Friday, January 06, 2012

Barnes & Noble Probably Stocks The Innovator's Dilemma

CNN reports that Barnes & Noble is considering spinning off its Nook business. I was thinking about this very thing just the other day as I was totally loving the Kindle Touch that CyberSanta brought me for Christmas. (Mrs. Overclock got one too.) has this profitable business that they can use to subsidize their Kindle research, development, and manufacturing. There has been speculation by those who have reverse engineered the Kindle that they may lose money on each device, depending on what kinds of discounts they have managed to negotiate with their suppliers and contract manufacturers. But unlike, say, Apple, which is a hardware company, and Microsoft, which is a software company, is a retail and e-commerce company evolving into a media production and distribution company. They can, and probably do, price the Kindle below their cost to manufacture but make it up in selling media for it. It's the whole printer versus ink and toner cartridges strategy. Or for that matter, razor versus razor blades, which has been around for decades.

B&N has no growing business with which to subsidize the Nook. In fact, it's the other way around: if they make money on the Nook, it may end up subsidizing the shrinking book store business. That makes it hard for them to make the Nook with the kind of tight (or even negative) margins that makes the Kindle. The only way they can compete with the Kindle is to spin-off the Nook into a separate business so it can't be used to subsidize the other side of the house. There, the Nook, and e-book distribution, can continue to be profitable, while the traditional brick-and-morter business evaporates.

I very much admire the design of the Kindle Touch. It cleverly leverages the use model of how people read books: they stare at a single page for seconds or minutes at a time. The electronic ink display of the Kindle is persistent - it only consumes power when changes are being made. The Kindle software can take advantage of all the power-saving modes in modern microprocessors intended for hand-held appliances like mobile phones and turn virtually everything on the device off, except for some hardware and software dealing with the touch sensor portion of the screen. Then it spins everything up, updates the display, and quiesces again. The monochrome display is slow to update, making it unsuitable for moving pictures, but it's perfect for books. Most of the time the device is being used no wireless network access is necessary. No wonder a single charge lasts for so long.

The design of these devices, and the evolution of their business models, is pretty darn interesting to a product developer like me who has made a good living doing development on embedded systems.


Demian L. Neidetcher said...

I have a Nook and am invested in that platform to the tune of 5 books. The Nook (and Kindle for that matter) software work fine on the iPad. But right, I was confused at this news. As you say it cannibalizes their brick & mortar business but is the inevitable future of their business.

I don't think they should spin it off, for now folks enjoy the click & mortar synergy. They should stay as relevant as they can for as long as they can.

Chip Overclock said...

The Kindle was a bit of a revelation to me, although it shouldn't have been. Everyone I know that owns a Kindle -- or a Nook for that matter -- loves it.

I'd read two books using the Kindle app on my beloved iPad and the experience was not all that pleasant. The iPad is relatively large and heavy, and the screen shiny with a lot of glare. The Kindle is small, about the size of a paperback book (a form factor very deliberately chosen I'm sure) and lighter than most, and it's e-ink screen easy to read. The iPad is a general purpose computer, great for web cruising and light content generation. The Kindle a special purpose device specifically designed for reading text. So my personal experience should be no surprise.

I continue to be impressed with both the iPad and the Kindle, and I'm sure I would be with the Nook as well. I confess I've been studying the Nook as a possible Android development platform. The Innovator's Dilemma suggests that spinning off the Nook business might be the right thing to do for the Nook, at the expense of the brick &mortar stores. We'll see.

As always, thanks for your comments.