Like the reptile that inhabits the namesake river and has outlived its Cretaceous ancestors, Amazon and its Kindle will remain the sole survivor of the eReader apocalypse.
Was that a Discovery-channel enough of an introduction for you? No? Well to hell with it then, go cue up Shark Week on your DVRs.
Today Amazon issued a major retaliation in the price war which Barnes & Noble started over e-Reader units just over a month ago -- it announced two new and lower cost Kindle units that would begin shipping in late August and primed for the upcoming holiday season.
The Kindle 3.0 will come in two versions, a Wi-Fi only model for $139.00 and a model with both Wi-Fi and 3G for $189.00, which now matches features, is slimmer and lighter and also cheaper than its direct competitor, the Barnes & Noble Nook.
Well, to be perfectly honest, I still believe that multipurpose devices such as the iPad and low-cost Android tablets will eventually eradicate this dedicated eReader market entirely, like the meteor that plowed its way into the Yucatan 65 million years ago and laid waste to almost all life on this world. But more on that later.
Of course, I knew well ahead of time that these price cuts were going to happen, and the actual "death" of the Kindle was actually going to be a slow and agonizing one. Alas, Bloomberg decided to take me to task for that today for declaring Kindle's obituary a bit too early.
Also Read: iPad Killed Kindlenomics
As I said in my previous piece, the war of price cuts will eventually result in a situation where the margins on these devices reach zero. $139.00 clearly isn't zero margin. What is zero margin, then?
Well, I think it's around $99.00.
If you assume that the E-Ink Vizplex screen, the most expensive component costs Amazon and B&N between $60-$70, then we can also assume that the support electronics, lithium ion battery and casing are around $20-$30, and marketing overhead per device is around $10, then that gets us pretty close to that $99.00.
I expect that around the same time in August of 2011, or maybe around the holiday season of next year we will indeed hit that $99.00 number for Wi-Fi eReaders. I believe Amazon is the only company that is able to stomach selling their device at margin or almost at a loss, because they can sell a ton of content on a ton of readers at that price. For a while, but not indefinitely.
We might even see this rock-bottom price surface earlier for "Prime" members who pay the $80 a year privilege of getting free 2-day shipping on virtually everything in Amazon's inventory, or for new Amazon credit card sign-ups. At $99, as a Prime member, even I would have to say uncle and call it a no-brainer.
As of the release of Kindle 3, I'm quite certain that SONY is out of the race entirely. They haven't been able to match the features or the content of Kindle or Nook at the previous price points let alone the new ones from a month ago. I expect that as a species, the SONY Reader is going to be fossilized before the holidays. To the La Brea Tar Pits with you.
I believe that Barnes & Noble will have to drop the price of their Wi-Fi Nook accordingly before this holiday season, from $149 to $129.00. At that price, B&N may very well hit its zero margin threshold because its purchasing power can't be anywhere near as good as Amazon's when it comes to bulk component costs.
So when Amazon eventually does pull the trigger and go to $99, the Nook as a device will almost certainly be history. Barnes & Noble should continue pursuing their innovation with their excellent iOS and Android apps and concentrate entirely on content sales at that point. They have a year to sell out remaining Nook inventory, but they would be foolish to invest in newer hardware designs post-release of Kindle 3.
As the sole survivor of the price war apocalypse of 2011, Kindle will enjoy total domination and nearly complete monopolization of the eReader device category. That is, until the sub-$150.00 7" Froyo-based Android Tablet devices and "iPad mini" arrive. Both use software platforms that can currently run Kindle and Barnes & Noble ebook software, and eventually they will start to eat into sales.
Android may not be much of a tablet player now, but this time next year, when there are over 150,000 apps and the software is running very solid, things could very well be different.
What iPad mini, you say? If you believe current industry scuttlebutt, LG, the current supplier of displays for the iPad, is running fresh out of IPS LCD screens in multiple sizes and is finding difficulty in meeting demand. That points towards a smaller and presumably less-expensive iPad which will be announced sometime next year. I expect the device to sell between $299.00 and $349.00 for the entry-level version. I first postulated we'd see this device next year back in April. We'll see if it proves correct.
With pressure coming from Android in similar price points to a zero-margin Kindle and from a year-old and highly mature iPad application ecosystem, not to mention mature Kindle software for both Android and iPad, only the most absolutely hardcore E-Ink fans are going to stick around with a dedicated device.
Indeed, to continue to drive demand for the product, Amazon's last resort may be to give the device away for free to Prime customers -- a move that is probably around a year and a half to two years away. But until then, the Kindle is going to be the veritable Crocodile of the Amazon, the only surviving member of its species from a pre-historic age.
Will the Kindle emerge as the sole survivor of the eReader Apocalypse? Talk Back and Let Me Know.