Nook Is Done: Can Barnes & Noble Survive?

Barnes & Noble has risked a lot on Nook, and it’s not panning out. In fact, it’s hard to see how they can stem the fall of the retail giant.

Barnes & Noble Faces Steep Challenge as Holiday Nook Sales Decline - Leslie Kaufman

The results, covering a period that ended Dec. 29, are a sobering development for the nation’s largest bookstore chain. The declines occurred during what is supposed to be peak buying season. And the Nook unit’s sagging fortunes came despite a 13 percent increase in sales of digital content, suggesting that it is the tepid demand for Nook devices that is dragging down the unit’s performance.

Barnes & Noble has invested heavily in developing a tablet that can compete with offerings from media giants like Google, Apple and Amazon.com. Last April, in announcing a $300 million investment in Nook by Microsoft, the chief executive of Barnes & Noble’s chief executive, William J. Lynch, said the company wanted “to solidify our position as a leader in the exploding market for digital content in the consumer and education segments.”

A few months after that, the bookseller began breaking out the financial results of the Nook division, In October it completed its strategic partnership with Microsoft by creating Nook Media, a subsidiary and a signal that it was ready to ride its digital business into the future.

But while Barnes & Noble’s most recent Nooks have won critical praise, they have failed to gain significant traction with consumers.

Other companies do not break out sales of their digital tablets, but Amazonhas been saying sales of its Kindle Fire were strong. Analysts say Apple’s iPads also appear to be doing well.

“The problem is not whether or not the Nook is good,” said James L. McQuivey, a media analyst for Forrester Research. “What matters is whether you are locked into a Kindle library or an iTunes library or a Nook library. In the end, who holds the content that you value?”

For an increasing number of consumers, he said, the answer is not Barnes & Noble.

Though the company’s stock was down only slightly — falling 2 percent to $14.22 — the reaction in the financial world was unsparing. Analysts stopped short of saying that this was a do-or-die moment for the Nook Media division, but they acknowledged that options for a strong digital future were narrowing.

In a note to clients, S&P Capital IQ said, “We think this portends greater market share losses for the Nook over the medium term” and downgraded its recommendation on Barnes & Noble stock from hold to sell. Barclays said in a note that the Nook’s precipitous decline was “quite concerning” and “below even our modest expectations.”

[…]

Last month, Barnes & Noble announced that Pearson, the British education and publishing conglomerate, was taking a 5 percent stake in Nook for $89.5 million. Analysts said that cash investment was welcome and the partnership with Pearson, a major publisher of educational textbooks, might herald a strategy to move toward dominating an education niche market. Still, that would be a significantly smaller business.

My bet: Barnes & Noble will have to bail, even if Microsoft decides to increase its investment in the technology. (I doubt that Microsoft is ready to invest more heavily in a company building on Android technology, at least not until Ballmer leaves, and they bring in a new CEO who gives up on Windows.)

The Nook HD is based on the Android Ice Cream Sandwich platform and has a roughly equivalent hardware and software platform as the Kindle Fire HD. It’s slightly cheaper — like $30 — but Kindle has first mover advantage and huge capital resources. And any comparison to an iPad makes Nook look like something from a few years ago.

Maybe Texas Instruments — who make the chipset in Nooks — wants to get back into retail products? Not likely. However, Intel has been making motions to shake up their business model with the collapse of the netbook market, and the decline of PC/Windows sales, and with a market cap of over $100B they might have the money to take a run. But would they have to buy Barnes & Noble to do so? I wouldn’t buy that side of things.

Google’s another player who might want to play with Nook, but not Barnes & Noble, per se. But it would be interesting if Google decided to go retail with their own gear, as well as do something different in bookstore retail. Imagine, for example, if bookstores were reconfigured to be like gigantic Redbox machines, where you could type in any of millions of books, ten thousand of which are actually in the machine, and are delivered on the spot into your hands. All others delivered next day to your home. One percent of the staff costs. But I have no reason to believe Google is tending in this direction.

A 2013 prediction: Barnes & Noble with sell, spin out or shut down the Nook business. Pearson might be a fallback, with Nook becoming a niche educational tool.

4 January 2013 12 Permalink

Why Google, Amazon, And Apple Might Build Cell Networks

An interesting rumor making the rounds, that Google is discussing building out a wireless netwrok in partnership with Dish:

Google Wireless: Could an Alliance with Dish Make It Happen? | TIME.com

According to “people familiar with the discussions,” Google has talked with Dish Network about the possibility of creating a new wireless service. Although Dish is known mainly for its satellite TV offerings, the company is sitting on some unused wireless spectrum and has openly talked about building a new network with a partner. Google is one of the companies who has showed interest.

The negotiations weren’t in advanced stages, the Journal reports, so this could turn out to be nothing. Still, the idea of a wireless service from Google is interesting to think about, and it would make sense both to the company and to users.

Wireless carriers need disruption. They slather their phones–particularly Android devices–in bloatware that you can’t remove. They invent new fees without good reason. They find ways to charge you extra to use the data you already pay for. They stick their logos in unsightly places presumably just to remind you who’s boss.

There’s no guarantee a Google wireless service would provide the opposite experience, but at least Google has different motivations. Instead of simply trying to juice average revenue per user, Google’s priority is to get people hooked on Android so that they’re always buying apps and media and relying heavily on Google search.

A more general and more persuasive argument could be the benefits of better user experience in integrated solutions. For example, Amazon’s provisioning of WhisperNet for its Kindle devices — provided free, by the way — is a great example. A user simply buys a device and a minute later is downloading their first book, and reading it a minute after that.

Leaving aside the basic argument of Whispernet immediacy, consider other capabilities. Imagine if Apple was running the network I am using at this moment, tethered through my iPhone (on a train headed to NYC) instead of AT&T. I bet Apple, Amazon, or Google could figure out how to give me more bandwidth, so that I could really watch streaming video, wherever I go. 

If the mobile device becomes as fast as it needs to to support full video, why would we need cable in our homes and offices? We wouldn’t. Everyone would have their internet access with them everywhere, all the time.

And if the mobile device becomes the primary connect to the internet, then Apple, Google, and Amazon could pull a complete end run on the wireless companies and the cable companies. They could go directly to the TV networks and the sports cartels (NBA, NFL, Premier League), and pipe them through this new distribution system. 

Get ready for a huge shift.

19 November 2012 49 Permalink

Microsoft Surface: Too Little To Late?

Microsoft is gambling a lot for a chance to fight with Apple, Amazon, and Google for the proximal (‘mobile’) device market. They are pissing off their historic partners, like Dell and HP, by making their first computers ever. The alternative might be to simply become an enterprise software company, milking Office, Sharepoint, and Yammer for the next decade.

I admit I like the keyboard cover idea, but I expect Apple will respond to that quickly.

But it may be too late, since the clients they want to attract with Surface and later products have already moved ahead with deployments of Apple and Android tablets:

With New Tablet, Microsoft Faces a Balancing Act - Nick Wingfield via NYTimes.com

Rich Adduci, chief information officer of Boston Scientific, a medical device company, has more than 20,000 PCs at his company using older Windows. But he has also deployed more than 5,500 iPads to sales representatives and other employees.

A day late and a dollar short?

Related articles

• Steve Ballmer: Microsoft will make more hardware to set the standard (geek.com)
• Apple CEO Tim Cook: Microsoft’s Surface Tablet ‘Confusing’ and ‘Compromised’ (abcnews.go.com)
• Ballmer: more Microsoft hardware may be on the way (electronista.com)

26 October 2012 24 Permalink

Proximal, Not Mobile; Postnormal, Not Post Desktop

I am constantly baffled by the microeconomic, inward-focused analysis of what should be viewed as large-scale technoeconomic trends. It’s so off that — from my view point — these authors completely miss what’s going on. The narrative can be so far from touching the causative that a reader of my blog might wonder if we are looking at the same world.

Here’s a fisked example:

In Mobile World, Tech Giants Scramble to Get Up to Speed - Claire Cain Miller and Somini Sengupta via NYTimes.com

The industry giants remain highly profitable drivers of the economy. Yet the world’s shift to computing on mobile devices is taking a toll, including disappointing earnings reports last week from Google, Microsoft and Intel, in large measure related to revenue from mobile devices.

[It was recently shown that as much as 70% of the use of ‘mobiles’ is in the home. So they aren’t ‘mobiles’, per se: they are proximal devices: the com(munication)/com(puting) device always with us. Therefore, much of the narrative about mobile comcom is wrong.]

Investors are in suspense over Facebook’s earnings to be disclosed Tuesday, for much the same reason. Yahoo’s new chief, Marissa Mayer, said on Monday that Yahoo had failed to capitalize on mobile and must become a predominantly mobile company.

[It may seem natural to watch the so-called giants struggle with proximal, but much more of our attention should be directed to what people are actually doing with proximal devices. For example, checking prices online while shopping in brick-and-mortar stores — ‘showrooming’ — is now commonplace. A recent survey showed that 97% of showroomers bought the product searched for online later for less. This is forcing brick-and-mortar to match Internet prices, or die. But by matching low-overhead outfits like Amazon, they will go out of business, just a little bit slower. Google could optimize for that experience, but people are more likely to jump to Amazon. Facebook may be the scene where people chat about products while in the store, but they jump to Amazon to price check.]

Demand for Intel chips inside computers — which are much more profitable than those inside smartphones — is plummeting. At Microsoft, sales of software for PCs are sharply declining. At Google, the price that advertisers pay when people click on ads has fallen for a year. This is partly because, while mobile ads are exploding, they cost less than Internet ads; advertisers are still figuring out how to make them most effective.

[I don’t think this a paragraph: the first half is about declining chip sales because of the rapid shift into a new era of computing, the post desktop era. Interesting, but not as compelling as the economic transition into the postnormal, which is what we are seeing in the drop in advertising revenue on  increasingly social proximal devices. I think this is a permanent decrease in value, not a temporary one, not ‘just until things work themselves out’. Where people have better access to more information to inform judgments literally in their hands, the propaganda machinery will simply work less well. Despite the socialwashing going on in business, ads just will never work as well as they once did. Welcome to the postnormal.]

Since its initial public offering, Facebook has lost half its value on Wall Street under pressure to make more money from mobile devices, now that six of 10 Facebook users log in on their phones.

[Betting on a postmodern concept of social networking after we have skittered into the postnormal is not a good bet. Which some of us predicted.]

Making money will now depend on how deftly tech companies can track their users from their desktop computers to the phones in their palms and ultimately to the stores, cinemas and pizzerias where they spend their money. It will also depend on how consumers — and government regulators — will react to having every move monitored.

Facebook is already experimenting with ways to use what it knows about its users to show ads when they are using other mobile apps. Google can link what a logged-in user does on the computer and phone, to show someone a cellphone ad based on what they have searched for on a computer at home, for instance. But just last week, European regulators warned Google to amend its privacy policy that allows it to gather information about people across diverse Google products, from Gmail to YouTube.

In addition, Nielsen found that only one in five smartphone users described ads on phones as “acceptable.”

Today almost half of Americans own a smartphone, according to comScore — an astoundingly fast adoption since Apple introduced the iPhone just five years ago. The amount of time people spend on their phones surfing the Web, using apps, playing games and listening to music has more than doubled in the last two years, to 82 minutes a day, according to eMarketer; the time spent online on computers will grow just 3.6 percent this year.

[The shifting grounds of privacy and publicy are still largely not well-understood. At the bottom is a change in identity, which technojournalists don’t want to dig into, except in Sunday supplement pieces advocating spending more time offline and the dangers of ersatz online relationships. However, at core, people’s perceptions of how and to what they are connected are primarily coloring our sense of self and well being: in general, we don’t view it as a privacy/publicy battleground. Facebook and other bad actors think of our interactions and movements as a resource to be stripmined for monetary gain, but the postnormal generation of social startups will more likely find a way to support us in our search for meaning and fulfillment, even if those companies make less money than Facebook would like to. And that search is more likely to play out for most on a proximal device, not the company’s 7lb laptop.]

“What has caught people off guard has been acceleration of the multitude of things that you can do with a smartphone,” said David B. Yoffie, a Harvard Business School professor who studies the technology sector.

“The Web started in 1993, ’94,” he added. “It didn’t disrupt everything for a decade and a half. The smartphone revolution started a half decade ago. Because of the existence of the Web, it allowed the phone to have a disruptive impact in a shorter time frame.”

[Yoffie suffers from thinking about time as a steady state phenomenon. But this is the postmodern, and time is going much faster than it was in the ’90s. The rate of change and innovation (and, negatively, destruction of the old Earth) is happening at a much faster rate. I think this is related to the urban density coefficient that West and Bettencourt discovered: where cities’ productivity is superlinear, growing faster than the doubling rate of population. I think our perception of the passage of time is increasing superlinearly, as a function of the combined social density online and IRL.]

Just another piece about the disruptive impact of mobile devices, and unless you untie the narrative and recast using postnormal eyes, you might think we were still living in 2004, waiting for the social web to happen.

Marshal McLuhan wrote in 1969:

Because of the invisibility of any environment during the period of its innovation, man is only consciously aware of the environment that has preceded it; in other words, an environment becomes fully visible only when it has been superseded by a new environment; thus we are always one step behind in our view of the world. 

The present is always invisible because it’s environmental and saturates the whole field of attention so overwhelmingly; thus everyone is alive in an earlier day.

23 October 2012 35 Permalink

Breaking Up The TV Cartel Is In The Public Interest

The Justice Department is making moves toward unwinding the stranglehold that today cable cartel has on the US TV marketplace, especially with regard to anti-competitive practices against non-cable players, like Netflix, Amazon, and Apple.

Justice Department Is Said to Investigate Cable Companies Over Internet Video - Brian Stelter and Edward Wyatt via NYTimes.com

The Justice Department is quietly investigating the cable industry’s behavior toward nascent online video competitors as part of an inquiry into possible anticompetitive practices by cable companies.

The investigation raises the prospect that the government’s antitrust lawyers will intervene in the complex and rapidly changing business of entertainment distribution. In the meantime, it raises new questions about an industry that has no shortage of them already.

Answers are probably not immediately forthcoming. As is typical in cases like this, the Justice Department declined to comment on the investigation or to confirm that it is taking place. But people with direct knowledge of the investigation who were not authorized to speak publicly confirmed, as first reported Tuesday night by The Wall Street Journal, that the department was examining broad changes in the marketplace for online video, including the use of Internet data caps by cable companies.

One of the issues involves whether those limits to the amount of video, audio and other data that users can download are discriminatory against Netflix, YouTube and other new digital video competitors. Comcast, in particular, has come under scrutiny for its past use of data caps and other network management practices.

The US model for today’s Old TV distribution is based on a/ free broadcast TV (which a declining number of people take advantage of) and b/ for fee cable (and satellite) TV (that a dominant and growing proportion of the population rely on). 

Local governments grant cable companies the right to a cable monopoly (usually a duopoly) in a geographic area, allowing them to charge a fee for TV service. Likewise, the US government allows similar models for satellite companies. The Multichannel Video Programming Distributors (MVPD’s) like Comcast and DirecTV also provide internet access to their customers, which at first they saw as simply an additional source of revenue. But now that we can stream video over the web, it’s become a huge competitive threat to their entrenched interests.

One result is the intransigence of cable companies regarding unbundling channels. Many users would like to not be forced to buy 70 channels in order to watch NBA games, or would like to just watch Game Of Thrones without the rest of HBO’s lineup.

Justice Department Is Said to Investigate Cable Companies Over Internet Video - Brian Stelter and Edward Wyatt via NYTimes.com

The department is also said to be studying the ways in which distributors bundle disparate television channels together in all-you-can-watch packages. Distributors and programmers have resisted calls to unbundle channels, but Internet distribution may give consumers more choices in that area — assuming that data caps or other network management practices do not stand in the way.

It is unclear whether the government inquiry is looking solely at cable and broadband Internet providers, or whether it is also examining other types, like satellite television providers. The two largest satellite providers, DirecTV and Dish Network, declined to comment.

The inquiry is important because precedents for the digital distribution of content are being set now, said Art Brodsky, a spokesman for Public Knowledge, a public interest group based in Washington, which welcomed news of the investigation. “This is the critical moment,” he said. “If the government doesn’t step in to protect public interest now, you’re going to lose your chance.”

The review was also welcome news to those who have argued that concerns about control over digital distribution should be addressed through antitrust law enforcement, rather than through pre-emptive regulation.

[…]

There are several factors that could be motivating the government to investigate cable company practices now. For one, it is reviewing a $3.8 billion proposal by Comcast, Time Warner Cable and other companies to transfer some spectrum to Verizon Wireless. The Justice Department’s scrutiny of that arrangement is certain to include an examination of video content delivered over wired and wireless networks.

Separately, the government is also monitoring Comcast’s takeover of NBCUniversal, which took place last year after a lengthy review by regulators.

In a consent decree with the Justice Department when the acquisition took place, Comcast committed to not “unreasonably discriminate” in relation to the Web traffic of its users. As part of a follow-up, the government is studying whether Comcast is living up to its commitments, according to one of the people with knowledge of the investigation.
For years, Comcast has enforced a cap of 250 gigabytes a month for its customers as part of what it calls reasonable network management. But Comcast has exempted the use of Xfinity, Comcast’s own online video Web site, saying that use would not count against that cap. Comcast says Xfinity videos are delivered over the company’s own network, not over the public Internet, but Netflix has cried foul.

Last month, Comcast raised the data cap and said it would no longer enforce the limit as it explores new pricing plans based on usage.

The situation is clear, in some ways.

First, it is certainly in the public interest for cable companies to not throttle data going through their pipes. Since the companies are providing the now-essential Internet connection to the great majority of the connected population, they should not be able to step in and decide what sort of content gets what proportion of the bandwidth.

Second, it is difficult to see what public interest is served by a coercive bundling of channels, forcing the public to buy more than they want in order to get access to TV programming they want. And there is no recourse, in most cases, to much of this programming, other than piracy, which the media world holds up as a boogieman.

For these reasons, the Justice Department should require  MVPD’s to drop any throttling of bandwidth based on content (also called Net Neutrality), which is the current policy of the FCC. And they should break the monopolistic practice of coercively bundling channels, so that any channel can be accessed through a fair price, and that individual shows — like a specific basketball game, or a specific movie on HBO — can be purchased in a pay-per-view style.

Whether the Justice Department will go that far — which would make the public happy, but not the TV magnates — remains to be seen.

14 June 2012 13 worktalkresearch Permalink

Just In The Nook Of Time?

Microsoft settles some patent disputes with Barnes & Noble’s Nook division by investing $300M into the company. The market cheers. Am I missing something?

Microsoft’s Nook Deal, Aiming at Amazon, Sets Up Battle in E-Books - Michael De La Merced and Julie Bosman via NYTimes.com

Microsoft agreed to invest hundreds of millions of dollars in Barnes & Noble’s Nook division on Monday, giving the bookstore chain stronger footing in the hotly contested electronic book market and creating an alliance that could intensify the fight over the future of digital reading.

The deal, which gives Microsoft a 17.6 percent stake, values the Nook unit at $1.7 billion — roughly double Barnes & Noble’s entire market value as of last Friday — and bolsters the bookseller’s efforts to make its digital business the linchpin of its future growth.

The announcement was the latest surprise in an unpredictable and rapidly shifting e-book market, which is crowded with technology giants trying to chip away at Amazon.com’s dominance. Amazon once had close to 90 percent of the e-book market, but since then, a handful of players, including Apple, Google and now Microsoft, have edged in.

So, B & N is a bookseller, with hundreds of stores. Remember when Borders went bankrupt? And Tower Records? The days of blazing a new trail in retail by undifferentiated sales are done.

Stowe Boyd via stoweboyd.com

Successful retail in the US is falling into two categories: companies selling their own products, like Apple, and focused specialty providers, like Trader Joe’s and Uniqlo. Otherwise: a wasteland. And soon we will be dismantling all the big box stores.

So, this is a bail out. B & N needs big cash to compete against Kindle, because Amazon is underpricing the device to hold onto the market in the face of growing market penetration of iPad and iPhone as better mobile reading devices. Microsoft, who completely missed the ereader market and who is fighting Apple and Google in the smart device marketplace, hope that a strategic partnership with B & N around the Nook can help, but how?

Unmentioned is the idea that some soon-to-market version of the Nook will be a Windows 8 device, instead of running Nook’s proprietary OS. And a spin-out of the Nook division into a new company, called Nook, with even more cash from Microsoft. Otherwise the whole thing makes no sense.

1 May 2012 3 Permalink