Upstart E-readers Fade to Black as Tablets Gain Momentum

E-readers are far from dead but many are certainly gasping for breath. A shake-out in the e-reader market has put some smaller companies out of business, leaving the playing field clear for giants like Amazon, Barnes & Noble and Sony.

The list of e-reader makers running into trouble has grown in the past few weeks:

Audiovox has canceled plans to introduce the RCA Lexi e-reader that it demonstrated at the Consumer Electronics Show this year.

Last month, e-reader maker iRex filed for bankruptcy, citing disappointing sales of its product in the United States.

Plastic Logic, which also debuted its large screen reader at CES in January, has canceled all pre-orders for its device and scrapped plans to ship the product.

Cool-er, one of the earliest startups to launch a Sony look-alike e-reader, has listed all its products as “out of the stock” in the United States with no mention of when new devices will be available.

“Companies that had neither brand nor distribution have failed,” says Sarah Rotman Epps, an analyst for Forrester Research.

Price cuts by Amazon and Barnes & Noble, coupled with the shift in consumer interest toward more multi-purpose tablets, have also taken their toll on e-readers.

“You are seeing the same kind of proliferation and excitement in tablets now that you saw two years ago for e-readers,” says Epps.

After Amazon introduced the Kindle in 2007, e-readers became one of the hottest consumer products. The category attracted large companies such as Samsung and Barnes & Noble, even as lesser-known players such as Plastic Logic, Aluratek and iRiver jumped in.

Mostly Kindle clones, many of these e-readers were near-identical in how they looked and the features they offered. Almost all sourced their black-and-white screen from a single company: E Ink.

Meanwhile, Apple launched its iPad this year. At $500, it’s pricier than most e-readers, but offers relatively long battery life, a color screen and iBooks, an iTunes-like store for digital books. It may not be as ideally suited to reading as a dedicated e-reader, but many iPad customers are finding that it works well enough as a book reader, in addition to its many other functions.

Apple’s move sparked a price war in the e-reader market. Amazon dropped the price of its Kindle 2 to $190 from $260. Barnes & Noble released a Wi-Fi-only version of the Nook for $150, while a Nook with Wi-Fi and 3G capability now costs $200.

The price war put a squeeze on smaller e-reader manufacturers.

“As a result of the recent price drops in the market, our primary focus has shifted to international opportunities,” Audiovox told the Digital Reader website.

All this doesn’t mean consumers have completely fallen out of love with e-readers, says Epps. Tablets will outpace e-readers in overall sales, she says, but the shift toward digital books is here to stay. Forrester estimates 6.6 million e-readers will be sold in the United States this year. Approximately 29.4 million e-readers may be sold in the United States by 2016, compared to 59 million tablets.

Earlier this week, Amazon said for the first time sales of e-books are outstripping hardcovers. In June, Amazon sold 180 e-books for every 100 hardcovers. In the first six months of the year, the company sold three times as many e-books as it did in the first half of 2009.

“In the e-reader market, price is coming way down and that’s the major consideration for purchase,” says Epps. “If a company can do cheaper and better devices than Amazon, Sony or Barnes & Noble, they still have a chance — but no one’s been able to do that yet.”

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