The Battle of the Books: Should Barnes & Noble Concede?

Paper books have long been battling the rising surge of e-books. Brick-and-mortar bookstores are rapidly declining: Borders bookstores filed for bankruptcy in 2011, leaving Barnes & Noble as the last major bookstore chain standing.[1] Barnes & Noble is not just answerable to its own shareholders; it shoulders the responsibility of keeping American book publishing from slipping into oblivion.

The launch of Amazon’s Kindle in 2007 triggered the downfall of physical books and the rapid closure of independent bookstores. The e-book presented a big challenge, and a big opportunity, for Barnes & Noble. Almost immediately, Barnes & Noble decided to re-brand itself as a technology company and build a digital strategy. It began to operationalize this strategy in 2008 by hiring a team of engineers, software developers and designers.[2] This small team of engineers had six months to battle the forces that were upending the way books were published, sold, bought and read. [3]

Early negotiations on prototypes and patents with Spring Design led to Barnes & Noble’s first e-reader, Nook, that was launched in 2009.[4] The Nook was the culmination of Barnes & Noble’s digital strategy. Leading up to the launch of the Nook, the bookstore chain purchased independent e-bookstore Fictionwise, opened its own e-bookstore, developed iPhone apps and partnered with Irex Technologies to serve as the e-bookstore for the company’s e-reader.[5] In 2009 and 2010, Barnes & Noble invested heavily in its online ecosystem, and using existing relationships with publishers to acquire digital versions of their books, it captured 20% of the e-book market.[6] Barnes & Noble’s goal for the e-book reader, Nook, was that it would “serve as the centerpiece of [their] customer-centric digital strategy.”[7]

However, with the advent of tablets by Apple, Samsung and Asus, e-reader sales declined, and Barnes & Noble saw an even more rapid decline in its sales of the Nook despite new models of Nook Color, Nook Simple Touch, Nook Tablet and Nook HD. The bookstore chain reported losses of almost $70 million on sales of only $211 million in the first year after launch.[8] Where Barnes & Noble drastically failed was in continuing to deliver on the retail experience that had traditionally been its biggest value proposition. The digital zones created for the Nook took retail space away from the customer experience of “curling up on the floor and reading a book”. As a result, in 2012 Barnes & Noble was the fastest falling retailer on the Forrester’s Customer Experience Index.[9]

With the failed execution of this aspirational digital strategy, CEO William Lynch stepped down in 2013. Barnes & Noble had failed to integrate the physical and e-book experiences into one device, and was far from achieving the ecosystems that Amazon, Apple and Google had built.[10] Microsoft had high expectations from Nook and had invested $300 million to acquire a 17.6% stake in the e-reader in 2012. However, it ended up selling its share back to Barnes & Noble in 2014 and took a $238 million loss on the investment.[11] Samsung similarly ventured into a commercial partnership with Nook in 2014, that is yet to deliver positive results.[12] In 2015, the new CEO Ron Boire made another weak attempt at launching digital efforts by hiring a chief digital officer, launching a new website bn.com, and working on improving the Barnes & Noble mobile shopping app.[13]

Does this mean Barnes & Noble is doomed? No. The failure of the Nook clouds the fact that the physical bookstores are actually still generating profits and the decline in number of stores across the U.S. has slowed down in the last few years.[14] Drawing on lessons we learnt from the failure of Li & Fung’s website lifung.com, Barnes & Noble should focus on optimizing its retail brick-and-mortar business instead of trying to transfer those efficiencies to the digital world. While the internet may make these exchanges possible, I do not believe that it is the best platform for Barnes & Noble to successfully expand its bookstore business. It should instead focus on remaining competitive in its physical bookstores and enhancing the in-person experience it offers its patrons, especially with arch rival Amazon trying to enter the brick-and-mortar bookstore business as well.

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  1. http://blogs.wsj.com/deals/2011/07/18/its-almost-official-borders-is-dead/
  2. Ibid
  3. http://www.nytimes.com/2012/01/29/business/barnes-noble-taking-on-amazon-in-the-fight-of-its-life.html
  4. http://goodereader.com/blog/electronic-readers/the-history-of-the-barnes-and-noble-nook-and-ebook-ecosystem
  5. Milliot, J. (2009). The nook arrives. Publishers Weekly, 256(43), 6-n/a. Retrieved from http://search.proquest.com.ezp-prod1.hul.harvard.edu/docview/197106807?accountid=11311
  6. http://goodereader.com/blog/electronic-readers/the-history-of-the-barnes-and-noble-nook-and-ebook-ecosystem
  7. http://www.publishersweekly.com/pw/print/20091026/2772-the-nook-arrives.html
  8. http://fortune.com/2016/03/03/barnes-noble-results/
  9. http://blogs.forrester.com/megan_burns/12-01-23-forresters_fifth_annual_customer_experience_index_shows_excellence_is_exceedingly_rare
  10. Ibid
  11. http://money.cnn.com/2014/12/04/technology/microsoft-nook/index.html?iid=EL
  12. http://www.pcmag.com/article2/0,2817,2464080,00.asp
  13. Ibid
  14. Ibid

 

 

 

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8 thoughts on “The Battle of the Books: Should Barnes & Noble Concede?

  1. Thanks for a great “read”! Quite the “page turner.” It is very interesting to see how intensely analogue stores like Barnes & Noble can compete in an increasingly digital environment, especially as so many of their peer group (like Borders, which I frankly prefered) cannot.

    I don’t mean to throw the “book” at you, but your post ends with the conclusion that B&N should focus on its traditional brick and mortar business instead of engaging in a digital transformation. That left me with two questions for you to “leaf” through: First, do you really think that there will always be a space for physical book retailers with large, pre-printed inventories like B&N? It seems like there is a lot of room for digital transformation with on-demand book printing, especially from one of the more niche self-published authors who have developed cult followings in the age of the Kindle. Second, is the lesson they should learn from the Nook really that they should steer clear of the device market? What about building apps that reside on iPads and such that best simulate the book reading experience or in some other way leverage the book-seller’s bibliognostic expertise.

  2. I too am optimistic that there is a market for brick and mortar bookstores. I think there are enough people who simply prefer to read with a physical book. As of now, the price of a kindle book is about that of a physical book. I wonder if we get to the point where digital books are a lot cheaper would the people who prefer a physical book become kindle users due to the price difference.

  3. Great post! I’m hopeful that physical books will stay with us for some time, but I think it is a tough road ahead for Barnes & Noble. I agree with you that Barnes & Noble conceded to digital too quickly (easier to say with hindsight, I’m sure I would have fallen prey to the temptation to go digital as well!). On top of that, they have never “gone on the offensive” since competition with the digital market became a reality. They haven’t established their value proposition with physical books, and I think there is a lot of value to argue for there.

    One thing that does somewhat encourage me in the push for physical book survival is that Amazon has recently started opening physical bookstores (https://www.amazon.com/b?node=13270229011). This signals that there is a value in physical bookstores that digital cannot quite capture…but it also signals that Barnes & Noble has failed to capitalize on this value in their own stores.

  4. Like all the commenters before me, I’m very curious about this example of physical books seeming to win out over ebooks, at least for Barnes & Noble. The numbers at independent bookstores definitely seem to support your conclusion: According to the New York Times, independent bookstores have seen growth of 30% since 2009 and 2015-2016 YoY sales growth of 10%. [1]

    But the surprising resilience of the print book market doesn’t seem to be a reason why there isn’t room to compete and be successful in e-books. Though you identify issues with Nook like its store displays taking away from the room people would use to curl up and read, there should be a way to both enter the e-book market and succeed in retail book sales. Or am I wrong? Do you think B&N can only have one core competency at once? Or is there room to embrace different strategy with ebooks and compete in both the digital and retail sectors?

    [1] Francis Klines, “Indie Bookstores Are Back with a Passion,” New York Times, http://www.nytimes.com/2016/02/13/opinion/indie-bookstores-are-back-with-a-passion.html?_r=0

  5. While I don’t think paper books will ever completely die out due to the “experience” they offer, I do worry that they will become more of a specialty item for book enthusiasts as tablets and e-readers become more and more ubiquitous. My concern for Barnes & Noble is that as paper books lose share to their downloadable companions, it simply won’t be profitable to operate large physical locations dedicated purely to bookselling, especially as services like Amazon have made it incredibly easy to order both physical and digital books online.

  6. What a challenging space to be in, competing head to head with Amazon.
    I agree that physical books will probably stay with us in the future but my biggest concern is at what scale. I do see a possibility that what happened to physical music in the form of CDs or Vinyl records will happen to books. Physical music is still here but cater mostly to a niche market segment. Considering this premise and the understanding the Barnes & Noble can’t successfully compete with Amazon at the same space I would suggest to turn to a different, but still digital, space. One such opportunity may be with research databases used by universities or commercial entities, such as LexisNexis for legal research or Capital IQ. Barnes & Noble could enter that market through acquisition or even develops its own product. Another option would be to partner with research companies like Markets and Markets. In essence, through synergies with its current business model, Barnes & Noble can transform to be a “knowledge” owner rather than just a publisher. The opportunity is big – the market research market size alone is valued at $44 billion [1].

    [1] Source: Statista, https://www.statista.com/topics/1293/market-research/, accessed November 2016.

  7. It’s interesting that we are only considering e-books as the main threat to paper books. Before e-books, we likely considered computer text reading as the only threat to the paper book industry. Perhaps before that, it was just audio books. With each novel media consumption innovation, we dilute the pool of users who are willing to be paying customers. There is likely also a 30-40 year lag on seeing sales impacts, as late-age consumer behavior is much harder to change. As the cycle time of these innovations accelerates faster and faster, will we see more stratification in terms of how people like to consume media? Already today, we have teenagers largely consuming 10-second snapchat clips, 20-30’s consuming primarily via screens in short form, 30-40’s on e-books, and majority older staying on print media. What is next? Google glass could have been a viable option, perhaps augmented reality and virtual reality sets will dramatically increase in the next 5 years such that we will wonder: “Why did anyone bother with a smartphone, let alone a kindle??”. One step further would be to imagine the effect neural implant/input technology would have on how humans interact, consume and learn. The thought is scary when you leave “projecting out the past” and jump to “imagining the future”.

  8. Great post! I used to spend countless hours at Barnes and Noble stores, sipping Starbucks coffee and studying. To me, their biggest value proposition isn’t as a bookseller but rather as a pleasant and enjoyable place to relax, read, and hang out. I wonder if there’s a way to capture that value prop without the heavy costs of so much inventory

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