Apple Inc. (AAPL), Barnes & Noble, Inc. (BKS): Where Are E-book Readers Going?

The three big players in the e-reader market have very different strategies. As component prices drop, how will each compete in a progressively narrower market?

Apple Inc. (NASDAQ:AAPL)

Apple Inc. (NASDAQ:AAPL) has been interested in e-books — excuse me, iBooks — ever since the introduction of the iPad and its accompanying iBooks app. Back then, the e-reader application seemed like a side benefit. Amazon.com, Inc. (NASDAQ:AMZN) and Barnes & Noble, Inc. (NYSE:BKS)‘s e-readers were both under $200 and offered crisper screens, so anyone spending $499 on the iPad was unlikely to do so because they were pumped about reading books.

But since then Apple Inc. (NASDAQ:AAPL) has refined the iPad’s screen and, more significantly, released the cheaper and more portable iPad mini. It’s much easier to imagine yourself reading a book on that $329, 8″ device than on the comparatively weighty full-size iPad. And plenty of people do read on it. That’s a key aspect of Apple Inc. (NASDAQ:AAPL)’s e-book strategy — the captive audience it has from people who use their iPads and iPhones (and with OS X Mavericks, their Macs) for other things.

Another advantage is the rumored release of a new, Retina-screened iPad Mini. While still uncertain, it seems unlikely that Apple Inc. (NASDAQ:AAPL) won’t be upgrading the screen of their best-selling tablet. And when they do, the beautiful 254 Pixel Per Inc (PPI) display will make reading a joy, as it outstretches even Amazon.com, Inc. (NASDAQ:AMZN)’s current flagship, the Kinldle Paperwhite.

All this talk of tablets reminds me, though; Apple Inc. (NASDAQ:AAPL) doesn’t have an e-ink device. And, let’s be realistic, they probably never will — or at least not until these devices are significantly more refined. The low refresh rate and ghosting are so un-Apple Inc. (NASDAQ:AAPL). Regardless, this means that as competitors’ pricing for e-reader devices will likely drop more precipitously than Apple’s tablets, making consumers more likely to simply purchase an Amazon or Barnes & Noble, Inc. (NYSE:BKS) e-reader in addition to their tablet.

Barnes & Noble, Inc. (NYSE:BKS)

Speaking of competitors, Barnes & Noble, Inc. (NYSE:BKS) has shown impressive nimbleness in the market. Unlike its competitor Borders (R.I.P.), B&N had the gall to start creating electronics — a surprising prospect for a brick-and-mortar bookseller. But they’ve been rewarded for the move, and have used their retail stores impressively in marketing the Nook.

A complicating factor is that the company is potentially looking to spin off its Nook business. The news is obviously great for shareholders, who gobbled up B&N stock last month on a rumor that Microsoft is a potential buyer. But as Abram Brown pointed out in Forbes, B&N without Nook starts to look a lot like that other retailer I mentioned earlier. Gulp.