We keep making the case that the split that matters when trying to foretell the future of the book business (and everybody in it) is not “print” versus “digital”, but “bought online” versus “bought in stores”.
Of all the major retailers, only Barnes & Noble has a stake in all four of the meaningful transaction streams for trade books: print in stores, devices in stores, print online, and ebooks. (All devices are available online.) Amazon has no store presence. Kobo has a minimal store presence through independent retailers but has no print business. Apple has no store presence for content at all and doesn’t sell print online. And Google seems to only tangentially deal with any of the non-digital content businesses.
In fact, B&N is in a fifth “segment”: college bookstores. That segment was the only one that showed revenue growth in their latest reporting, although even in that segment same store sales showed a slight decline. College textbooks having been slow to move to digital has helped preserve that business, but it would be a weak bet to expect that to last forever, or even for many more years.
What this means is that Amazon, Kobo, and Apple are firmly planted in parts of the business that are growing. Kobo and Apple only sell ebooks and Amazon sells print too, but, in general, the migration to online buying and ebook consumption is going to continue so the sales taking place in the environments in which they operate will continue to grow. Whatever their share, they will be taking it from a bigger and bigger pie.
B&N, on the other hand, gets most of its sales from print in stores. That is the component of the sales which is declining and bound to continue to decline. That means that B&N, uniquely, has the challenge of keeping its customers as they switch their mode of buying and consuming books.
The retailer announced their latest quarterly results this week and, at least superficially, they are not encouraging. Sales of devices are down. Sales of digital content are down. Sales of print in stores and online are down. The company points out that book sales in general took a hit because the two most recent book sales phenomena, “Hunger Games” and “Fifty Shades of Gray” are running out of steam and haven’t been replaced by The Next Big Thing(s) yet. But in the absence of sales information about print and ebooks from Amazon (which data is normally well-masked in their overall reporting), we have no basis for comparison. And comparison is what we need to know how B&N is doing and what their future holds.
In other words, are Amazon’s online and ebook sales declining because of the lack of a replacement for “Hunger Games” and “Fifty Shades”? Or is B&N not only losing sales, but also losing share as the market migrates from stores (their strength) to online (Amazon’s strength)?
There really is no “industry” data to help us get at an answer to that. For a few years in the prior decade, Idea Logical did some sales data analysis work for a number of publishers large and small. Each publisher gets clear reporting of its sales in a granular-enough way to examine this. Of their B&N sales, they know what is digital and what is print, and they know what is sold in stores and what is sold by BN.com. At the time that we were doing this work, which ended before ebooks became a significant portion of the commerce, it appeared that Amazon sold about 10 times as many books across most lists than BN.com did. (Of course, at that time at least, B&N stores sold more than Amazon.)
Barnes & Noble is in a unique position. Every other player is looking to capture customers migrating from old patterns to new ones, whether switching from buying print in stores to buying it online (Amazon) or switching from reading print to reading ebooks. Only B&N is trying to keep customers who came to them for print in stores.
In 2010 and 2011, it appeared they were doing very well at just that, selling lots of Nook devices in their stores. It appeared that there were a large number of heavy book readers who had been unwilling to jump to digital. Perhaps they wanted to see and touch the devices first. Perhaps they wanted to see that many friends and family of theirs had made the leap before they would. Or perhaps they just wanted their trusted book vendor, Barnes & Noble, to offer them the ebook opportunity.
The anecdata suggested (there was no clear objective data to prove) that, following the launch of Nook in the Fall of 2009, B&N’s format shot up pretty quickly to a market share in the neighborhood of 20-25%, with Apple (initially) taking about 10% with the iBookstore. Amazon’s Kindle declined from more than 90% of the market to around 60%.
Then some things changed in the marketplace. The DoJ suit effectively ended publisher-set pricing. Apple took the direct link to the bookstore off all the iOS apps except their own. And tablets and phones increased their share of the ebook market in relation to dedicated ereaders. Again, relying on anecdata where no industry data exists, reports suggest that the B&N/Nook share has declined, Apple’s iBookstore has risen, and Amazon has perhaps come back a bit. (Amazon, Apple, and Kobo have a much bigger global footprint than B&N, although that probably doesn’t matter much in the US market.) Certainly, the numbers from B&N reporting that digital content sales have declined in real terms strongly suggests a reduction in their US market share. Overall digital content sales have almost certainly not declined.
It is beyond B&N’s power — or anybody else’s — to do much to affect overall consumer behavior. People will buy and read in the way that the current combination of price, convenience, and technology motivate them to. In the abstract, it would seem that a company that has a foot in all the markets would have a better chance to capture people switching buying or reading modes than a company with a more limited offering. It would seem that way, but it isn’t working out that way. B&N has to figure out how to make their ubiquity work in their favor which, except for a year or two around the debut of the Nook, they haven’t managed to do yet.
The facts tell us that Barnes & Noble failed years ago to make its store customers into online customers. They’ve been sharing customers with Amazon since Amazon began. Indeed, the skill sets a corporation needs to run a successful online business aren’t the same as they are to run a chain of physical stores. But it can be done: the office supply retailer Staples is the second-largest online retailer in the US. I think if I were at B&N I’d be asking somebody up there how they did it.
BN.com has been the weak link in the Barnes & Noble chain since they launched it under joint ownership with Bertelsmann. When the company was run by strong merchants, they didn’t pay close attention to it. For the past few years, the company has been run by an ebook-focused management and they didn’t improve it. In both cases, BN.com’s success was secondary to another agenda. It is ironic that the current management, rooted in finance and operations, seems to have focused on this core — perhaps existential — strategic problem, with improvements in BN.com promised shortly.
Another aspect of the B&N reporting was that major shareholder and Chairman Leonard Riggio announced that he is “suspending” his interest in buying the stores. Whether that is an indication that he’s less confident of their future than he was before or whether, as the announcement says, he just feels that B&N as a company needs to concentrate on making the Nook-and-store combination work more effectively, is not something anybody but he and his closest advisors know for sure.