The coming eReader apocalypse

The coming eReader apocalypse

Summary: The Kindle and the NOOK may still be selling like hotcakes this holiday season, but doom is on the horizon.

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Happy B'ak'tun 13.0.0.0, Haab 3 Kankin, Tzolkin 4 Ahau everyone. Most of us all woke up this morning and the world was still here. Fancy that! No Mayan apocalypse! Yay!

My ZDNet colleagues Adrian Kingsley-Hughes and Matt Miller engaged in a Great Debate this week over the future of eReader devices. Rachel King, the presiding moderator, rendered her judgment: eReaders will live on, at least for the time being.

While I agree that there is still some time left for the traditional e-Ink based device and the Amazon Kindle as well as the NOOK should sell quite well this holiday season, that time is limited.

Over the years I have made dire predictions for the future of dedicated eReader technology. The last time I visited this subject was back in July of 2010, where I said that a "zero margin" situation would eventually come to pass where manufacturers of such devices would have to sell them at no profit margin or even below actual manufacturing and marketing cost.

At the time when I wrote that article, the Amazon Kindle and the comparable Barnes & Noble NOOK were selling for $139.00 each.

Today, nearly two and a half years after writing that piece, the base-level subsidized Kindle with Special Offers is selling for $69.00 and the equivalent NOOK is $79.00.

Clearly, both of these devices have reached a zero-margin or below manufacturing cost go to market price for both of these companies. Obviously, both companies still have been able to justify selling them at that price point, by taking losses on the hardware and making money on the content.

Since I wrote that July 2010 piece, both companies have since diversified into tablet computers as well, and that is clearly the future direction for both the Kindle and NOOK product line.

Obviously, if Amazon and Barnes & Noble are continuing to offer traditional eReader devices along with their tablets, there must still be a business justification for keeping these products alive, or they wouldn't continue to offer them.

[Disclaimer: My employer, Microsoft, is an investor in Barnes & Noble's NOOK Media LLC subsidiary. My opinions in this article do not reflect those of my employer.]

I think the real question is "how long." That is, when does this stop becoming profitable?

From a consumer perspective there are still clear cut reasons why you want to use a traditional eReader device over a tablet: Device Cost, Readability, Battery Life and Weight, in that order of importance. As long as these drivers are in place, it still makes sense for Amazon and B&N to make regular eReader devices.

Today, the cheapest tablet computers that are sold by both of the primary eReader players are the original 7" Amazon Kindle Fire at $159.00 and the 7" NOOK HD at $199.00. Google's entry-level Nexus 7 is also $199. 

There are of course more expensive and more feature-equipped models from all three of these companies, but these are the loss leader tablet devices.

The first thing which has to happen is for the loss-leader 7" inch tablet prices to collapse. While $159 and $199 seems extremely inexpensive for a tablet computer, that's still more than twice the price of the cheapest regular Kindle device. So there's a bit more room for tablet prices to drop.

I beleive that sometime in the next two years, we will see 7" tablet prices drop to $99.00. I can't say for sure who is going to achieve it first, but this is virtually guaranteed to happen.

A lot of this is going to come about as a result of overall component integration, economies of scale, and the continued development of ARM-based Systems on a Chip by companies such as Samsung.

I have no doubt that an SoC for low-end tablets can be designed that contains a 1Ghz dual-core processor, 1GB of RAM, and a fairly decent GPU which will cost half that of which exists today.  

Small HD (720p or greater) 7" displays will also be made that will cost approximately half of what they do today to manufacture. 

In fact, if we look at a comparable Bill of Materials for Kindle Fire HD and the Nexus 7 as of July 2012, it would be easy to see how we could end up with a $80 all-inclusive BOM+Manufacturing cost for the same list of components sometime in 2014.

You could argue of course that it might be possible to get traditional eReader devices even cheaper as well.

However, there's one problem with this and it has to do with the fact that we've probably reached the practical limits as to how much more simplified we can get the components on those devices to be -- they already run on low-power, cheap microcontrollers with few components to begin with, and the margin on these products is already zero.

Additionally, the largest part of the component cost on eReaders is from the display, which comes from a single supplier, the E Ink corporation.

At $100 per device, most consumers would probably opt to use a 7" tablet instead of an eReader. I'm going to take a guess here, but that is probably going to result in the displacement of 80 or 90 percent of Amazon and Barnes & Noble's traditional eReader businesses.

If only 10 or 20 percent of your customers still want the old-school E Ink devices, does it really make business sense anymore to continue producing them?

If you can't place orders in the kind of volume like you used to with your contract manufacturers, can you still price it at $69.00 and can the Chinese manufacturer still guarantee a unit cost of $69.00 so you break even or only slightly lose money on the device, like they do now?

Hard to say. I'm going to guess no.

[UPDATE 12/22/12: In a report released on December 10 by component research firm IHS iSuppli, eReader shipments fell to 14.9 million units in CY 2012 — which is a decline of 36% from 2011’s 23.2 million units shipped. eReader shipments actually grew the largest from 2010 to 2011.]

So while it's true that a small, dedicated group of consumers may still prefer the black and white eReader device, and that they are easier to read (for the time being) and have better battery life than 7" tablets, the economies of the business will likely spell an end for the E Ink-based stuff.

Will the traditional eReader device survive the next two years, or will even cheaper 7" tablets shuffle them off this mortal coil?  Talk Back and Let Me Know.

Topics: Tablets, Consumerization, Mobile OS

About

Jason Perlow, Sr. Technology Editor at ZDNet, is a technologist with over two decades of experience integrating large heterogeneous multi-vendor computing environments in Fortune 500 companies. Jason is currently a Partner Technology Strategist with Microsoft Corp. His expressed views do not necessarily represent those of his employer.

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Talkback

45 comments
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  • I think you are focusing on the wrong metric

    You focus so much on price but, while I can't speak for anyone else, price is NOT the biggest reason I like my eInk Kindle.

    There may come a day when tablet screens get to be as good as eInk for text but that day is not today. The difference is truly night and day, especially in the sunlight of the day.

    There may come a day when tablets get the battery life of an eReader but that day is not today. The difference is that one is measured in hours, the other in weeks.

    There may come a day when tablets get as light as eReaders but that day is not today. I tend to hold my Kindle between my finger and my thumb, something that is simply not practical on even the lightest of tablets. To be fair, my Kindle is the 4th gen (5.98oz), I know the Kindle Paperwhite is a bit heavier, perhaps I would like it less.

    Price is a factor for sure. I don't worry about bringing my Kindle to the beach because if I wreck it, I'll buy another without blinking. However, price is not even close to the biggest reason why my Kindle is by far my favorite book consumption device.
    toddbottom3
    • What about the darkness of night?

      I almost never find myself reading in direct sunlight...hell, this time of year, I can very well go all week without seeing the sun at all since it's dark when I leave for work and dark when I go home. A back-lit device would be better for reading in bed or other low-light conditions and suits me better.

      When the time comes to replace my e-ink Kindle, it will be with a more versatile tablet.
      jvitous
      • I already have a tablet

        When the time comes to replace my eInk Kindle, it will be with a Paperwhite eInk Kindle.
        toddbottom3
        • paper white the way to go

          I'm a pretty die hard techy and I refused to jump on the kindle band wagon for a long time, but the paper white made me, at this time, to finally get a dedicated e-reader, and it is a much easier on the eyes experience than any of my other digital reading experiences.
          ImaginaryFriend
      • E-Ink for bedtime

        I have a tablet. I liked reading on it, but found that the back-lighting fatigues my eyes after reading on it for a long time - and that's true in any lighting condition I use it.
        So I bought a Nook Simple Touch with Glowlight - much easier on the eyes in the dark and in the light and, of course in direct sun. Amazon's Paperwhite would be similar, with the edge/frontlighting - I bought the Nook just because of the sd card (hackable!) and because it has hard-buttons for page turning as well as the touch screen.
        The smallness, light weight, long battery life, readability in any conditions...
        For serious reading, e-ink is just better. Period.
        tkeller@...
    • I don't always read my Nook Color in the direct sunlight

      But when I do I use the inverted display setting. Stay reading my friends.
      athynz
      • That's a great suggestion

        Thanks athynz, I'll try that the next time I'm outside with my Surface RT.
        toddbottom3
    • Right on

      Even if tablets and e-readers get on an even pricing level, I'll still use an e-reader. I read *a lot* and doing on a backlit display simply doesn't work, it fatigues my eyes too quickly, specially in a darker room (where, currently, I use a small LED lamp to light my old 3rd gen Kindle).

      Tablets are pretty good general purpose gadgets, among one of the things they can do well is to be used as e-readers. BUT, dedicated e-readers are PERFECT for reading books. They can't be beat.

      All the "analysts" who claim e-readers are dying because tablets are getting near their price range are people who probably don't read as much as I do or simply don't read that much.
      fer.paredesb@...
    • All I heard was...

      "Hold your ground, hold your ground! Sons of Gondor, of Rohan, my brothers! I see in your eyes the same fear that would take the heart of me. A day may come when the courage of men fails, when we forsake our friends and break all bonds of fellowship, but it is not this day. An hour of woes and shattered shields, when the age of men comes crashing down! But it is not this day! This day we fight! By all that you hold dear on this good Earth, I bid you *stand, Men of the West!*" ~Aragorn
      Max™‮‮
  • I agree with you...

    ...but given the number of people that commented on the debate, you may not get many comments here.

    Is "Technology Solution Professional" MS-speak for salesman? I like the title better than "account executive" (you're not an executive unless you direct the work of others).
    John L. Ries
    • TSP/Partner Technology Advisor

      Is my title. I'm in technical sales.
      jperlow
      • You sell Technicals?

        Used to be a good market for those in Somalia. :)
        tkeller@...
        • I thought they sold sailors there

          It wouldn't surprise me if some techies sailed with merchant ships (somebody's got to keep the computers running, I suspose), but I don't think there are all that many.
          John L. Ries
  • all about e Ink

    I paid full price for a Kindle DX and will continue to invest in the best e Ink option until LED/LCD surpasses e Ink in comfort (I get tired of looking at LCD screens) and readability, in direct sunlight and otherwise. Unless and until that happens, there's really no debate for me. It's not about price at all. Because of people like me who care more about readability than price, I am quite certain that there will remain a couple e Ink options even if choices narrow (the DX is discontinued, unfortunately).
    urbandk
  • Weight is not insignificant

    I've owned each generation of Kindle (currently with three versions active in our home--two Kindle Fire, one Kindle Fire 8.9 HD and one Kindle Paperwhite). I've also owned the Google Nexus 7.

    For reading, the light weight of the dedicated readers is quite beneficial for me. When I settle in to read, I generally go for about two hours. All of the 7" tablets become more uncomfortable. The Kindle Paperwhite doesn't.

    Just my opinion of course.
    Peter Sabin
  • Choice!

    I have had all the generations of Kindle and also have Kindle readers on my iPad, Smartphone, and Xoom (as well as my laptop and desktop, for that matter).

    Nothing beats a Kindle ereader (not the Kindle Fire) for reading experience -- it's light, has great battery life, a beautifiul reading screen, and can have its own wifi network, so I can download more books anywhere.

    Until something else better comes along, I've made by choice. (And perhap[s I should tell you because I travel quite a bit and read all the way I'm about to retire my 9th Kindle.
    amywohl
  • I love my Kindle Paperwhite

    and my Samsung Series 7 Slate, but reading books on the Kindle is so much better than any tablet/phone I've used and seriously better than holding an actual book (a magazine might be better, but a Kindle is lighter than most books). As for the tablets, color is the only real advantage for reading on tablets and that will eventually be available for eInk as well. Once eInk works with color and at speeds closer to LCD, then tablets will become eReaders. Then dedicated eReaders will be replaced with multi-function eReader tablets.
    grayknight
  • You need to prove your unspoken assumption

    I see no proof at all that e-reader buyers are also tablet buyers, or that the typical e-reader buyer got tired of waiting for low-priced tablets and settled for "second best." You got some?
    Vesicant
    • I don't need to prove anything.

      This is an opinion piece.
      jperlow
      • Unsupported opinions are worthless

        so the parent has a point.
        baggins_z