"Barnes & Noble is the smallest player trying to do the software and the hardware development, and they don't have the financial means beyond what Microsoft has already fronted them to keep up in the arms race," said Morningstar analyst Peter Wahlstrom.
In many ways, Barnes & Noble, which operates nearly 700 stores, has defied expectations. It beat Amazon to the marketplace with touchscreen devices and a color reader in recent years, and won plaudits from reviewers this year for its glow-in-the-dark Nook that allows someone to read with the lights off so as not to disturb others.
Since the chain launched its first Nook device, a basic e-reader, in 2009, it has won as much as 30 percent of the U.S. e-books market. Amazon is the leader with about 60 percent.
This race has proven expensive and, so far, unprofitable. The battle with Amazon is taking a toll. Barnes & Noble reported lower Nook sales last quarter, after earlier quarters of torrid growth, hurt by price cuts to fight Amazon's aggressive pricing.
"Barnes & Noble must continue to invest to introduce new products with enhanced features at prices that are the same as or lower than older, less-sophisticated devices," Barclays Capital analyst Alan Rifkin wrote in a research note. The problem is that hurts profits and margins, he said.
But the company's chief said the Nook devices are essential to helping it generate sales of digital content.
"We're growing the digital content portion of the business, and that's where we envision making our economics," Barnes & Noble's William Lynch told Reuters at a media event on Tuesday.
Shares of Barnes & Noble rose 6.2 percent to $13.03 in afternoon New York Stock Exchange trading.
BRUISING PRICE WARS
The tablet market is among the fastest-growing sectors of the technology industry. Research firm Gartner forecasts that sales will almost double this year, to 118.9 million units.
Barnes & Noble is in some ways at a disadvantage. Amazon can use its Prime shipping service and amazon.com site to draw users to its Kindle tablets. Apple, which has sold tens of millions of iPads, has an indisputable "cool" factor.
So Barnes & Noble needs to focus on its natural customer: the reader that comes to its stores to buy books.
"A key growth area is to get their existing customer base onto the digital platform," Forrester's Epps said, adding that the new devices would help.
