Read Any Good E-Books Lately?

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by Tony Daltorio, Research, Investment U

There is a thrilling, real-life business drama being written as you read this article; a drama revolving around the battle for dominance in the electronic books industry.

Some of the major “characters” in this story include: Sony ADR (NYSE: SNE), the company that pioneered the market; Amazon.com (NASDAQ: AMZN), which brings in most of its business through selling books; and Apple (NASDAQ: AAPL), the proverbial “800 pond giant” that may end up dominating the industry in the end… despite having yet to enter it.

It’s quite a cast of characters for investors to choose among.

Nothing beats a good book, so we’ll take a “read” on the market for electronic books and electronic book readers. and see if any of the chapters contain profitable investment opportunities.

Sony and Amazon

The two main players right now in the electronic book reader market are Sony and Amazon.

While Sony helped pioneer the market for e-book readers using advanced electronic ink technology, it has fallen behind Amazon in the race to transform electronic readers into mass-market devices.

Sony’s Reader, launched in Japan in 2005, was first to market in the United States in 2006. But Amazon’s Kindle has been a surprise success since it launches its first version two years ago.

But Sony is fighting back. Hard.

In a direct assault on Amazon in the e-book market, Sony announced that it would convert its e-book store to the open EPUB format by the end of the year. EPUB is an industry standard, e-book format that can be read on multiple devices. Amazon currently sells e-books that can only be read on its Kindle device or Kindle software, effectively locking users into the Amazon systems.

The EPUB industry format seems to be the wave of the future, as it’s been adopted by major book publishers such as Random House and Houghton Mifflin. Barnes & Noble (NYSE: BKS), the world’s largest bookseller, has also embraced the EPUB format for its entrant into the market – a reader that will be released later this year from Plastic Logic.

And in March 2009, Sony made another important move to counter Amazon’s strength. The company announced a partnership with Google (NASDAQ: GOOG) by which it will offer 500,000 books through its online e-book store, all scanned by Google. This has made Sony the largest repository of e-books in the world, with more than 1 million, compared with Amazon’s approximate 320,000.

Sony has also made deals with public libraries in the United States. Their readers have the ability to connect to the scanned collections of public libraries. Sony Reader users have the ability to download electronic versions of library books for free.

E-Book Readers

Sony opened a new chapter in the fight for dominance of electronic books with the introduction of several low-cost, new e-book readers: The Reader Pocket Edition, which is priced at $199, and the Reader Touch Edition, a touch-screen version for $299.

Amazon’s Kindle, which does not have a touch-screen, is priced at $299 for the standard version and $489 for the larger DX model.

In order to compete more directly with the Kindle, Sony also recently introduced a wireless, touch-screen version of their Reader, called the Reader Daily Edition, which is priced at $399. This new Reader from Sony offers a seven-inch touch screen, which is larger than Kindle’s six inches.

The two readers – the Pocket Edition and the Touch Edition – are already available in the United States, and the Reader Daily Edition will be available in the United States in December, though Sony has yet to announce when it will be available to the global market.

But most likely, Sony is looking to upstage Amazon, which has yet to make its Kindle family of wireless readers spread further than the United States.

Sony has all guns blazing in their efforts to become the leader in the e-book reader market, including buying an undisclosed block of minutes from AT&T. Since the Reader Daily Edition will operate over AT&T’s 3G wireless network within the United States, consumers will pay no usage charges. And Sony has also struck deals with large retail store chains such as Walmart, to make its readers available in over 8,500 retail outlets in the United States.

The 800-Pound Gorilla

While Sony and Amazon are battling each other, they had better not forget about the 800-pound gorilla that is strongly rumored to be getting ready to enter the e-book reader market itself.

This “gorilla” is already known and respected for being a technology innovator, and bringing out products that become very popular very quickly: Apple. Perhaps Apple will do for reading e-books what iTunes did for music.

An entry by Apple into this market will throw a major monkey wrench into Sony and Amazon’s plan for the e-book market.

Apple is rumored to be coming out with a tablet computer in time for the holiday shopping season. Given its technological prowess, it is possible that Apple’s new tablet product may be a combination notebook/netbook/e-book reader that will act as both a PC and a book reader.

The rumored price for this tablet product from Apple is between $600 and $1000, substantially higher than for just an e-book reader. But any such product will likely prove to be stiff competition for Amazon and Sony.

Sony hopes that emphasizing affordability with its pricing, deals with Google and US libraries providing a choice of 1 million titles, and its support for the EPUB electronic book standard, will allow it to become the leader in the field.

It is a tough call as to whether Sony or Amazon will come out on top. It’s also a tough call as to whether Apple will even enter the market, and if they do, whether they will quickly dominate the market.

But one way or the other,investors should stay tuned because the story is just getting interesting.

Good investing,

Tony Daltorio

P.S. If you’re not a fan of drama, consider the action genre. The latest action revolves around China, but it’s not what you think. China plays the has-been in this growth story, with a new sector looking to lead the markets. You can find out more about this new action flick.