IPad's Versatility Threatens to Sideline E-Readers

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Amazon isn't the only company whose products are suffering from comparisons with Apple's tablet. The iPad is drawing consumers' attention away from such other dedicated e-book readers as Barnes & Noble's (BKS) Nook, and Sony's (SNE) Reader, analysts say.

devices channel buyers to e-stores

To be sure, the fortunes of Amazon, which reported $24.5 billion in sales last year, won't rise or fall on the Kindle's success. The device contributes a small portion of overall revenues, with analysts estimating that Amazon has sold 2 million to 3 million Kindles since its 2007 introduction.

Still, digital books are a key to Amazon's future as consumers buy more reading material in electronic form. Controlling the device on which that material is read is a way for tech vendors and retailers to steer consumers to their online stores.

In an Apr. 12 report, Goldman Sachs (GS) said e-book sales will more than quadruple from 2010 to 2015, reaching $3.19 billion. Goldman predicted that Apple's share of the e-book market would more than triple, to 33% in 2015, and forecast that Amazon's share would fall to 28% in 2015, from 50% this year.

Shares of Amazon gained 1.14, or 0.8%, on Apr. 12 to close at 141.20. The shares have gained nearly 5% this year, compared with an 8.3% increase in the Nasdaq Composite Index.

Apple has emphasized the iPad's reading capability in its TV ads. At an Apr. 8 press conference at Apple's headquarters, Chief Executive Steve Jobs said iPad owners had downloaded more than 600,000 e-books for the device. Apple spokesman Tom Neumayr had no comment on Apple's strategy for competing with the Kindle.

Apple's rivals in the e-reader market are taking steps to fight back. Barnes & Noble on Apr. 12 said it will begin selling the Nook in 1,070 Best Buy (BBY) stores and through the retailer's Web site.

Kindle: lighter and no network charge

Steve Haber, president of Sony's digital reading business, said in an e-mailed statement that "the introduction of a tablet device, which includes digital reading as part of its functionality, is a good thing for the digital book business."

Amazon spokesman Andrew Herdener wouldn't comment on future product plans. He says the Kindle's light weight (two-thirds of a pound for the smaller model, vs. 1.5 lbs. for the iPad) and ability to download books without incurring cellular network charges constitute advantages over the iPad.

Three initial iPad models can connect to the Internet via WiFi to download books and magazines, run applications, and browse the Web. Three additional models due later in April will connect to AT&T's cellular network for additional charges of $15 or $30 per month.

Offering third-party applications for the Kindle could help keep buyers interested. In January, Amazon let developers start creating Kindle apps, which Amazon says will be available later this year. Developer Sonic Boom is building word games and puzzles. Handmark is creating a Zagat-branded restaurant-ratings guide, according to Amazon.

Amazon has also been distributing software for Research In Motion's (RIMM) BlackBerry smartphones, Apple's iPhone, and—yes—the iPad, that let users of those devices read the more than 480,000 digital titles Amazon is selling. "Being able to offer Kindle on other devices buys Amazon some time and keeps [Kindle] relevant," IDC's Kevorkian says.

To compete with Apple's iPad, Amazon will need to keep finding innovative ways to draw readers to its digital books—and must roll some of them out soon.

—With Joseph Galante in San Francisco

Kharif is a reporter for Bloomberg BusinessWeek in Portland, Ore.

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