E-Readers Everywhere: The Inevitable Shakeout

Johnny Makkar is intent on buying a digital book reader. Yet he won't consider any of the more than two dozen new devices introduced in recent months, many of them at the just-completed Consumer Electronics Show in Las Vegas. For Makkar, a resident of Fairlawn, N.J., with a background in marketing, only two manufacturers will do, and one has yet to unveil a reader. "I want the e-book buying process to be as effortless as possible," says Makkar, 26. "Only Apple (AAPL) or Amazon (AMZN) are going to be able to provide that." Standing out may prove challenging for many new entrants to the market for e-readers, expected by Forrester Research (FORR) to double to 6 million devices this year. "Half the e-readers that have been announced [at CES] won't be around a year from now," says Forrester analyst James McQuivey. At CES, some e-reader hopefuls played to niche audiences; Plastic Logic pitched its QUE to business users. Others played up tech breakthroughs; Spring Design introduced a dual-screen device called Alex. All are vying against Sony (SNE), which pioneered e-readers with its first device in 2005, and Amazon, which has been selling versions of its Kindle for just over two years. Forrester expects Kindle sales to reach 3 million and Sony to sell from 1.5 million to 2 million e-book readers in 2010. Even the established vendors could lose buyers this year. Apple is expected to put out a tablet computing device that many analysts expect to include the ability to read digital books. "We are in a market where consumers no longer believe in one device serving one industry or one function," says Forrester's McQuivey. Single-purpose products such as the Kindle might be ignored by customers who prefer a multipurpose device from Apple. Plastic Logic's QUE: an "unmet need?"Upstarts may benefit from focusing on specific kinds of customers. For instance, enTourage Systems said school textbook publishers will custom-format several books for its new device, the eDGe, which was demonstrated at CES. With its QUE proReader, Plastic Logic included a large touchscreen reader and the ability to store and view business documents such as those made with Microsoft (MSFT) Excel and Adobe Systems (ADBE) PDF software. "If I'm starting from scratch, I'd probably go after one of the niches," says Citigroup (C) analyst Mark Mahaney. Plastic Logic CEO Richard Archuleta says the company doesn't intend to compete with the existing e-reader makers. "Amazon proved that you could build a business out of this," Archuleta says. "Our concept was always to meet this unmet need and create this new category that we didn't think anybody was focused on."At $649, the QUE may carry too high a price, even for business executives, McQuivey says. "None of them are telling me they're buying it," McQuivey says of his clients. Some companies say they're unafraid to go after the broader market. Spring Design, started in 2006 by former engineers from Intel (INTC) and Sandisk (SNDK), has contracted with Taiwanese manufacturer Quanta Computer to produce 120,000 units of its Alex e-reader. The device, set to sell for $359 starting in February, combines a 6-inch electronic reading screen that's almost identical to a Kindle screen with a smaller, adjacent one that runs Google's (GOOG) Android operating system. The setup lets readers take a break from a novel to research an author or related topic on the Web and gives them the option of viewing one window at a time, or both at once. Eric Kmiec, vice-president of sales and marketing for Fremont (Calif.)-based Spring Design, admits that the wide variety of e-readers on the market probably won't last. "I think there's going to be a couple clear winners," he says. Hearst's Skiff for "the service side"Hearst is hedging its bets with a service called Skiff, which brings magazine and newspaper content to many different devices. The New York publishing company was in Las Vegas to unveil the first prototype of its elegant Skiff Reader, a device that uses a Marvell (MRVL) processor and an 11.5-inch screen made by LG of South Korea. Skiff President Gil Fuchsberg says Hearst is trying to entice publishers, in part by letting them place ads beside content and share in revenue generated by them. Fuchsberg predicts that 60 million to 100 million people will be using dedicated reading devices in the next 5 to 10 years, so it's unwise to bet on one or two devices this early. "Nobody has a crystal ball," he says. "However the market evolves on the device front, our focus is on the service side of it." Samsung, intent on selling hardware, announced two new e-book devices in Las Vegas. Ranging in price from $399 to $699 and shipping sometime in early 2010, the products are aimed at helping the South Korean electronics maker keep up with its Japanese rival, Sony. Samsung may run into the same hurdles as Sony, says Forrester's McQuivey. "Sony's principle challenge in this business is that they're not good at content," he says. Many customers say Amazon's Kindle bookstore makes it easier than Sony to buy books online. "Samsung is not any better at content," McQuivey adds. Samsung spokesman Jason Redmond says his company stands a good chance of succeeding, even if Apple enters the market. Apple "will be a formidable competitor, but I don't think it will replace or wipe out the e-reader," Redmond says. Apple spokesman Steve Dowling declined to comment on speculation over future products from his company. Amazon won't sit by as rivalry accelerates, Mahaney of Citi says. He expects the price of the Kindle, now at about $260, to drop. Amazon spokeswoman Cinthia Portugal declined to comment on a potential price decrease, but Mahaney suspects the price could fall to as little as $100 this year. That's a number even such would-be Apple customers as Makkar might find hard to resist.

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