At the turn of the century, Barnes & Noble found itself at the intersection of two industries primed for digital disruption: brick & mortar retail and books. Instead of ignoring this like many other companies did, Barnes & Noble met this challenge head on. While they were never a first mover, they did embrace the potential of digital much quicker than incumbents in other categories. For instance, they launched their online bookstore in 1997, only two years after Amazon.com debuted, while the online book sales market was still small. Similarly, Barnes & Noble released its first e-reader, the Nook, in 2009, again just two short years after Amazon launched the Kindle.
Since then, Barnes & Noble has invested heavily in the Nook, even securing a $300MM equity investment from Microsoft in 2012. In total, they have released nearly 10 different generations of the Nook and racked up numerous strong reviews from technology critics along the way. Despite this, sales of the Nook continued to struggle year after year with the retailer eventually announcing its plan to separate its failing Nook division in June 2014.
In hindsight, it’s easy to see why the Nook failed: Barnes & Noble was investing in single-function hardware in a multi-purpose software game.
In late 2009, when Barnes & Noble first launched the Nook, consumers were looking at these devices squarely as e-readers. In this world, it was logical to compete on things like screen size, weight, and price. Barnes & Noble was successfully gaining market share against Amazon by focusing on these attributes. However, as soon as Apple launched the iPad in 2010 consumer expectations were forever altered. From that moment on, if a device looked anything remotely like an iPad it would ultimately be compared to it. Apple has shown us again and again that it’s not just about the product but it is also about what you can do with it that consumers really value.
It was immediately clear from their respective responses to the launch of the iPad that Amazon understood that the rules of the game had changed but Barnes & Noble did not. Barnes & Noble quickly followed the iPad with the release of its NookColor. At the launch, Barnes & Noble chose to play up the new reading benefits of its full-color, back-lit device and essentially ignore the fact that it ran on the Android OS. They waited another 6+ months to release a software update that would finally unlock some of the extended features of the tablet such as web surfing and receiving e-mail. On the other hand, when Amazon launched its full-color, back-lit, Android-based tablet, the Kindle Fire, in 2011, the company positioned it as a multi-purpose device from the very beginning. Amazon made sure that consumers knew they could use the Fire to read, watch TVor movies, play games, listen to music, and browse the web for even less money than they could read books on the NookColor.
From this point on, while Barnes & Noble was busy releasing incremental innovation after incremental innovation to its e-reader/tablet – making small tweaks to the physical appearance, technical specifications and user interface – the customer needs were continuing to evolve drastically. Apple and Amazon knew that their tablets were only as good as what apps were available on them and acted accordingly. Barnes & Noble was able to only offer a small fraction of the content, making their devices less appealing to consumers, which in turn made their platform less appealing to developers. Barnes & Noble wasn’t able overcome this virtuous cycle and could never create enough value through their hardware-focused innovations to lure customers away from Apple and Amazon.