Amazon (AMZN) announced price cuts to its Kindle 2 model this morning as well as the rollout of a new international version of its entry-level device, as reported by my colleague Sam Gustin. I'm a Kindle 2 owner, and I love the device, but if Amazon was hoping to buffer itself against rising competition in the ebook-reader space, this announcement did not go nearly far enough.

The Kindle is setting itself up to lose market share this holiday season as better-equipped, lower-priced competitors from Sony (SNE) and other consumer-electronics marketers enter the fray. (I wrote much of this earlier, as well, when I declared Sony's Daily Edition to be a Kindle Killer).
For starters, there's the problem with the price. An entry-level Sony e-Book Reader Pocket device costs a full $60 or $80 less than the repriced Kindle 2. That huge price differential alone will help Sony, the only other major market player at this point, make inroads against Amazon's Kindle line. And given that Sony will have a lower-priced, technologically superior product for the holiday season, Sony will emerge as a real competitor to Amazon's Kindle in short order.

True, Sony's e-Book Reader Pocket does have a slightly smaller screen than a Kindle 2, and it does offer international functionality for a higher price. But all the Sony products can work internationally already. And its entry-level version blows Amazon's away in other ways. The quality of Sony's E-ink display is better, with less of a delay when turning "pages," and a much more elegant navigation interface. And the Daily Edition lets users borrow electronic versions of library books for free: a huge benefit that could save readers lots of money and trouble, as e-books remain pricey even as they're cheaper than physical boooks.)

Then there's Google Books: a controversial project that has so far scanned millions of books. The project may be dismantled, pending litigation, but for now, any Sony e-book user can use a search engine to tap into more than a million books in it. And Sony ebook users can buy titles (and more easily download them) from multiple stores, can save them, and can move them plus any content they've purchased on different devices and formats.

Given all these factors, you'd think Amazon would have dropped its Kindle 2 price more, to really entice more users. On the other hand, Amazon will hardly suffer from the competition. The e-book market is exploding, and all major players will benefit from phenomenal sales growth for the next few years at least.

Amazon does not break out Kindle sales figures; traditional tech sales trackers don't have any insights into the numbers, because all sales go through the site. But tech analysis firm Forrester Research pegs Kindle sales at 3 million this year, which would be a whopping 50 percent increase over the firm's previous estimates for 2009. Another researcher, iSuppli, predicts that the e-book market will grow more than 500 percent this year, from roughly 1 million units sold to more than 5 million.

Amazon may hold some 70 percent of the e-book market. But its head start could shrink fast in the face of hot competition from Sony, BestBuy's iRex reader, and other newcomers.

Alex Salkever is Senior Writer at AOL Daily Finance covering technology and greentech. Follow him on twitter @alexsalkever, read his articles, or email him at alex@dailyfinance.com.

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