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B&N’s Results Point to Larger Industry Concerns

What's next if device sales from the two market leaders have plateaued?

I was disappointed to read that B&N’s Nook business was basically flat year-over-year. How could that be in such a red hot market? Ebook sales are skyrocketing and everyone seems to be buying new devices.

The more I think about it though the more I realize that B&N’s results are consistent with other data points we’ve seen this year and part of a broader industry trend.

Does anyone remember Amazon’s results from earlier this year? We all got distracted by their financial loss and how it was viewed as part of the longer-term plan to become the next Walmart. The Kindle Fire was coming off a hot holiday season and Amazon was poised for even more growth. The truth here is that the Fire’s spike was short and sweet. And according to this chart, although 22% of those surveyed last November said they were going to buy a Fire that number dropped all the way down to a paltry 8% by May.

If interest in the Fire is waning does that mean more people are simply buying eInk devices? Apparently not. Look at the figures towards the end of this article to see just how soft interest is in Kindle eInk devices. And as this other article points out, “instead of driving would-be Kindle buyers to spend a bit more on a full-color tablet with apps from Amazon, it may have driven them to buy iPads.” That sounds like a great definition for “unintended consequences.”

What does all this mean? I’d say there’s an even greater sense of urgency for Amazon to revive interest in their tablet platform, especially with all the rumors of Apple’s upcoming iPad Mini. After all, that’s the gateway to their Prime membership and all the other products they have to offer, where their real profits are made. That’s also a key distinction between B&N and Amazon. The latter sells just about everything while the former is still basically a bookseller. It’s also why I figure Amazon is even more willing to be a loss leader with books as long as they get that Prime-enabled tablet into as many hands as possible. Where will that leave B&N? How long can they compete if Amazon is able to use ebooks as the loss leaders for their larger store?

What do you think? Can Amazon or B&N really compete in the device world? Are ebooks nothing more than the razors Amazon wants to give away (or sell at a loss) so they can get consumers to buy all those profitable blades from the rest of their catalog?

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  • http://twitter.com/billmccoy Bill McCoy

    Re: Amazon’s other products being “where their real profits are made” – is this clear? The economics of Amazon Prime include loss-making free 2-day shipping and loss-making free movies. And on hard goods online-buying consumers typically are very price-sensitive.

    I see a general move of digital reading away from custom HW to tablets and retina-display smartphones. In my case this has already happened. My iPad 3 is gathering dust while my Nexus 7 has become my go-to device.  It seems hard to believe that Amazon or B&N can really compete with Apple, Google, Samsung on  general-purpose tablets much less smartphones. And if Prime isn’t really a goldmine for Amazon they will not have a strong financial incentive to continue to pour money into the attempt.

    • jwikert

      I figure their long term plan is to make money *somewhere* since it doesn’t appear they have any desire to do so with ebooks. You’re right about the Prime platform leading to losses today and probably for the short term. If it scales like they want it to though, who’s to say they won’t raise the price beyond $79? Once customers are hooked it becomes harder to walk away from, especially if nobody else offers the same solution.

      You and I continue to show our differences, btw. I love my Galaxy SII phone and Asus tablet but I also can’t live without my eInk device of choice, the Nook with GlowLight. For longer periods of reading I find the tablets too bulky and hard on my eyes.

      I agree with your point about the challenges of Amazon (let alone B&N!) competing with Apple and Samsung on tablets and phones though.

  • Jeff Rutherford

    Who’s to say that Amazon Prime is losing money. Certainly, Amazon is footing the bill for free shipping, but I think it makes sense that with free shipping, those customers would buy more from Amazon – most likely making them some of the most profitable customers Amazon has. If you know shipping is not an issue, impulse purchasing I’m sure skyrockets.

    Re: overall flat sales, I would think that the hardcore book buyers (who are open to shifting their reading habits from books to eBooks) have long ago purchased a device – Kindle, Nook, iPad, etc. When eReaders are sold to people who are occasional readers (as impulse gadget purchases), I think there may be rare cases where some people become voracious readers and voracious eBook buyers. But, most are probably looking at their Nook or Kindle Fire that they got last holiday season, and asking, “Why in the world do I have this thing?” For the Fire and other tablets, I think the answer is a low-cost answer to the iPad, but not necessarily as a well-used eBook reading device.

    • jwikert

      Don’t forget that Amazon Prime is much more than just free shipping now. It also includes the Kindle Lending Library program as well as the video program. The customer’s price for Prime membership has remained at $79 but Amazon is paying publishers and studios fees for that content, so they’re stretching that annual fee over even more items than just shipping.

  • Peter Turner

    To my mind, the alarming news about the downward drift of B&N is (1) sale of books in any format are a smaller % of overall revenue and that (2) publishers will be shocked if B&N  goes out of business or starts closing stores. The likelihood of publishers’ fate being glorified content farms for Amazon is going up with every day.

    • jwikert

      It makes sense that books sales (e+p) would be a lower percentage due to the fact that B&N stores have added (or added to) a lot of other categories over the past couple of years (e.g., stationery, games, etc.) That’s why I’m curious to see if the Newco relationship with Microsoft could end up with a store-within-a-store: Just like there’s Nook kiosk at the front of B&N today, what if there were a Microsoft technology section featuring Xbox 360, Kinect, etc.? Turn it into a place where exploration is not only supported but actually encouraged.

      • Peter Turner

        I agree, but B&N surviving by selling more and more non-book items is not encouraging from a publishers point of view (or that of readers and authors).  I wish retailers were able to be more creative and innovative in driving book sales. Every time a store reduces shelf space to sell stationary or stuffed bears it reduces its relevance to it’s core strategic partners: publishers.

        • jwikert

          Very true. It’s a self-fulfilling prophesy.