Why e-readers like the Amazon Kindle will soon cost less than $100.

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Aug. 12 2010 5:32 PM

The $99 Kindle

Why e-readers will soon cost less than $100.

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And at $99, demand will be unbelievable. Last year a Forrester Research survey found that fewer than 20 percent of "U.S. adults online" would consider buying a reader priced at more than $100. When asked about a reader priced under $100, however, nearly 65 percent said they would consider one, and almost 40 percent said they'd buy it within six months. In other words, $99 is a magic price—the threshold where a huge number of customers who are on the fence about e-readers decide to jump in.

This suggests that even if Amazon has to take a small loss on each device in order to get under $100, it might consider the sacrifice worth it. For much of the last year, Amazon has been fighting a war with publishers over the future of the book industry. When it released the Kindle in 2007, most books in the Kindle Store sold for $9.99—lower than the price Amazon paid publishers for the titles. The company's aim with that pricing scheme was to set consumer expectations for the price of e-books. Amazon reasoned that if customers came to expect all digital books to sell for $10, publishers would eventually be forced to lower their prices.

Things didn't turn out as Amazon planned. When Apple released the iPad—along with its own digital books, called iBooks—many publishers made deals with Apple under a system the book industry calls the "agency model." This plan let publishers set their own prices for e-books, even if they're more than $9.99; the publisher takes 70 percent of the retail price, with Apple getting 30 percent. In February, after an ugly battle with the publisher Macmillan that resulted in Amazon temporarily removing all of that company's titles from the Kindle Store, Amazon relented and began allowing publishers to sell books in the Kindle store under the agency model. If you peruse the list of Kindle bestsellers today, you'll see several titles priced at more than $10.

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Despite losing this battle with publishers, though, Amazon hasn't lost a lot of ground in the e-book business. Ian Freed, the company's vice president in charge of the Kindle, recently told Cnet that it controls 70 percent to 80 percent of the e-book market. He also said that just 80 percent of its e-books are sold to Kindle owners—in other words, 20 percent of the people who buy Kindle books are doing so from Kindle apps on devices like the iPad, iPhone, Android phones, BlackBerrys, and Macs and PCs.

This leads to what could be Amazon's main reason for pricing the Kindle at $99—it could be the company's best defense against the iPad and the many other tablet computers that may soon dominate the personal computing industry. The millions of people who buy $99 Kindles will also need to buy millions of Kindle books, and it's those books that will push them to stick with Amazon's store over the long run. When those same people later buy phones, tablets, or other devices, they'll then have a reason to shun, say, the iBook Store and keep buying their books from the Kindle Store.

That's the difference between Jeff Bezos and Crazy Eddie, who would always close out his ads by claiming that "Our prices are insane!" For Amazon, a $99 e-reader is perhaps the only sane choice.

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Farhad Manjoo is a technology columnist for the New York Times and the author of True Enough.