Barnes & Noble just announced its new eBook Store and a partnership with Plastic Logic, maker of the Plastic Logic eReader device. In so doing, Barnes & Noble has put its hat into the eBooks ring and poses a serious competitive threat to the Amazon Kindle and the Sony Reader.

To the contrary, Barnes & Noble’s entry will help spread the adoption and distribution of eBooks. While Barnes & Noble will give Amazon and Sony’s eBook ventures a run for their money, this new player should further legitimize eBooks and increase the market for eBooks.

Key Features Of Barnes & Noble’s Entry Into eBooks

Beyond the partnership with Plastic Logic, several features of this move should be noted. Barnes & Noble will offer more than 500,000 public domain books from Google. Within twelve months, Barnes & Noble expects to have more than one million titles, including several hundreds of thousands not in the public domain, in its eBook Store.

The books in Barnes & Noble’s eBook Store can be read on Apple’s iPhone and iPod Touch, BlackBerry smartphones and the majority of Windows and Mac computers. However, eBooks purchased through Barnes & Noble’s e-bookstore will not be compatible with Sony’s Reader or Amazon’s Kindle. This will force consumers to choose a format, thereby producing competition.

Previews of the Plastic Logic eReader have been positive. The target market is business users. Key features include a large 8.5″ x 11″ screen, wireless access, and a touch interface like the iPhone.

Barnes & Noble’s Entry Will Boost The eBook Industry

While it is easy to view Barnes & Noble’s move solely as increasing competition, there are reasons to believe that the entire eBook business and consumers will benefit.

With respect to eBooks, the market is still growing, technological advances to eBook readers are constantly being introduced, and consumer adoption is nowhere near its potential. Many of Google’s public domain books, which will available for free download, will now have a clear distribution platform. For its part, Google plans to sell its collection of 7 million eBooks on multiple platforms, including possibly its own eReader. With the addition of the Barnes & Noble library and Plastic Logic reader, the price of eBooks and readers should fall, which should spur consumer adoption.

Some observers contend that Barnes & Noble is expanding its eBook presence to escape the decline of hard copy books. The apparent strategy is to embrace digital downloads, hoping that will offset the decline in sales at bricks and mortar locations. The problem is that the margins on eBooks are lower than for hard copy books. At sales at the physical locations decline, Barnes & Noble will have more difficulty covering overhead at those locations.

Competitive Dynamics Of eBooks Market

Depending on where a market is in its lifecycle, the entry of a large new competitor may benefit incumbents by increasing the size of the market. With Barnes & Noble’s entry, competition in the eBooks market will increase to the extent that prices for eBooks and readers fall. However, the eBooks market and its complements are still growing at a rapid pace, with sales of eBooks software forecast to jump from $150 million in 2008 to $400 million in 2010. The market is not yet mature.

Growth in both in number of users and revenue should outweigh the counter effect of any price drops in eBook and readers. This effect should hold for the short run. In the long run, competition among incompatible eReader formats and libraries of varying sizes and attractiveness to consumers will squeeze out some of the players.

Douglas Y. Park
Twitter: @DougYPark