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Amazon, Barnes & Noble Promise to Transform Troubled E-Reader Market This Fall

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In the face of a shrinking e-reader market, big players shifted their focus -- not always successfully -- to tablets.

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In its study from January 2012, Pew Internet determined that some 19% of US adults owned an e-book reader. The same percentage of Americans reported owning a tablet. Presumably these figures told us something about sales of readers and tablets in 2011.

The numbers would've looked different if a similar study had been conducted this year, however. Two major technology research companies have reported that the e-reader market is shrinking, while tablet sales are on the rise. Market research firm IDC said that in 2012, global e-reader shipments were down 28% from the previous year; 19.9 million e-readers were shipped, compared to 128 million tablets .

IHS Inc.'s (NYSE:IHS) iSuppli reported a 36% drop in shipments to 14.9 million units in 2012 and suggested that e-readers might "go the way of dinosaurs," steadily declining over time.

"The rapid growth-followed by the immediate collapse-of the e-book market is virtually unheard of, even in the notoriously short life cycle of products inhabiting the volatile consumer electronics space," said Jordan Selburn in his IHS iSuppli research note.

What do tablets have that e-book readers don't?

Versatility.

In the same way that cameraphones are ousting point-and-shoot cameras globally, narrowly-focused e-book readers cannot compete with the functionality of tablets that offer color screens and video features.

E-book market leaders saw this trend and responded by introducing e-readers with web access and video players, but this move was not equally successful for all the big players.

Amazon (NASDAQ:AMZN) began to diversify its Kindle line -- which accounted for 55% of the e-reader market -- with the introduction of Kindle Fire tablets in September 2011. This year the company reportedly looks to fully revamp its Fire product line with three new devices, all featuring higher resolution screens.

This move would be a timely one for Amazon given the struggles now facing Barnes & Noble (NYSE:BKS). The company announced in late June that it will drop the in-house production of its Nook HD tablets, passing the manufacturing costs to a yet-unnamed third-party partner. Barnes & Noble recently introduced major discounts on Nook tablets to clear out the stock.

It's no surprise that B&N is scrapping the production of the hybrid e-reader-tablets: According to IDC, in the last quarter of 2012 the company completely lost the tablet market to its competitors; it had only a 1.9% market share compared to Amazon's 11.5% and Apple's (NASDAQ:AAPL) 43.6%.

Barnes & Noble plans to continue the development of its e-paper based Nook Simple Touch e-readers in-house, but given the shrinking market, such a plan might not be viable in the long term. The recent departure of the company's CEO might mean a loss of leadership required to make any fresh focus on e-readers a success.

Still, there might be some prospects for the e-book market: Customers might consider upgrading their e-readers when devices include rich, color E Ink displays (Amazon recently bought the technology to do so), and it seems that people tend to prefer digital texts to paper. E-book consumption is still growing with the e-book market in the US up 41% to $1.54 billion in 2012, and that number doesn't even reflect self-published e-books.
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