Why eBook Reader prices will continue to fall

On June 21, Barnes and Noble lowered the Nook 3G/Wi-Fi price from $259 to $199 and introduced a WiFi only version for $149. The same day, Amazon lowered the price of its Kindle 2 from $259 to $189. Many in the media asked if this was the beginning of a price war. Without question, it is. Some have assumed that the highly successful Apple iPad is driving this. It is, but not in the way you may think.


IMS research: excellence in market intelligneceOn June 21, Barnes and Noble lowered the Nook 3G/Wi-Fi price from $259 to $199 and introduced a WiFi only version for $149. The same day, Amazon lowered the price of its Kindle 2 from $259 to $189. Many in the media asked if this was the beginning of a price war. Without question, it is. Some have assumed that the highly successful Apple iPad is driving this. It is, but not in the way you may think.

Until recently, eBooksellers like Amazon and Barnes and Noble were using profits from the sales of their eBook readers to subsidize losses on their eBook sales. While Amazon was selling eBooks for $9.99, it had to pay publishers the difference between their sales price and 50% of the hardcover price. So, for a $26.99 book, they owed the publisher $26.99/2 minus $9.99 or $3.50. As a result, eBook reader prices and margins were high so that eBooksellers could subsidize their eBook losses. 

Apple, not in the business of losing money on content, brought a different concept to publishers with its iPad. They approached publishers with the idea that they would sell books at the price set by the publisher and take a 30% commission. This approach, known as the agency model, appealed to publishers as it gave pricing control back to them. Publishers were uncomfortable letting a single publisher, Amazon, have so much control in the eBook world. They also didn’t like the $9.99 price point. They didn’t want consumers to get too attached to this price. So, when Apple launched its iPad and iBookstore, eBook prices were around $13 or approximately 50% of the hardcover price. But rather than the publisher getting all $13, the publisher would only get 70% of $13 or around $9. Thus, publishers are actually taking less money in the agency model, ~$9 vs. $13.50, but they feel more comfortable with it in that they set the prices and hope to make up for it with wider distribution through the iPad and other devices. 

A few weeks after the iPad was launched, most book publishers cut deals with Amazon and Barnes and Noble to also embrace the agency model. We believe Amazon was initially against it as they had trained their customers to expect the $9.99 price. Their eBook listings now state that the price is set by the publisher if it is above $9.99. 

As a result, eBook publishers like Amazon and Barnes and Noble are now making rather than losing money on every eBook sold. Therefore, there is little reason for them to keep their eBook reader prices high, especially given intense competition from the growing number of eBook reader suppliers and the iPad. Now that they make money on every eBook, they might as well be as aggressive as possible with their eBook readers to capitalize on the eBook downloading opportunity. 

When the Kindle 2 was first launched, it had 48% gross margins based on cost estimates from teardowns. In addition, PVI, now known as E Ink Holdings, which is the leading eBook frontplane and display supplier, earned 30% gross margins in Q1’10. Thus, there is a lot of room for additional price reductions and strong incentives to get eBook readers in as many hands as possible. 

We believe both eBook readers and the iPad are terrific devices that have their place in the market. We believe the iPad serves as an excellent tablet, a nice low-end to mid-range laptop, a companion to a higher performance laptop and as a high-end eBook/eMagazine/eNewspaper reader. It is a multi-functional device that offers a nice display for indoor reading and has enough battery life at 10 hours for many people. We believe the iPad will shrink the market for high-end eBook readers as well as rigit eMagazine/eNewspaper readers. It also creates a new book category, the video book, which is exciting to publishers. Imagine the Guinness Book of World Records with a link to each record being established resulting in a full-color video being played. Conventional eBooks can’t do that.  However, it is also loaded with numerous distractions, games, videos, email, web, etc., that cause people to stop reading. 

Conventional eBook readers with bistable displays offer a longer battery life, a better outdoor reading experience, less glare/eyestrain, a lighter form factor compared to the iPad at 1/2 the weight and 1/3rd the thickness and a lower cost and price. We think the competition with Apple will cause eBook readers to trend toward smaller sizes and lower price points. Although color and video will help to compete with the iPad, it will be important to minimize any cost increases and create as wide of a pricing gap as possible. As a result, we expect 6” and 5” sizes and monochrome to continue to dominate.

As we indicated in the first issue of our Quarterly eBook and iPad Shipment and Forecast Service, we expect 2010 iPad shipments to reach 11M units. Apple is looking to rapidly ramp its production in Q3’10. We expect price moves in the eBook reader market to result in shipments of 15M units. 

For a quarterly view and forecast on iPad and eBook frontplane, display and device shipments and prices, please take a look at our Quarterly eBook and iPad Shipment and Forecast Service.

Top Plant
The Top Plant program honors outstanding manufacturing facilities in North America.
Product of the Year
The Product of the Year program recognizes products newly released in the manufacturing industries.
System Integrator of the Year
Each year, a panel of Control Engineering and Plant Engineering editors and industry expert judges select the System Integrator of the Year Award winners in three categories.
October 2018
Tools vs. sensors, functional safety, compressor rental, an operational network of maintenance and safety
September 2018
2018 Engineering Leaders under 40, Women in Engineering, Six ways to reduce waste in manufacturing, and Four robot implementation challenges.
GAMS preview, 2018 Mid-Year Report, EAM and Safety
October 2018
2018 Product of the Year; Subsurface data methodologies; Digital twins; Well lifecycle data
August 2018
SCADA standardization, capital expenditures, data-driven drilling and execution
June 2018
Machine learning, produced water benefits, programming cavity pumps
Spring 2018
Burners for heat-treating furnaces, CHP, dryers, gas humidification, and more
October 2018
Complex upgrades for system integrators; Process control safety and compliance
September 2018
Effective process analytics; Four reasons why LTE networks are not IIoT ready

Annual Salary Survey

After two years of economic concerns, manufacturing leaders once again have homed in on the single biggest issue facing their operations:

It's the workers—or more specifically, the lack of workers.

The 2017 Plant Engineering Salary Survey looks at not just what plant managers make, but what they think. As they look across their plants today, plant managers say they don’t have the operational depth to take on the new technologies and new challenges of global manufacturing.

Read more: 2017 Salary Survey

The Maintenance and Reliability Coach's blog
Maintenance and reliability tips and best practices from the maintenance and reliability coaches at Allied Reliability Group.
One Voice for Manufacturing
The One Voice for Manufacturing blog reports on federal public policy issues impacting the manufacturing sector. One Voice is a joint effort by the National Tooling and Machining...
The Maintenance and Reliability Professionals Blog
The Society for Maintenance and Reliability Professionals an organization devoted...
Machine Safety
Join this ongoing discussion of machine guarding topics, including solutions assessments, regulatory compliance, gap analysis...
Research Analyst Blog
IMS Research, recently acquired by IHS Inc., is a leading independent supplier of market research and consultancy to the global electronics industry.
Marshall on Maintenance
Maintenance is not optional in manufacturing. It’s a profit center, driving productivity and uptime while reducing overall repair costs.
Lachance on CMMS
The Lachance on CMMS blog is about current maintenance topics. Blogger Paul Lachance is president and chief technology officer for Smartware Group.
Material Handling
This digital report explains how everything from conveyors and robots to automatic picking systems and digital orders have evolved to keep pace with the speed of change in the supply chain.
Electrical Safety Update
This digital report explains how plant engineers need to take greater care when it comes to electrical safety incidents on the plant floor.
IIoT: Machines, Equipment, & Asset Management
Articles in this digital report highlight technologies that enable Industrial Internet of Things, IIoT-related products and strategies.
Randy Steele
Maintenance Manager; California Oils Corp.
Matthew J. Woo, PE, RCDD, LEED AP BD+C
Associate, Electrical Engineering; Wood Harbinger
Randy Oliver
Control Systems Engineer; Robert Bosch Corp.
Data Centers: Impacts of Climate and Cooling Technology
This course focuses on climate analysis, appropriateness of cooling system selection, and combining cooling systems.
Safety First: Arc Flash 101
This course will help identify and reveal electrical hazards and identify the solutions to implementing and maintaining a safe work environment.
Critical Power: Hospital Electrical Systems
This course explains how maintaining power and communication systems through emergency power-generation systems is critical.
Design of Safe and Reliable Hydraulic Systems for Subsea Applications
This eGuide explains how the operation of hydraulic systems for subsea applications requires the user to consider additional aspects because of the unique conditions that apply to the setting
click me