By CJ West
Last week Barnes and Noble issued a press release including results for the holiday sales season and an announcement that they are seeking to spin off the Nook business. Store sales rose 2.5% and digital content sales rose 113%. It doesn’t take a genius to see where this business is headed. So why is B&N getting ready to spin off the most strategic portion of their business?
The NY Times applauded B&N for the inroads they have made competing against Amazon for a share of the digital book market. They report that B&N has captured 30% of the digital book market and is seeking outside investment to help them compete against Amazon.
I agree with the Times that B&N has its hands full fighting Amazon and that it is good for the business to have another big player in the e-book market, so for the market as a whole, I think the B&N move is a good thing. Amazon has a history of flexing its muscle with publishers and authors. The KDP Select program, where Amazon asks for an exclusive on digital content in exchange for the opportunity to offer a book free to Kindle users, is certainly heavy handed if not anti-competitive.
The problem I see for B&N execs comes in once the two groups are split. B&N has invested heavily in the Nook and when future results begin coming in and there is strong growth in the Nook business and a steady decline (or modest growth) in the brick & mortar outlets, B&N will be forced to make another series of investment or cost-cutting choices and it is the brick & mortar outlets that will suffer.
We haven’t yet felt the long term impact of all those shiny e-readers given as gifts this Christmas—not to mention the many authors and bloggers giving e-readers as prizes—but you can bet those new users have already downloaded millions of e-books in the last two and a half weeks. When the weather gets warmer, those proud digital book owners will be out in parks and on beaches and they’ll become e-reader evangelists like the generations of Kindle owners before them.
To me this move looks like the beginning of the end for B&N stores. Digital Book World reports that B&N continues to lose money online and off. It may take 7 or 8 years for financial pressure to force stores to start closing, but B&N can’t overcome the economic disadvantage of selling a mass produced product at a cost higher than its most significant competitor.
Not only does it cost more to stock a book on store shelves, but in-store book buyers have little information to help them choose books. Online customers can click through scores of reviews and ratings, but giving in-store customers access to this information also lets them see how much more they are paying for the convenience of buying a physical book off the shelf.
It seems the only concrete competitive advantage stores have is the physical space to bring people together and I see only a few true indies making the most of that advantage.
It will be interesting to see how this plays out in the years to come. I for one am glad that my future doesn’t rest on the success of stories printed on paper.