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Why B&N should abandon hardware

They should focus instead on reader experience and new content sales models

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 letting 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.

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Comments: 8

  1. Only those who have worked in hardware fully understand how many things can go wrong throughout the supply chain. This is especially true for sourcing shared components that come and go every 18 months. If the typical device has 200 components, that is the definition of “a lot of moving parts.” Apple in particular has a well-earned reputation for consuming components at the expense of competitors because of their large volumes. Then Samsung. Then Amazon. It’s a ruthless high-stakes business not for the meek. Just the QA times and expense involved are enough to sink most newcomers.

    • And that, of course, is another option: outsource. Nothing wrong with having someone like Samsung make the next Nook…

      • Thanks Kevin. So Houghton Mifflin Harcourt I see has entered into a content relationship with Samsung. I could be all wet but I believe the content creators should focus on that and leave the multi-purpose hardware to the big fellers. Just focus on producing great content that can be accessed and repurposed for print books, ebooks, and film. Peter Lynch used to call this misguided appetite of the big boyz “diworsification.”

  2. Though I respect your insight and knowledge with which you write, after reading several of your posts using the term, “quick-and-dirty” as you relate to “paper under glass” e-conversions, the same question reappears in my mind. Would you mind enlightening those of us in the dark? What else may we create other than “paper under glass” when converting a non-graphic fiction title into ebook? The sun is still below the horizon where I live. (:

    Thank you.

    • Hi Farah. If you’re just doing a simple narrative and you don’t feel compelled to add any rich content then you’ll probably want to continue doing those quick-and-dirty conversions. It’s the authors and publishers who are looking to truly leverage the digital platform I’m trying to reach.

      Think of it like radio vs. television. The latter didn’t kill the former but you can certainly do a lot more with a television show than you can with a radio program. That said, some content is still best distributed via radio. We have yet to really create richer content products in our industry. We’re still doing a bunch of radio shows, to use that analogy. 🙂

      • If I did not have a desire to “truly leverage the digital platform” I would not be asking the questions, would I? I keep reading about “quick and dirty” conversions but I have yet to read an alternative example for non-graphic texts. And isn’t download size an issue? Do you embed links? The recent ebook I published is almost 10MG. How do you propose inserting graphics without creating a unwieldy download file? I watched the video for the comic book graphics, but you seem to be alluding to, without any specifics, for alternatives to “quick and dirty” conversions of non-graphic books.

        Any insights would be appreciated. Thanks

  3. Fundamentally, you’re absolutely right. Hardware is long term not a winning proposition. It will always be a slim margin market, unless you’re Apple and can afford to charge twice as much as the hardware is actually worth because you’ve made it into a social status symbol. 😉  And that doesn’t last; status symbol hardware is only good for a while.

    Selling ebooks by differentiating on product doesn’t work. It’s the same book, whether you buy it from B&N, Apple, Kobo, or Amazon.

    That leaves service, user experience, use of the site.

    Right now, B&N has been using the Nook to convert loyal brick and mortar customers into ebook customers. This was a good idea, especially since their ebookstore is so bad, compared to their main competition, that few people would use it otherwise. Given the choice between the B&N store and Amazon’s Kindle store, most people prefer the ease of use and fluid search tools Amazon offers, not to mention their superb matching algorithms. In short, the more you buy from Amazon, the better it works at helping you find books you’ll like.

    B&N has done a poor job producing their store. That was OK…kinda…. because they had the Nook drawing in customers from their bookstores. If the Nook goes away, they are stuck competing with Amazon only on the basis of user experience, where they lose. Horribly.

    If they can drastically improve their store – make it a BETTER user experience than Amazon – then dropping hardware was a good plan. Anything less simply hastens the demise of their ebookstore.

    The problem is, “channeling Steve Jobs” is easier said than done…

  4. It’s really too bad because B&N’s hardware is so good. If they’d just add a microphone, camera, and GPS, they’d easily destroy the Google Nexus 7 IMHO.

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