Sony E-Book Readers Have Kindle In Crosshairs

While Amazon has taken an early lead in the e-book market, competitors are matching the retailer's offerings, both on reader prices and on the price of e-books. On the latter, Sony and bookseller Barnes & Noble recently started selling best-selling e-books for $10, just like Amazon.

But while such moves will gradually level the playing field, they won't help against the market's biggest competitor—the paperback book.

"Sony and the rest face the same challenge of getting more consumers away from physical books and using dedicated devices for reading," McGuire said. "That's a major challenge in and of itself that all the competitors in this market face."

E-readers today are a small market because the companies have yet to introduce a compelling reason for mainstream consumers to switch. A person can buy roughly 20 paperbacks for the same price as Sony's Reader Pocket Edition. For all but avid readers, it's enough to just buy the book when an interesting title is released.

In addition, e-reader applications are available for smartphones, such as the Apple iPhone and Research In Motion's BlackBerry. Such devices may prove good enough for casual readers.

Then there's the problem of not having as many e-book titles available as physical books, and copyright-protection software that restricts usage of digital editions. Such restrictions create problems for digital media, for example, driving people to download tunes illegally from file-sharing networks. "Every industry seems to have to learn that lesson all over again," Howe said.

In its current state, Howe does not see sales of e-readers going beyond 2 million units annually. He estimates that Amazon has sold from 500,000 to 750,000 Kindles to date and Sony about 250,000 Readers. "For products available for more than a year, this is not burning the doors off the market," Howe said.

How Sony, Amazon, and eventually Plastic Logic, a startup planning to release a competing e-reader by the end of the year, will make the devices and available content more appealing than buying physical books remains to be seen. Possibilities include subsidized readers offered with book or magazine subscriptions, or bundling e-books with audio files that could include interviews with authors.

But for now, industry observers and consumers will have to wait for the innovation that's likely to come.

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