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E-Book Readers Need To Get A Lot Cheaper

Consumers perceive e-books as too expensive, although they're actually reasonably priced given the cost of components.

For electronic-book readers to reach the widest range of U.S. consumers, the devices would have to be priced at $50, which is less than the price of the screen on today's e-readers, a study found.

Consumers are used to paying less for multi-purpose devices, such as smartphones and netbooks, which leads them to place a low value on e-book readers. While e-readers' high-resolution screens are easier on the eyes for reading, the devices have only one purpose, which is reading e-books.

"For many, the superior functionality of dedicated e-readers simply isn't seen as making them sufficiently more convenient than cheaper multifunction devices to justify the additional cost," the Forrester Research study released this week said.

In addition, consumers are used to seeing the price of electronics drop dramatically in a short time. Consumers believe the high price tag for e-readers today will also eventually go down, Forrester said. For example, the 8 GB iPhone cost $599 in January 2007. Nine months later the same smartphone cost $399.

E-readers from Sony and Amazon, which sell the majority of the devices today, range in price from $200 to $489. The prices are not unreasonable, given the cost of components.

For example, the E Ink display used in all the devices costs an estimated $60 today for a six-inch screen. Sony sells the least expensive e-reader at $200, but to get the price down that low, it has opted for a five-inch screen, and no wireless connectivity.

Based on a survey of 4,706 U.S. online consumers, the Forrester study extrapolated that 14% of the 181 million consumers who are online, or 25 million, would consider buying an e-reader at today's price range. If the price dropped to $149, then the potential number of customers rose to 22%, or 40 million consumers.

To reach a mass market, however, manufacturers would have to sell the devices at a price in which an equal number of people find the product too cheap as find it too expensive. That price point is $50, Forrester found.

"With an optimal price point below the cost of the components, e-readers will require some form of price subsidy to attain more mass-market reach," the study, authored by Forrester analyst Sarah Rotman Epps, said.

Forrester estimates that U.S. consumers will buy 2 million e-readers this year, in addition to the 1 million purchased last year. Even with lower prices, the devices will not reach the sales levels of such mass-market consumer electronics as portable music players. In 2009, 110 million U.S. consumers, or 61% of the online population, owned an MP3 player.

"The majority of consumers don't care enough about reading or technology to invest in this type of single-purpose device at anything close to realistic prices," the study said.

Nevertheless, while sales will be at a smaller scale than MP3 players, e-readers will have "phenomenal economic and social impact as they prove to consumers that digital reading can be a pleasurable experience," Forrester said.

For example, digital cameras, which took more than 10 years to reach 50 million U.S. consumers, eventually revolutionized consumer behavior around taking, editing, storing and printing photos. As a result, older photography companies such as Eastman Kodak had to drastically shift business models, while new opportunities opened up for Hewlett-Packard's printing business.

"Similarly, e-Readers will catalyze a revolution in digital reading," Forrester said. "Whether it takes place on a dedicated or multifunctional device, digital reading will destroy some companies and forge new paths for others."

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