Nor was Amazon about to let B&N take mindshare control in to so-called “reader tablet” market with its $249 Nook Color which features a version of Android as well as enhanced content from publishers and a variety of apps. At the same time, Amazon needed to face pending efforts in the color reader tablet space from Kobo and Sony—a lethargic but potentially dangerous competitor—in this arena.

Amazon’s frontal assault on its e-reader competitors is on price, undercutting the current market by about $40 for its new touch version and $60 for the new non-touch version. In addition, Amazon is offering a 3G model for $149 which is within $20 of its competitors’ WiFi only e-ink readers. As Gartner has predicted, the price point for e-ink readers would fall below $100 in time for the holiday shopping season. What remains to be seen is whether Amazon will be alone in that distinction or whether B&N, Kobo and Sony—whose new Pearl screen, WiFi device has yet to hit the market—will follow suit. The thinking is price cuts will be fairly dramatic market wide in Q4 along with perhaps some innovative campaigns which include product or service bundles.

This is not a straightforward Amazon vs. the market event; the dynamics are complicated. Amazon’s new lower-priced e-readers could thwart B&N’s efforts in non-U.S. markets. B&N only offers Nooks domestically but has talked about global distribution; Amazon’s ability to sell internationally a popular device at a low cost could keep B&N from becoming a global player. Such a move would challenge Kobo which has set up a number of intentional distribution agreements as well as put a major dent in any plans Sony—a global player—would have in this market.

The $199 Kindle Fire initially would attempt to undercut B&N’s Color Nook in price and functionality. The Fire would not only be ideal for enhanced books (books with audio and video) but also offer streaming media services, something the Nook Color does not offer. And while a 7-inch tablet is not an ideal screen size for newspaper and magazine publishers, Amazon might offer some ways to render such content better than the Nook Color and become an initial volley in a longer-term newspaper/magazine strategy which fully blossoms when Amazon releases a 10-inch tablet. Amazon will not have to make a big effort to be more newspaper and magazine friendly than Apple has been regarding in-app purchases and sharing consumer data.

Amazon’s double tap has the impact of targeting its e-reader competition today and the media tablet market as a magazine and newspaper device in short order. Holiday shoppers will have a cornucopia of digital media devices to select from this year. Amazon’s hope is it sits under more trees at home and abroad than any of its competitors.

Tying this trend to the buzz Amazon created earlier this year when it reported it sold more e-books than paperbacks seems to result in a total head scratcher. Two key points will shed some light on why publishers are thinking paperbacks.

Paperbacks get better distribution. As brick and mortar book stores die off, paperbacks benefit from the fact they are sold in pharmacies, supermarkets, airports and even some convenience stores. In retail book settings (what’s left of them), paperbacks are more easily showcased than hardbacks given their size and make for colorful eye-catching displays.

Of greater significance is royalties. While there is no general rule of thumb, authors receive far less of a royalty cut (average, according to industry sources at 6%) for paperback sales than in hardcover sales. On hardback, there is a sliding scale based on volume, generally starting out at 10%, going up from there. Percentage-wise, publishers make out far better on paperbacks. By releasing paperbacks while the hardcover buyer is still in play, they can sell higher volumes of the product from which they make a higher margin.

And then there are e-books. Royalties for e-books are a moving target and that target is moving away from the publisher. If J.K. Rowling is successful with her Pottermore effort—an effort in which she keeps 100% of her e-book revenue—publishers will be forced to up e-book royalties or lose their best and brightest authors. Factor in the growth of self-publishing and the rise of DIY distributors such as Smashwords who offer 85% royalties to authors and you can see publishers’ incentive to reduce the hardback-to-paperback window.

There is not an easy fix for publishers in protecting existing revenue streams, cultivating new ones and understanding the role e-books will play in their future. A plan, such as decreasing the window between hardback and paperback, won’t do much to strengthen relationships between publisher and author. Conversely, publishers should be working more closely with their stable of writers to create new promotional ideas (Google + hangouts, anyone?) and provide them the services to create new digital products. Such a move might not be a long-term answer but will provide a goodwill stopgap as the publishing market evolves.

First, Amazon: The Seattle-based company is likely to come out with some sort of tablet device which no doubt will be color, and support both support web browser and video. It will be touch screen because in Feb. 2010 Amazon bought Touchco, a company specializing in touch screen design. It will support Android, but like Barnes and Noble, it will have its own implementation of the OS for its devices and sell resulting apps in its marketplace. A new device for Amazon makes sense given its vast products and services in the publishing and entertainment sectors.

A new tablet device for Amazon mostly threatens Apple’s role in the publishing space. Amazon has more publisher relationships, a larger global publishing footprint, a self publishing unit, and exclusive deals with some high profile authors and book buying data from millions of shoppers. Amazon’s role in the newspaper and magazine industries are a bit more opaque; the company delivers text versions of both media but could be positioned to quickly upgrade those relationships.
A new media tablet from Amazon threatens Google’s position as an embryonic e-book force (does it force Google to go the device route?) and perhaps even Netflix. Amazon’s streaming movie services will greatly benefit from being baked into a branded device. And tuck this into your pocket: if Amazon’s new device has a built in camera, imagine the bar code/NFC shopping apps that could be part of the device’s core features. Here’s a scenario: you are in Wal-Mart, find a HDTV you want to buy; you snap a picture of the device or scan the barcode and Amazon will give you comparison price and allow you to buy it from them in One Click.

As for Barnes and Noble, in a meeting with investor analysts on May 4, “Barnes & Noble, Inc. … indicated it expects to make an announcement on May 24, 2011 regarding the launch of a new eReader device,” Barnes & Noble said in a filing with the Securities and Exchange Commission. With a recent upgrade to Android 2.2 on its Nook Color, what could be in store?
Here’s a SWAG with some degree of logic: Barnes and Noble might be the first to come out with a device using the Mirasol screen technology from Qualcomm. Qualcomm said earlier this year that it would have a device in the marketplace in 2011. A Mirasol device, which uses Interferometric Modulator (IMOD) element is a simple MEMS (micro-electro-mechanical system) device that is composed of two conductive plates. The net result is color which uses less power in a non-reflective display. In short, a color screen which supports browser and video with an e-paper like “easy on the eyes” experience. A Mirasol device could be positioned between the Nook Color and the Nook B&W (call it the E-Nook?) and offer the reading experience of the black and white with the ability to offer enhanced books and magazines. Pricing? Good question.

Amazon and Barnes and Noble’s new device plans raise the issue of the fate of its existing black and white line of e-readers. Two things make sense: one is that the price drops to around the $50 mark and is marketed to those whose only aim is to read trade fiction and the like (perhaps an older demographic). Second, is they are given away by book publishers to customers who sign up for book clubs that carry a monthly purchase commitment. (Bertelsmann, take note).

The e-reading space is one in which speculation has become a blood sport. Microsoft, Sony and other consumer electronics companies will be watching this space. If my speculation is on the money, see you at the race track.

The eBook story is simple: Google will offer a device agnostic scheme that allows consumers to buy and download content from either Google’s eBokstore (more than three million titles with “hundreds of thousands” for sale) or from one of the search giant’s partners (Powell’s, Albris, etc…). Their digital content on the Google online store will be powered by Google’s eBook infrastructure.

Google will deploy whatever model a publishers selects: agency model with fixed pricing or wholesale retail with suggested pricing and fixed margins. Keep in mind, Google will be competing with its partners, but it also contends its partners can add quite a bit of their own brand and value alongside the bookstore. As both an arms dealer and arms retailer, Google puts itself in the rare position to get a piece of every transaction that flows through its pipes.

Google has licensed Adobe’s ACS4 DRM,which means the content can be read on e-ink based black and white devices aside from Amazon’s Kindle which uses its own proprietary DRM. Google will have an eBook application for the iPad, Android devices (but of course) and presumably ever other flavor of device platform on the horizon that supports a web browser. Consumers can access their books (and presumably later, newspapers and magazines) from any device simply by entering their Google account and download the appropriate app or, in the case of a e-ink reader, side load the content using Adobe Digital Editions.
A few issues to note: books purchased prior to the launch of Google’s eBookstore cannot be transferred to the cloud. So, a book purchased from Barnes and Noble for the Nook cannot be deposited in the Google cloud due to DRM issues which tie content to devices. Books purchased from Google will be paid for using Google Checkout which, while having millions of users has not been a popular payment service when compared to the payment experiences of Paypal or iTunes.

While Google’s pending case over unauthorized use of copyrighted material has an impact on its eBook launch (settlement would add millions of new titles to the content tank), the negative PR Google has suffered from its prolonged battle with publishers will require some marketing and goodwill spin to prove themselves a friend rather than foe.

The big picture: The eBookstore launch and parallel efforts with Google TV must be viewed as companion efforts to establish a cloud-based media storefront. Add in the purchase of Widevine (multiplatform DRM and content optimization platform) and you see the formation of two content services with the ability to share customer behavioral information, advertising targeting and a device agnostic distribution engine. A book purchased by a consumer on the wine regions of France could likely result in the delivery of a TV clip, pushed to a user via Google TV, on a related topic complete with targeted advertising. User behavior data collected and collated across Google’s content services and Google’s search engine creates a scary scenario of cross-media dominance.

The fruition of Google’s media cloud plans likely will lead to positioning of competitors in this rarified space: Apple, Amazon and perhaps Microsoft. A few of the major CE companies who have devices across the content consumption landscape—Sony and Samsung to name a few—will want a piece of the media cloud either through ownership or partnership. It can be profitable to sell a consumer a TV set or e-reader, but far more profitable to have that device owner come back and use your storefront as a content hub.

Certainly a pressing question is how Google’s entry into the eBook distribution space impacts Amazon. Google and the Seattle-based giant etailer have similar positions in that they own large pieces of the e-book value chain. Amazon is in the device business as well, but its proprietary stance seems close to being a major liability. This leads Amazon with some pragmatic choices: move to the ePub/Adobe DRM standard or get out of the device business. With assets that go beyond books (movies, music, shopping) it’s much more reasonable to expect Amazon to remain in the device space, adopt open standards and even come out with a tablet device that has cross-media capabilities and some sort of location-based shopping capabilities.

Possibly, Google’s eBook service will not emerge out of the gate like a bolt of lightning. The market of content supply and consumer demand is unstable, fraught with battles between proprietary stakeholders. Google can patiently sit back and wait for consumers to demand open, portable standards and raise its hand as the device-neutral, consumer-friendly answer. Sounds like a good position in this ever-changing space.

And then there’s the content. Best sellers look good on the NOOKColor, but it don’t look any better than they do on the black and white original. Kids’ books look very good and the read-along feature (available on some books) is nice and not overpowering. Newspapers, on the other hand, are a major disappointment as they are rendered much as black and white e-readers display similar content. The look is just a hair north of RSS feeds with limited navigation, no video and only display in portrait mode. Certainly, there must be some leeway for the initial implementation of newspaper on the device, but the limited real estate on a seven-inch screen will make reading your local daily or favorite national newspaper somewhat challenging on the NOOKColor.

Magazines—now that’s an interesting topic since beyond books, magazines are low-hanging fruit for color device manufacturers. After a long dry spell brought about by black and white e-readers, the color device folks are embracing magazines as a content (and hopefully revenue) source. While no one has gotten the magazine thing quite right (replicas provide portability but not much in the way of experience), the NOOKColor’s smallish real estate offers some challenges in terms of visual acuity. B&N’s way around those issues is a clever application called “Article View” which takes individual stories and enlarges them for easier reading. An experienced magazine retailer (they sell periodicals in their more than 700 retail outlets), B&B offers free 14-day trials of both magazines and newspapers. That’s a smart play. While I consider magazines and newspapers a shortcoming on the NOOKColor, publishers in those sectors are struggling to find their digital future regardless of device; if B&N can provide them guidance and a transparent, flexible marketplace (per issue and subscriptions), publishers may respond with content suited to color, content consumption devices.

My overall take on the NOOKColor is positive, not so much for the device I see before me but more on what I see the device becoming over the next 60-90 days. I expect reaction from publishers to be positive and as such we will see book apps that take advantage of the device’s color, sound and video capabilities. Lonely Planet, for one, is working on such apps and taking into account the NOOKColor’s GPS (on board, but not activated yet) travel content could get timely and location aware. The rich media attributes will also spur activities in the kids’ book area, a sector likely to explode in 2011 with the NOOKColor as well as the advent of devices such as The Fable from Isabella Products geared specifically to kids’ books.

As the folks at Google bake future versions of Android suitable for tablets (i.e., the long-awaited Gingerbread), B&N will update the NOOKColor’s OS offering a wider array of application. The OS upgrades, development of book applications using the Nook SDK, in-store signage/promotion, competitive price, strong social commerce functionality and a powerful near-glare-free screen make NOOKColor a strong competitor for the e-reading dollar and a choice for those tablet-hungry shoppers for whom reading is a primary desire. Yes, the purchase of a NOOKColor is somewhat of a bet on the future, but looking at B&N’s track record over the past year (since the launch of the first Nook), it’s a safe bet the book retailer will make good on its promises.

William Lynch, Barnes & Noble CEO calls the NOOKcolor “a reader’s tablet,” and from advanced word, he appears to have nailed it. From its description, the device aims for all three reading segments: book, newspapers and magazines. It adds periodicals to the mix by offering color and browser support and overcomes the tablet-reading shortcoming of excessive glare. As Martha Stewart said at Adobe Max, reading Martha Stewart Living on the iPad is great on an airplane “when they dim the lights.” Lynch says B&N has invested in screen technology that reduces device glare.

Other notable features is 8GB of onboard memory and a built-in social experience that extends B&N’s booking lending capabilities to a richer platform that integrates with popular social networks. This comes at a time when the publishing industry is intently focused on social commerce—the role of book recommendation’s from one’s social graph leading to transactions. Nook Color will also offer Quickoffice, a mobile productivity suite. It will not support e-mail clients but obviously will allow consumers to utilize webmail services.

B&N is also offering a Nook Developer SDK with the intent of inspiring developers to create enhanced book application such as adding video to cookbooks and travel books. Enhanced books, to date, has been an elusive, poorly defined category for publishers hoping to bring to market differentiated reading experience for which they can charge a premium. An area of low-hanging fruit for value add is children’s books, to wit B&N is launching Nook Kids, a platform aimed at facilitating value-added features of children’s books such as animation, “read to me” applications and games.

Many, myself included, questioned a retailer’s entry into the e-reading device scrum believing it would not have the technology chops to build and stay ahead of the digital reading device space. Not only is the Nook one of the best (if not the best) e-ink devices on the market, by expanding its offering to include a tablet reader with broader publishing distribution opportunities, Barnes & Noble may have elevated themselves to the head of the class. The NOOKcolor, based on its specs, offers the color and rich flexibility of a tablet blended with the reading experience of the gen one e-ink readers. Let’s not forget that B&N operates a large number of college bookstore as well as Nook Study, a platform for e-textbook reading which could make the Nook Color the go-to device for e-textbooks

So what’s the market impact? I would say that Apple’s iPad suffers a blow as a digital publishing distributor competing head-to-head with a tablet reading device from a major bookseller. Apple has not exactly endeared themselves to publishers with its lack of Flash support (although NOOKcolor won’t support Flash at launch) as well as its policy of not sharing consumer data with publishers and its reported entry price to be part of the iAds program.

The newer tablets en route such as the Samsung Galaxy and Blackberry Playbook will be scrambling to capitalize on their publishing opportunities and the Kindle…well… Amazon’s not saying but it’s safe to say, the company has something up its sleeve and the smart money is on a color tablet device. When? What will be the cool features? Amazon may know, but mums the word

Speaking with an expert in the digital books for education space, I learned of three other stumbling blocks that will make the iPad (or other similar tablets) a go-to device on campus in a few years, but not this fall. Specifically, the issues are those facing not-for-profit universities (which cover everyone save for such for-profit schools as University of Phoenix, DeVry, etc..). In no particular order, the issues are the creation of yet another digital divide (the iPad haves vs. have-nots). Fear of lawsuits regarding section 508 compliance (disabilities act) and the fact that an overwhelming amount of content already digitized by educational publishers is in Flash. Flash and the iPad…no need to beat that dead horse.
My expert told me that at a recent event, 18 of 20 higher-ed CIOs are not bullish about the immediate impact of the iPad. The two who were keen on the device were from for-profit schools who may bundle it as part of their tuition and deploy it as an interactive educational tool.

Seton Hall, apparently, is bucking the trend by offering iPads to students but changing them a $500 premium to cover network upgrades. The school is giving the device to students but there’s no mention of how those who cannot afford the $500 network upgrade fee will be handled. (Side note: the aforementioned article incorrectly states Seton Hall is in Pennsylvania; it actually is in New Jersey).

For those of you whose New Year’s resolution was to forget 2009, I must reiterate a research position stated late last year: devices by themselves just don’t matter. Consumers will buy content and expect to consume that content across a set of devices based on usage scenarios. Sure I will have a ball pushing buttons and asking questions to the device folk this week; what will dictate winners from losers is what standards the device supports, what publishers it is working with to build enhanced content and what formats will be used on these devices to drive new content experiences. Having played with the Kindle, Nook and a few others, reading a book on a device is table stakes; show me what you have that will delight consumers and encourage publishers (and leading authors such as John Grisham) to go full bore into e-publishing.

I hope to see device companies and their partners (service providers, software publishers, developers) go far beyond book experiences to showcasing newspaper and magazine content on varied devices. To date, I have yet to see an e-reader implementation of such content that looks better than the glorified RSS feed popularized by Amazon’s Kindle.

Lastly, it’s expected that much of the e-reading talk will be about a company whose product isn’t even expected to be at CES—the Apple Tablet. Based on the “where there’s smoke” principles of journalism, a device from Apple is imminent (loosely defined) and may be among the first to offer a viable ecosystem (developer community, iPhone OS, device) that will present e-reading experiences to consumers that are based, at least in theory, on Apple’s iTunes LP (Extras) enhanced music downloads.

Stay tuned for on location updates on e-readers and other news from CES.

My natural inclination is to point out that one highly effective habit to ensure a successful future in the e-reading marketplace is to support open standards. Given only one e-reader supports Amazon’s e-distribution DRM, Covey’s move seems downright bad business. Publishers are steadfast in believing that multiple, competing e-book DRMs will seriously stunt the e-book opportunity. The vast majority of the evolving digital publishing ecosystem is rallying behind ePub with Amazon the lone wolf in the proprietary wilderness.

Beyond the “VHS-Betamax battle” revisited, exclusive deals send out a bad message to the majority of publishers who are not on The New York Times bestseller list. In a recent interview, John Grisham stated that one reason he’s not making his content available for e-books is to wait for the market to stabilize and settle on standards. What made his remarks more compelling was that Grisham’s motivation is to protect all authors, not just the superstars whose books pre-sell in the millions. An exclusive distribution deal with Amazon only gives the Seattle-based company more power to control revenue splits with publishers and authors as well as ultimately control pricing to consumers.

Digging a little deeper in the announcement, Amazon may also be attempting to take some of the wind out of Plastic Logic’s planned CES unveiling of its new e-reader, the Que. Plastic Logic’s e-reader is larger in size and aimed at business users similar to the Kindle DX. Business books on business-oriented e-readers? One can only wonder if Amazon will drag out some old Zig Ziglar titles for exclusive Kindle consumption.