• by Sarah Mahoney  @mahoney_sarah, August 26, 2009

Sony has taken the wraps off its newest e-reader, and observers say the tempting new product, priced at $399, may emerge as one of the year's hottest gifts -- and challenge Amazon's dominance in the fast-growing market.

Sony's Reader Daily Edition, a wireless version of the readers it announced earlier this month, comes with 3G connectivity and will be available by December, in time for a holiday marketing push. "One of the advantages Sony has is that this product has a touchscreen, and Amazon's Kindle doesn't. And as is typical of Sony products, it has a high-quality, well-designed look," says Sarah Rotman Epps, an analyst with Forrester. "The Kindle looks like an oversized calculator, while this is a sleek device."

The new $399 product joins two unveiled last month -- Sony's Reader Pocket Edition sells for $199, and the Reader Touch Edition, which features a responsive six-inch touchscreen, as well, for $299. Currently, Amazon's six-inch Kindle sells for $299, and the Kindle DX, a larger device especially suited to newspaper reading, costs $489. "Whether people will pay $100 more for the Sony than the Kindle remains to be seen," she says, "but it's smart to offer consumers a suite of products with more choice and price points."

But perhaps its biggest advantage, she says, is that the Sony readers will be seen in more than 8,600 retail stores compared to the Kindle, only available online at Amazon and at a limited number of Target stores. "That's a big plus when you realize that 40% of online consumers have never even seen an e-reader," she says.

What Sony doesn't have, she says, "is a relationship with the book-buying consumer." Instead, the company has adopted an open-content strategy, including free wireless access via AT&T's 3G network, access to e-books available at public libraries, and access to more than one million free public domain books from Google. (It also sells many new releases for just $9.99, as does Amazon.)

The product has a seven-inch-wide touchscreen, and about 30 to 35 lines of text are visible, "making the experience very similar to that of a printed paperback book." With its aluminum body and high-contrast screen, the Daily Edition can hold up to 1,000 standard eBooks, and can be expanded for more memory.

While the market so far has been dominated by high-income, high-tech males, Forrester's research indicates that the next wave of enthusiasts may spell trouble for Amazon: Younger women, avid readers who buy books from multiple sources, not just online.

Earlier this year, Forrester forecast that more than 3 million eReaders would be sold this year; it now projects that may be higher -- and that as many as 13 million will be sold by 2013.