Electronic reader study raises serious economic questions

Despite the critical success of electronic reading devices such as Amazon’s Kindle, the gadgets may have a long way to go to reach the mass market. One research firm claims readers would have to be as cheap as $50 to really catch on, making subsidies a must.

Forrester Research interviewed 4,706 people and asked a series of questions about how people would respond to electronic readers at different prices, including taking into account the fact that a device priced too cheaply makes would-be buyers suspect it of poor quality.

The results showed that for most demographic groups, firms would need to charge between $50 and $99 to maximize the number of people who’d buy a reader. Of course, that isn’t necessarily the price which generates the most revenue or profit, though certainly in Amazon’s case a larger user base means more potential income through book and magazine sales.

Most strikingly, 86% of people felt the current cheapest price on offer, $199 for Sony’s Pocket Reader, was so expensive that it would deter them from buying.

It’s important to note that the survey was carried out online, which means it likely shows a higher level of interest in buying gadgetry than the population as a whole.

The over-pricing theory appears to back up a previous study that showed half of all Kindle owners were aged 50 or over. One of the possible explanations for that was that elderly people were more likely to have disposable income to buy such a device as something of a luxury good.

According to Forrester’s researchers, as things stand the initial wave of tech-lovers buying the devices will be followed by sales to well-paid avid readers, but after that the market will stall without substantial price cuts, likely to the point that manufacturers would have to sell the devices at a loss.

Considering Amazon already sells electronic books to Kindle readers at a loss (the difference going to the publisher), that could be financially tricky. Forrester suggests the answer may be to have the hardware costs subsidized by publishers in return for customers signing up to content subscriptions.

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