Strategy of Barns and Noble

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- Reasons for failure and implications

Although, in some sense, B&N created a new market space in the world of traditional publishing by pursuing value innovation logic in the book industry, they yet did not foresee the digital trend over time and as a result efficiently govern their own digitalization. While it only seems reasonable for the company, which was historically involved in the paper book industry not being able to predict the changing public behavior due to the Amazon’s disruptive technology, they could still be “smarter” or “better” shall they have a clear and differentiated vision supported by coherent actions. Instead, their decisions reminded more of antagonizing and rather chaotic set of moves with no guiding policy (Rumelt, 2011).

Starting from the beginning, B&N realized the need for transformation, but their decision to close a large portion of shops in order to invest in an unfamiliar online business seemed somewhat promiscuous. Why did they assume that by doing so, people would suddenly switch to their online shop? The only answer seems to be sensible: they simply tried to imitate Amazon’s success, as if “you want to beat Amazon, be like Amazon”. However, Amazon had an unbeatable advantage: it promoted self-publishing to eliminate the middlemen. B&N could not copy that due to a number of contracts with publishers. Consequently, the average price of the Kindle book was about cheaper at $7.50 in contrast to $14.99 of that by Nook (Stone, 2014). Secondly, Amazon have gained an expertise in technology since the launch of the web-site complemented by the “hidden genius” in the face of a rather visionary and bold Jeff Bezos. Thirdly, Amazon itself was “hard to read” from the outside: was it a tech company, a retail firm or may be a media establishment? Lastly, Amazon did create the new market space for book lovers, shaped the future shopping patterns and enjoyed the first mover advantage. All that combined was of great value for customers, investors, developers and publishers alike, which is hard if not impossible to imitate.

As such, B&N could have initially figured out what is their core competence in comparison to Amazon that makes them unique before moving forward to shutting the doors of their stores to their loyal customers. For one thing, their bookshops gave people the pleasure to explore and browse, to feel, see, hear and even smell the books. Amazon, in this instance, is a not a good place to go to unless you know exactly what you are intending to buy. Secondly, B&N was the only company left in America to offer a wide variety of titles. Thus, big publishing houses in some way were rooting for the retail giant’s success, as they did not want to Amazon to become an “all powerful” institution. Thirdly, any technology has a relatively short life span in comparison to the collectable physical books and “lifestyle” retail shops; shall B&N have realized earlier that in the situation where they actually fail the Nook, it may potentially drag down the value of their iconic bookstores.

Furthermore, due to the nature of the tech-driven industry with rather investment intensive entry boundaries, the newcomer needs to be prepared to consistently invest in R&D. Otherwise it just makes sense to differentiate the business in some other way. If to assume that B&N made a balanced decision to “go digital”, why would not they separate the “Nook Media” division earlier? People have always heard of B&N as a bookstore and now they have suddenly became a technology manufacturer? While not impossible, modern consumers are inclined to purchase technology from the proven companies with high degree of expertise, as it is just simply more reassuring. Separating the “Nook Media” straight from the beginning would have attracted new talents, established technology-driven work practices and provided the e-reader with identity. Balancing between their traditional bookstores practices, shareholders demands and willingness to gain a foothold in the new market, B&N have not made a clear-cut choice, as if they have “fallen between two stools”. Although the company did detach the division in 2014, it was much too late.

The third issue with B&N Nook strategy stems from the point raised above. B&N being a bookstore, not a tech company, missed the whole point of what really creates value for e-book lovers: it is not the device per se, but the social elements of it that constitutes an incremental innovation. Up until 2009, there were no other e-reader alternatives, but Kindle and Nook. The product was in the beginning of its lifecycle, so it made sense for the companies to compete based on “hard values” like price and size. As such, B&N stole 30% of the market share from “Amazon” by deliberately lowering the price for their e-reader ($200 against $99 for the Nook), adding additional memory and reducing its size. However, in 2010, when the “king of design and innovation”, namely “Apple”, released its iPad, consumers could no longer perceive the e-reader as a “one-function” device (Thompson, 2013). Although later in 2010 B&N launched a newer version - “Nook Colour”, which actually ran on Android OS, the Nook was yet positioned as a full-coloured reading tablet, rather than an extended features device. On the other hand, later in 2011, “Amazon” presented Kindle Fire”, which was initially positioned to customers as the multi-purpose reading device, where they can play apps, watch movies and browse over the internet. Moreover, the “Fire” was available for purchase at a lower cost than the “Nook Colour” (i.e. $199 vs. $249 respectively). The following years, despite the declining sales and losses, B&N continued to re-design the Nook, however, the company was so ignorant to realize that as time passes by, consumers learn and evolve, so as their needs. As such, Amazon and Apple responded to that emerging demand and provided the convenient e-reading ecosystems. B&N on the other hand, in 2011, disabled the ability to sideload the applications from other Android markets, which significantly alienated the Nook users. The question is why did B&N decide to do that? Here again, B&N took a reactive approach and updated the system the way Amazon did on Kindle Fire. Therefore, users were forced to purchase the applications from B&N. Unfortunately, while that strategy worked well for Apple and Amazon, due to the variability of all kinds of content, B&N had only a few options at that time. Additionally, they could not have found the worst time to make that update than after Christmas, as those who bought the Nook as a present felt somewhat cheated (Pierce, 2011). Likewise, B&N prohibited downloading