Despite tepid response to its Reader, Sony sees potential in the market--and Amazon may agree 。
Nearly 10 Months After its debut, the Sony Reader is hardly a game changer. Reviews of the tiny handheld book-reading device have been tepid at best, and Sony Corp. (SNE ) has consistently declined to release sales figures, which just might tell you something. But Sony isn't backing away. In fact, as speculation continues in publishing circles that book e-tailing giant Amazon.com (AMZN ) is planning to come out with its own portable reader, Sony is launching a number of initiatives to give its Reader more sizzle.

The market for digital books is nascent, and Sony, despite the Reader's less-than-splashy debut, still sees its potential, believing people will eventually warm to reading on a flat screen everything from books to the magazine you're holding now. The half-inch-thick Sony Reader, which can store about 80 electronic books, allows readers to flip pages and adjust the type size. It sells for about $300, and digital book downloads range from $2 to $20 apiece.

The Reader, however, has not drawn the wows that, say, a new version of the iPod (AAPL ) can still elicit. Many users say they are unhappy with the interface (too many buttons and not intuitive) and complain that books for the Reader can only be purchased at Sony's online service, Connect. Less than a tenth of the titles on the shelves of your average Barnes & Noble (BKS ) or Borders (BGP ) are available at Connect. Lisa Phillips, a vice-president at Random House Direct who received her Sony Reader as a gift last December, is turned off by Sony's closed system. "An open format where you could go to different places and not just use their system would be helpful," she says.

Sony hears you, Lisa. It's now planning to adopt e-book software from Adobe Systems (ADBE ) that will provide the Reader with a format to download books from outlets other than Connect, even libraries that lend e-books. Sony is also expanding where the Reader is sold. Available initially at just Borders and its own Sony stores and Web site, the Reader recently hit the shelves at CompUSA and Best Buy (BBY ). But even with the broader distribution, getting a sense of how well the Reader is selling is nearly impossible. "If [Sony] were selling millions, they would be boasting the numbers," said Evan Wilson, an analyst with Pacific Crest Securities who covers Sony. "Consumers have proven time and again that they would prefer to buy and keep physical books." Osric Burrowes, an inventory manager for a Borders store in midtown Manhattan, said that he was "very happy" with Reader sales, though on average the store sells just five a month.

TARGETING TRAVELERS
To stoke sales, Sony has knocked $50 off its original price for the Reader and rolled out a new print ad campaign in publications such as The New York Times (NYT ), USA Today, and Vanity Fair. As part of this marketing push, Sony is offering new buyers, who are also registered Connect users, credit for 100 free classic titles, such as Great Expectations and Moby-Dick. "In terms of timing, with people going back to school, there is a lot of interest in classic literature," said Jim Malcolm, director of marketing for Sony Electronics. "It gives people an incentive to buy."

What's more, the Sony marketing team is gearing up to switch from a broad-based campaign to targeting frequent travelers. Because the Reader holds multiple books, Microsoft Word documents, and PDFs compressed into a manageable nine ounces, Sony says that a commuter or business traveler would be most interested in the device. Ads are appearing now in airports and train stations in New York, Boston, Chicago, Los Angeles, and San Francisco. But this also means a major cutback in geographic reach. Says Malcolm: "What we're doing right now is being a lot more targeted."

Sony will need to gain some kind of traction with Readers, especially if Amazon, which bought e-book service mobipocket.com two years ago, moves forward with its own reader. An Amazon spokesman declined to comment. Sony knows all too well that with any first-generation product, valuable lessons are learned. But in this case, it may be that all the marketing in the world won't help sway book lovers if they are just not ready to curl up with a hard plastic screen.