E-reader makers seek bestseller but may end up duds

Amazon.com Inc's Kindle popularized digital readers and galvanized a market estimated at a few million devices annually, with everyone from Barnes & Noble Inc to Google Inc playing a role.

This week's gadget show in Las Vegas saw many new entrants to the fray, from giants such as Samsung Electronics Co Ltd to hot start-ups like Plastic Logic Ltd, whose investors include Intel Capital and Oak Investment Partners.

The e-book section of CES was among the most crowded, as curious consumers and suited buyers crammed into booths showing plastic readers of all colors and brands like Bookeen, Copia, Hanvon and Jetbook -- hardly household names.

While some e-readers, such as Plastic Logic's Que or the Hearst Corp-backed Skiff, may well find a niche to compete against Kindle, analysts say there's simply not enough room in the nascent market for all the new entrants.

There are a lot of great-looking devices being shown, but right now there are too many players chasing too small a market, said Michael Gartenberg, an analyst at Interpret. High prices, lack of content and single task functionality means most will fail over time.

The Kindle is widely regarded to be the market leader because Amazon not only sells the gadget, but also the digital books. The company has not disclosed any shipment statistics but analysts estimate the Kindle accounts for roughly two-thirds of e-reader sales.

However, the emergence of tablet computers at CES -- and a hugely anticipated device from Apple Inc in late January -- provides a real threat to Amazon, and the e-reader category as a whole, analysts say.

The e-reader market is limited by high prices -- the lowest price Kindle is $260, while Samsung's new E10 is about $700 -- and the difficulty of securing publishing content partnerships, though that could start to change in the coming year.

UBS estimates that Amazon sold roughly 1 million e-readers in the fourth quarter, generating revenue of $287 million out of the company's roughly $9 billion.

No one else matters at this point, said Forrester Research analyst James McQuivey, noting that newcomers won't be able to leverage the content partnerships as effectively and Amazon and Sony Corp have.

We're seeing a lot of devices that won't be in the market for months, he said.

McQuivey expects 6 million e-readers to be sold in the United States in 2010, with Amazon and Sony leading the way.

COMPETITION INTENSIFIES

Amazon's Kindle, and Sony's Reader, have largely had the market to themselves until recently.

But some industry watchers, including Gartner analyst Allen Weiner, expect the market to bifurcate over the next year into commodity devices costing less than $200, mid-range e-readers costing up to $350, and higher-end tablet computers taking the rest of the market.

Sony CEO Howard Stringer joked about the mushrooming competition at the show: I wish they would go away, he said.

Stringer said Sony pioneered the e-reader category but admitted that Amazon beat us to the punch on adding wireless connectivity. He said Sony's ability to build a superior product will solidify its status as a leader.

If we didn't think we could hold our own in that, we could all go into the life insurance business, Stringer said.

One of the newcomers, Plastic Logic, has attracted plenty of interest. The venture capital-backed company used CES to unveil its Que reader aimed at business users, which starts at a relatively pricey $649.

We think the pricing works for the customers that we are targeting, said Plastic Logic CEO Richard Archuleta. Essentially now they can get rid of all of the things that they print.

He said the financial model for e-readers is still in flux, with the potential for subsidization by publishers and carriers, as well as advertising sales.

NPD analyst Steve Baker said the dust is still settling in the category, making it difficult to predict a winner, but he said lower prices should be in the offing.

One thing that is likely, given the number of potential suppliers, is that prices will probably fall faster than expected. That means maybe $99 a lot sooner than anyone would have thought six or nine months ago, Baker said.

Most e-readers now are characterized by the easy-to-read but static displays made by E Ink Corp, which was acquired by Taiwan's Prime View International Co Ltd last year. But industry experts expect e-readers to become more multimedia to compete with tablets and other portable computing devices.

We think that the next generation of e-readers is going to have a full color display .... They'll be video capable, said Paul Jacobs, CEO of wireless developer Qualcomm Inc.

(Editing by Tiffany Wu and Richard Chang)