Come on, Kobo, a $399 tablet? Really?

Last September, Barnes & Noble (s BKS) launched two new tablets. The Nook HD and HD+, ranging in price from $199 to $299, were designed to be reader-centric devices. They included features like children’s accounts and curated “channels” to help readers discover new books.
These features, Barnes & Noble hoped, would be enough to attract buyers — but they weren’t kidding themselves that users would be persuaded to buy a Nook instead of an iPad. “You have an iPad, I have one,” a company exec said at a briefing at the time, seemingly acknowledging that the Nook HD wouldn’t be anybody’s first choice. Rather, Barnes & Noble clearly hoped that the Nook tablets’ prices and features might be enough to entice users away from other lower-priced tablets like the Kindle (s AMZN) Fire and Nexus (s GOOG) 7.
It didn’t work. Fast-forward a year and Barnes & Noble’s Nook business is in serious trouble. This summer, the company acknowledged that the tablets are dragging the Nook division down and said that it would stop manufacturing them in-house (before flip-flopping this month after the CEO resigned and insisting the devices are still a big part of its strategy).
You’d think that Canadian e-reader company Kobo, whose share of the U.S. ebook market is far below Barnes & Noble’s, might have learned something from this. Apparently, it hasn’t.

$399 in a sea of competition: “That’s a great price”

At an event in New York Tuesday night, Kobo announced that it is launching three new tablets this fall. “Up until now, no one has really designed a tablet for readers first,” CEO Michael Serbinis said. Amazon (s AMZN) and Barnes & Noble would probably disagree with that.
The most expensive of Kobo’s new tablets is a 10-inch model called the Arc 10HD. At a whopping $399 for Wi-Fi only and 16 GB of storage, the 10HD is $130 more expensive than the 8.9-inch Kindle Fire HD with ads and matches the price of the 8.9-inch Kindle Fire HD with 4G LTE, 32 GB of storage and no ads. It’s $70 more expensive than the 16-GB iPad Mini with Wi-Fi, and it matches the price of the 16-GB iPad 2.
Plus, Apple may release a new iPad in this fall. At that point, the company will likely drop the prices of the iPad 2 and iPad 3. Thus in just a few months, there will probably be an even broader range of iPads that either match or beat the Kobo Arc 10HD’s price.
“We don’t comment on our competitors’ offerings,” Kobo spokesman Cerys Goodall told me. “The new Kobo Arc lineup is designed for readers first, and at $399 with an HD screen and un-compromised performance — that’s a great price.”
Okay, so let’s say you have $400 to spend on a new tablet this fall or holiday shopping season. Why would you buy it from Kobo, a company whose products you’ve likely never used and a company that doesn’t have its own content ecosystem (it offers access to Google Play) when you could just get an iPad instead? And if $400 is more than you want to spend, you have a wide range of lower-priced options, including several models of the Kindle Fire, Google’s Nexus 7 and the iPad Mini. You also, of course, could choose a lower-priced tablet from Kobo, but if customers didn’t buy the sub-$300 Nook HDs it’s unclear why they’d buy sub-$300 Kobo Arcs.

Where’s the strategy?

Kobo hasn’t released much information on how well its tablets have sold. The company has stressed how well its e-ink readers are performing, announcing in May that e-reader sales for the first quarter of 2013 were up 145 percent over 2012. And Kobo CEO Michael Serbinis reiterated at Tuesday night’s event that e-readers aren’t dead. But the company has not justified why it’s making a big bet on tablets. An earlier version of the Kobo Arc — which sold for $199.99 — got pretty good reviews based on specs and design, but all of those reviews noted there wasn’t a compelling reason to buy it over the competition.
Kobo, which is owned by the Japanese e-commerce company Rakuten, touts its international reach and partnerships with local bookstores worldwide as its strategy for success. It’s true that Barnes & Noble has been slow to expand internationally, but it doesn’t follow that a lack of international availability was the reason for the Nook tablets’ failure. At any rate, international customers in developed countries are still probably more likely to choose tablets from big names — Apple, Amazon, Google — over tablets from Kobo. Customers in developing countries probably can’t afford a $399 tablet.
If the failure of Barnes & Noble’s Nook HD shows one thing, it is that customers will not buy an untested tablet simply because it includes reader-friendly features. Kobo thinks it can succeed where Barnes & Noble has failed, but it hasn’t offered a compelling reason why.