And innnnn this corner…! (Kindle and Nook square off in retail)

Amazon and B&N are getting ready for a brawl this holiday season.
Speculations have been made that ebook sales will represent 12-15% of gross book receipts in the critical fourth quarter this year.  It seems obvious that the ebook market is expanding fast; either of the first two quarters of 2010 had higher ebook revenues than the first six months of 2009.  None of this is really news.  But this holiday shopping season, the two companies with the largest ebook market share are planning to go toe to toe in the retail market.
In this corner: Barnes & Noble.  Leveraging their brick and mortar stores is key as they push on into the digital publishing age.  Those 800 stores may become an albatross around their neck in years to come, but for now they give B&N a platform to reach paper book readers with their new toy.  They\’ve had a little display stand to show off a few demo models of the Nook ereader at most stores since they launched the product.  But at the end of July, B&N launched a new program to put \”Nook boutiques\” in as many of their stores as they could.
I got to see one last night (it\’s actually opening here today).  The press release says a thousand square feet; it\’s about the size of a very large living room.  My local store has plunked it down where all those cheap \”coffee table\” hardcovers used to live, right in front of the registers.  Most customers will pass this huge set of white display tables, ereaders, cool gadgets, and paid demonstrators going in.  All customers will pass it on their way to pay for their books.  It\’s well planned, well placed, and looks pretty sharp.
And it\’s just in time…because Amazon\’s putting their Kindle into retail.
The Nook\’s biggest strength was always that you could see it in person, touch it, play with it.  We\’re a tactile species.  We tend to want to see and touch to believe (and like) a product.  Amazon\’s Kindle has been sold online-only since it was released, and that\’s undoubtedly hurt sales.  So just in time for catching those Christmas shoppers, Amazon is putting Kindles in Best Buy stores all around the country.  They\’ve got demo models in already, and will have actual stock for sale soon.  Best Buy is a huge chain store.  Amazon already has 70% of the ebook market, and this move seems perfect to get the gadget loving Best Buy customer into their corner.
There\’s a down side though…  Although no hard numbers on production costs have been released, speculations have been that most ereaders are being sold as loss leaders – that Amazon is at best breaking even when they sell a Kindle, and hoping to make their money by selling ebooks once customers have purchased their inexpensive ereader.  Teardown published last year that the Kindle 2 cost $189 to produce; that\’s the same price they\’re selling the free-3G-for-life high end version, and more than their inexpensive WiFi version ($139).  So given that Best Buy is undoubtedly taking a retailer\’s share of each Kindle sale, Amazon is probably losing a lot of money on every Kindle they sell in retail this year.
On the flip side, B&N is selling the Nook at…B&N.  The retail outlet gets credit for sales, but the company overall keeps the money.  They can sell the Nook at cost and not lose much beyond the cost to set up the boutiques.  So while the Kindle retail option is an expensive advertising campaign to hold Amazon\’s market lead, the B&N plan is actually a very stable investment in expanding their own share.
In the end though, the success or failure of both retail programs might come down to a single question.  Who will adopt ereaders more, and buy more ebooks?  Best Buy customers, who are into gadgets, high end phones, computers, and home video centers?  Or B&N customers, who already enjoy reading, but who (if they\’re not already early adopters of ebooks) are enjoying their paper books just fine right now?
Should be quite the showdown.