How Sony E-Reader Lost to Kindle and How It's Battling Its Way Back

Exceptional Marketing Needed to Avoid Becoming the Zune to Apple's IPod

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YORK, Pa. (AdAge.com) -- Mary Stewart is a digital-book convert. Her 9-month-old Kindle quickly and permanently replaced the paperbacks the York, Pa., dentist used to tote everywhere. When asked why she chose the Amazon Kindle over a Sony Reader, she said, "I'm on Amazon on a regular basis, and every time you go on, something pops up about Kindle. ... I saw a Sony Reader at B.J.'s and looked at it a little, but I don't even know how you download books on it. Do they have an online store like Amazon?"

Her reaction isn't uncommon. Sony introduced its Reader more than a year before Amazon launched the Kindle, backed it with marketing and received better hardware reviews than the competition, but it's the Kindle that has managed to grab far more mind share -- and very likely market share. Neither company is forthcoming with its sales figures. Amazon won't release Kindle sales, though Citi analyst Mark Mahaney estimated they could reach $1.2 billion by 2010. In January, Sony said it had sold 400,000 Readers to date, but it has not updated that figure since.

Sales aside, one thing's clear: Kindle's winning when it comes to awareness. "Amazon has the mind share for Kindle, much like Apple had the mind share for iPod long before it had any significant sales or market share numbers. ... [It will take] excellent marketing and a significant budget to overcome that," said Rob Enderle of Enderle Group.

Despite spending more than double what Kindle laid out in measured media (see chart above), Sony lost momentum by not sustaining its marketing and pressing its product superiority or first-mover advantage, experts said. Sony was "the pioneers ... and then Amazon came along and said, 'A-ha, we understand readers -- people, that is -- better, and we can create something better for them,'" said Peter Glaskowsky, analyst for the Envisioneering Group.

"Sony never offered a compelling reason to buy, there weren't enough titles, and their store was not that easy to use," said Alan Siegel, chairman-CEO of Siegel & Gale. "Kindle jumped them with a wireless product with a larger array of titles available, backed with strong advertising and good PR."

Sony speaking up
But Sony isn't ready to let Amazon drown out its Reader story. The electronics giant plans a fall marketing campaign, has dropped prices and opened up standards in an aggressive bid to grow market share. The fall push, part of a bigger Sony Electronics umbrella effort running through the holiday season from 180 LA, will include an aggressive retail presence, with stand-alone displays and interactive kiosks in stores from Best Buy and Borders to Walmart and Target, an in-person experience Amazon's Kindle can't reproduce.

The price cut, moreover, to $199 for the Reader Pocket due out at the end of this month, makes it the lowest-priced device yet in the e-reader category. And open standards make it appealing for those afraid of locking into a proprietary system. Sony has a deal to offer Google's 500,000 digitized book collection to Reader users free, and recently announced a commitment to convert the Sony eBook Store to the ePub format, an open standard backed by the International Digital Publishing Forum, by year's end.

Michiko Araki, director-marketing for the Sony Reader, said the strategy this year will focus on expanding to a more mass audience, aided by the price cut, and using TV and online advertising to drive customers to retail, where they can get hands-on with the device.

When Sony announced the Reader with a big splash at CES 2006, where it was extolled onstage by "The Da Vinci Code" author Dan Brown, the company did not follow up with a marketing campaign in the U.S. In fact, the first push for the Reader came only last year, in October -- around the same time Oprah Winfrey obliterated Sony's message by naming the Kindle one of her favorite things.

Sony's first effort, called "Reading Revolution," was meant to be experiential, with the emphasis on trials, not advertising, Ms. Araki said. More than 1,000 "Reading Revolutionaries" were dispatched to 3,000 locations, including malls, airports and train stations, to demo the device and offer hands-on trials to people. Ms. Araki said the three-month campaign reached more than 2 million people and resulted in both awareness and purchase-intent increases.

Free marketing
In one way, the Kindle's rapid rise has actually benefited Sony. "The president of our division has said many times that Kindle has been great for expanding awareness for digital reading," a Sony spokeswoman said. "Now everybody knows about it, so we don't have to market that."

While analysts agree Sony will have to work hard to win share either against or along with the Kindle, the task isn't impossible. "Sony's success will depend on how well they went to school on Kindle," said Kevin Joy, VP at BrandProtect.

There is room to grow in the e-reader market. By the end of 2008, only 1 million e-readers had been sold, with another 3 million estimated to be in users' hands by the end of this year, according to Forrester Research. That's only 3% of the adult book-reading population and $197 million in U.S. sales. But the category is expected to grow rapidly, to 32 million devices, or about $1.8 billion in sales, reaching about one-third of that total by 2014.

"Sometimes it doesn't hurt to let another company introduce a new product category to the marketplace," said Joe Calloway, brand consultant. "Now that people are aware of electronic readers, it can become anybody's game.... With penetration so low, I think they've got the time and space to work to establish a decent share of market."

But Sony isn't the only one looking for a piece of that pie. Samsung has announced an e-reader, and Plastic Logic and partner Barnes & Noble plan to roll out their own e-bookstore-connected product. Analysts also said Apple could be a significant market disrupter with its rumored large, touch-screen "iPad" said to be coming soon.

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