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.

Kindle.

Late last month, Amazon unveiled a new version of its Kindle e-book reader that, like every new Kindle, is thinner, lighter, and smaller than the previous one. It's also the cheapest Kindle ever—the new Wi-Fi version sells for just $139. A year ago, Amazon was selling the 3G Kindle—a version that allows you to download a book even when you're not connected to a Wi-Fi network—for $299. This June, Amazon lowered the price of that version from $259 to $189, a few hours after Barnes & Noble announced that it was lowering the price of its 3G e-reader, the Nook, from $259 to $199. The new Wi-Fi Kindle is a direct response to the pricing of Barnes & Noble's Wi-Fi version, which sells for $149. You can think of Amazon CEO Jeff Bezos as the Crazy Eddie of the e-book business: Every time a rival gets close to the Kindle's prices, Bezos goes even lower. He will not be undersold!

Obviously, this is good news for anyone looking to buy an e-reader. And people certainly are clamoring for the Kindle—Amazon says that sales tripled after it lowered the price to $189, and the company now lists both the 3G and Wi-Fi versions as being "temporarily oversold." (If you order a Kindle today, it will ship in early September.)

But crashing prices can also create uncertainty for customers. If prices are falling so fast, would it be foolish to buy an e-reader now? Does it make more sense to wait a few months for Crazy Jeffy to go even lower?

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I think so. I rarely make predictions about the tech business, but here goes: Before the holidays, Amazon will cut the price of the Wi-Fi Kindle to $99, and the 3G version will go for $150 or less. Amazon will do so, I think, not only to sell a lot of Kindles but also to cement its online store as the iTunes for books—the dominant force in the publishing business for the foreseeable future. A $99 price tag will make the Kindle the hottest gift of the season—much cheaper than the $499 iPad, more useful than an Xbox Kinect, and a lot more fun than a cable-knit sweater.

Why am I so confident that the Amazon will slide under the $100 threshold? For one thing, because it probably can. Last year, the research firm iSuppli estimated that it cost Amazon $185 to produce a 3G Kindle, an estimate that covered the price of the materials and manufacturing, but didn't include the large costs associated with providing 3G service, customer support, marketing, and developing the device. After tearing open the Kindle, iSuppli reported that the two most expensive components are its E Ink display module (which costs Amazon about $60) and the 3G chip ($30).

Why can the Wi-Fi version sell for so much less? For one thing, it doesn't have the 3G chip, nor will Amazon have to pay for 3G coverage for the device. What's more, the price of producing an E Ink display module has fallen sharply since iSuppli's report. In March, Freescale Semiconductor, the company that makes microprocessors for most of the popular e-readers on the market today (including the Kindle), introduced a new chip that combines a processor and several other e-reader components—including a display controller—on a single piece of hardware. E-reader manufacturers will be able to buy the chip for under $10. At the time, Freescale predicted that its new chip would push manufacturers to release readers priced for less than $100.

Amazon's competition is already moving in that direction. Shortly after Bezos unveiled the new Kindle, a company called Copia—one of several small manufacturers trying to break into the e-reader market—became the first to break the $100 barrier. Its Ocean Reader will go for $99 when it comes out in the fall.

All of these trends likely guarantee that Amazon will release a $99 e-reader someday. But why do I think it will do so before the end of the year? If the company is already selling out of its inventory at its current prices, what's the point of making the Kindle even cheaper? The quick answer is that tech companies usually ramp up production and lower their prices for the holidays. Last October, Amazon cut the price of the Kindle from $299 to $259. The day after Christmas, it reported that the Kindle was the "most-gifted" item in the company's history. Even so, the Kindle never ran out of stock in December (as it had in 2008). If it lowers the price this October, you can be sure Amazon will make enough to satisfy the demand.