Sony formally unveiled two new e-book readers today, slightly ahead of schedule because details of the announcement began to leak on the web. The big news: one of the two models is priced at $199, a hundred bucks cheaper than the least-expensive Kindle (the fancier Sony device goes for $299). Clearly, Sony’s strategy is to position its Reader as a more mass-market friendly device by getting under the Kindle in price.
“They are not trying to beat Amazon at its own game—they are trying to redefine the terms of the game,” Forrester Research analyst Sarah Rotman Epps told the Wall Street Journal. “Where Amazon went bigger with the Kindle DX, they’re going smaller.”
Fair enough, but trying to compete on price in the e-reader market is likely to prove a tough nut. First, Sony isn’t the only one trying to work the low-end side of the street. UK-based Interead introduced its Cool-er e-reader earlier this year is also playing the price game.
The bigger problem for Sony, though, is the cost of manufacturing e-book readers. It ain’t cheap.
As I detailed in a new report on the e-book market that was released yesterday byGigaOm Pro (subscription required), the essential technology in e-book readers is the electrophoretic electronic-paper display (EPD), which uses reflective electronic ink on a static background to produce the image, rather than electronic pixel elements on a backlit screen. That makes the experience of reading more like ordinary ink on paper and yields a huge savings in power consumption.
According to a tear-down analysis by iSuppli Corp., the EPD is by far the most expensive item in Amazon’s $177 bill-of-materials for its $299 Kindle (Amazon claims the BOM is much higher than $177), at $60, followed by the wireless broadband module at $40.
Trouble is, there are very few places in the world from which to source EPDs. The critical, e-ink technology was developed and is owned by E-Ink, a start-up spun off from MIT’s Media Lab, which is now owned by Prime View International of Taiwan. Nearly all EPDs used in e-book readers are made by E-Ink, including those in the Kindle, Sony’s readers, the Cool-er and the upcoming reader from Plastic Logic. And nearly all the finished e-book devices are assembled by PVI.
Clearly, no one is going to gain most-favored nation status from PVI ahead of Amazon, which means everyone is going to be starting with more or less the same EPD cost. Given that most of the other elements in the device (processors, battery, storage, etc.) are essentially commodities, it’s going to be difficult for anyone to maintain a significant price advantage for long.
The one place you can go to achieve some meaningful savings is the wireless module. And in fact, that’s what both Sony and Interead have done. They’ve dropped wireless connectivity from their devices in order to hit a lower price point.
Dropping wireless, however, involves a significant trade-off. Getting e-books onto either the Sony devices or the Cool-er involves downloading them first to a PC or other Internet connected device and them transferring them to the reader. That’s far klugier than the Kindle’s elegant interface and immediate gratification.
Sony says it plans to introduce an e-reader with wireless capability in the future, as I’m sure it will. But that will mean giving up its price advantage.
One other bit of news in the Sony announcement: Sony is dropping the price of many bestsellers in its e-book store from $11.99 to $9.99, matching Amazon and the recently announced e-book store from Barnes & Noble. Publishers take note: the price of an e-book is now $9.99. End of story.