Barnes & Noble Puts the Kindle on Notice

If a competing e-reader quickly sold out its first 60,000 units, would Amazon.com (NASDAQ:AMZN) hear the sound of the cash registers?

That's a question worth asking after Barnes & Noble (NYSE:BKS) did just that recently with the Nook, its entry in the e-reader market. Thanks to stronger-than-expected demand, the Nook went through its first production run in a hurry, according to Techcrunch's sources, leading to a small number of buyers failing to get their pre-ordered devices by Christmas. Not great news for Barnes & Noble from a customer-relations standpoint, but I'm guessing that management considers it better than dealing with a warehouse full of unsold Nooks.

A skeptic might argue that 60,000 isn't a number that should make Amazon nervous. After all, a Collins Stewart report in November predicted that Amazon will sell 700,000 Kindle e-readers this year, with that number growing to 1.1 million in 2010. And given Amazon's giddy holiday rhetoric about the Kindle becoming its most popular gift item ever, it wouldn't surprise me if the 2009 estimate has been exceeded.

But considering that the Nook was only announced on Oct. 20, didn't begin shipping until early December, and wasn't available in most Barnes & Noble stores -- buyers either had to go online, or rely on a handful of "higher volume" stores -- its initial success should at least raise some eyebrows over at Amazon headquarters. Early reviews of the Nook have been mixed, with reviewers often criticizing its user interface. But the device also isn't a "me-too" product – in addition to matching the Kindle's use of an E Ink display and a 3G modem that connects to AT&T's (NYSE:T) network, the Nook sports unique features such as a secondary touchscreen LCD display to aid in navigation and shopping, and built-in Wi-Fi.

The Nook's biggest competitive strength, however, could lie in its distribution network. While a prospective Kindle buyer mostly has to rely on Amazon's website to learn about the device, if they don't know anyone else who has one, a prospective Nook buyer will eventually be able to try out the device in person one of Barnes & Noble's 775 retail stores, and maybe also one its 636 college bookstores. And if they do buy the device, they'll also be able to use the company's in-store Wi-Fi networks to browse any book in the Nook's catalog for an hour.

That's the kind of offline, bricks-and-mortar support that could give the Nook a leg up over the Kindle. Moreover, if Amazon decided to return fire and start selling the Kindle through third parties, you have to wonder if any major retailers would be willing to work with the company. Would the likes of Wal-Mart (NYSE:WMT), Target (NYSE:TGT), and Best Buy (NYSE:BBY) have any interest in selling a product developed by one of their largest competitors? Only AT&T, which gets paid by Amazon for enabling Kindle downloads, sounds like a credible partner.

Barnes & Noble is reportedly now looking to sell 500,000 Nooks over the first three months of 2010. That's a pretty aggressive target, and I could easily see it missing it. But even getting 60% to 70% of the way there would mean that Amazon has a serious competitor on its hands. Throw in the potential for Apple's (NASDAQ:AAPL) tablet and Sony's (NYSE:SNE) Daily Edition product to make some noise, and it looks like the Kindle won't have the e-reader spotlight all to itself next year.