (AAPL), too, is expected to release an e-book-friendly tablet computer in the coming months. Like Sony and Amazon.com (AMZN), maker of the Kindle, these new entrants are eager to tap what's expected to be explosive growth in demand for machines that let consumers read content anywhere. The U.S. market alone will grow to 13 million devices in 2013 from 3 million this year, according to Forrester (FORR).

But there's more to the effort than simply giving consumers a new way to read. Many of the latest devices are being sold with a free mobile broadband connection that lets people quickly connect to online stores and download all kinds of content, including music, photos, and video. With consumers increasingly embracing on-the-go electronic transactions, manufacturers are racing to add color screens as soon as next year that will be better-suited to selling clothing and magazines and delivering digital coupons.

Retailers Seek Opportunities Retailers see other big benefits. The devices boast screens that are larger and more readable than those on Apple's iPhone and other smartphones, which has become one of the fastest-growing consumer electronics categories. While Best Buy (BBY) and other retailers make money selling phones, they're increasingly being locked out of the market for selling content delivered to those phones. Their plight is made more urgent by the proliferation of online app stores from Apple and its many imitators—from Nokia (NOK) and Research In Motion (RIMM) to Microsoft and even Intel (INTC)—which threatens to hasten a decline in traditional retail sales of movies, music, and games.

So, retailers are entering into partnerships with device makers to promote digital readers and other tablets. They hope to benefit in two ways—first through in-store sales of the devices themselves, but also through online delivery of content and other products. Best Buy, for instance, recently purchased the online music service Napster and is partnering with online movie seller CinemaNow to offer music and movie downloads to devices. "We want to have the same sort of success that we have selling devices today with the content and services market, where we may not necessarily be the leader," says Chris Homeister, a Best Buy senior vice-president.

Software and hardware makers also want to extend social networking and other popular applications to larger-screen devices.

Wireless Carriers Could Raise Usage Fees All these hopefuls hope to succeed in an area where many tech titans have stumbled. Tablets have taken off in narrow niches, such as construction and nursing. Last year, U.S. tablet sales fell by 15% to 711,000 units amid the global recession, according to consultant IDC. They began to recover in the second quarter of 2009, thanks to an influx of federal stimulus money to industries such as health care, where tablets are used.

Wireless carriers could be a spoiler in growing the market. The major carriers initially have embraced the lucrative data connections associated with e-readers and similar devices because they offer a new source of revenue to recoup the billions of dollars spent building third-generation cellular networks. But as the devices expand beyond books and connect more frequently with their networks to receive content, analysts say wireless carriers may begin to require customers to pay additional usage fees. Consumers already reluctant to shell out a few hundred dollars for a tablet may really balk when they're asked to pay ever-higher monthly cell-phone bills.

For now, makers of traditional digital readers profess to welcome all the competition. "To be a really massive market, you've got to get a lot of devices out there and a lot of people talking about them," says iRex's Hamilton.

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