E-Readers: The Multipurpose Competition Heats Up

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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.

Edwards is a correspondent in BusinessWeek's Silicon Valley bureau.

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