The same old story: Even on ereaders, Apple dominates

The ereader wars are escalating. Barnes & Noble fired this week's first shot, trimming the retail cost of the 3G-enabled version of its Android-powered Nook device from $259 to $199--the bookseller also announced the release of the Nook Wi-Fi, priced at $149, and launched the Nook v1.4 software update, promising all users complimentary high-speed access to AT&T's entire nationwide WiFi network as well as new UI enhancements. Amazon quickly responded by slashing the price of its Kindle from $259 to $189, just weeks after brick-and-mortar chain Target began selling the unit across all of its 1,740 U.S. locations. The moves left Borders no choice but to respond--its Kobo eReader already retails for $149.99, so instead of a price reduction, the bookseller will instead bundle a $20 Borders gift card as an incentive. In addition, a new Borders eBooks application debuted for the iPhone and iPad--for a limited time, consumers who show the app on their Apple device can grab a complimentary coffee from the chain's in-store Seattle's Best Coffee cafés.

Retailers aren't the only ones making waves: Last week, media giant News Corp. acquired digital content platform Skiff from Hearst Corporation. Skiff promises to seamlessly translate premium newspaper and magazine content to portable device screens, retaining signature design elements and allowing publications to maintain their brand identity--Hearst introduced the platform in late 2009, touting an ereader unit featuring an 11.5-inch touchscreen with resolution of 1200 x 1600 pixels, but despite the announcement of a 3G connectivity deal with U.S. operator Sprint, the Skiff Reader has yet to surface at retail. Even so, Skiff is still faring better than Dutch ereader manufacturer iRex Technologies, which filed for Chapter 11 bankruptcy because of lackluster sales. A spinoff of Royal Philips Electronics, iRex first launched the iLiad ereader unit in 2006--in September 2009, Verizon Wireless announced an agreement to power its iRex DR800, an 8.1-inch touchscreen device slated to go on sale at Best Buy stores for $399. However, the iRex faced multiple delays and missed the lucrative 2009 holiday shopping season, finally surfacing earlier this year.

Technology research firm iSuppli credits the ereader upheaval to mounting competitive pressures from Apple. Sales of its iPad tablet topped the 3 million mark this week--in conjunction with the new iPhone 4, the computing giant also introduced its iOS 4 operating system update, championing a host of new features including support for the iBooks service. How big a threat does Apple pose? "With [the pricing] cuts, ebook readers from Barnes & Noble as well as Amazon now are priced at about the breakeven level with their Bill of Materials and manufacturing costs, according to iSuppli's Teardown Analysis Service," said iSuppli financial services director and principal analyst William Kidd in a statement. "With zero profits on their hardware, both these companies now hope to make their money in this market through the sale of ebooks. This is the same 'razor/razor blade' business model successfully employed in the video game console business, where the hardware is sold at a loss and profits are made on sales of content."

That's the exact opposite of the Apple model, where content exists almost solely to drive hardware sales. According to data released this week by Piper Jaffray analyst Gene Munster, devices running on the iOS platform now download over 16.6 million applications each day, but with free apps making up about 81 percent of those downloads, Apple has pocketed only about $189 million from App Store revenues since the storefront opened, representing just 1 percent of the company's $33.7 billion gross profits earned over that time. No less problematic for Barnes & Noble, Amazon and Borders, their own iPhone and iPad apps further call into question the relevancy of their respective ereader devices--after all, if you can read the same books and magazines on an iPad, as well as watch movies and play games, what's the point of a Nook or a Kindle? The ereader story is far from over, but already it seems obvious how the tale will end.  -Jason