One of the most interesting pricing events we have playing out before our eyes right now is in the market of e-readers.  Several weeks ago, Barnes and Noble kicked of a mini-price war by dropping the price of their 3G Nook from $259 to $199 while pricing their wifi-only version at $149.  Within hours, Amazon had responded by undercutting the 3G Nook by selling their 3G Kindle for $189:

Barnes & Noble, the national bookseller, announced Monday that it was dropping the price of its six-month-old Nook e-reader to $199 from $259 and introducing a new version of the device, which connects to the Internet only over Wi-Fi networks, for $149.

Responding rapidly, Amazon.com then cut the price of its popular Kindle e-reader below the Nook, to $189 from $259.

In Price War, E-Readers Go Below $200. By Brad Stone. New York Times. June 21, 2010

As mentioned in the article above, some analysts chalked the price cuts up to the increased threat of the Apple iPad gaining a foothold as an e-book reader while Amazon, in particular, has downplayed that idea.

This week, though, things escalated a bit more.  Amazon announced the next generation of their hardware to be released August 27th.  They are keeping the 3G model at $189 but announced a new wifi-only model for $139; $10 less than the comparable Nook.

Amazon offers $139 wireless Kindle for mass appeal. By Alexandria Sage. Reuters.com. July 29, 2010 7:07pm EDT

Kindle to Go ‘Mass Market’ — Amazon Digs in Heels by Introducing New, Cheaper Version of E-Book Reader. Geoffrey A. Fowler. Wall Street Journal. (Eastern edition). New York, N.Y.: Jul 29, 2010. pg. B.6

While all of this has played out, an important shift has happened.  According to the NY Times article linked above, until recently Amazon and Barnes and Noble have sold e-books at a loss while making minimal profits on the hardware.  That has changed now, to where a WSJ piece speculates that the hardware is now selling at a loss with the idea being to make up the shortfall in volume by selling the e-books.  This is more like how printer and cellphones are sold with the “consumables” (ink or minutes, as the case may be) being the profitable item.

Amazon’s price-cutting won’t be cheap. The company said last year that its Kindle manufacturing costs were “significantly higher” than an estimate from iSuppli of $185.49. Costs likely have come down since then, and not offering cell-network access reduces costs as well. Still, it is a good bet the company is losing money at $139 a unit.

The High Cost of a Cheap Kindle. Martin Peers. Wall Street Journal. (Eastern edition). New York, N.Y.: Jul 30, 2010. pg. C.12

I’m guessing things will continue to evolve as we head to into the holiday season and some articles I’ve read predict a sub $100 e-reader by then.

I’ve finally made the plunge myself and opted for the $189 Kindle coming out on August 27th but I’m hopeful that even while I have it preordered the price may drop.  Looking at what has happened in the past 5 weeks makes it seem reasonable to expect some price cuts in the next 4, doesn’t it?  Stay tuned…