Last week Japanese carrier KDDI unveiled Toshiba biblio - its first phone embedded with an e-book reader. Through the Biblio phone, the Japanese carrier is set to become a key player in the e-reader apps space. However, several issues remain before the e-reader apps market reaches its full potential. Here are my thoughts:

A myriad of companies jumping on the bandwagon. Following the success of Amazon’s kindle 1 (and soon kindle 2), wirelessly enabled through Sprint Nextel’s network, many players have jumped into the e-reader bandwagon. In fact in Europe UK book chain Waterstones is already offering the Sony e-book reader, integrated to its online store, using Wi-Fi. Vodafone has also announced an e-book deal for Europe. Two of the UK’s leading book publishers are putting their faith in mobile technology to drive digital sales: Random House UK just launched a paid-for iPhone app through Apple’s app store, while Penguin is offering thousands of titles to mobile users on a paid-for basis. In the US, bookstore chain Barnes & Noble is set to launch its own e-reader in association with Verizon, while News Corp chairman Rupert Murdoch recently announced a plan to offer a large screen reader to make it easier to look at newspapers online and on the move. Stanza, a leading developer of e-book reading applications for cell phones, which recently was acquired by Amazon, is another solid player in the space. In its first three months Stanza saw 395,000 downloads from the Apple App Store, almost beating sales (500k) of Kindles for 2008. Through Stanza, Amazon will be able to add a lower end experience to Kindle, its own dedicated wireless e-book reader, setting the scene for Amazon to create a broad open platform to underpin mobile reading on all devices.

However, several key issues remain. Figuring out the right pricing option, especially across various platforms (cell, tablet PC, digital camera, etc.) and enabling users to use a universal password to access such applications across multiple devices will become critical for carriers to drive adoption of e-reader apps. Additionally, the device limitations of many feature phones and the need for standardization around e-reader apps are likely to restrain adoption for these kinds of applications in the short term. For carriers increasing the adoption of e-readers users, which tend to generate low ARPU (US$2), without cannibalizing their total ARPU, will be another key challenge to overcome. Ultimately, addressing those key issues will become vital before the market reaches its full potential.

Bottom line: As the adoption of advanced smartphones like KDDI’s bilblio – embedded with wide screens and better storage capacities – continue to grow, we expect e-reader apps to gain in popularity in the coming years. More carriers are likely to embed e-reader apps in many of their flagship smartphones and other portable devices (tablet PC). As noted earlier, News Corp should be a key enabler in this space. The emergence of faster networks like LTE and WiMAX should improve the user experience, and drive adoption of such applications as it will allow users to browse and download pages faster. Ultimately, KDDI (through its biblio phone), Amazon, and Sony are set to remain the leading players in the e-reader space, with Amazon set to remain out in front, driven by the growing popularity of the kindle 2. In fact, approximately 300,000 of Kindle 2s have been shipped to date, suggesting Amazon has made over US$100 million in revenue from sales of the US$359 device alone this year. Amazon expects to sell 800,000 or so of the Kindle 2 devices in 2009.