Last Book Standing: Can Barnes and Noble fend off the digital attack?

Book stores are fighting fire with fire when it comes to digital competition. Is this the right move?

In 1998, Rocket ebook, the first commercial e-reader was launched. Even though it wasn´t a success, it opened the door for subsequent products to disrupt the multi-billion dollar publishing industry. Leading the way in this digital disruption was the first version (2007) of the Amazon Kindle. Then came even worse news for book sellers, when Apple released the Ipad (2010). Sales for these two products grew at an astounding rate, threatening to over throw traditional book stores as the source of America´s home libraries. In 2014, the New York Times went as far as to predict that by 2018 more than 50% of all books read in the US would no longer be the classic hard cover books we all grew up with.

Bearing the brunt of this frontal attack was, and still is, Barnes and Noble. Founded in 1873, the book selling giant grew from a small book business in Wheaton, Illinois, to over 640 retail stores in the United States. It is currently the undisputed leader in the market for book selling, and has engaged in several attempts to defend itself from the digital invasion of the publishing industry.

Even though Barnes and Noble released their first online books in the 1990’s and began to sell books directly to consumers via their website in 1997, they noticed that e-readers represented a different enemy than regular online sales. In many people´s minds, including company management, the Kindle had the potential to be to Barnes and Nobles what Netflix had been to Blockbuster. The centennial company wasn´t going to wait to find out if that was true, and thought that their best strategy was to fight fire with fire.

Launching the Nook

In 2009 Barnes and Noble released the NOOK, their very own e-reader. The company wanted to leverage its unique assets, iconic brand, and reach to compete directly in the distribution of digital content. They were off to what seemed to be an auspicious start, as the company declared that the NOOK was the “best selling item in Barnes and Noble history”. However, as the years progressed financial results on the NOOK have been far from stellar. Even though the device was praised as high quality and some estimated that it had 27% market share, the effort that was being put into the NOOK wasn´t paying off. Barnes and Noble quadrupled their advertising expenditures to give the NOOK a much needed boost, but was finding it hard to make a profit.

It has been almost 7 years since the NOOK was launched, and the situation hasn´t been reversed. Looking at Barnes and Nobles 2016 year-end financial results, we see a grim picture for the NOOK´s future. Full year comparable stores sales were flat, while NOOK sales (including digital content, devices, and accessories) where down 27.4%, reaching an operating loss of 98.6 MMUSD. Unlike what most people would have guessed in 2007, e-reader sales have stalled (including Amazon Kindle), while hard cover book sales have remained stable. This makes us ask ourselves: Was the medicine worse than the disease? Did we act prematurely in declaring the demise of books as we know them?

Blockbuster´s recent failure to compete against online streaming is fresh on everyone´s mind, leading us to believe that all things digital will prevail. While there are strong indications that most industries will face extreme transformations, let´s not forget other examples from the past of traditional industries that have survived disruption. When television was first introduced into people´s homes, everyone believed that movie theaters were doomed to fail. One short walk in most neighborhoods would prove that hypothesis to be incorrect.

While it may be early to tell if Barnes and Nobles is the new Blockbuster or the old movie theater industry, there are some things that the company should do to regain its profitability. Number one, is accepting that they should not compete against the technology giants Amazon and Apple. They should maintain a strong online presence, but competing in hardware is a whole other story. The NOOK must be buried. Secondly, similar to movie theaters, it is important for them to frame book purchasing as an experience that can´t be substituted by clicks. If they wish to continue doing what they do best, it is important to sell not only a product, but an experience. (731 words)

 

Sources

http://www.businesswire.com/news/home/20160622006404/en/Barnes-Noble-Reports-Fiscal-2016-Year-End-Financial

http://www.digitaltrends.com/android/nook-is-best-selling-item-in-barnes-nobles-history/

http://www.wsj.com/articles/SB10001424052970203513604577142481239801336

http://www.barnesandnobleinc.com/about-bn/heritage/

http://fortune.com/2015/03/10/barnes-and-noble/

https://janefriedman.com/ebooks-print-market/

 

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6 thoughts on “Last Book Standing: Can Barnes and Noble fend off the digital attack?

  1. Thanks for sharing Manuel, and I totally agree with your recommendation to dispose of the Nook. Hardware engineering is simply too difficult a segment for a book retailer to compete in, as evidenced by Barnes and Noble’s financial results. The comparison to Blockbuster is interesting and, to your point, I think an incorrect analogy. Netflix and Blockbuster offer the exact same product – watching a production on your TV. Conversely, a hard book and an e-reader still are significantly different experiences; holding a hard cover book is a very different reading experience than flipping through an iPad. I believe the former experience will be more immune to disruption than Blockbuster due to the product differentiation.

  2. Do you think it is at all possible for B&N to compete with amazon? It seems that even if they drop the nook and stick to selling books online that Amazon will still destroy them due to the distribution network. Why would someone purchase books online from b&n when they can just buy them on amazon.

  3. Cool post Manuel – I think there is a recognition within Amazon that the physical book is not quite a thing of the past. This is mostly attributable to the differentiated experience (as pointed out by Carl above) and the preferences that some customers have for the feel of paper books. However, as Amazon expands its physical bookstore presence (https://www.amazon.com/b?node=13270229011) it’s hard for me to imagine Barnes and Noble continuing to be a key player in the space long term. They can’t compete on price, they can’t compete on digital offerings, they can’t compete on brand recognition. They might be able to retain customer loyalty through a vastly superior physical retail experience, but I’m doubtful. Their best bet is to continue investing in some kind of heretofore unseen innovation or they seem likely to go the way of Blockbuster.

  4. Great post! Similar to kfh above, how do you deal with the Window Shopping / showrooming phenomenon as someone else discussed with electronics stores specifically? You reason above that they need to turn experiential – any thoughts on what that might look like other than the usual coffee-shop shop-in-shops and more cafe seating/comfy chairs? Maybe there’s some kind of subscription model that would work in addition to retailing books – free unlimited coffee, premium, quiet seating, handpicked selection or early access to books, that kind of thing. I think the comparison to movie theaters is tough if only because those are events that we haven’t come to expect for free; but coming into a bookstore and reading for hours is considered a right. How can the bookstores add enough valued services to justify charging or to entice the customer to purchase?

  5. Like you, I worry about NOOK’s future seven years in. It surprises me that book sales have remained stable yet e-readers haven’t seen growth – that is totally not what I expected! I read up about this and noticed that according to Author Earnings, NOOK has 8% of the e-reader market to Amazon’s 74%. Like Zach above, it concerns me that B&N might not be able to compete in this space to gain market share and the Nook must be buried. But while B&N can’t compete with digital giants, it might be able to pick up momentum by harvesting its strengths as a brick and mortar general interest bookstore.

    The importance of local bookstores within a society cannot be overstated. For a moment, lets look beyond profit margins. We have a Starbucks on Chipotle on every corner – what we really need is a place where youths can be immersed in literature, get inspiration, and discover the pleasure of reading. At the same rate, public libraries are disappearing from sight as they can barely secure public funding! I think the question we must ask ourselves is not CAN B&N SURVIVE? But rather: What can be done? B&N MUST SURVIVE. Unlike Borders which was forced to close down, Barnes & Nobles has no debt and a decent amount of cash. I think it needs to reconnect with its origins and look away from the digital space (I know this will result in some eyeballs…) and encourage today’s millennials to engage with a book store. We see that sales of physical books remain steady, we must find a way to bring people back to the store.

  6. Like you, I worry about NOOK’s future seven years in. It surprises me that book sales have remained stable yet e-readers haven’t seen growth – that is totally not what I expected! I read up about this and noticed that according to Author Earnings, NOOK has 8% of the e-reader market to Amazon’s 74%. Like Zach above, it concerns me that B&N might not be able to compete in this space to gain market share and the Nook must be buried. But while B&N can’t compete with digital giants, it might be able to pick up momentum by harvesting its strengths as a brick and mortar general interest bookstore.

    The importance of local bookstores within a society cannot be overstated. For a moment, lets look beyond profit margins. We have a Starbucks & Chipotle on every corner – what we really need is a place where youths can be immersed in literature, get inspiration, and discover the pleasure of reading. At the same rate, public libraries are disappearing from sight as they can barely secure public funding! I think the question we must ask ourselves is not CAN B&N SURVIVE? But rather: What can be done? B&N MUST SURVIVE. Unlike Borders which was forced to close down, Barnes & Nobles has no debt and a decent amount of cash. I think it needs to reconnect with its origins and look away from the digital space (I know this will result in some eyeballs…) and encourage today’s millennials to engage with a book store. We see that sales of physical books remain steady, we must find a way to bring people back to the store.

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