Why B&N should abandon hardware

The ebook retailing business consists of three elements: hardware, content, and selling model. Dedicated e-readers (think eInk devices) are losing momentum to tablets. Content is mostly quick-and-dirty print-to-e conversions, or "paper under glass", if you will. The typical selling model is to buy one ebook at a time. Pretty simple. And not a whole lot of innovation happening in any of the three areas by the major players.

Recently there's been speculation that B&N is about to ditch the hardware part of their Nook business and focus instead on content and licensing. If true, that's probably the wisest thing I've heard from Riggio & Co. in a long time. Hardware has been, and will increasingly become more of, a fool's game for B&N.

They can't possibly steal Apple's mojo, so why try? I'll bet more people are reading B&N ebooks on an iPad or iPhone than they are on the Nook tablets.

On the Amazon side, B&N simply doesn't have deep enough pockets to lose money on both hardware and ebooks as long as Bezos can, so it's time to cut bait. Plus, Amazon's goal is to turn the Kindle Fire into a gateway for purchasing much, much more than ebooks. Amazon has a significantly larger product catalog outside of books, so Amazon can afford to lose money on the device if they make it up on the sale of electronics and other goods B&N doesn't sell.

So if B&N completely gets out of the hardware business what can they do to compete in the ebook world? Think app functionality, reader experience, and content sales model.

Today's e-reader apps have pretty much the same functionality as yesterday's. There's basically no innovation happening with the user experience in any of these apps, whether they come from Amazon, B&N, Kobo, etc.

Now is the time for B&N to shift all those resources they have in hardware onto the team that develops their Nook apps. What features are customers asking for? More importantly, what features have readers never even envisioned but would love to have? Channel Steve Jobs. We were all pretty content with our MP3 players back in 2000 and then in 2001 the iPod hit the scene. What a game-changer. What will be the "iPod moment" for e-reading apps?

And while they're working on that, be bold and work with publishers to develop some genre-specific, all-you-can-eat, ebook subscription programs. Romance is a good place to start but look at other verticals as well. What kind of package would compel customers to pay a subscription rate of $5 or $10 per month? They'll need to find the publishers who are willing to experiment here but that's why you focus on just one genre to start and build a success story to create others down the road.

At the end of the day B&N should continue to let Apple, Google, et al, distribute their Nook apps. They don't need to lose any more money selling devices that are viewed as commodities. They should instead focus on dramatically changing the reading experience and content acquisition model. After all, once hardware is eliminated, those are the only two other elements of ebook retailing that matter.

Comments

[Chris Rechtsteiner]

Today's e-reader apps have pretty much the same functionality as yesterday's. There's basically no innovation happening with the user experience in any of these apps, whether they come from Amazon, B&N, Kobo, etc.

This is perfectly stated and the importance can't be stressed enough. The opportunity to empower content creators is software based, not hardware based. By focusing efforts on the creation and distribution sides, B&N has an opportunity to find what it has needed all along - differentiation.

There are dozens of outstanding, innovative technologies and companies out there that would line up to help a B&N differentiate. It's time for them to look beyond their comfort level and find a new path to benefit their suppliers and customers.

[Tom Semple]

The fly in the 'no hardware' ointment is that iOS remains a very popular mobile platform (approaching 40% overall, and over 50% share on tablets), but Apple effectively does not let ebook retailers link their branded reading app to a storefront without giving Apple a cut. Without such integration, it is difficult to get people to bookmark your storefront and use the browser to buy ebooks. Meanwhile a third of the Android tablet market, Kindle Fire, is off limits to the Nook app. And even though Nook for Android has a storefront built in, it is not very alluring (a quality that I think pertains to their web storefront as well).

There aren't any easy solutions here but I agree it starts with focussing on the customer experience (storefront and reading), so they can attract new customers.

[Joe Wikert]

Tom, your points are very important. And although I'm sure B&N would love to capture 100% of all resulting ebook revenue I'd like to think they'll take 70% of something from Apple rather than 100% of nothing if they don't continue playing there.

[Dave Bates]

Having just acquired a new Nook Simpletouch, I won't need to upgrade my hardware for some time. My concern is what I'll do if B&N stops selling ebooks in the epub format or if by chance my Nook breaks. I currently have almost 1100 nook books in my library that would be unreadable if I had to switch to a Kindle. I suppose as long as the Nook software is available I could buy an Ipad, but right now I don't have an extra $500 to spend for one. The solution, in my opinion at least, would be for Amazon, or some other programmer, to develop software that will convert epub to mobi and also to eliminate the protection on the ebooks.

[Tom Semple]

BTW, for some innovation in reading apps, check out 'Marvin' for iPad. There are some nice ePub apps on Android too.

The reason vendor apps are so pared down is that they are in the business of selling books and anything spent on app development requires some justification. You might have seen Baldar Bjarnason's recent post about B&N, echoing some of your thoughts but arguing that they should outsource app development as well as discontinuing hardware development.

Someday, I'd like to have the ability to separate consumption (reading app), cloud (storage, syncing, annotation backup), and storefront in a seamless fashion, choosing best of class. DRM, and lack of standards for interfacing these things, makes that a bit of a challenge.

[Tom Semple]

Apple should consider revising their in-app purchase polices when it comes to digital content sales.

30% is reasonable when the content is owned by the app developer (games) but not when the app is selling other people's content. Yes, B&N might do well to accept 70% rather than 100% . But by the same token, Apple might do well to accept 10-15% rather than 0%.

And of course, that would also enable the best user experience for people using Apple hardware.

[Francis Hamit]

When I see a Nook, I think "BetaMax". It is in the same position. A technologically superior device that is second in the market and doomed to die. This is why we are not putting out many titles in that format. The ones we do put up for Nook sell a small fraction of the copies of the same titles sold on Amazon Kindle.

[Zara Fletcher]

With the latest financial report of B&N, I agree with critiques that it needs to abandon hardware industry. I think it still lacks the capacity to surpass or just get into the level of other hardware providers like Amazon. This could probably be attributable to its infancy when it comes to marketing. I suggests it first concentrate on the other components of its electronic book or e-book retailing business: the content and the selling model. It would be best, instead, to put emphasis on altering the reading experience as well as the content acquisition model. This will definitely lead the company to bigger success.