Devices

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

The Extent Of B&N’s Weakness In The Tablet Space

Pretty much everyone knows that Barnes & Noble had a bad holiday season in terms of selling tablets, even the company acknowledged it.

I was inclined to let it lie, I did wonder why B&N had under-performed, after all the  company seemed to have perfectly fine tablet devices on offer, but perhaps it was just one of those quirks that sometimes happens. But then I saw the IDC figures for tablet shipments in quarter four, 2012 and, even if we take those figures as close to accurate, the news  is really quite bad news for B&N:

Worldwide tablet shipments outpaced predictions reaching a record total of 52.5 million units worldwide in the fourth quarter of 2012 (4Q12), according to preliminary data from the International Data Corporation (IDC) Worldwide Quarterly Tablet Tracker. The tablet market grew 75.3% year over year in 4Q12 (up from 29.9 million units in 4Q11) and increased 74.3% from the previous quarter’s total of 30.1 million units. Lower average selling prices (ASPs), a wide range of new product offerings, and increased holiday spending all acted as catalysts to push the already climbing tablet market to record levels.

via Tablet Shipments Soar to Record Levels During Strong Holiday Quarter, According to IDC – prUS23926713.

B&N went from shipping 1.4 million tablets in 2011, to shipping only 1 million in 2012 (an almost 28% drop in units shipped). That would be bad enough in a stable or falling market, but the market GREW by some 75% over the same period.

B&N was crushed by its closest competitor, ASUS who went from shipping 0.6 million units to shipping 3.1 million units! Or from less less than half of what B&N sold to shipping three times more.

Amazon moved decisively away from B&N, shipping six times as many units. Samsung, who only sold 600,000 more tablets than B&N in 2011, shipped 6.9 million more tablets than B&N in 2012.

Even Microsoft, whose tablets were new entries to the market (and who have partnered with B&N in the Nook/Newco venture) is said to have shipped 900,000 units.

The only sensible analysis of these figures is that B&N is losing ground and facing vibrant, effective and tough competitors. Unless the deal with Microsoft yields fruit soon and enables the Nook/Newco venture to grow shipments and sales aggressively, we have seen the peak of the Nook tablet business.

 

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Story title edited from Failure to Weakness. I felt using failure was unfairly harsh on the company, given the success they had in selling 1 million units, no mean feat for a bookseller!

The Opportunity Apple Just Created For Publishers

Apple did book big book publishers a favour some time ago when, by giving the big six leverage over Amazon (with the launch of their new ebook platform iBooks), they enabled those large publishers to enforce Agency pricing for ebooks.

That gave the big six the power to set prices and extract a higher share of the revenue from their sales then had been the case for print books. It was a major moment in the development of the ebook market and one that has received a lot of attention and, at least from within the industry, a lot of praise.

Apple’s more recent decision to enforce tough rules on in-App sales of content has been less popular. It has forced Amazon, Google, B&N and Kobo among others in publishing and other creative industries, to change their Apps to disable links to their ebook or content stores. Further it made it impossible for an ebook retailer to sell an ebook through the Apple in-App purchase system without giving 30% to Apple. Nasty eh?

The opportunity this created and that everyone missed , even me (till this weekend when it dawned on me), is for publishers to go direct to consumers and launch their own apps selling ebooks to readers.

Think about it, ebook retailers cannot make money from selling ebooks via Apple’s in-App sales because their margins simply won’t stretch that far. In the case of Agency titles they would be losing money, even on self-published works they might be losing money. However, a publisher, selling direct through their own app, or even a branded app in partnership with a number of other publishers in a given genre, could easily afford the 30% charge and even an administration charge too so long as it was kept low.

Apple has shifted the economics of the App-economy to disintermediate the distributors and empower the content producer. Sure, in doing so they have gained power and revenue potential for themselves, but they have created an opportunity for a savvy publisher who has a brand that readers identify with.

It’s interesting that no-one has written about this yet. I suspect that might be because some of them are working on just that kind of app …

Fine evening here,
Eoin

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Go Read This | Why Multichannel Bookselling is the Future | Publishing Perspectives

I’ve been struck by how many booksellers are doing well by selling ebook readers. A casual comment hit me over the weekend when someone mentioned that the falling prices of non-branded ereaders was impacting overall revenues. That goes to show the value of owning the device as well as the channel to sell content on the device. On the other hand, it must be painful for bookshop staff to be selling devices that will ultimately close the majority of bookstores!

E-book-news.de recently reported that Thalia’s e-reader, the Oyo sold unexpectedly well in stores, not online. People wanted to touch and try out the readers. But once those Oyo readers are in use, their sales will be exclusively online, and it’s hard to imagine their e-books won’t cut into store sales you don’t have to go to a Thalia store to pick up your online purchase, which cuts out an important opportunity to buy stationary and a toy!, or that a more e-reader-educated generation might not be comfortable buying the readers online in the first place.

via Why Multichannel Bookselling is the Future | Publishing Perspectives.

Go Read This | Brave New World: Have We been Googled?

Great piece on what Google Editions IS, and what its implications might very well be.

I have to say that despite its potential (which I’ve blogged about before) I am becoming increasingly skeptical about Google’s ability to pull this one out of the bag.

I think Amazon has nicely out maneuvered them by launching their desktop and mobile device apps creating in effect a device-less strategy for their content. But I’m always happy to be proved wrong.

The other difference offered by Google Editions is its planned appeal to independent bookstores who will see it as their opportunity to go digital. A bit like many Marketplace offers, Google will allow bookstores to be mere agents and sell ebooks off their own clients, community and brand. Some suggest that systems such as the ABA’s Indie Bound are lined up and that the UK’s BA will follow. This will certainly get bookstores involved in ebooks but has to be watched as all other marketplace deals have tended to raise the cost of doing business once they have cashed in on the clients, community and brands. Independents will line up in a beauty contest alongside all comers and although Google will probably offer some localised shopping service everyone is in there together.

Whether they will integrate voucher services such as their rumoured interest in Groupon remain to be seen but as voucher services and social networking grows it will be interesting as to who Google actually ends up accommodating and like Adwords at what price?

via Brave New World: Have We been Googled?.