Amazon has seen great success with the Kindle. And last week, the company dropped the cost of its e-reader once again. And saw the new Kindle sell out over the weekend.

Strong sales of e-readers have showen that people want to read books on a digital device. And considering that Amazon is a marketplace for books, dropping the price of its reader paves the way for the company to be the one bringing in those book sales.

The new Kindle went on sale last Wednesday, and Amazon lowered the cost of its new digital product. The price of the 3G Kindle and Wi-Fi Kindle were dropped to $189 and $139 respectively.

The price of e-readers has been heading steadily downhill, and Amazon’s cheaper model now outprices Barnes & Noble’s Nook by $10. This price war is on the verge of upending the entire e-book market.

William J. Lynch, chief executive of
Barnes & Noble, told The New York Times recently:

“I don’t see more than two or maybe three dedicated reading companies
in the market for selling ebooks… I think you are starting to see a
shake-out now.”  

A few months ago, there were mulitudes of e-books entering the market. But with Apple’s iPad debut, digital reading devices had to do more than deliver a better reading experience than competitors. They had to do it cheap.

We’ll probably see prices drop even lower soon. According to EWeek, Copia will release an e-reader for under $100 this fall.

But consumers aren’t waiting for that. This week, the Kindle sold out at its new price point. New orders will ship as late as September 4th.

By then, the e-reader market might be slimmed down. Both Barnes & Noble and Amazon hope to make their money on the sale of e-books, but smaller manufacturers don’t have that luxury.

If it hasn’t happened already, digtal readers might be sold at or below cost in the near future. Why? Because selling books is a growth business in digital. And getting mobile reading devices into consumers hands is the route to those sales. For electronics companies, they only sell one piece of the puzzle.

If Barnes and Noble can further their business of selling the content that exists on e-readers, the devices will get even cheaper.

Case in point — Amazon is currently working on its app store, which is expected to launch later this year.

As Amazon CEO Jeff Bezos tells The Wall Street Journal, the Kindle is a way to get people purchasing more books. Also, he hopes the cheaper version will become a much more common sight:

“We developed this device for serious readers. At these price points,
it may be much broader than that. People will buy them for their kids. People won’t share Kindles any
more.”

When Amazon dropped the price of the Kindle to $189, the company tripled growth rates of the device year over year. And 80% of Kindle books sold on Amazon are sold to Kindle owners. Ian Freed, Amazon’s vice president of digital, tells CNET that Amazon now has 80% of the digital book market. Getting Kindles in the hands of customers is a big part of that. He says:

“The device business continues to grow with a device [the
second-generation Kindle] that’s over a year old, and then the content
is growing both with the device sales and independently with the apps.
We see a lot of customers start with apps and buy a Kindle later.”