Decide how much you would like to pay for your electronic book reader. Prices range from around $150 for the entry-level Barnes & Noble Nook and $200 for the Sony Reader Pocket Edition to $350 to 400 for the Amazon Kindle DX. (All prices as of September 2011.) The Kindle far exceeds the Sony Reader in memory space and physical size, and it also includes wireless connectivity. Mid-level Nooks and Kindles run around $250.
Consider if you would like a wireless connection. Internet access on the e-reader will allow you to peruse websites and download your favorite ebook directly to the device. You can also use the wireless to subscribe to RSS feeds and magazines. Amazon Kindles and the Barnes & Noble Nook offer wireless, but some Sony readers do not and must be connected to computer with a USB cable in order to download books.
Decide what other features fit your needs. The Barnes & Noble Nook and the Sony Reader Touch Edition use touch screens for input. All of the readers mentioned here except for the Sony Reader Pocket Edition have annotation capabilities and dictionaries. The Amazon Kindle can read out loud; and, on the Barnes & Noble Nook, you can loan books to other Nook users.
Make sure the e-reader is compatible with the book formats you would like to read: PDF, TXT, JPG, GIF, MP3, BMP or any combination thereof. Many free online ebooks are in MOBI and PRC formats, and only the Kindles can read those. Only Sony readers can support AAC formats for audio.
Consider usage needs for battery life. Amazon Kindles last four days with the wireless turned on and two weeks with it off. The Sony Readers last for two weeks. The Nook only lasts 10 days with the wireless turned off, before the battery needs to be recharged.