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business newsBarnes & Noble, Amazon Try Competing With Apple
Price cuts on the Nook and Kindle, however, won't be enouigh. The companies should instead charge a small fee for their iPad apps.
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Early in the morning, Barnes & Noble (BKS) announced it was going to cut the price of its Nook e-reader to $199 and the company introduced a Wi-Fi-only model for $149. Only a few hours later, Amazon (AMZN) announced it was cutting the price of its Kindle e-reader to $189. Both devices previously sold for $259.
The price cuts were forced by the success of Apple’s (AAPL) iPad, which is more costly ($499 for a base model) but has more features. The iPad comes with a color screen, video display, ability to surf the Internet, and thousands of apps. The Kindle and Nook lack these features.
To counter the rich features and strength of the iPad, both Amazon and Sony (SNE) (which also makes an e-reader) are expected to announce new versions of their devices. In a press release, Barnes & Noble said it dropped the price so it could reach a wider variety of customers.
The iPad is a powerful device and Apple has most likely smoked the competition just like it did for MP3 players and cell phones. Some analysts believe that Barnes & Noble and Amazon should focus on building their digital book stores and use the “razor blade” pricing model, i.e. sell the core product for cheap but then users will keep coming back for the books. This could be a sufficient strategy to get casual readers to purchase an e-reader, but in the long run I think these companies will lose out to Apple’s iPad, especially when the company cuts the price.
From an investing standpoint, Amazon just had its estimates and price target lowered by Citigroup. The company believes a weak euro could affect EPS; Citi has a $175 price target and a Buy rating on the stock. Apple just had its price target raised at Deutsche Bank to $375 because of the new iPhone and strength of the iPad.
As an iPad owner, the one thing I haven’t been impressed with is the iBooks store, the graphics are neat but it lacks a lot of top business books and even some best sellers. Barnes & Noble and Amazon both have free apps available on the iPad and both companies seem to have an extensive e-book collection. They should charge a small fee for those and focus on getting users to read their books on the iPad.
Good luck producing a device with better technology than Apple.
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