Barnes & Noble bets on the Nook

October 20, 2009: 8:05 PM ET
The Barnes & Noble eReader, the Nook

Barnes & Noble eReader, the Nook

If you're the type of early Christmas shopper who bought a Kindle last week, I hope you kept the receipt, because a newer, equally affordable option is about to hit shelves.

Barnes & Noble (BKS) CEO Steve Riggio on Tuesday took the stage before hundreds of authors, agents, publishers and pundits to debut the company's electronic reader, the Nook.

The Nook will sell for just $259, a steep discount from competitors like the Sony (SNE) Reader and the iRex DR800SG , which both retail for $399. The price suggests Barnes & Noble is going straight for Amazon (AMZN), which recently lowered the Kindle's price to $259.

The Nook uses the same screen technology that powers Amazon's Kindle, but adds an iPhone-like color touchscreen below for easy navigation. Readers have access to 3G wireless on AT&T's broadband network.  The reader holds up to 1,500 books (like its major competitor), but an expandable memory slot allows readers to add up to 17,500 more. "You're getting a lot of eReader for the money," says Sarah Rotman Epps, an analyst with Forrester Research.

Another novel experiment: lending. Barnes & Noble lets readers share titles with friends on any platform in the Barnes & Noble ecosystem. So you like the "Tipping Point?" Buy it for your Nook and lend it to your sister to read on her Barnes & Noble iPhone application. (She'd better not procrastinate; she has 14 days before it disappears.)

Barnes & Noble will turn its massive retail presence into a competitive advantage. Over the next few weeks, the bookstore chain will roll out Nook displays in its 700 stores and 600 college bookstores. Through complimentary Wi-Fi connections in all the stores, readers will be able to browse eBooks on their readers just as they might have always browsed the shelves.

The eBook market is tiny, but its growth has been explosive this year. eBook accounts for less than 2% of traditional book sales, but the $16.2 million in sales for July, for example, represented a 213% increase over a year ago, according to Forrester Research.

Right now Amazon has 60% of the market, but the eReader is expected to be a popular Christmas item this year, and Barnes & Noble plans to get in on that opportunity.

Pre-orders for the Nook will begin this week, and the company says it will begin shipping in late November.

The large bookstore has been lunging into the eBook market at full force. It purchased independent eBook seller Fictionwise earlier this year and launched its own eBook store in July. It has also unleashed a series of smartphone applications, with more planned.

While there's no guarantee Barnes & Noble will succeed, it's a necessary move as the book market becomes increasing tough to navigate.

Traditional books -- the kind you bring to the beach and lug on the subway -- are getting much cheaper.

In the last week, Amazon, Wal-Mart (WMT), and Target (TGT) have begun selling some of this year's hardbacks that are anticipated to be the most popular -- books like Stephen King's "Under the Dome " ($35.00) and Sarah Palin's "Going Rogue" (list price: $28.99) -- for roughly $9 on pre-orders.

Sure, it's typical to discount bestsellers, especially during the holidays, but few retailers are bold enough to bring down the prices by more than 50%. Barnes & Noble must now hope the Nook masters its niche.

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About This Author
Jessi Hempel
Jessi Hempel
Senior Writer, Fortune

Jessi Hempel is a New York-based technology writer for Fortune. She has written extensively about digital media, online advertising and social networking. Before joining Fortune in July 2007, Hempel worked at BusinessWeek and most recently served as their innovation department editor. Hempel is a graduate of Brown University and received a Masters in Journalism from The University of California at Berkeley.

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