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Barnes & Noble’s Nook Dilemma

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At the beginning of the year, rumors started at Barnes & Noble would be looking to spin off its Nook Media entirely. Len Riggio, the chairman of Barnes & Noble, express interest in buying back the retail arm.  Over 95% of the retail stores are profitable and Barnes & Noble is increasing profitability by refusing to renew expensive leases and encouraging in-store promotions from publishers. Penguin, for example, has established kiosks within a select few Barnes & Noble stores.  This has been successful enough to warrant a small expansion of the kiosks.

About a month ago, Mike Cane speculated that the Nook Tablets would likely be discontinued perhaps even as early as the end of the year. The basis of Mike’s accurate guess came from announcements regarding Microsoft’s small-scale tablet.  Internal documents reveal that Nook’s Android based tablets are being phased out by the end of the year, as reported by Tech Crunch.  But Mike is also right in that Nook cannot miss a holiday season.  It must, by October at the latest, reveal its next generation device.

Given Microsofts $300 million investment in Nook, it seems likely that the next Nook will be a MS Tablet. Microsoft has one of the most robust and popular videogame platforms in the Xbox. It does not, however, have a great content platform. The marriage of Nook’s content platform with the hardware expertise of Microsoft makes sense for both parties. Barnes & Noble never understood the customer support it would have to provide for its digital content and digital devices. Microsoft has never been a very good customer support service either; however, it has a much better idea of the ways in which consumers need to be serviced for their technological questions.

Barnes & Noble understood how to sell books in the stores they did not understand the digital consumer.

The problem is that Barnes & Noble can’t completely divorce itself from digital books. To do so would be giving up at least 30 to 50% of the reading market.  On the flipside it doesn’t make sense for Microsoft to keep the Nook branding.  If Microsoft wants to make it a player in the digital content marketplace competing against Amazon and Apple and even Google, Microsoft should rebrand the Nook.  It’s  not like the Nook has that positive of brand recognition unlike Barnes & Noble.

When Barnes & Noble divests itself from the digital platform it will continue to need to sell digital books so that it appears as if they are a forward thinking company. Additionally, to abandon the existing Nook customers would create huge and negative publicity.  It doesn’t make any sense to think about past mistakes Barnes & Noble made with the tablet such as selling it with no content other than books and magazines and forcing its users into a walled garden. The question is how do they go forward.

The 95% of profitability for the brick and mortar stores for Barnes & Noble likely rests on digital remaining at 30% adoption.  In store sales will probably exclude almost all mass markets to focus on trade paperbacks and hardcovers.  New display space can be recaptured from the Nook technology space, unneeded once that unit is spun off and purchased by Microsoft. In that space, Barnes & Noble can sell high margin items that are likely not related to books but corollary products such as cookware, housewares, and other sundries.  Maybe there will be an even greater focus on games and toys. (I saw yoga mats in my Barnes & Noble at one time).

But, digital books will still need to part of Barnes & Noble’s future.  They could integrate in store sales with QR codes for every book that a consumer could snap with their smartphone that would result in a frictionless purchase and download to the smartphone’s reading app.  Barnes & Noble often gives you a receipt with a list of five complimentary books.  Instead of simply printing out the titles and authors, that slip should include a QR code or barscan that consumers could scan and purchase books at home.

In other words, Barnes & Noble, in order to survive, cannot completely abandon digital books.  In fact, even if they sell off Nook Media, there needs to be a strategy to bake digital book purchases into a retail experience.  This is the one advantage Barnes & Noble has over Amazon and they need to leverage the hell out of it.

Jane Litte is the founder of Dear Author, a lawyer, and a lover of pencil skirts. She spends her downtime reading romances and writing about them. Her TBR pile is much larger than the one shown in the picture and not as pretty. You can reach Jane by email at jane @ dearauthor dot com

7 Comments

  1. Mike Cane
    May 12, 2013 @ 08:30:08

    >>>$30 million investment

    Typo. $300M.

    >>>Microsoft has never been a very good customer support service has never be either.

    Huh?

    Rebranding costs a lot of money. Apple didn’t rebrand the Mac when it switched from System to OS X. And this is really somewhat like that: An OS change. No one is going to lose anything other than some Android app purchases, which is a hazard of the game. All their books — the core use — will remain safe.

    I’d just slap a “Pro” on it: Nook Pro. Or maybe Nook Plus. Keep the Nook but add something to indicate it’s become something more.

    And I leave some wiggle room in B&N introducing an RT tablet. They might just have to rebrand a Chinese-sourced RT tablet because time is very short. If they do pricing right, and drop their damn mutant DRM finally, they could save the Nook and RT too. Smuggling RT into the market under the guise of a reading device could be a coup. There would be different expectations from the people who expect an iPad-like tablet.

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  2. hapax
    May 12, 2013 @ 10:01:35

    /blink/

    B&N sells books in their brick-and-mortar stores? News to me!

    Every time I go in there, all I see are toys, stationery, coffee, candy, and electronic devices. And I heard with my own ears the associate in the Nook kiosk refer the customer to the public library for information on how to download books. (Of course, judging by the questions we get at the reference desk, Apple and Microsoft have also outsourced their tech support to the library!)

    I vastly prefer print books, but I know better than to expect anything I’m looking for (including new releases) to be available at B&N.

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  3. Aoife
    May 12, 2013 @ 10:26:52

    @hapax:

    This is absolutely not the case with our local Barnes and Noble stores. The SA’s at the Nook kiosk know their stuff, and there are plenty of books, including new releases–which are put out on their correct release date. However, from visits I’ve made in other locales, there seems to be a lot of variation in Barnes and Noble stores. I wonder why that is.

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  4. theo
    May 12, 2013 @ 15:18:20

    @hapax: Perhaps it’s area specific because over 75% of the content at my BN is books, followed by journals/planners/calendars and the assorted flotsam that goes with those. Toys (usually small and considered educational,) bookmarks and other things along those lines are usually placed near the registers for check out.

    I have a Nook HD+. I semi-rooted it the minute the devs at XDA came out with a stable version and LOVE it. It is everything I want a tablet to be sans camera which I don’t need because my phone does all of that. But now, BN has opened their HD/HD+ to the Android Market, probably the smartest thing they’ve done yet and something they should have done when the Color and original Tablet were first released so now, I have everything I need, eReader, tablet, office suite, streaming movies and music…and a display that’s sharper than the iPad’s retina display. Win for Nook. Let’s hope they continue now to make smart choices.

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  5. SAO
    May 13, 2013 @ 02:43:23

    B&N is a decent bookstore. Their problem with digital books is that they neither own nor create the content. That leaves them with little ability to do much with price or quality. The only way they can compete is on customer experience. They do that well enough in their bricks and mortar stores, but a Starbucks, comfy chairs, and salespeople who know where the Manga is shelved don’t exactly translate to digital savvy.

    I can’t see the long term trend of 30% digital lasting. Young people all have smartphones or computers on which they can read books. They tend to have small apartments and move often, why would they be loading up on heavy, space-consuming trade paperbacks at B&N?

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  6. Theresa M. Moore
    May 13, 2013 @ 12:30:30

    Gee, it’s too bad that Nook Press’s TOS agreement reads like a contract with Darth Vader. I distribute my ebooks to Barnes & Noble through Smashwords instead, and yet cannot sell any of them. When Barnes & Noble learns how to catalog the books online and start actually ordering books from my distributor (Ingram) for sale in their stores, then I will be applauding the switch. But until then I am left scratching my head at their dunderheaded operations. I’m not expecting my books to be best sellers, just to have some sold. Very often I feel as if my titles have been placed in an oubliette. If Amazon and Barnes & Noble cannot sell my books, then it’s questionable whether either of them is worth the paper they are printed on. This marginalizing of independent authors will spell these giant booksellers’ demise eventually. It’s just a matter of when.

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  7. John Waller
    May 16, 2013 @ 20:58:36

    I like paper books, there is a unique feel to them, but, ebooks definitely have an advantage. Reference books, tutorials, etc. have paper books beat hands down. But, the question I have,is there a need for a dedicated eReader anymore?? It made sense when there was no other way, but I have Nook and Kindle apps for my Samsung tablet, and I can read my ebooks just as well there. Because it is a 10.1″ screen some books/magazines are easier to read there. Maybe they need to drop the dedicated readers, and just to creating ebooks, and we will use our tablets for reading…………

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