The consensus prediction in the tech industry is that tablet computer sales will swamp sales of ebook readers. The Huffington Post is taking bets on which e-readers are dead meat (link), and Informa predicts that e-reader sales will start declining in 2014 as tablets out-compete them (link). I’ve seen similar (and more pessimistic) private forecasts from other analysis firms. They all argue that it’s just a matter of time until general-purpose tablet computers displace more limited e-readers.

Yes and no. I think tablet features will eventually take over, but it would be very premature to assume that tablet computer companies will be the long-term winners. They’re actually at a huge disadvantage that almost no one is talking about.

What brought this home to me was a brief hands-on experience I had last week with the Barnes & Noble Nook Color. I usually think of Nook as the poor stepchild to Amazon Kindle, and in unit sales it certainly is. But Nook Color isn’t just an ebook reader. It’s a full tablet computer, or at least it will be if Barnes & Noble allows it to be. And it sells at a great price.

The easiest way to explain my reaction to Nook Color is to compare it to the Samsung Galaxy Tab. The first thing I noticed was basic ergonomics. As I wrote recently, when I first picked up the Galaxy Tab it worried me because it was hard to hold — its slick plastic surface felt like it was going to slip out of my hand, and so I couldn’t hold it comfortably without putting my thumb on the screen (link). The Nook Color is almost identical to the size and weight of the Galaxy Tab, so I expected to have the same problem. But the Nook has a brushed metallic-feeling surface that’s much easier to grip. Attention to detail has a huge impact on mobile products, and Nook Color shows far more attention to detail than the Galaxy Tab.

The Galaxy Tab definitely has more features than the Nook: two cameras, 3G options, and an accelerometer. But Nook Color has all the basics, including Android OS, a touchscreen, and very nice color display that I think is the equal of Samsung’s. And it has one important feature that The Galaxy Tab lacks — an affordable price. A Nook Color with WiFi is $249, literally half the price of a similarly-equipped Galaxy Tab.

That’s a stunning difference, especially considering that Samsung usually tries to be a price leader in new technologies. At $499, I think the Galaxy Tab will be a very difficult purchase for the average consumer. At $249, Nook Color isn’t cheap, but it’s a mainstream consumer product.

So how in the world does a book-seller get a 50% price advantage over a major consumer electronics company?

The difference isn’t mostly due to features. I bet the accelerometer and cameras in the Galaxy Tab don’t add more than $20 to its cost, probably less. The Tab probably has a faster processor as well, but no way does that justify the cost difference. I think two other factors are involved. The first is that B&N owns its own retail stores, and so it doesn’t necessarily have to mark up the price of the Nook with the full traditional retail margin. In contrast, Samsung will be expected to fork over the usual 20 points or so of margin to its dealers, plus additional comarketing dollars to buy shelf displays and Sunday newspaper ads. Second, since B&N makes money from the content it sells to Nook users, it can afford to sell the hardware at lower cost.

In other words, the Nook is a subsidized product, like a cellphone. So is Kindle.

I think the people predicting that tablets will swamp e-readers haven’t thought through the economics of the situation. As long as e-readers are based on e-ink displays, they can’t compete directly with tablets, because the displays are grayscale and are too slow to display animation and video. But an e-reader with an LCD display is physically a tablet, at a much more attractive price.

Subsidized products usually beat unsubsidized ones. Even Apple had to move the iPhone onto subsidies after it first launched it without.

The only thing stopping Nook Color from competing directly with tablets is software. Although Nook Color runs the Android OS, same as Samsung, Barnes & Noble is reportedly planning to severely restrict the applications that will run on Nook Color. The idea is to keep the device focused as an e-reader rather than allowing it to become a general-purpose tablet.

It’s unusual for a company to artificially restrict what you can do with a computing product, but there is a perverse logic to what Barnes & Noble is doing. If someone buys Nook Color as a tablet and doesn’t buy any books or other content for it, Barnes & Noble will make less money. By restricting the apps, Barnes & Noble can chase away those lower-margin customers who aren’t hardcore readers.

But I think that’s a very short-sighted policy, for two reasons:

First, as a dedicated e-reader, Nook has important drawbacks. Its battery life is much shorter than an e-ink device, and it’s a lot more expensive. If the apps are restricted, Nook Color is a tweener. It’s inferior as an e-reader and as a tablet.

Second, B&N is missing a huge opportunity. It’s not like they’re losing money on Nook Color sales (the hardware cost is probably in the $150 range, or lower). As long as you’re making some money per unit, I think it makes sense to grab as many customers as you can now, while you have a structural advantage in the market.

The ultimate payoff for an ebook distributor like B&N is to displace the publishers and start selling ebooks (and other content) directly to the public. To get to that goal, B&N should be trying to grow the e-reader installed base as quickly as possible. Instead of restricting Nook Color to people who already want ebooks, B&N should sell it to everyone and then entice them into becoming e-reading users.

Historically, some of the most successful computing products were sold first as single-purpose devices that then blossomed into multipurpose devices. PCs were first adopted in volume to run spreadsheets, and the first successful PDAs were sold as electronic calendars. Nook Color could be the e-reader that ate the tablet market.

And it’s easy to do — all B&N has to do is say yes to all types of third party apps. Get out of the way, and the customers will take care of the rest.

Editor’s Note: Reprinted, with permission, from Michael Mace’s Mobile Opportunity blog.  Michael is CEO of Cera Technology, an early stage startup focused on information management and  a principal at Rubicon Consulting. He is former Chief Competitive Officer and VP of Product Planning at Palm, VP of Strategic Marketing at PalmSource, and director of Mac Platform Marketing at Apple.


  1. An excellent article, but I feel the need to point one thing out:

    The loss of the android market on the nook isn’t actually a strategic move by Barnes and Nobles: Google won’t allow devices to install the market unless they a meet a bunch of expensive hardware qualifications like 3G, camera, screen dimensions, etc. This is to make sure customers don’t accidentally purchase apps that won’t work or look good on the device they purchased them for. Google wants to make money too.

    As a result, NO tablet currently available has the android market unless it is technically a phone. And more expensive than the IPAD.

    Barnes and Noble is trying to create their own app market to combat this. Due to the uniqueness of their marketing and distribution, I think they have a decent shot at accomplishing this over time. Most of the knockoffs do not. Amazon would as well IF they create a tablet soon. Waiting until decent color e-ink is available may make some consumers happy, but it will put them too far behind in terms of content.

    Also, consumers are taking matters into their own hands by jailbreaking the devices and by sideloading apps using sites like androidzoom.

  2. Some like a multi-function device, others prefer a dedicated device. I have been very disappointed in trying to use small-screen iPhones and the like for web access. The images are too small and speed is a factor. Mid-range devices like notebooks are also better, screen-wise, but are too heavy for comfortable lap reading.

    For my uses, a desktop computer with 24″ LCD monitor allows me to work on multiple pages or to spread a worksheet or Photoshop project out on the desktop. Additionally, a full sized, sloping keyboard is an absolute must for doing my work.

    For travel where internet access is desirable for checking e-mail, evaluating photos taken away from home for culling purposes, and for general surfing away from home, a laptop with 15″ screen is ideal.

    But for eBook reading, I would never consider sitting at a desk chair or holding a heavy, warm notebook or netbook on my lap for any period of time. An eBook reader like the Kindle with eInk (black & white) is exactly right. I don’t need color to show me the page icon except, perhaps, when evaluating a book for purchase. The beauty of the eInk display is high contrast, and sharp text, while the light weight and size allows me to hold the Kindle in one hand to change pages, and a cup of coffee in the other. I am not interested in any device that does all things, but nothing well.

  3. Peter, you’re right that B&N is creating its own app store for the Nook. But at this time it’s excluding from that store most applications that aren’t related to reading. Those apps run fine on Nook Color, but right now B&N’s policy is to exclude them. That’s the policy I’m suggesting it should change.


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