Headline 2010: e-Reader device failure

The market knows best, right? Markets are bloody paths to progress.
Written by Mitch Ratcliffe, Contributor

The market knows best, right? Markets are bloody paths to progress. At this writing there are approximately 52 e-reader devices coming to market in the next 12 months. Fifty-two different devices coming to market (Here's what I wrote about Steve Jobs' approach to reader devices when there were just 45 e-readers on the horizon). Creative, the maker of MP3 players and computer audio cards, is the latest to announce their impending arrival, Zii MediaBook.

This is the definition of "glut" becoming reality. We can see a glut of e-readers coming and there's no waving off the Kamikaze piloting most of those e-readers toward the deck. Will they blow up the fuel supply needed to get the next generation of e-reading off the ground? No, but the coverage will likely make it sound like e-reader failures mean e-book failure.

With excessive abundance comes failure, and that spectacular conflagration of hardware products, unfortunately, will dominate the headlines in this market next year as many, indeed most, of these devices are pulled due to lack of sales. They are ridiculously expensive for a market where the vast majority of customers buy one book or less a year—more than 180 million Americans don't buy a single book in any year.

Many hardware makers will retreat and e-books, not the glut, will get the blame.

Today's dedicated e-readers sell for roughly 10 times the price of a new hardback book. Most people don't buy hardback books, so for argument's sake, let's say the average price paid for a book by the 120 million Americans who buy a book each year is $12. Amazon Kindle2 and Barnes & Noble's Nook, both of which sell for $259, cost as much as 21.6 books, which suggests they break the book-buying budget for most people. I don't want to suggest there is a magic price for reader hardware, because we'll see some of the new e-readers announced this year selling for $59 next year, because retailers cannot get rid of them. That is a result of fierce competition, but leave it to the press and bloggers to turn the whole process into a mandate on e-books, not the expensive hardware.

This isn't a horse race, but a complex evolutionary event, that cannot be reduced to headlines. Consider: "T. Rex extinct, world awaits silence of lifelessness" would have made the papers, if dinosaurs had had their Gutenberg.

Yet, it's a short step from "people don't want e-readers" to "people don't want e-books," one that hardware manufacturers will avail themselves of to explain to enraged investors whey they are bailing out of the e-reader market. That simple syllogism will lead to the wrong conclusion.

The most optimistic estimates are that five million e-readers will sell in the next 12 months, with approximately one million flying from shelves to eager readers this Christmas. Noelle Skodzinski, editor in chief of Book Business, speaking during the Digital Content Day @ Your Desk conference last week (which you can view on-demand for three months), cites very conservative sales levels, Simba Information's estimate that only 500,000 Kindles will have sold by the end of this year. That's a low number, I think.

Nevertheless, even if three million e-readers sell in the next year, there can only be two to five winners among device makers. Nook, Kindle, and the Sony Reader all have sufficient market exposure to ensure they will remain standing, but most others don't stand a chance of hitting 30,000 units in sales. Dozens of these unshipped products will fail.

In the meantime, e-book sales and downloads will skyrocket relative to current levels, but still be capturing single-digit shares of the total book market. That will be progress for e-books.

For the device makers, it will mean we are getting closer to some kind of "iPod moment." Skodzinski's slides from the event compare Kindle sales to iPod sales in 2002, suggesting that we are on the steeper part of the hockey stick, but it's not the right comparison. iPod marked a departure from the first-generation of MP3 players, but we are still in the stage of the market that music downloads was in the late 90s. There is no iPod, no Walkman, no IBM PC, yet. Kindle1, Kindle2 and DX are likely to the breakthrough e-reader yet unseen what iRiver MP3 players were to the iPod, and that is not to say that a future Kindle couldn't be the "iPod of e-books," though my instincts tell me the future of reading is a converged device.

For the "winners" in the hardware smackdown, their prize will be merely the opportunity to duke it out in the next round, when devices will have to be much cheaper or pack substantially more functionality at today's prices.

Let's not get distracted by the creative destruction going on all around e-book hardware, reading is thriving and certainly migrating toward digital uses.

Cross-posted to BooksAhead.com.

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