Kindle DX

Will e-readers dominate this year's Christmas market?

If you believed the start-of-the-year hype, an e-reader should now be on the top of everyone's Christmas wish list. But with a confusing array of technologies, stiff competition from tablet computers and some manufacturers going bankrupt, it is difficult to say whether 2010 really has been the year of the e-reader.

The e-reader has been hailed by many as the "next big thing" in consumer electronics. 2010 was meant to be the year where sales really take off and we see e-readers everywhere. At the Consumer Electronics Show (CES) in January this year, a plethora of e-reader manufacturers were showing their wares and expectations were high. But 12 months on, the market has changed beyond recognition.

Several companies, including Polymer Vision, Foxit, I-Rex and Cool-Er, have ceased trading while others have been bought or plagued by delays. For example, UK company Plastic Logic has decided not to launch its first-generation product, which it debuted at CES, because, according to Richard Archuleta, CEO, the company recognizes that "the market has dramatically changed" since then.

Competition is fierce. The market is awash with companies trying to get a piece of the action. In China alone there are an estimated 50 e-reader manufacturers. And the competition is not just from other e-readers, but also non-dedicated devices such as Apple’s iPad, which can also be used to read e-books.

It is difficult to build a true picture about e-reader sales because most e-reader manufacturers and retailers have so far not released actual sales figures. However, sales figures of e-books are widely publicised and have been skyrocketing. Amazon claims sales of e-books now exceed sales of hardback books and US company New Media Consortium predicts that e-books will replace traditional textbooks in universities in two to three years' time.

"The prospect of holding all the materials you will need in a single device weighing less than a kilo is a powerful driver from the student side, and we are seeing a number of universities that are pushing publishers to move in this direction," says Larry Johnson, CEO of NMC.

A bewildering process

Many books are now published as e-books at the same time as the hardback version is released. But some authors, including big names such as JK Rowling, have so far not published electronically. According to Neil Blair, a partner at literary agent Christopher Little: "We have been looking into the options for digital publication of our client JK Rowling's Harry Potter books for some time now - evaluating the market and determining the right time and method. This evaluation is on-going. The truth is that we wanted to take the time to make the right decision. The market is developing very quickly and this vindicates our strategy of ‘wait and see’."

Publishing and buying an e-book can be a bewildering process depending on the different software and digital rights management (DRM) restrictions involved.

Firstly, there are a variety of file formats for e-books, with EPUB being the most wide-spread. This can be used on a variety of devices, but interestingly, not the Amazon Kindle, which is one of the most successful e-readers on the market but uses a different file format. Secondly, there are a variety of DRM restrictions which are used to limit copying, printing, and sharing of e-books, with the level of restriction specified by the publisher or distribution agency. So lending a friend one of your books is now often not possible. Because buying e-books is an anonymous and instant process, publishers have found an increase in demand for erotica and other unusual books.

Despite the unprecedented growth in e-book sales, many people do not believe that e-books will mean the end of books in dead-tree format. Jon Howells, a spokesman from book seller Waterstones predicts the company will have sold one million e-books by the end of the year, but that this does not signal the death of the paper book. He said: "There will always be a place for the physical book. The format has been unchanged for 500 years."

Big market potential

While there may always be a place in the market for the paper book, many believe there is a big market potential for e-readers. Several analysts have made predictions of rapid growth over the next few years. US company DisplaySearch projects that by 2018, 98 million e-readers will be sold globally. Its projections for this year are that 14 million devices will be sold, which is nearly three times as many as in 2009 (5 million). Market research company GfK estimates that around 210,000 devices will be sold in the UK this year. "We will probably see a massive growth over the Christmas period and could well hit 250,000 units, which would be remarkable," says Tristan Irwin, GfK’s IT account manager. "While there has been talk of the death of dedicated hardware with the birth of the iPad and other tablet computers, the sales figures have shown that the dedicated e-reader hardware market has continued to post significant growth month after month."

But in real terms, the number of e-readers sold is still small when compared with the number of other gadgets such as iPhones (around 1 million in the UK in 2009) and Netbooks (1.41 million).

These gadgets give consumers a cost-free entry into the e-reading, which leads some people to conclude that dedicated e-book readers are not necessary. However Irwin believes e-reader growth will continue. "As consumers build up content libraries, dedicated e-reader sales will increase as consumers realise that non-dedicated devices have many limitations when it comes to long-term reading, such as a short battery life and poor contrast ratios."

However, some analysts disagree. In a survey of 1,880 adults in the US, Simba Information recently found that the PC has again been named the No. 1 e-book reading device, named by 68 per cent of e-book users nationwide as the most frequently used device to consume an e-book.

"There’s a mistaken belief that consumers are the most interested in dedicated reading devices, but it’s not true," says Michael Norris, senior analyst of Simba Information. "Since we know most book consumers only purchase a tiny number of titles in a given year, you could assume a $300 gadget to read a $6 paperback doesn’t make sense to a lot of people."

Falling prices

But the price of e-readers is coming down, and early adopters of new technology will often have both an e-reader and a computer or an iPad. DisplaySearch’s Jennifer Colegrove believes e-readers and iPads have different usage models and so should not be compared. "Many people will have both types of devices," she says. "An e-reader is easier on the eye and good for outdoor use whereas the iPad has many other uses other than as an e-book reader."

This is of course reflected in the price of the iPad (around $500 compared with $150-300 for an e-reader). E-reader prices have already dropped dramatically. For example, in the US, Amazon has cut the price of its Kindle by 27 per cent from $259 to $189 and Barnes & Noble, the bookstore chain, has cut the price of its Nook reader from $259 to $199.

As more and more brands enter the market, the industry is becoming increasingly competitive which has led the average price of e-readers to drop by 12 per cent in comparison to June last year, according to GfK.

But a low price is not the only attribute that an e-reader must have in order to succeed.

According to Colegrove, a successful e-reader must have a good display and preferably colour (see box); it must be ultra-low power and lightweight; and it must have a touch screen because users want to highlight text and make notes, just like in a paper book. It must also have wireless connectivity so users can download books and the manufacturer must have a good content partner to give users a wide choice of content.

But sometimes, even if the product has all of the above, other market forces bring it down. "IRex missed last years holiday season, that is why it went bankrupt," says Colegrove. "This is a very challenging and demanding market. There is definitely demand, but the market is changing fast and is very price sensitive and some companies are struggling to keep up."

Irwin agrees. "If past data is to be relied upon, despite massive changes we have seen in this market, around 40 per cent of all annual e-reader sales in the UK will be made during November and December this year," he says. "The key will be the pricepoints the manufacturers are going to hit. It was highly unexpected that we would be seeing models at or around the magic £100 mark this year, and yet we already have a number of models now at or around that pricepoint. This will make an e-reader less of a considered purchase and more of an impulse buy."

So, how many people will be making that impulse buy this year? We will have to wait till after Christmas to find out.

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