Can Barnes & Noble’s Nook Grow Its Market Share?

The e-reader battle rages on, with Kindle Fire pricing competition especially tough

Barnes & Noble (NYSE:BKS) is hoping to take a bite out of Amazon’s (NASDAQ:AMZN) Kindle Fire sales by introducing a cheaper Nook Tablet. An 8GB Nook tablet is now for sale on B&N’s website for $199, and beginning this week will sell for that price at Wal-Mart (NYSE:WMT), according to a memo obtained by The Verge.

Apparently B&N believes the lower-cost version of the tablet (it is available in a 16GB version for $249) will attract more consumers to its high-end e-reader and, the company hopes, buy more of its books. As consumers shift from hardcover books and paperbacks to e-readers, many analysts have pegged the Nook as B&N’s best chance for growth.

But among e-readers, the Kindle Fire has been the consumer favorite. Both the Kindle Fire and B&N’s current Nook tablet offer readers a 7-inch, 1024-by-600 screen, a built-in microphone and 1GHz dual-core processor, Wi-Fi capability, and more than eight hours of battery life. The 16GB Nook does have double the storage space of the Kindle Fire, but its $249 price is 25% higher than the Kindle Fire, which sells for $199.  B&N’s other Nook e-readers also relatively pricey. The Nook Simple Touch sells for $99, the Kindle for $79, while the Nook Color is priced at $169, and the Kindle Touch $99 Kindle.

Trimming Kindle’s price for market share

Both tablets target budget-conscious consumers, and their price differences are largely the reason that Amazon sold more Kindle Fire tablets when the product debuted during the fourth quarter.  Even though the Nook had record sales, shipping 1.9 million units during the holiday period, its total 2011 sales of nearly 3.3 million still fell below the estimated 3.9 million Kindle Fires sold during the period.

The Kindle Fire’s performance helped Amazon end the quarter with 14% of the global tablets sales, twice as much as B&N’s 7% market share. Apple’s (NASDAQ:AAPL) iPad led all tablet makers, shipping more than 15 million units during the period and capturing 57% of the market.

Although Amazon lost money by selling the Kindle Fire below what it cost to make, its sales significantly expanded the market of dedicated e-readers and customers for books published exclusively by its new publishing house, Kindle Direct Publishing.

B&N has said that it expects revenue from the digital content business to reach $450 million this year, with annualized forecast between $700 million and $750 million.  The company even floated the possibility of spinning off the Nook business.

However, Amazon is not letting up. The world’s largest online retailer might introduce a 9-inch Kindle Fire during the second quarter of 2012. The company also is planning to open a traditional retail store in Seattle later this year that will be the test site for a chain of boutique-style, Wi-Fi-connected stores that will sell the Kindle Fire, accessories for it, and let readers browse e-books before they buy.

The Nook also will face competition from Sony’s (NYSE:SNE) Dash, starting at $148, and the VTab, from privately held Vizio, which has a $269 starting price, according to CNET.

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