The application itself is pretty sparse, with just a few buttons for sorting books and switching between downloaded and archived books. Amazon did not integrate the Kindle store into the application, though a prominent link in the app opens up the Kindle store in the browser. This comes as a surprise, given how easy it would be to integrate the store. While reading books, users can adjust the size of the font and bookmark a page. The app can display notes and highlights that were created on a Kindle or in the Kindle for iPhone app.

In designing the app, Amazon clearly had touchscreen and netbook users in mind. All the buttons in the app are large and the left and right edges of the application can be clicked - or tapped - to move between pages. To advance a page, users can also use their cursor keys or mouse wheel.

Users of the Windows application can not add notes or highlights to a book right now, though the company plans to add the ability to create notes and highlights in the application in the future. Amazon is also considering to add a search feature, as well as the ability zoom and rotate images. Another feature that is currently missing but that netbook users would likely appreciate is a full-screen mode.

Kindle Everywhere

Overall, the app is easy to use and works as advertised. The lack of a built-in store and the ability to add notes and highlights is a slight disappointment, though. Sony, Barnes & Noble and others offer desktop e-readers for OSX and Windows with more features. Amazon decided to keep the application as simple as possible.

For Amazon, this is an important move, as it gives the company access to a wider market. While Amazon has sold millions of Kindles, the PC market is still far bigger and the popularity of netbooks could also give the app a boost. Reading a book on a PC or laptop is not as comfortable as on a hardware e-reader with an e-ink display, but the free desktop application will allow users to sample e-books and get accustomed to the process before buying an e-reader.

The desktop application will also give Amazon a presence on all the big platforms - so while other devices may be more open than the Kindle, this argument against the Kindle becomes less potent as Kindle users can now read their books virtually everywhere anyway.

Users will be able to lend out books for up to 14 days at a time.This is definitely an area where the Nook can outshine the Kindle. Users can just select a book and then send it to their friends' Nook, iPhone or iPod touch.

Just like the Kindle, the Nook will also allow users to synchronize books across devices, so that the Nook knows where a users last stopped reading a book on the iPhone, for example.

Judging from the images on the leaked Nook site, it also looks like the device will come in different colors.

As far as eBook standard go, the Nook will support EPUB and PDF documents. In addition, the device can also play MP3 files.

Wireless Connection

Just like Amazon's Kindle and Sony's Reader Daily Edition, the Nook will also be able to download books wirelessly. To facilitate this, B&N has made a deal with AT&T. Interestingly, Amazon's Kindle International Edition also runs on AT&T's network, though B&N's focus is squarely on the US and we don't expect the company to offer its eBooks and the Nook outside of the US anytime soon.

B&N's eBook Strategy

B&N is adopting an interesting strategy for its eBook store. Unlike Amazon, which only supports the Kindle, B&N supports a multitude of devices, including the iRex DR800SG, the forthcoming Plastic Logic QUE, and various mobile, including the BlackBerry, iPhone and Motorola Cliq. Thanks to a partnership with Google, B&N also gives its users access to over 500,000 public domain books - another feature that is currently not available on the Kindle.

Thanks to the number of features like lending, bookmarking and syncing that the Nook can offer thanks to its tight integration with the B&N store, however, it remains to be seen if users will actually be interested in these third-party devices or if the Nook will simply become the de facto eReader for B&N customers.

Clearly, though, the Nook will put a lot of pressure on Amazon this holiday season. While Amazon could bank on the name recognition of its own brand and the Kindle so far, B&N will surely get a lot of publicity out of this launch and the Nook actually looks like a more interesting device than the current generation of Kindles.

Details from the Press Release

Update: Here are all the details about the Nook from the leaked press release, courtesy of our friends at Engadget:

Product Highlights:

• Try, Then Buy - Once you sample for free, buying ebooks is easy. An entire book downloads wirelessly in seconds. Many bestsellers and new releases are just $9.99.
• No reading glasses required! Choose from 5 different font sizes so you can read with ease. The best-in-class E Ink ® display with a 16-bit gray scale offers great contrast with no glare or backlight making for hours of reading enjoyment.
• Just add an expandable Micro SD card , purchased separately, to add to your nook's 2 GB of internal storage space. Besides your ebooks, magazines and newspapers, add pictures, music, and personal documents. PDFs load directly and look great.
• Sample eBooks for free just about anywhere you are, on us. Browse eBooks, magazines and newspapers on AT&T's 3G Wireless Network or on Wi-Fi. And every Barnes & Noble has free Wi-Fi, so you can connect at lightning fast speeds.
• With 2GB of memory, nook stores up to 1,500 books, newspapers and magazines. Need even more space? Just add a memory card for storage of up to 17,500. An entire library light enough to take with you everywhere, so you'll never be without your favorites.
• Never lose your place. Use the virtual bookmark to bring you back to the last book you've read, right where you left off. If you forget your nook at home and are stuck on a bus, keep on reading with your iPhone™, or BlackBerry®, using our free eReader software.
• You can share nook to nook, but it doesn't stop there. Using the new Barnes & Noble LendMe™ technology... you will be able to lend to and from any iPhone™, iPod touch®, BlackBerry®, PC, or Mac®, with the free Barnes and Noble eReader software downloaded on it.
• Control your nook with an easy-to-use full-color touchscreen, created to work seamlessly with the crisp, clean E Ink ® display. Just use your finger to swipe through titles and tap open your next read.
• Visit the store, turn on your nook, and see what pops up on your screen. It's as simple as that. You will get exclusive content, special discounts and more. And soon, you will be able to read entire eBooks for free at your local Barnes & Noble.

Designed for a Better Reading Experience

• nook feels great in hand and features a contoured, easy-to-hold back. About the size and weight of a paperback book, nook is thin, small and portable. Its best-in-class E Ink® Vizplex™ display is easy on the eyes with text as clear and crisp as a printed book. And with no glare or backlight and adjustable text size, you can read comfortably for hours. Our minimalist design puts the focus on the content, not the technology, welcoming the reader to dive right in.

Color Touch Screen for Easy Navigation

• The first-ever color touch screen for navigation on an eBook reader offers an immersive experience, inviting you to virtually browse through brilliant cover art, flip through an expansive library, or search using a virtual keyboard. The combination of color and touch on the beautiful lower screen make navigating nook intuitive and simple, even for the tech novice. nook presents the controls, navigation and keyboard you need, only when you need them.

Download eBooks Wirelessly

• With fast 3G wireless and Wi-Fi access, nook is the most-connected eBook reader. Browse and instantly download eBooks, magazines and newspapers simply and seamlessly on AT&T's 3G wireless network, the nation's fastest, with no set-up required or additional wireless costs. Connect to the complimentary Wi-Fi, provided by the AT&T Wi-Fi network, in Barnes & Noble stores and download at broadband fast speeds.

Lend eBooks to Friends

• With nook's breakthrough LendMe™ technology, lend a wide selection of eBooks to friends free of charge, for up to 14 days at a time. Just choose the book you want to share and send it to your friend's nook or iPhone, iPod touch, select BlackBerry® and Motorola smartphones, PC or Mac® with Barnes & Noble eReader software.

A Continuous Reading Experience

• With ―Reading Now,‖ your virtual bookmark, nook brings you back to the last book you've read, right where you left off. And it works across a range of devices. If you forgot your nook at home, Barnes & Noble's free eReader software on your iPhone, select BlackBerry and Motorola smartphones or laptop lets you pick up where you left off, including annotations. And when you're reunited with your nook again, the Reading Now page will be updated and ready to go.

Over one million stories. Any time, anywhere.

• Browse and buy from our extensive collection of over one million eBooks, including thousands of free titles, virtually anywhere you are. Get your favorite eBooks, newspapers and magazines, plus exclusive reads from Barnes & Noble, delivered via fast and free wireless, with no PC required.

Portability and Personalization

• You can also easily transfer PDF-format documents from your computer to access and read business documents, legal contracts and travel information on your nook. And transfer your photos to create custom screensavers.

Save Time, Money and Space

• Carry up to 1,500 eBooks using nook's 2GB of memory, and a virtually unlimited library using nook's expandable memory slot, which will hold up to 17,500 eBooks on each 16GB MicroSD card. Buying eBooks is simple and seamless. With just two touches, you'll be able to purchase and download eBooks in seconds. And many bestsellers and new releases are just $9.99, so you can enjoy more for less.

Listen to nook

• Using a standard pair of stereo headphones, plug into nook and listen to your favorite songs (MP3s), uploaded through your computer. Use the headphones or built-in speakers to enjoy listening to audiobooks, podcasts, lectures and more.

Protect Your nook in Style

• nook comes with a removable back cover which you can personalize from a selection of four additional great colors. You can also chose from a range of accessories by renowned designers and brands as kate spade new york, Jack Spade, Jonathan Adler, Tahari and others.

Experience nook at Your Local Barnes & Noble

• Customers will be able to browse complete eBooks for free on nook at any Barnes & Noble store, whether or not the actual book is in stock, beginning later this year. Plus settle into the café and get exclusive in-store-only content, free eBooks, special offers and much more using Barnes & Noble's complimentary WiFi, provided by the AT&T Wi-Fi network.

Images used courtesy of our friends at the WSJ Digits blog who deserve credit for discovering this leak.

One of the main reasons why Forrester is correcting its forecast is the fact that prices have come down (and this report was actually written before the Amazon announcement). In addition, Forrester also sees increased consumer awareness thanks to the current media buzz around eReaders. While the Kindle was mentioned 8,680 times in news stories in 2008, it has been mentioned over 15,700 times in 2009 already (including the month of September). In addition, the fact that more content is now available and that manufacturers like iRex and Sony are backing the open ePub standard is also opening up the market to buyers who previously weren't interested in Amazon's closed Kindle ecosystem.

Outlook for 2010: Even Better

For next year, Forrester expects that Barnes & Noble will become serious competition for Amazon. With the iRex Digital Reader 800 and the forthcoming Plastic Logic reader, B&N will be able to offer its customers a lineup of eReaders that can easily challenge Amazon's Kindle - though not in the international market that Amazon just entered yesterday.

Forrester also expects that Apple's mythical tablet could become a major force in the eReader market, though for the time being, the Apple tablet is obviously nothing more than a rumor.

Clearly the eReader market is growing at a rapid pace. Just yesterday, when Amazon unveiled the reduced prices for its Kindle 2 and the launch of the AT&T-powered "U.S. & International Wireless" version of the Kindle 2, Amazon's CEO and founder Jeff Bezoz pointed out in an interview with the New York Times that whenever Amazon offers both a Kindle and paper version of a book, 48% of total sales now come from the digital Kindle edition. In May, this number was 35%. While Amazon doesn't release sales numbers for the Kindle, these numbers are only possible if Amazon has sold a lot more Kindles than most analysts previously thought.

For now, B&N only advertises its iPhone, BlackBerry, and PC/Mac software readers on its site, but the company doesn't offer any compatible hardware readers just yet. Since the launch of the eBook store, B&N has announced a partnership with iRex and we are still waiting for the mythical Plastic Logic eReader to appear.

A spike in interest right after the launch of a new product is obviously nothing unusual, but this data shows that B&N could challenge the Kindle in the long run. To do so, however, B&N needs to offer users a clear alternative to Amazon's Kindle. Sony, which offers numerous eReaders that are connected to its eBook store, is obviously also trying to make a major push in the eBook market and while its numbers are slowly trending up, Amazon and the Kindle remain in a clear lead. As Compete's McGovern points out, B&N has shown that it can easily drive its customers to its eBook store - thanks, in no small part, to a very successful email campaign - but it will need to offer a hardware eReader to really take on Amazon.

It's almost ludicrous to argue that the eBook edition of The Lost Symbol could outsell the hardcover edition. Yes, the eBook version is currently outselling the hardcover version on Amazon. However, with 5 million copies of the hardcover version printed for the U.S. market alone, these numbers simply won't hold, especially because this is a book that will draw in a lot of readers who don't usually pick up hardcover books and don't usually buy books from Amazon but pick them up at their local Barnes & Noble, airport bookstore, or grocery store.

It's also worth noting that Amazon had been accepting pre-orders for the book for months - indeed, the pre-orders kept The Lost Symbol in Amazon's Top 100 for the last 150 days. If you own a Kindle, however, you don't need to pre-order the book as it's immediately delivered to your device anyway. Chances are that there was simply a lot of demand for the Kindle version today and most of Dan Brown's fans without a Kindle had already ordered theirs or planned to pick a copy up at a brick-and-mortar bookstore.

A Symbol of Things to Come?

That said, though, the fact that the eBook version is doing so well shows that eReaders and eBooks are on the right track. The real killer feature, here, is the instant delivery that eBooks can offer and the cheaper price (which Amazon currently subsidizes). Sure, you could leave the house and actually walk or drive to a local bookstore, but you could also get it delivered to your eReader within seconds and without ever having to get out of your pajamas. It would also be interesting to see how many of these copies end up on iPhones, but Amazon doesn't publish these numbers.

We did, however, get some interesting data from ShortCovers, a small but interesting eBook vendor who sells books in the ePub format and offers a number of mobile apps as well. For ShortCovers, the release of The Lost Symbol  meant a 2x increase in sales yesterday and the book sold more copies in one day than the Twilight series did in the last 2 months.

The demand for eBooks is picking up and is starting to reach a mainstream audience. Once the new eReaders from Plastic Logic, iRex, Asus, Sony and others become available in the next few months, the increased competition will surely drive prices for eReaders down and adoption rates up - unless, of course, Steve Jobs' prediction that nobody wants a single-purpose eReader device turns out to be right.

$99 Is the New $199

In an earlier report, Rotman Epps argued that breaking the $199-barrier would be a major breakthrough for the eReader market and would allow these devices to become mainstream. Now it looks like $99 might actually be the point where eReader would become an impulse buy for the majority of consumers.

The good news for eReader manufacturers, however, is that those who intend to buy an eReader within the next six months are willing to pay up to $159 and those who actually already own one are even willing to pay over $250. A bargain price for eReaders for both of these groups would around $100, though.

Price Inevitably Comes Down

When it comes to consumer electronics, prices always come down in the long run, and we will surely see a similar trend for eReaders. For now, manufacturing costs for eReaders are still relatively high, but publishers could subsidize eReaders through a subscription model, for example.

It is clear, though, as Rotman Epps points out, that most consumers don't put a lot of value on these devices yet and that prices will have to come down substantially. Even then, Rotman Epps argues, eReaders will never be as popular as MP3 players because the majority of consumers "don't care enough about reading or technology to invest in this type of single-purpose device at anything close to realistic prices."

Everybody Now Offers Wireless Syncing

While wireless syncing and book delivery may not be that important to every potential eReader user, it did give Amazon a major leg up in marketing its Kindle and Kindle DX. In a month or two, this advantage will be gone. Amazon's competitors also offer more stylish devices, and some of the upcoming new eReaders will also offer touch screens - another feature that Amazon's Kindle doesn't currently offer.

EBook Price is Now the Same Everywhere, But Sony Supports Downloads From Local Library

In terms of pricing, Sony will soon offer an eReader for $199, which will put a lot of pressure on Amazon - though Sony's cheapest device will not offer wireless capabilities. As for books, prices everywhere are converging around a reasonable $9.99, the price Amazon pioneered as the default price for bestsellers in its Kindle store.

What's even more exciting is that eReader users will soon be able to borrow eBooks from their local libraries. Sony just announced a partnership with OverDrive, which supplies eBook technology to over 9,000 libraries. Amazon doesn't offer a similar program (yet).

Amazon's Problem: The Kindle is Closed

What's giving Amazon's competitors a major advantage right now is that their devices are far more open than the Kindle. As Slate's Farhad Manjoo points out, Sony and company could still be far more open and do away with all copyright restrictions. But at least you will be able to move your books to different devices, even though Sony still uses the standard EPUB format with a DRM wrapper, for example. Amazon's proprietary format, on the other hand, doesn't allow you to move your Kindle eBook to your new Sony Reader, for example.

For now, most publishers are still wary about releasing books without copyright DRM. We can only assume that the book publishing industry will go through a similar cycle as the music industry, however, and that DRMed eBooks will also go the way of DRMed MP3s.

The eBook market is still young. For now, Amazon's only other advantage over its competitors is that it currently has a lot of momentum among early adopters. But, as Forrester Research's Sarah Rotman Epps argued in a recent report, as eBooks move into the mainstream, late adopters may not feel the same loyalty towards Amazon that early adopters had.

Of course, Amazon could still come out with a new eReader and a more open strategy. But for now, it doesn't look like Amazon is planning to change its strategy anytime soon, and we haven't heard any news (or even rumors) of a new Kindle for quite a while. If Amazon doesn't watch out, it could soon be left behind, because other eBook vendors and hardware manufacturers offer a more open and attractive platform for publishers and users.

Sony Gets a Wireless Reader, Too

As for the hardware devices, Sony's new Reader Daily Edition is obviously aimed at Amazon's Kindle and Kindle DX. It will be able to display 16 levels of grayscale and will be housed in an aluminum body with an integrated cover. Users will be able to read books, newspapers, and magazines in portrait and landscape orientation.

The wireless connectivity, courtesy of AT&T's 3G network, is the most exciting news here, though. Both Sony and B&N are following Amazon's lead, of course, but Amazon's success with the Kindle has also clearly shown that a lot of consumers now expect this kind of functionality at the high-end of the eReader market.

What's even more exciting, though, is that by the time the holiday season comes around this year, users will be able to choose between far more eReaders and eBook vendors than ever before, without having to compromise on the number of available books.

With its five-inch $199 Reader Pocket Edition, Sony will be able to offer the cheapest device on the market, while the seven-inch Reader Daily Edition at $399 is priced to fall between the cost of a Kindle ($299) and Kindle DX ($489).

In the press release about this partnership, B&N's president William J. Lynch and Irex's North American CEO Kevin Hamilton both stressed that the two companies "share a distinctive, open view of the eReader market."

3G Connectivity

Given that the Irex reader will feature a 3G wireless connection, B&N looks to be in a very good position to compete with the Kindle. While we confirmed with Irex that the new eReader that B&N will use will indeed have 3G wireless connectivity, neither Irex nor B&N were ready to confirm which wireless carrier in the US will power the wireless connectivity.

Currently, the ability to download and sync books wirelessly is one of the Kindle's real advantages over other readers. The mock-ups of the new Irex reader look very good, and B&N currently offers a wider variety of eBooks than Amazon at similar price points. Sony also just announced its new line-up of readers for the holidays and the company is set to announce yet another new product later this week (possibly a reader with wireless connectivity as well).

Their struggles in the old model have been well documented (of course, we should have expected them to write about their experiences): the starving writer up in the garret who uses rejection letters from publishers for wallpaper is an established literary hack. In the new world of print on demand, e-books and social media marketing, the author takes center stage. Those with an appetite for it can really take control of their work and commercial fortune.

In Part 1, we looked at the three big waves crashing down on the traditional book publishing business: Google Search, e-books, and print on demand. In Part 2, we tried a bit of science fiction, speculating on how this might play out for all participants: readers, authors, printers, publishers, retailers, and e-book device vendors. In Part 3, we looked at the economics of returnability and the impact of the Espresso Book Machine on the supply chain. In Part 4 here, we focus on authors, without whom we would have nothing to read.

Narrative or Reference?

The impact of digitization depends on the type of book you're talking about:

1. Narrative books, such as novels, biographies and other stories. The printed book is an ideal format for narrative books. Amazon had to recreate the print-reading experience to make the Kindle work for narrative books. Using an e-book device scores on many counts: choice, delivery, price (possibly), storage; but whether it beats the experience of reading a good old fashioned book is still unclear. In any case, narrative books are not well suited to typical online or mobile devices. Reading a novel on a laptop browser or iPhone is a degraded experience.
2. Reference books, such as education, scientific/technical/medical, and business books. Historically, these have been squeezed into the book format because no better alternative existed. The online experience could be far better than print in this case. Online, you can search, link to related works, drill down into details, see and hear rich media, etc.

Thus, we expect the impact of digitization will be much bigger and more immediate on reference books than on narrative books. Both will be affected, but reference books may see a music industry-style wave of change, while the change to narrative books may be slower and more nuanced.

New or Established Author?

This is another huge factor. This quote from an excellent report by Gilbane on "Beyond E-Books" says a lot about the business from the author's perspective:

"During the 2009 O'Reilly TOC Conference, Jason Fried of 37signals described the book that he and his colleagues had written based on lessons learned from creating and servicing their successful project management and collaboration product named Basecamp. They published their book with Lulu.com and report sales of almost $500,000 in the last several years. This enabled them to reach number three on the Lulu bestseller list at one point. Ideally, this story would have a happy ending, and they would publish their next book with Lulu.com. Alas, the success of their previous book motivated a traditional publisher to offer them a significant advance for their second book. The offer was too tempting to refuse. They now have to hope that the traditional economic model, with 10 to 20% royalties, will generate more than Lulu.com's 80-20 split. In essence, they are wagering that the traditional publisher will be able to sell at least four times the number of books that Lulu.com would have sold.

"When asked about this, Young was nonplussed. He simply stated that his goal was to publish their third book and to make them loyal authors in the future. It is his number one goal to help his authors become successful."

This will be music to the ears of traditional publishers. They can leave first-time authors to self-publish via print on demand (POD), because once the authors are established, they will want the kudos, branding, and distribution that only traditional publishers can deliver.

Well, perhaps. We are still in the very early stages of this wave of change.

Get Me Into the Book Store

Publication doesn't feel real to an author until they see their book in a traditional bookstore. Seeing it on Amazon.com is nice, but everyone knows that shelf space is unlimited online. The real prize is occupying scarce shelf space at Barnes & Nobel and independent bookstores. What the author wants to know from their publisher is, "How are you going to get me into that bookstore?"

Pure online players will respond with something along the lines of, "Well, if a lot of readers find you online, then enough of them will buy your book for a traditional publisher to become interested in you, and then that publisher will get you into bookstores." That is a relatively weak answer.

But the traditional model of stuffing shelves with "returnable" books, many of which end up getting shredded by the publisher, is clearly unsustainable, as we explored in Part 3.

How this will play out is far from clear. But one thing is clear: the landscape will look quite different.

And Do It NOW!

If you are writing a timeless classic, then the traditional three- to four-month lag between the completion of the manuscript and the book's appearance in bookstores is fine. If you are writing about something timely, that just won't cut it anymore. Bloggers and online writers will steal your thunder before your book hits the shelves. The immediacy of print on demand and e-books eliminates this time lag.

Write About What You Know

Writers do love to write, so it is not surprising that some are starting to document their experiences in the new world of POD and e-books. One that caught our eye is Literary Adventures in POD, but there are many more.

Literary Agent 2.0

In the old model, first-time authors usually had to find an agent, who then found a publisher. This site has good FAQs on the process and on deals.

These relationships -- between author and agent, and agent and publisher -- are often very personal. As such, they can be totally wonderful or totally awful, and there are plenty of tales of both. They are typical "Let's do lunch" relationships. So, bringing Web technology to this match-making experience is logical; one venture that has done this is Creative Byline.

Four Big Changes for Authors

1. Fewer advances. The lack of an advance will be compensated for by...
2. A bigger share of the pie. We expect this to grow from 10% to 30% (or more) of the retail price. The retail price will likely drop, too, and so authors will have to...
3. Create the finished product themselves. Authors will have to pay for cover art and editing out of pocket, as well as...
4. Become savvier about online marketing. A lot of tools are out there: social media, affiliate networks, email lists, SEO/SEM, and so on. Some authors will leave this up to intermediaries (the next form of publishers), and some will do it themselves.

The future of authors can thus be summed up as: do more of the work, get a bigger percentage of the retail price (which will be lower), and hustle online.

We would love to hear from authors about their experiences.

The App

The iPhone app itself is a decent eBook reader, though it suffers from the fact that the textbooks haven't been formatted for the small screen. Also, while the company's desktop readers allow students to take notes, the iPhone app can only read those (notes are stored on CourseSmart's servers).

Of course, the app really isn't meant as a student's only way to access the textbook, so these shortcomings can be forgiven. What's more important is that the app gives students an easy way to access their notes from anywhere. Thanks to the app's built-in search, it is also easy to quickly look up a fact.

Try It

If you want to give the app a try but don't want to lease a textbook, don't worry. CourseSmart includes a number of sample chapters from standard textbooks with the app.

While Sony has always offered very attractive eReaders, the prices in Sony's eBook store were a deal-breaker for many who had been considering buying a Sony eBook reader. Amazon generally charges $9.99 for an eBook, but until today, Sony often asked for $11.99 or more.

At $199, the Pocket Reader is now a very attractive option for more cost-conscious users (Amazon's cheapest Kindle costs $299, though it comes with a slightly larger screen). It is also important to note that none of Sony's devices currently offer the convenience of Amazon's wireless transfer anywhere within the U.S., but Sony is committed to delivering a wireless device in future.

In contrast to Amazon's Kindle, however, the Sony devices can read files in the open EPUB format and Sony now also offers over 1 million free public domain books through Google Books. The new Sony eBook Library software (available for Macs and PCs) also makes it easy to convert PDF and Word documents and transfer them to Sony's eReaders.

The Default Price of eBooks: $9.99

The new price of $9.99 per book in the Sony eBook store is quite interesting. As David Rothman points out on the Teleread blog, Amazon is actually subsidizing its eBooks to keep the price at $9.99. The question then is whether Sony got a better deal from the publishers it is working with or whether Sony is also subsidizing the price of the books in its store?

Amazon currently has the lead among early eBook adopters. Once eBooks become mainstream, however, Rotman Epps argues, this lead could easily dissipate. While Rotman Epps doesn't talk a lot about hardware devices in her report, the reality is that the Kindle isn't exactly a major step forward in the history of industrial design. Early adopters and 'tech optimists' (as Forrester likes to call them) are willing to look beyond this, but in the mainstream market, hardware design might play a major role in consumers' buying decisions.

The Next Wave of eBook Adopters

According to Forrester, the next wave of eBook adopters tends to read more books per months than early adopters and will probably consist of younger males who are less likely to be married and have children. The problem for eReader manufacturers, however, will be to get this group to buy dedicated devices. Rotman Epps argues that a large percentage of this group will probably read eBooks on devices they already own (like the iPhone), unless prices for eReaders come down significantly (under $100).

It's All About the Price

Forrester's Rotman Epps argues that the high price of eReaders is currently holding back mainstream adoption. A $99 device, Rotman Epps notes, would bring a lot of additional readers to eBooks and eReaders. Most importantly, though, the eBook and eReader market is still in flux. As the next generation of readers is likely to be very different from the previous generation, Amazon will have to work hard to keep its current lead.

Can Amazon Hold On to Its Lead?

Unlike Rotman Epps, however, we think that Amazon will likely be able to hold on to its current lead. After all, it has already forged strong - though sometimes contentious - relationships with most publishers and it currently offers the best integration between its store and its eReader. Barnes & Noble's new eBook store will be a strong contender here, though we have yet to see the Plastic Logic eReader device that B&N will use to compete with the Kindle. Sony, too, is making a major push in the eBook market again, though in terms of mindshare in the US, Amazon and the Kindle are currently the clear leaders (both in the mainstream and among early adopters).

While "Later Adopters May Not Be As Loyal To Amazon.com" makes for a good subtitle, the next generation of eBook adopters is just as likely to consider Amazon as the natural place to go to for eBooks, especially given that the company is already the #1 online retailer for regular books.

What About the B2B Market?

The Forrester report only focuses on consumers. We would argue, however, that there is also a large professional market for eReaders, where the current price isn't too big an issue. Just last week, for example, iRex, an eReader manufacturer that mostly aims for the B2B market, announced the launch of its electronic flight bag for pilots - which is basically an iRex eReader with Jeppesen's charts loaded on them.

What's the Killer Product for eReaders?

The Forrester report argues that once eReaders hit the $100 barrier, users will quickly start to adopt these devices. But is price really the only issue here? Are there any other "killer apps" or devices that could drive mainstream adoption even before $99 eReaders become a reality?

Our own Dana Oshiro just argued in our backchannel that a subscription book club (maybe run by Oprah) could bring a lot of new users to eReaders. And then, of course, there is still the mystical Apple tablet that might make for a great eReader - among other things - and which will surely cost more than $99.

Would You Buy an eReader?

What is holding you back from buying an eReader? The iPhone? The price of the current generation of eReaders? Or the well-designed reading solution called 'the book'?

We outlined the practice of "returnability" in Part 1, but it took a pioneer in print on demand (POD) from Canada to help us see the scale of the issue. Bruce Batchelor is a successful publisher and author. Back in 1995, he created the world's first POD publishing service, Trafford Publishing, which was recently acquired by US competitor Author Solutions, Inc.

So he knows this game from the inside. Through some emails exchanged with him, we began to see that eliminating this business practice was critical. Eliminating it may seem radical and impossible to book industry veterans who have never known an alternative. But change may now be feasible: necessity is often the mother of invention.

Further down, we'll look at new technology that could change the supply chain even more radically.

The Problem

Bruce describes the problem very well on his site. There, you'll find a 7-minute YouTube video for people who need the basics. Those in the book industry already know this, but for outsiders, here are the basics:

• Publisher says to retailer, "Here are some books. If you don't sell them, we'll take them back."
• According to Bruce, "Returns (and eventual shredding) reportedly run between 40% and 80%." That is massive waste.
• How can publishers afford this? By charging the retailer more. In most other markets, retailers get 50% off the retail price. For books, they get 40% off.

Bruce's mission is to get publishers to change this 70-year-old practice (it started in the Depression of the 1930s). That would save publishers a ton of money.

What About Retailers?

Our question to Bruce was, "Nice idea for publishers, not having to deal with returns. But retailers are already struggling. How will they survive if they have to deal with this added risk of inventory?"

Bruce told us:

"The answer is to give the retailers a deeper discount [which he explains in his video and on his website]. If retailers now get 40% and are barely surviving, think how much better off they would be getting 50% off. That's a 10% (of gross sales) reduction in expenses and would go directly to the bottom line.

"The sad truth is that small booksellers already order carefully and are not rewarded for doing so. It is the chains that grossly over-order, according to every publisher I've ever talked to. And the chains are already getting 50% to 65%(!) off simply by bullying the publishers. So, the smaller stores are subsidizing the wanton waste of the chains".

Retailers do pay higher prices, then. They pay to return books, and that cost is significant. It is not a free lunch for them, and it is a disaster for publishers.

Without this practice, what would happen? There would be inventory sales and discounts: i.e. the normal functioning of free markets.

What Other Industry Has this Practice?

Music retailing engages in returnability as well, and that industry seems to be doing just fi... er, nevermind.

If Trees Could Vote

Trees would vote to change this business practice. This is an ecological disaster. If consumers knew the environmental cost of those stacked shelves, they might change their behavior. Yes, it would accelerate the trend to e-books and many would see that as a positive, but it would also cause terrible hardship to all who work in the industry and would deprive people the inexpensive pleasure of the good old-fashioned book.

Can technology deliver a solution that totally eliminates waste from the physical book supply chain?

Is the Espresso Book Machine the Answer?

We are all techies here at ReadWriteWeb, so we tend to look for answers in technology. In Part 2 we described something we thought was science fiction:

"We can even imagine digital printers setting up shop in the back of coffee shop/bookstores."

What we thought was science fiction is already a reality called the Espresso Book Machine. It is POD in the retail store. You order something that you can't find on the shelves and, 20 minutes later, voila: a freshly minted book!

Ah, the wonders of technology. We love this stuff. Because Bruce is a pioneer in POD, we had to ask:

"Do you think something like the Espresso Book Machine is a part of the solution? Could it really remove the costs, risks, and inventory from the supply chain?

"Or is that a techie's pipe dream?"

Bruce responded:

"A decade ago, a small company called Sprout.com tried to introduce similar devices to bookstores. They even managed to get Borders to buy into the concept and install one machine. But the enterprise died because of many factors that are still around today. The machines work only for some formats of books: no color or oversized books, no hardcover or coil bindings, a lot of dust, fumes, and production issues, and s-l-o-w. Lack of demand is the real kicker. No one seems to want these out-of-print books very much.

"So, my answer is no, I don't think Espresso machines will make a significant difference to the situation."

We would take issue with his response. He is on a mission, and it is a good one, so he is probably smart to stay on message and not get sidetracked by this technological wonder. He talks of retailer POD as being only for out-of-print books. But there is no reason this could not work just as well for the latest blockbuster. If retailer POD became widespread, we would get an Amazon-like long tail for physical books at the retail level. That would eventually change both author and reader behavior.

Perhaps 20 minutes is too long to wait for a book in our rushed ADD world? My advice, of course, would be to "Chill out, dude!" But there are times when 20 minutes might really be too long; say, when you are rushing to catch a flight. But mobile devices could help with that. You could browse the catalog on your mobile device while waiting in line to pass security, order the book, and then pick it up as you head for the gate.

We are also likely at an early stage with this technology. These devices may be comparable to the IBM mainframes of the 1960s: amazing that they work at all.

This is a potentially big market for printer companies. It is hard to imagine HP, Canon, and Xerox not wanting a piece of this action.

The two approaches (eliminating returnability and retail POD) are complementary, not competitive. They are two approaches to a supply chain problem that is really hurting the industry. Whoever holds the inventory carries the old curse of "May you have much inventory on you!"

Eliminating returnability could trigger faster adoption of retail POD. Knowing that retail POD is feasible might make retailers more willing to accept the change in practice.

Just-in-time manufacturing worked for Dell in the PC industry, and book printing is a bit simpler.

Part 4 Returns to Regularly Scheduled Programming

We had planned for this Part 3 to focus on the author's point of view. We got diverted down the supply chain. Tune in to next week's thrilling installment to find out how our starving genius who hacks away at a typewriter in the attic might be able to prosper in this new world...

With the Kindle, Amazon has created the current de facto standard for hardware eReaders, but the market is still young enough for others to be able to regain the lead again. The fact that Sony bothered to send out press releases about the fact that it now offers 1 million free books clearly shows that the competition in the eBook market is heating up.

Sadly, most eReaders are locked down with digital rights management software, so that users can't just transfer books from one device to another. Because of this, users are locked into one store once they buy an eReader, and the availability of books in the eReader's eBook store could easily sway customers in one direction or another. While Sony offers more free books than other companies, the average price in the Sony eBook store is generally higher than the standard $9.99 that Barnes & Noble and Amazon are charging.

It is worth noting that Google only scans these free books and doesn't edit them in any form, so that they often contain spelling errors.

If you own a Sony Reader and want to access these free eBooks, you can download the necessary software here. The PRS-500, one of Sony's first eReaders, however, is not compatible with the Google Books software.