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Some possible target audiences for an LCD Nook Color would be: kids, students, casual readers, magazines, newspapers, etc. Not all Nooks need to be geared toward avid readers.
B&N already has Nook Study and is just about to launch Nook Kids. Both groups would benefit greatly from a quality, inexpensive 7" color reader with a touch screen.
There's room for two Nooks - eInk and color LCD.
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