July 29, 2010, 3:12 PM

Amazon strikes again in the e-book war

The online retailer soon will start shipping a $139 version of the Kindle.

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Amazon.com Inc. next month plans to start shipping new versions of its Kindle, including a $139 model that promises to intensify the ongoing price war for e-readers. "At this price point, many people are going to buy multiple units for the home and family," Amazon CEO Jeff Bezos said in announcing the the new Kindle releases.

The release of the updated Kindles comes as analysts question how tablet computers will affect demand for devices like the Kindle that are designed specifically for reading electronic books.

Amazon, No. 1 in the Internet Retailer Top 500 Guide, today began taking orders for the new Kindles, with shipments set to start Aug. 27. The online retailer says the new Kindles have the same 6-inch reading area but have bodies that are 21% smaller. The new Kindles, which weigh 8.7 ounces, also are 15% lighter than the previous devices. Consumers can turn pages 20% faster with the new Kindles, Amazon says, and store up to 3,500 books, double the previous amount. Batteries will last up to a month in the new readers, Amazon says.

The $189 model offers 3G wireless capabilities so that consumers can download books through cell phone networks. The $139 model, called Kindle Wi-Fi, does not; a Kindle user must be connected to a Wi-Fi network to obtain new content. In June, Amazon shaved $10 off the price of the 3G Kindle, selling it for $189, hours after Barnes & Noble Inc., No. 42 in the guide, dropped the price for its Nook 3G reader to $199. Barnes & Noble that day also introduced Nook Wi-Fi—which, like Kindle Wi-Fi, does not include high-speed 3G connectivity—for $149.

Meanwhile, Borders, No. 194, this year introduced an electronic book store with 1.5 million titles, with thousands of titles free, plus discounts, free shipping and other incentives for its loyalty program members, the retailer says. Borders in May began selling the Kobo eReader for $149.99.

And this week, Copia, a subsidiary of DMC Worldwide, said it would offer for $99 an e-reader with a 5-inch screen and which enables to access social media sites, including Facebook, to, say, find other readers of similar books.

The lower price for Kindles could help persuade consumers to buy those devices instead of an iPad, Apple Inc.’s tablet computer, one analyst says.

“One threat the Kindle does pose is price,” says Dmitriy Molchanov, an e-book analyst with Yankee Group. “You can get four Kindles for one iPad.” The basic version of the iPad, which lacks 3G cell phone network connectivity, sells for $499, while those with 3G range from $629 to $829. That said, he anticipates that the prices of tablet computers will fall, especially as some governments, including India’s, subsidize their purchase for use by students and other groups.

Indeed, consumers who want to read books on handheld computers increasingly are facing the choice of going with dedicated devices such as the Kindle or tablet computers that offer a host of other features and applications, he notes. “Eventually, the e-reader space might bifurcate,” he says.

The release of the new Kindle, which uses a proprietary format—most other e-book readers use a standard called ePub, while Amazon aims to lock in readers much like Apple tries to do with its proprietary format for iTunes‑‑should help Amazon sell even more e-books, which seems its main goal, not device sales, Molchanov says. “It’s really like a mousetrap. You get people in Kindle and the e-book sales roll in,” he says. Amazon last week said that sales of e-books over the last three months exceeded that of hardcover books; for every 100 hardcovers sold, the retailer sold 143 e-books. The e-retailer did not compare the sales of e-books to that of paperback books.

Colin Sebastian, a stock analyst who follows digital media and Internet companies at Lazard Capital Markets, is skeptical about the strength of consumer demand for e-readers that lack features found on tablet computers, even as prices for dedicated e-book readers continue to fall. “We still see challenges to growing Kindle hardware into a mainstream audience when considering the strong demand for more functional tablet devices, and the inevitable decay in tablet prices,” he says. “We continue to believe the bigger opportunity for Kindle books over the long term is a multi-platform approach, embracing smartphones and tablets in addition to a proprietary device.”

According to Yankee Group estimates, Kindle commands 43% of the e-reader market, a category that does not include tablet computers. That number has declined steadily and could reach 35% in the long term as more competitors enter the market, Molchanov says. “I think that is just natural,” he says of Kindle’s projected drop in market share.

For now, consumers hoping to buy Kindles directly from Amazon for immediate shipment have few options. While consumers today could order from Amazon.com a Kindle DX, the large-screen version of the device, all other Kindles must be pre-ordered in advance of the August shipping date, an Amazon spokeswoman says.

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