Will e-readers dominate the tablets?

B&N is about to introduce the Nook Color e-reader priced at $250, Velocity Micro already has a 7" color e-reader - the Cruz Reader - priced at $200.  The Cruz Reader appears to have a resistive, non-multi-touch screen, is operating on Android 2.0 and lacks access to the Android Market (custom Cruz Market) but at $200, it surely undercuts the netbook market more effectively than a $400 - contract subsidized - Samsung Galaxy Tab or the cheapest iPad.

I personally have a $300 imaginary price level for a device with tablet-like functionality, and my eyes nearly popped out of its sockets when I saw that the Galaxy Tab was in the neighborhood of $600.

Now, I don't think the Cruz Reader is the perfect solution, and in some respect that's because Android 2.0 is not meant to be used on tablet/readers.  But when e-readers running Android Gingerbread are available, I think they're going to severely undercut the high-end tablets from HP, Samsung and Apple.  Or even the current Android tablet from Archos (Archos 70) priced at $275 could sell well, if only it wasn't so ugly.

And with some irony, I think the color e-reader on Android will end up eating the tablet market, rather than the tablet eating up the notebook or netbook markets.

7" Cruz Reader

Archos 70 7" tablet

7" Samsung Galaxy Tab Tablet