For Farago, the problem facing e-reader developers like Amazon and Plastic Logic is that it’s “going to be difficult to produce their devices at a lower cost than Apple can produce an iPhone.”

Right now setting up the industry is expensive, he says. Once e-reader developers get into mass production, they need the software to pull the hardware sales. Over time, the price to make each additional piece of hardware will diminish, and the one-time, big fixed cost will eventually get amortized across all the units Amazon or Plastic Logic produce.

“Hardware is a loss leader. That’s why you have to have content,” Farago says. “You make back the money on content sales.”

He cites as an example Microsoft’s Xbox. Early on in its foray into videogames, Microsoft lost $100 with each Xbox console it built, right up until the release and popularity of the game Halo, says Farago. “Remember, it wasn’t really the hardware that made the consumer go to Best Buy, it was the game, the application. The Xbox’s ‘killer app’ was Halo.”

With more than 50 million iPhone and iTouch devices in service, Apple has by virtue of ubiquity the upper hand in the e-reader market, Farago says. (Even Norris admits his wife reads books on her iPhone.) And if the rumors about Apple’s iTablet device are to be believed, the Cupertino, California-based company could be sitting on the Kindle killer. According to the Sydney Morning Herald, “the tablet is tipped to be a larger version of the iPhone. It is small enough to carry in a handbag but too big to fit in a pocket. It will have a touch screen and be targeted at users who mainly want to surf the Web, read books and newspapers or watch movies.”

At present, the iTablet remains a mythological creature, the unicorn of e-readers, with recent reports saying the device would cost upward of $800 with its launch date pushed back to the middle of 2010.

“Can Apple come out with a competent e-reader?” Farago asks. “They are known for their desktops and laptops and a phone. They have 30-years of competency in hardware, and they are pretty much not interested in the content—they make money on the devices. They have made so many, the price to build has gone down, but they can still charge a premium.”