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Amazon Kindle Price Plunge Signals E-Book Reader Market Competition

Amazon lowered the price on its Kindle 2 e-book reader. The Kindle 2 became available only about five months ago. And the price cut is a significant one, Amazon reduced US$60 off the top price of its second-generation e-book reader, which now carries a more reasonable price tag of $299.

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Amazon never subjected the original Kindle to a price cut of this magnitude. Then again, the original Kindle’s only viable competition in the beginning was the Sony Digital Reader–and the Reader which lacked an integrated store.

Now, however, the fledgling e-book reader market has reached an interesting crossroads. Reports say that the price drop reflects an increase in manufacturing volume and a decrease in production costs. Though such changes often occur, this cut comes a bit too soon in the life of the Kindle 2 to make sense as a standard volume-production price reduction. Rather, I suspect that it marks a strategic decision: Amazon knows that it must push its price down fast in order to establish itself as a leader in the category going forward and to remain competitive as competing models emerge.

The e-book reader category is trying to establish itself in an increasingly crowded gadget marketplace. No longer is the Kindle the only practical option for reading digital books, and if Kindle doesn’t quickly achieve iPod-like traction and even dominance, more-splintered approaches to digital reading may gain ground.

True, the Kindle remains light years ahead of the competition both in its interface quality and in its integration with an online storefront. But now it has company: the Sony Digital Reader PRS-700 ($350) and the Sony Digital Reader PRS-505 ($280), as well as lesser-known alternatives like the Interead Cool-er Books ($249) and the Astak EZ Reader ($270). Though the latter two products aren’t as well implemented, they cost less than even the reduced-price Kindle 2; and their very existence as low-end alternatives challenges Amazon’s stranglehold on the e-book market. In addition, they work with PDB- and ePub-based books, which opens the market up beyond Amazon’s walled-off Kindle garden.

Today’s price drop makes the Kindle 2 more enticing, but by itself it’s far from enough to light a fire under the e-book market. I agree with NPD analyst Ross Rubin, who says that the new lower price “lowers the barrier a bit, but certainly not enough to significantly expand the e-book market.”

The bigger question remains, Is there a market here worth expanding? A dedicated e-book reader may enjoy a niche audience, but the question remains whether a separate device for reading digital books will be viable in the long term. Already, we have a Kindle for iPhone reader and a slew of iPhone e-book apps; and so-called smartbooks and other portable, connected devices are coming soon.

The way I see it, as nice a luxury as Kindle is, if I can get similar functionality using the same device that I use for other tasks, I’d rather consolidate the functions in fewer devices, instead of adding another piece of hardware to the fray. And a lot of people must agree with me–you don’t see too many dedicated PDAs coming out these days.

Admittedly, the Kindle’s single-purpose approach has served its design well; but in the end, it just becomes one more thing to keep track of, one more thing to charge up, and one more thing to carry. Like many other Kindle users, I often find myself reaching for my iPhone 3GS to read Kindle content–even more often than I do the Kindle itself. The more frequently I do so, the more I wonder about the future of the e-book I have sitting at home

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