CNBC Business | Leaping Off The Page

Leaping Off The Page

A British start-up believes it is ready to take on Amazon and Sony — and possibly Apple — in the electronic books market. John Brandon reports

Driving to his office in Reading, England in January, entrepreneur and booklover Neil Jones had a brainstorm. Jones had recently launched an online digital bookstore and had quickly sold out of Sony Readers. He realised that the electronics giant was not getting its digital devices to consumers quickly enough. He was also pretty sure that he could improve on Sony's product.

Stuck in traffic, Jones began to envision a low-cost electronic reader for an international audience, that would weigh less than other models, and come in an assortment of colours. While many digital books are drab, Jones pictured a consumer-friendly device that would give the big players a real jolt. At a size about the width and length of your hand, capable of holding hundreds of e-books, and at a more affordable price than current products from Sony and Amazon, Jones knew his idea could work. He even thought of the name: the COOL-ER or cool electronic reader.

Back in his office, Jones developed specifications for the e-reader: it would have a small 15cm, high-resolution 170DPI screen, be available in multiple colours, include 1GB of internal storage and a memory card option with multilingual support including Chinese and Russian, and a low price. After just a few days of planning, Jones – who sold a business intelligence and credit check company in the UK in 2008 – contacted manufacturers in Taiwan."I contacted three manufacturers and gave them my specifications," says Jones. "I then shortlisted two and visited one in Taiwan the following Monday. They came back the next day with a CAD version of my design and spec. It was just how I imagined it, and I signed the prototype contract there and then."

Within days, Jones had created Interead, a start-up he mostly funded himself that intends to give Sony and Amazon something to think about. After just three weeks, the manufacturer, Taiwan-based PVI, had a prototype for COOL-ER. Three months later, Jones was holding a pre-production model in his hands. By May, the company had already sold 30 units in one day – at $249 (€175) each. "We went from inception to delivery in four months and launched to the public on 29 May," says Jones. "We started shipping early July. I don't think our manufacturing partner has ever been pushed so hard and fast."

Of course, Jones did have a leg-up. The COOL-ER uses the same screen from the Cambridge, Massachusetts company E-Ink as the Sony Reader and Amazon Kindle (now it its second generation). E-Ink is selling its screen technology to multiple vendors, and there have been numerous skirmishes among book and e-book sellers establishing themselves ahead of what is hoped will become mainstream demand. Avi Greengart, a research director at Current Analysis predicts a more intense battle for e-reader dominance as more readers acquiesce to digital books.

At 178g the COOL-ER weighs half as much as the Kindle 2 and is still lighter than the original Sony PRS-505 Reader. It also provides a memory card slot, which offers additional memory. With other devices, you have to connect the reader using a USB cable, although the Kindle can use a wireless network. Interead believes it can triumph by following the Gillette model, selling the "razor" (in this case, the gadget) at a low price and the "razor blades" (the books) at a higher cost. Apple raised the bar for this business model, selling the iPod at a low margin but capturing the digital download music market.

Sarah Rotman Epps, an analyst for media services at Forrester Research, says the main barrier for e-readers is the initial price for the reader itself, not the e-books. Once a new user has an emotional connection with reader, they will start buying e-books for it no matter how much they cost – something Jones, as a breakneck reader, is counting on. Amazon has a advantage over all other e-books because it sells physical books and has good relationships with publishers. The Kindle 2 and the 9.7-inch Kindle DX (at $489 [€345]) also support a proprietary – and free – wireless network that allows users to order books on a whim and start reading in less than a minute. Interead runs the Coolerbooks e-store, coolerbooks.com, with 750,000 titles including many best-sellers, but pricing is roughly equivalent to physical books. For example, the book Drood by Dan Simmons costs about €15 on Coolerbooks.com but only €7 at the Amazon store and €8 at ebookstore.sony.com.

Another Apple-evoking advantage, says Jones, is that the COOL-ER is available in eight colours including ruby red and blue sky, which believes will attract students, young readers, and mobile business users who want to stand out from the crowd.

But, of course, it is the $249 price which gave Interead its initial boost. When the company developed the COOL-ER in the first half of 2009, competing e-readers were expensive, especially compared to their hardbound, molecular, paper-and-ink alternatives. The Sony Digital Reader PRS-700 is $349.99 (€245), the Amazon Kindle 2 is $299 (€210), and the large format iRex Digital Reader 1000S costs $999 (€700). Whether you want to scroll through today's Financial Times or whizz through Dan Brown's latest pulp novel on a plane, the price of admission for e-books has remained high for years.

Naturally, the competition isn't resting on its laurels. In August, Sony announced a Pocket Edition PRS-300LC with a 12cm screen, costing $200 (€140); and the Kindle offers wireless access. "Given that the category as a whole barely exists and strong brands such as Amazon, Sony, Google, and Barnes & Noble are fighting over it, Interead definitely has the deck stacked against it," says Greengart.

However, Interead may have a card up its sleeve. Google, in a threat to Amazon's Kindle, recently teamed up with Sony to add around one million public domain books to Sony's eBook Store, and in a coup for Interead, has signed a similar deal with the fledgling British company. The deal will bring the same amount of e-books to an online store outside the US for the first time, which already has close to half a million available for free.

Rotman Epps says the COOL-ER can succeed in an increasingly crowded marketplace. (Plastic Logic will release their e-reader early in 2010, plus models are due from FirstPaper.) The COOL-ER is viewed as a low-cost option, she says, and while the Sony PRS-300LC is cheaper, the screen is smaller. Jones says he would like to reduce the price of the COOL-ER to $199 (€140) within 12 months.

And Jones is confident of success: "I have the best team working with me that I could ask for. We are a team of avid readers – we are readers not just technologists. The product development plan is rapid beyond belief. We will be in the top two players worldwide in 12 months time, number two in the US, and number one in the rest of the world."

The Competition Hots Up...

Amazon Kindle 2, $299 (€210)

Amazon is the clear leader in the e-book market, but is not as well-designed as the Sony Reader; it looks more like an an older, over-sized PDA although it does come with a binder. Amazon also has an edge with e-books, offering nearly every best-seller and about 300,000 books. For example, the Kindle store offers The Time Traveler's Wife by Audrey Niffenegger and a pre-order for her next book, called Her Fearful Symmetry, but the best-selling author is nowhere to be found on the COOL-ER and Sony e-stores.

Sony Digital Reader PRS-700, £200 (€230)

Other than its elegant design and leather cover, the Sony Digital Reader PRS-700 supports touch control features similar to the Apple iPhone, only without the gestures. For example, you can press an area of the screen to turn a page. The PRS-700 also comes with a stylus which you can use for making notes about a book or typing in a page number. The PRS-700 lacks a wireless connection, so it matches the COOL-ER functionality in that to load e-books you have to connect it to your computer with a USB cable. The Sony e-store is impressive after the company's agreement to offer Google eBooks from their store, although these are mostly out-of-print and out-of-copyright books that are not as appealing.

Plastic Logic eReader, €TBD

One e-reader to keep an eye on, especially for business users, is the Plastic Logic eReader (plasticlogic.com), which should debut in early 2010. The Plastic Logic device is about the thickness of a pencil, but, with a screen measuring 27cm diagonally, is as big as a sheet of paper. The device uses the same E-Ink screen technology as the Kindle, Sony, and COOL-ER models, yet it is better suited for business documents, spreadsheets, and newspapers because of its size. (The Kindle DX is roughly the same size but thicker and heavier.)

Barnes & Noble eReader, Free

The Barnes & Noble eReader software, which runs on a PC, Mac, iPhone and BlackBerry, is another e-book upstart that could challenge the Kindle — and the application has the staying power of a vast brick-and-mortar chain with 777 stores in the US and strong publisher alliances. The free app is not just a client, though, like Stanza on the iPhone or the PDF Reader from Adobe; you can buy e-books from the Barnes & Noble store, and most books are priced about the same as a Kindle (€7 or less). Since the app runs on connected devices like the iPhone, readers can purchase on a whim, and the software is easy-to-use.

Apple Tablet?

Rumours and speculation abound when it comes to Apple products, but some insiders claim to have seen and used a sleek tablet-style device that would work well for e-books and running apps. A larger-screen, wirelessly-connected device (e.g. a large format iPhone that runs the same apps) does sound appealing. However, Apple rarely copies the competition, and if they did release a tablet, it would do far more than let you read books.