The Three Most Important Lessons We Can Learn From Barnes & Noble’s Nook Setback

We should be really grateful to Barnes & Noble. The company just spent the last five years driving hard into a new space, consumer devices, and while it encountered much success, over the last quarter or two that success has crumbled away and has resulted in what some might consider an embarrassing and costly mess when many of its competitors in the tablet space have seen soaring sales.

Yet, despite those failings, there are several lessons that are applicable to all players in the publishing industry ones Barnes & Noble has learned at great cost and the rest of us can learn from.

1) Don’t overestimate your addressable audience

In retrospect it now looks like Barnes & Noble’s great success (and its ongoing success, let’s face it, it is still selling many hundreds of thousands of tablets!) was just a very spectacular penetration of the bulk of its available customer base or addressable audience, those already friendly to B&N and its products and willing to convert from print to digital book reading, the bookish digitants if you will.

The company clearly managed to persuade some, but not many of the non-reading (or light reading) early adopting market in its first year of offering tablets, but as more competition come on stream its ability to do that has collapsed. Barnes & Noble simply didn’t have the chops to sell to people beyond its target audience. This wasn’t apparent when the market was smaller and so it seemed like Barnes & Noble had really made a significant advance. That impression was plainly incorrect.

The bookish digitants are sated (at least for now) and the non-converted non-bookish digitants are not going to trust B&N over Apple or Amazon or someone else with a track record in consumer electronics or technology.

That’s an important lesson for anyone involved in a brand extension as dramatic and bold as the one Barnes & Noble tried to pull off. Be exceptionally careful to track monitor and understand the true size of your audience. If you take an ambitious view of what that audience is, be sure that ambitious view isn’t based on a hope! Listen to what your sales tracking is actually telling you about your customers. Don’t mistake early enthusiasm and success with a small group for evidence of wider adoption unless behind the raw figures you are actually reaching beyond your base.

Publishers need to be realistic too about just how big an audience they can reach and not over-invest in product or projects that ultimately won’t deliver results.

2) Books are not driving the tablet market

Oh I know this is hardly a revelation but it is an important thing to note, after all, we KNOW that books drove the adoption of dedicated ereaders. It’s particularly important because tablets seem to be making dedicated ereaders generally less attractive, certainly to those who don’t read many books and seemingly to those who do read lots of books. Not just that, this shift to tablets by a wider public hasn’t been driven by the tablets sold by booksellers. How else can we explain the massive fall off in sales for tablets sold by Barnes & Noble while the market for tablets exploded?

The reality is that even dedicated readers find the logic of buying a tablet that features any number of entertainment forms, email and web access more compelling than a dedicated ereader. Euro for Euro, Dollar for Dollar, Pound for Pound, it just makes more sense to buy a tablet than it does to buy an ereader for the majority of buyers.

Which means that the space dedicated to books on-screen is dropping dramatically as a percentage of the market. It means that book readers are faced with myriad choices of entertainment forms when they fire up their tablets or smartphones and books, face competition in its rawest form. At least the competition on a dedicated ereader was between books. Now it’s between movies, radio, tv, video, gaming, books, web browsing, magazines and pretty much anything that can be made function on a tablet or smartphone.

I’m not personally all that hopeful that reading will win this competition as often as it might need to, certainly not as hopeful as others seem to be.

3) In digital and online, there are huge surprises in store for us

I’m thinking and writing about this with respect to the book publishing and retailing industry, but it holds true for most other industries too. A year ago, it seemed to me and to others that Barnes & Noble had a nice thing going, that they were successfully making the transition from a bricks and mortar, print bound bookseller to something different, now we know that even if that is the case, the path will be a rocky one.

The key lesson I take from that is that we are still guessing when it comes to the power of the web and digital to transform our industry. I’ve felt very forcefully over the last two years especially that most big publishers feel like they have the digital problem solved, or are well on track to get there. They are seeing increased ebook sales and profits from ebook sales, authors are largely playing ball and while they still resent the scale of some of the technology companies they must work with to succeed in the digital space, they more or less have it down.

The truth is something very different. Potential banana skins abound From simple things like Amazon’s patent for reselling ebook licences (bound to have an impact on ebook sales especially of lead titles if it were ever to be put into practice) or like discovering that despite having a great product your brand just doesn’t resonate with consumers beyond your core audience and hence you lose a bundle of cash trying to sell them tablets or realizing that your main competitor is not the rival publisher of literary novels or commercial non-fiction but a game in which trajectory considerations are a more important aspect of gameplay than would normally be considered cool and various music video fads from Gangnam Style to Harlem Shake.

There are several other lessons we can take from the whole tale but these three strike me as the most salient and long-term of them all.

Eoin

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15 comments

  1. In America, B&N advertised heavily on TV, so they were trying to reach past just their core customers.

    But it didn’t sustain itself because B&N CS is the pits, period. Nothing but horror stories with the rare — very — bright spot. How unlike Amazon! It makes me wonder how much money bad CS cost them in the end.

    And they went big — HD+ 8.9″ — when the market wanted small (iPad Mini). Even the Kindle Fire HD 8.9″ is not selling well. Proof of this is Amazon’s desperate TV ads comparing the HD 8.9 to the price of an iPad. (Dumbest ads ever!)

    But really, CS is *everything* If you screw up that, you just poison the well.

      1. Customer service really is everything. I haven’t spent a cent at Amazon, have downloaded over 3,000 FREE Kindle books from them, and the times I couldn’t log into my account due to a dual-account error, I was able to have them call me within five minutes and get it fixed within one minute. Now who’s going to be singing their praises? Me.

  2. I see item 2 as the most salient. B&N sells (mostly) books. Why would anyone buy a tablet just to read books? Amazon has done well with the Fire because they sell pretty much everything, including a lot of digital content (books, movies, music). With Apple, it’s all about the hardware; they make people want it not in spite of the cost but because of it. I think the Fire commercials aren’t so much dumb as targeted. They’re aimed solely at people who care more about money than about looking cool. I know people who have bought the larger Fire even when they already owned the smaller one, because it was so affordable, and they wanted to browse the web and watch movies on a larger screen, and still have a “lean back” device..

    B&N actually has decent hardware for sale, but I totally agree with Mike Cane’s comment that, they have a customer service problem. I would add that they never got their online store up to speed, either.

    I find item #3 alarming. The still too high cost of ebooks supports your supposition. Publishers, as Nathan Bransford recently pointed out on his blog, still see ebooks as competing with hardcovers, when the real competition is video games and movies.

    Looking for silver linings, I can at least hope that if B&N does go under, it might make more breathing room for indie bookstores.

    1. It would probably hurt everyone in the ecosystem. Indies are too cash poor to take real advantage, publishers will lose a huge customer, writers a huge outlet, books a great showroom.
      Overall, if (or when) B&N goes under it’ll be a boon to just about only Amazon!

      Eoin

  3. Good article, Eoin, but I think the point is missed. B&N failed with its core customers and its failure with its core customers simply rolled on to its non-core customers.

    I am a core customer of B&N. Prior to ebooks, I spent reliably between $2500 and $5000 a year on books, with 90% of that being spent at B&N. But when the Nook was introduced, B&N made absolutely no effort to induce me to buy the Nook as opposed to a Sony or Kindle. In fact, I contacted B&N directly and said I would buy 2 Nooks if they honored my membership discount. Needless to say, silence was the answer and I bought Sonys instead.

    B&N’s customer service, as pointed out in other comments, is the pits, even for a core customer. Can you imagine giving a core customer a hard time over 99 cents? No company in its right mind would do that, but B&N did that to me. As I pointed out to a couple of B&N bigwigs, customer service is so bad that CS preferred to keep 99 cents and lose my business than to give me a 99-cent refund and keep me as a happy customer.

    B&N’s biggest problem is simply its unimaginative and unknowledgeable excutive staff. There are any number of things that B&N could do today that would change its position for the better but won’t be done because Riggio hasn’t met an ebook or an ebook device that he likes or knows how to use. As we complain about traditional publishers not letting go of the past, Riggio is even more mired in that quicksand.

    B&N’s b&m stores could be made into a gateway to increasing B&N’s share of the digital marketplace. They need to be better integrated into the digital experience, not spearated from it. Kiosks like they have now are useless because the Nook is available everywhere. They need to turn the stores into into digital-centric places. Will that happen? No. The result will be that B&N’s core customers (who are already seeing new losses to being B&N “members”) will start thinking of lowest price first rather than of B&N as the place to buy books — p and e.

    1. Customer service aside (and I say that acknowledging the issue this presents) I don’t think you can really say that B&N failed it’s core customers in the digital space. It’s built a significant business in the ebook sector, maybe not one as large or as profitable as it might like, and certainly one that now faces a challenge in terms of growth, but it was an impressive achievement.
      It did that but getting its core customer who was already edging digital, to move digital with them. That wasn’t entirely successful and I’m sure customer service had a huge impact in that, but you don’t sell as many ereaders and tablets as they have (even if that level falls very far short of what it might have been) without getting their core customer.
      Even now selling nearly 1 million units of nook tablets implies that they are still getting a core audience to buy devices! Sure they may have alienated many previous owners, but they succeeded in selling them in the first place!

      Eoin

  4. Lots to think about in this very good post.

    I want to enter the conversation via the customer service issue.

    Barnes & Noble wins awards for its customer service year after year. Here’s last year’s JD Power win: http://www.bestmark.com/news/Retail/articles/Barnes_and_Noble_earns_Customer_Service_Champion_Award__/800730660.aspx

    I’ve rarely encountered B&N customer service because I rarely buy books from B&N (except physical books when I make an occasional store visit).

    B&N, under CEO William Lynch, made a truly outstanding stab at the hardware market, but the effort was always doomed, because, over time, consumers migrate to the top brand names in the business.

    Amazon is being treated as a victor in the hardware wars, but it’s a relative conceit. IDC shows Q4/2012 numbers of (millions) 1 for B&N, 6 for Amazon and 23 for Apple. Samsung sold nearly 8 million, ahead of Amazon and B&N together. (http://www.idc.com/getdoc.jsp?containerId=prUS23926713).

    Amazon wins the ebook war, yes, partly through superb customer service. But mostly it wins with low prices and the best selection. It’s not just Barnes & Noble that has lost the war to Amazon over price and selection. Look at Best Buy. Look at Sears and JC Penny.

    The only thing B&N has that Amazon lacks is a whole bunch of well-located, attractive and well-stocked stores. However all existing data points to the failure of the business over time, probably less than 5 years from now. It’s a slow bleed: In last week’s financial report the company revealed “Core comparable store sales, which exclude sales of NOOK products, decreased 2.2% as compared to the prior year (7.8% with NOOK included).

    But, as you point out, there are still “huge surprises in store for us” in this madcap business. I continue to hope that one of those surprises is B&N discovering a way to maintain its retail business as a going concern.

    1. Thad,

      I totally agree re: B&N’s efforts in terms of their offering! If that wasn’t clear let me be clear, I admire the product they built, and for a long time I thought, or hoped they had built a nice platform for growth with them!

      As for the Amazon, while I agree to a certain point, we can’t declare them winners yet, they are surely doing considerably better than B&N. After all, to be only 2 million units behind Samsung once of the giants of the technology sector is really quite a feat. Yes, they only grew 26 or 27% in the face of a market that grew by three times that, but at least they grew eh?

      Eoin

  5. Amazon had no more of a track record in consumer electronics than B&N did, so there was no more reason for any customer to trust Amazon than B&N. Don’t underestimate also that there are lots of us who dislike Amazon intensely and will never buy anything from Amazon!

    1. Agreed! That won’t help B&N though. I think the reality would appear to be that Amazon either had a bigger pool of willing customers to draw on from the start, or has successfully expanded beyond its base more realistically!
      Eoin

  6. Excellent analysis, Eoin.

    Sorry I haven’t been in touch for a while, but I always enjoy the blog.

    Best

    Charlie

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