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Price War for Apple and Amazon?

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A price war in e-book readers broke out this morning, but neither (Nasdaq: AMZN  ) nor Apple (Nasdaq: AAPL  ) fired the initial shot.

Barnes & Noble (NYSE: BKS  ) is lowering the price of its Nook e-reader to $199. It was probably easy to see this coming, since Barnes & Noble was offering a $50 gift card with the purchase of a $259 Nook earlier this month.

However, the retailer won't stop there. Following Apple's iPad by offering cheaper non-3G gadgetry, Barnes & Noble is also introducing a $149 model that relies solely on Wi-Fi connectivity for downloads. Barnes & Noble is also teaming up with AT&T (NYSE: T  ) to offer Nook owners free access to B&N's online storefront, plus limited Internet surfing, via its stores' Wi-Fi networks.

Barnes & Noble should have done this all along. Matching Amazon's Kindle at the $259 price point was a gutsy move. Sure, the Nook supplements its E-Ink screen with a neat color touchscreen, a feature the Kindle lacks, but Amazon has the brand and market-share leadership. Barnes & Noble and Sony (NYSE: SNE  ) have to compete on price, especially now that the dedicated Kindle is threatened by the jack-of-all-trades iPad.

How will Apple and Amazon react to the Nook's price cut? Apple is unlikely to flinch, since its multifaceted iPad is already selling briskly. Owners may have downloaded 5 million e-books during the iPad's first two months on the market, but it's still perceived as a portable tablet for email and leisurely Web browsing.

Amazon is the more likely juggernaut to fire back. It has been gradually slashing its Kindle's price tag since its introduction at $399 three years ago, and Nook's new price points can't be ignored.

The leading online retailer realizes that it needs to smoke out new leads outside of its digital storefront. It finally began selling its Kindle through Target (NYSE: TGT  ) earlier this month.

Barnes & Noble can't stop there. The Nook quietly raised the bar with its dual screen and e-book sharing feature, but those specs will become more tempting, now that the device is considerably cheaper than Amazon's Kindle. Since most readers are compatible with rival online bookstores, price points and spec sheets are bound to matter.

Your move, Amazon.

Will Barnes & Noble be a legitimate player in this space after this morning's moves? Share your thoughts in the comments box below.

Apple and are Motley Fool Stock Advisor recommendations. Try any of our Foolish newsletters today, free for 30 days.  

Longtime Fool contributor Rick Munarriz has been shopping online for about as long as has been in business. He owns a Kindle and an iPad. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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10/26/2016 4:02 PM
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