In the United States, no bookseller quite reaches an all encompassing magnitude like Barnes and Noble. The company has grown to be the largest chain of stores that still sells books and much of its competition is on the ropes. In the last four years, B&N has started to gravitate towards a digital ecosystem. It started with ebooks and e-readers and has reached a new zenith with the new video streaming service. How did the company start its digital strategy and where might it go in the future?
Barnes and Noble released the first Nook e-reader in November 2009 for $259. It was a very unique reader when it first launched and marked the first time ever an e-ink display was coupled with a small color LCD screen. The reading experience was similar to ones users had become used to with the early Sony and Kindle line of devices. It separated itself by allowing you to use the color touchscreen to navigate between menus and check out more things in full color. It had both WIFI and 3G in order for people to access books and purchase content wherever they were.
When Barnes and Noble first thought about doing an e-reader in 2008, it started negotiations with Spring Design. Spring Design was prototyping and getting the necessary patents for a dual-screen e-reader. The two sides were in the early stages of negotiations when B&N decided to cease inquires on licensing the technology and went its own separate way. When both devices were launched in the same quarter, they basically looked the same and Spring Design sued them. The case went on for about a year before it was resolved in March 2011. Under the terms of the settlement agreement, Spring Design will grant Barnes & Noble a non-exclusive, paid-up royalty free license for the entire portfolio of Spring Design patents and patent applications. The terms of the settlement are otherwise confidential. The settlement agreement announced resolves all claims brought by Spring Design, which will be dismissed.
Barnes and Noble managed to pull off a coup and scored the patents and licensing as well as an exclusive licensing agreement from Spring Design. This ensured that B&N’s e-reader and ebook selling ambitions were all but cemented. During the time that all the lawsuits were going on, Barnes and Noble (on June 21, 2010) released the Nook WIFI model, which did away with the costly 3G edition.
During 2009 to late 2010, Barnes and Noble invested heavily in its online ecosystem. Its relationships with Major Publishers through its bookstore business ensured that B&N could gain access to their digital wares and more books were added to its online portfolio. B&N quickly attained over one million titles in the first year and captured 20% of the entire ebook market.
Eight weeks before Christmas in 2010, Barnes and Noble shook up its hardware portfolio and introduced the Nook Color. This went on to sell millions of units in the months leading up to the holidays and sold 1 million ebooks on Christmas Day alone. They were the first big company to produce a six inch full color Android Tablet that had its own customized user-interface. It was billed as an e-reader instead of a tablet and provided a very unique product in a market dominated by Vanilla Android experiences.
The Nook Color sold more units than anything else Barnes and Noble has ever sold before in its 40 year history. If people were initially not familiar with digital books and tablets, this brought them up to speed. The company ironed out agreements with Best Buy and many other big box retailers to put the products on the shelves.
In early 2011, the Barnes and Noble App Store went live and added a new dimension to its digital ambitions. Until this point, B&N got away with selling ebooks that looked best in traditional e-ink. The development of a curated app store ensured that only select apps would be available and all would be ideal on the 7 inch device. The company offered both paid and free content to be purchased. It paled in comparison to offerings by Google, Amazon, and other providers, but was a welcome addition to Nook Color owners. By November 2011 the store had attained over 1 million downloads.
The Nook Color not only provided apps and games to people but also appealed to families, in a way no other e-reader ever had before. It gave you a dedicated section in the store that was aimed at different age groups of kids. You can then have animated books talk to you or just walk you through the adventures of Dora the Explorer. Magazines also saw a tremendous roll-out and were one of the main allures. You finally had a dedicated e-reader/tablet give you full color newspapers, magazines, kids books, and other multimedia content that the general public had not seen before on a mobile device.
In June 2011 the company decided to continue to support the e-ink line of devices, which were significantly more affordable than their tablets and still were hailed as a great follow-up by the true e-reader loyalists. Entitled the Nook Simple Touch, it did away with the two screen design of the original Nook WIFI and Nook 3G, and provided a small lightweight and minimalist approach. It was one of the first e-readers to adopt a full touchscreen, which made it smaller and more portable. This went on to also sell millions of units and introduced customers to the LendME feature. This allowed users to share books with each other with a limit of one lend per book.
Towards the end of 2011, the company introduced the Nook Tablet, which was a transcending experience for Barnes and Noble. It increased the memory, resolution, CPU, and all other elements of the new device. It provided two different models in terms of on-board memory to appeal to people who were more media centric. It did not see the crazy amount of sales initially that the Nook Color experienced, but did go on to sell over 3 million units in Q3 and Q4 of 2011.
The Nook Tablet introduced a number of new features that expanded on the kids books. One of the more gripping features was the “Read Aloud,” which allowed kids to record their own voices while reading the book or get a parent to narrate the book themselves. One grandparent wrote us a few months ago saying they recorded themselves reading bedtime stories, which was a lovely surprise for the grandchild.
In late 2011, Barnes and Noble was quite pleased on the success of the Nook line of devices and ebook sales. When looking at shareholder reports at the time, many people were in agreement that the influx of sales was saving the company from meeting the same fate as Borders. There was great pressure on B&N to produce even greater sales numbers and many stores increased the Nook Display Area. In most locations there were 1,000 square feet of space allocated for the Nook area, where demo units, cases, and accessories were located. The average size of the complete store is roughly 26,000 square feet. The increased size of the Nook display stand was upgraded to 2,000 square feet in hundreds of locations by 2012.
In early 2012, Barnes and Noble debuted the Nook Simple Touch with Glowlight, which shook the e-reader industry to its core. It had the same hardware and internals of the original Nook Simple Touch, but carried one critical new feature. It had an adjustable light built into the top of the bezel that illuminated the entire screen. The was finally a true e-ink based reader released to the mainstream market that allowed you to read in any lighting circumstance and shed the dependency on ambient light sources. The company had licensed this technology from e-Ink Holdings in an exclusive licensing agreement that prevented the competition from adopting it for an unknown duration of time. This is why it took so long for Amazon, Kobo, Onyx Boox, Pocketbook, and Bookeen to introduce their own models. The exclusivity of the Nook Glow arrangement gave the company the competitive advantage they needed to have a eight month jump on everyone else.
Hitting the market in Q4 2012 is the new Nook HD and Nook HD+ that will give customers two different sizes of screens. The Nook Tablet HD is a seven inch high-resolution display and will have a mighty resolution of 1440 x 900 pixels and 243 pixels per inch.Video playback will allow you to watch videos in 720p. The pixels are really punched into this model, 25 percent more per square inch than the Kindle Fire HD. Underneath the hood will be a 1.3GHz high-speed processor and 1GB of RAM. It is slated to cost $199 for an 8 GB model and $249 for the 16 GB. In the UK, they will retail at £159 for the 8GB model and only £189 for the 16GB version. There are two different colors that will be available, “Snow” and “Smoke.”
The new NOOK HD+ will feature a 9-inch display with resolution of 1920 x 1280 and 256 pixels per inch for up to 1080p for movies, magazines, and more. The fully laminated display reduces glare and provides excellent viewing angles, perfect for personal or shared viewing. This amazing display rivals the new Apple iPad, but is 20% lighter and nearly half the price. Underneath the hood is a 1.5GHz dual-core processor with 1GB of RAM. It will also have a mini HDMI port that will allow you to stream media directly to your television. The 16GB version will cost you $269 and 32 GB edition $299.
To take advantage of the improved screen resolution, Barnes & Noble is launching NOOK Video. You can think of it as competition for Amazon Instant Video. It will be launching with content from HBO, STARZ, The Walt Disney Studios, and Warner Bros. Entertainment. The NOOK Video catalog offers something for everyone in the family to enjoy. Customers will find TV favorites such as Game of Thrones, Breaking Bad, and The Walking Dead to movie favorites like Disney-Pixar’s Brave, The Dark Knight, and Harry Potter movies.
There are also tons of new features found in the Barnes and Noble online bookstore to take advantage of the HD display. The entire Newsstand will be severely revised and will introduce a new visual table of contents that lets customers view thumbnails of the entire magazine and simply tap the article they want to read first. Magazines feature a super-fast, 3D-like page turn and include built-in hot spots for readers to quickly jump to specific articles and go deeper on a subject or story through audio, video, and Web linking. NOOK’s innovative ArticleView lets the reader focus only on the text, customized to their needs. The company also introduced a breakthrough NOOK Scrapbook, where magazine readers can virtually clip pages of interest and save them in customized digital scrapbooks. The engine to display newspapers also was enhanced with brand new touchscreen friendly features and a new UI.
For the first time since the advent of the Nook Color, the entire digital store is being upgraded for the inclusion of video, audio, magazines, and all the new content. This is a total makeover that will firmly make Barnes and Noble a complete ecosystem. Pre-orders for the Nook HD line as of October 10th 2012 are up over 240% from previous NOOK introductions.
Barnes and Noble’s entire product line and digital storefront is poised for tremendous growth and has had a helping hand in the form of Microsoft. A few months ago the company had invested close to 300 million dollars to create a new Nook division which will be bundled with all copies of Windows 8 for the global launch. This also inspired B&N to kick off its quest for world domination.
For the first time since 2009, when Barnes and Noble first introduced its e-readers, the company is poised to branch out from the only market they have ever appealed to, the USA. The United Kingdom was rumored to be a launch point to the rest of Europe, and was announced in July that it would officially happen. B&N has locked up John Lewis, Foyles, Blackwell’s, Argos, Waitrose, and Sainsbury to be its distributors. The Nook HD and HD+ are set to launch on October 26th 2012.
At a recent investors’ call last week, CEO William Lynch also let the cat out of the bag in terms of the bookstore’s ambition of expanding across Europe and Canada. He said the NOOK Bookstore will be available in 10 international markets by June 2013, bringing customers in new countries the opportunity to browse, shop, and enjoy the company’s massive collection of digital books, magazines, periodicals, and more. You can expect the UK as being the launching point to expand to Germany, Spain, France, Netherlands, and tons more!
2013 will be a growth year for Barnes and Noble as the company is exclusively focused on expansion into foreign markets. You can expect a Nook to be on many retail shelves in Germany, Spain, France, Italy, and many more. How does the company secure so many new partnerships in a short period of time to gain showroom space? The answer is digital licensing agreements.
Many people often wonder how Kobo and Barnes and Noble are able to have so many retail partners carry their hardware. The real money to be made is via the digital content that you lock the customers into buying when they buy the Nook or Kobo line of readers. Many stores suspended relationships with Amazon recently, such as Walmart and Target, as they were tired of making slim profit margins on the hardware. However, the stores continued to stock Nooks. The answer is giving retailers a cut of the digital sales, which is the incentive they need to give crucial display coverage to the company’s range of e-readers and tablets. Whenever a purchase is made by a device sold in the store, B&N gives a cut of all the ebook and other content you purchase. The exact rate varies depending on the company and country in question, but rest assured this is now standard practice with Kobo and B&N.
Michael Kozlowski has written about audiobooks and e-readers for the past twelve years. Newspapers and websites such as the CBC, CNET, Engadget, Huffington Post and the New York Times have picked up his articles. He Lives in Vancouver, British Columbia, Canada.