Updated Nook Color shows a smart $249 tablet strategy

Barnes and Noble released a software update for its popular Nook Color eReaderon Tuesday that expands magazine offerings and features, while also adding parental controls to the devices web browser. The company says that version 1.3 of the Nook Color software improves Wi-Fi connectivity in addition to bringing other performance improvements. Current Nook Color owners will be prompted by the on-device software update mechanism, but users can download version 1.3 directly to a computer and install it manually, too.

After the software update, Nook Color owners will have access to new periodical titles such asFORTUNE,PEOPLE,SPORTS ILLUSTRATED,TIME,ParentsandFitness, bringing the total number of available magazines to more than 200. The first four new additions include an electronic copy of the print edition, which is available freely to existing print subscribers, as well as enhanced interactive features, including videos and audio podcasts, animations, and additional photo galleries.Barnes and Noble says these new interactive features will be added to all 21 U.S. magazine titles in the Nook Color store by the end of the year.

In a press release, the company expands on the new functionality, saying:

With these embedded multimedia enhancements, magazine lovers will be able to watch celebrity interviews, see the weeks sports highlights, listen to podcasts, take quizzes, get how-tos on arts and crafts, and even learn new exercises with fitness videos to stay in shape. These special editio! ns also feature a portrait-centric reading experience thats fun and simple to use, as well as the ability to get to desired content quicker. Just tap the article promoted right on the magazine cover or in the table of contents.

This approach of blending traditional reading with web-like interactivity isnt new for the Nook Color. In fact, the product itself is a blend; its the tablet that isnt a tablet unless you want it to be. First and foremost, its a 7-inch color reading device for content sold by Barnes & Noble. But the company built a custom interface on top of Googles Android platform, which has opened up the possibilities for basic email and web browsing. A curated application store arrived in a later software update, providing a wider range of functionality without overwhelming users or taking away from the devices core use of reading. And it does all this for much less than most Android tablets at $249.

The reason this works is because unlike many companies, Barnes and Noble isnt trying to compete against the iPad for its depth of functionality. Instead, the Nook Color smartly offers solid breadth: The device offers basic features that customers want in a portable device, and all of those features work well. In a sense, thats actually an Apple-style approach. But the Nook Color appeals to more than just mainstream consumers.

Since the devices underpinnings are Android, it didnt take long for enthusiasts to exploit Googles platform with custom softwarewith the results show in this video demonstration.

The process to turn the Nook Color into a full-fledged Android tablet isnt too challenging, and for those that are too timid to try, companies are selling a plug-and-play solution. No, a customized Nook Color isnt the most powerful Android tablet on the market, but at half the price, people are buying it. Barnes and Noble sold one million units in the final quarter of 2010 and has taken delivery of three million Nook Color units, according to DigiTimes.

Part of the appeal is surely the price, or more precisely, theperceivedvalue of the tablet at the $249 cost. This same value proposition has driven the stock of HP TouchPad tablets to zero in retail and online outlets. HPs tablet couldnt compete with the iPad and others at $400 to $500, and the company decided to liquidate stock for $99 to $149.

At that pricing, several hundred thousand consumers were willing to overlook the possibility of limited future support and third-party applications. Why? Because at $99, the tablet makes for an inexpensive slate thats quite good at web browsing, email, and ebook reading. Simply put: the value of those activities is worth at least $100 to consumers.

Barnes and Noble has figured this out with its $249 Nook Color. HP figured it out as well with $99 TouchPads, but it cant afford to sell the tablet at a loss: The bill of materials alone is around the $300 mark. Well know within a few months if Amazon has learned from this situation when it launches its expected tablet, and I suspect it has.

Its becoming more difficult to compete against a $500 iPad and its 18 month head start over others with a similarly priced device. Instead, an inexpensive slate that does a few key features really well, but can be added to over time, may the best bet in the long run. If that doesnt sound like a good strategy, just look at sales figures for Barnes and Nobles tablet thats not a! tablet.

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