Is the latest, cheapest Kindle ($139) evidence of an escalating e-reader price war? The Kindle has gotten pleasantly better and cheaper since its debut for $399 in 2007, when it sold out in hours. By last year, the price was down to $259.
Then in June, Barnes & Noble slashed the price of its Nook e-reader to $199. Amazon dropped the price of the simplest Kindle to $189 almost immediately. That's when both companies stopped making money on the e-readers, according to iSuppli, an analysts' firm known for taking apart gadgets to estimate how much they cost to manufacture.
Then earlier this month, Sony dropped the price of its e-reader from $169 to $149. The cheapest Nook can now be had for $149. And Amazon's new Kindle Wi-Fi, to be released in August, is $139.
But the price war is just beginning.
Normally a price war is a zero sum game for companies selling similar products. They slash prices in order to compete with each other, but end up in a death cycle - selling more and more of a product at a loss, resulting in bigger and bigger losses. Last year, Amazon got into a price war with Walmart over best-selling paper books in a game of chicken that ended up hurting both companies.
But this time may be different. Amazon will almost certainly be taking a loss on its $139 Kindles. But Amazon and other e-reader makers are betting that sales of e-books will more than make up for the loss on hardware, and they're probably right - Amazon announced its e-book sales surpassed hard cover sales for the first time last month.
Sony and Barnes & Noble have not cut their prices yet in response. But in the absence of significant differences between the top e-readers (the iPad floats above all this price jostling because it functions as much more than an e-reader), it's likely that the prices will continue to drop. Consumers will benefit most. But as long as lower prices means selling more e-readers, Sony, Amazon and Barnes & Noble aren't doing too shabby either.