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Shannon Stapleton / Reuters
See the Nook spin. Bookseller Barnes & Noble says its mulling plans to spin off its Nook e-reader. Many analysts think that's not such a good idea.
The Nook is undeniably Barnes & Noble's star product, so investors were caught by surprise Thursday when the bookseller said it might spin off the line of electronic readers into a separate business.
"A big part of Nook's value proposition is its connection with the physical store, the buying experience," said Michael Norris, senior analyst of the trade books group at Simba Information.
Barnes and Noble stock fell 18 percent after the company announced it is doing "strategic exploratory work to separate the Nook business," along with larger-than-expected losses and lowered guidance for fiscal 2012.
"The in-store channel has been a key part of Nook's success so far," said Sarah Rotman Epps, senior analyst at Forrester Research. Until recently, Barnes & Noble apparently felt the same way. In 2010, it significantly expanded the footprint of its in-store Nook kiosks, encouraging customers to get hands-on with the devices.
"American consumers want to try and hold gadgets before they purchase them,” CEO William Lynch told The New York Times back then.
In Thursday's announcement, the company said a "substantial portion" of the 70 percent increase in year-over-year Nook unit sales was driven by third-party retailers, but analysts worry the bookseller is underestimating the role its own stores play in selling Nooks.
"One of the benefits they have over Amazon is that non-tech-savvy folks hear about tablets, hear about e-readers, and are interested, but may be a little bit intimidated," said Tom Mainelli, research director covering mobile connective devices at IDC.
Both Amazon.com and Barnes & Noble have been heavily targeting users who may be interested in a tablet device but are not ready to commit to the cost of an Apple iPad, which sells for $499 and up. Entry-level Kindles and Nooks can be had for under $100, and Amazon's Kindle Fire was the breakout hit of the holiday season at $199.
Amazon has distributed its tablet through third-party retailers as well as online, while Barnes & Noble has the advantage of its 700-plus retail locations.
"Barnes & Noble has done a really good job of making people feel comfortable" by welcoming customers who need high-tech hand-holding they can't get at a big box discounter or electronics chain, Mainelli said.
"Against all odds, Barnes & Noble built a successful digital business with Nook, but its success has been predicated on two key assets it may lose in a potential spinoff," Epps said. Besides its stores, Barnes & Noble has a strong channel relationship with publishers that wouldn't necessarily carry over if Nook became a standalone business, she said.
Barnes & Noble may be looking to the future in considering a spin-off: It might not have the resources necessary to undertake international expansion, an investment that will become imperative as its competitors, such as Amazon.com, increase their presence globally, said Mainelli.
Currently, around 80 percent of the e-reader market is in the United States, according to market intelligence firm IDC, but Mainelli predicts that will change.
Barnes & Noble needs all the market share it can get its hands on. In the third quarter, the Kindle held a little over three-quarters of the black-and-white e-reader market in the U.S., while the Nook trailed considerably with 18 percent, Mainelli said.
It got the early jump on Amazon in the color e-reader tablet race, coming in second behind Apple with 11 percent of the market, or roughly 805,000 units. The Nook probably didn't get to enjoy that distinction for long, once the Kindle Fire made its debut. Mainelli said he estimates that Amazon shipped more than 4 million Fires in the final quarter of 2011. "My expectation is that while Barnes & Noble will do quite well in Q4 ... I think it'll be a fraction of what Amazon shipped," he said.
If Barnes & Noble wanted to woo a potential deep-pocketed partner, a standalone Nook might be a more attractive prospect than a brick-and-mortar company that comes with more overhead baggage.
"If they decide to do this, it's probably going to be to insulate the Nook from what's clearly going to be a difficult road ahead," Mainelli said. He suggested that even a spun-off Nook might retain a close relationship with its former parent.
But company executives might do better to look at their past before breaking ties with the Nook, said Simba's Norris. "I don't think it's a good idea to separate the two businesses," he said. "A number of years ago Barnes & Noble actually had their dot-com business separate from the physical business, and they ended up reeling it back in."
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The ONLY reason I bought the Nook instead of the Kindle was it's association with Barnes and Noble. Please don't seperate them.
I agree. The main reason I maintain a B&N membership is to be able to provide my 4 grandchildren's E-readers with a steady stream of new reading material!
We got our 4 Nooks for the exact same reason. We also like to go to thestore and buy books with photos extra that we do not want on a Nook. I hope they can find a way to keep doing both.
Absolutely agree. We can go down to the store at almost any time (they are open long hours) and get info on our 2 Nooks. Recently we were able to go to the store and get a quick upgrade before it was available online. We love our Nooks - and our Barnes and Noble store in Mira Mesa.
This could be the beginning of the end for Barnes and Noble. The Nook has been a big success. If Barnes and Noble wants to sell books they need the Nook integrated with their stores.
I guess B&N weren't paying attention during the recent Netflix debacle. Separation will hurt both the retail stores and the Nook business.
Why do so many bug businesses make such bad business decisions? Are they so afraid of lost profits that they blind themselves to reality? I can name a lot of companies that made brain dead decisions and ended up broke because it.
When you've got a great product you don't get rid of it. Instead you expand it and make it better.
The problem here is that the chairmain of the board at B&N, Leonard Riggio, is an old book guy. He built B&N on the basis of the bricks and mortar business and doesn't believe that things will change. So to ensure he is right, he doesn't want the nook to prove him wrong. The problem is, he is wrong and B&N will go away without the nook. That is why they have ripped out rows and rows of book shelves and replaced them with games and toys. The market is changing and they cannot go backwards now.
I love the fact that I can go into any Barnes & Noble with my nook and upload books, updates etc. Especially if I'm not sure what I want to read. I can browse the store and get some ideas and buy a real book or two at the same time. I love my nook, but I'm not giving up real books either. Please don't take away my ability to take my nook to the bookstore with me. I enjoy the reason for going there. If I can get books anywhere then why go to the store. I did my research first but finally picked the Nook because I can go to the store when I need help or just to sit and read just like any other book.
Dumb idea B&N! I bought both my parents color Nooks for Christmas precisely because of the reasons stated in this article: they like it over the Kindle Fire because they felt more comfortable with a tablet tied to their favorite bookseller. Take a lesson from Netflix mistakes, B&N, and pay attention to what your customers want, not your shareholders. You won't have any market share without your niche market.
Please don't separate Nook from Barnes & Noble. I always receive excellent assistance at my local B&N when i need it for my Nook. I also like to go to the store, sit in the cafe with a mocha and snack, enjoy my Nook and also do some book shopping. I would truly miss this if they separate. I love my Nook, and I also love books. Barnes and Noble and Nook go hand-in-hand. B&N's reputation is the reason I bought Nook (I have the 1st generation and Nook color) and also gave Nook color for Christmas, rather than any other ereader.
B&N will go the way of Borders. Along with Eastman Kodak and Netflix. The world may not end on Dec 21, 2012 but it does for these 3 companies.
What in the hell is it with businesses wanting to spin off portions of their businesses that work COMPLEMENTARY?
The Oatmeal put the Netflix debachle right: http://theoatmeal.com/comics/netflix
B&N would be wise to keep it's stores.
Who're running Barnes and Noble these days? the moron executives from Boarders?
Is Barnes & Noble planning to merge with Netflix? I see a compatibility between their CEOs. Both seem to not understand what is driving their business? The only difference is that the Netflx CEO is looking too far into the future while the B&N CEO is looking too far into the past.
Until now, B&N has bucked the trend of other large book retailers like Borders who have gone under. And the Nook is the main reason for their survival. Can you imagine Apple spinning off the iPad into another company? The fact is, there are way more e-book sales than hard cover now, and that trend will only continue. Paperbacks are pretty much dead. Why would anyone get in their car and drive to a bookstore and pay $14.95 for a hard cover book, when they can download it on their Nook for $1.99? It's the Blockbuster Video paradigm all over.
Because they care more about a physical book than an e-reader. I don't think its difficult to grasp and the comparison between movie rentals and books is misguided.
Gee....all it had to do was say "Merry Christmas" rather than "Happy Holidays....As smart as they are.....a little common sense always puts the edge on the blade....
Biggest reason I returned the Kindle I got for Christmas? Because I don't like Amazon's "customer service" or paying almost the full price for an e-book that I would pay for a hardback from them. No thanks. I like B&N, and would certainly purchase a Nook over a Kindle should I ever decide to get an electronic reading device.
Not so sad news for me. While we were given an e-reader for Christmas, I'm always going to be a hardcore fan of actual books with weight and heft to them! I love curling up with a cup of coffee and a blanket and a good book and some sort of tech device just doesn't seem the same to me. I love seeing a book on my shelf well worn because I love it so much that I've read it a billion times. I see the advantages to a e-reader, easier to take books and news while traveling, etc, but there's just not the same book lover romance involved. Moreover, I'm a fan of handing actual books to kids-while I appreciate they are growing up in a very advanced technological age, some things should be classic. I for one and not going to give my kid every cell phone and tech toy they clamor for. I'd prefer that they go outside and play instead of being tied down to electronic devices all day long.
I own a NookColor and we bought one for my aunt who is now in an assisted living facility. Being able to go to the physical store was nice and convenient when I had to replace my charging cord. That being said, I could have done it over the internet or online. While the wait for the replacement would have been days instead of immediately (at the store), I'd have survived. LOL. We always kept our (physical) books. However, we got hit hard by the recession and had to move and we just don't have the room for all those books we collected. My aunt shares a room at the assisted living facility and she doesn't have the space for her books, either. I wasn't sure about leaving the physical books behind, at first. But that's changed since I've been using the Nook. With respect to this article, the physical stores aren't that important to me. I've used their online/toll free customer service a couple of times and have been happy with the service.
I purchased a Nook tablet and love it for many reasons including it's ties to B&N (and the better design choices over the Fire). I really hope B&N does not go through with trying to seperate Nookl.
I just got a Nook tablet for Christmas and the reason I wanted the Nook over the Kindle is the fact that I like going into the actual store front if I have questions or need direction on technical stuff. I'm not too tech savvy and I like the idea of being able to go to someone for help. Amazon's Kindle doesn't give me that ability. Please B & N, don't do something stupid like selling off Nook!!!! If they do anything, they should add more features -- I'd like to be able to buy and download movies and tv shows, not rent them from Netflix or Hulu. Expand the features, don't sell it off!
I bought a hardcover book at B&N over the holidays and paid over $20 for it. This book doesn't have a nice computer screen, it doesn't lend me much in the way of hip cache, but I can drop it, pick it up, and read it. I can loan it to my friends and family without restriction. I don't have to recharge it or buy batteries. More than likely, if I really like the book, it will be in my possession until the day I die, I will revisit it and my children might perhaps keep it throughout their own lives as a memento of me. For $20-$30, I think that is a sound investment.
Cheaply priced digital versions and devices with massive storage capabilities are a poor substitute for the aforementioned things. I hope B&N maintains a brick and mortar presence.