WSJ: Investors Are Freaking Out About Barnes & Noble

[fjtorres]

Originally Posted by jofallon

Nook is a money-losing business, unlike the retail part of BN.

You sure?
Today's report claims the *dollar* value of B&N's store revenues went up 2.5%.
Not mentioned: the US inflation rate is 3.5%.

So, despite reduced competition with Borders gone (17% of the market last year), despite higher pbook prices, despite adding all sorts of non-book products, and despite 70% higher Nook sales...
Despite all that, B&N stores' revenue in the peak book-selling season *dropped* 1% year-to-year in inflation-adjusted terms.

Does that sound like their B&M retail business is healthy?
Dunno, but to me it sounds like a leaky boat that has the entire crew bailing water like crazy and is still oh-so-slowly sinking. At some point the crew is going to run out of tricks to try.

There is good reason for the investors to freak out.

[fjtorres]

Originally Posted by mersfire

Am I the only one that sees this as being exactly the SAME pricing for their products? If I wanted an 8GB tablet, I'lll pay $199 for the Fire and if I need 16GB, I'll pay $50 more for the Tablet.

But all I read about is how the Kindle is now $79 (no touch) vs $99 for the Nook and how $199 is $50 less than $249 even though B&N gives us 8GB more internal storage PLUS and expansion slot.

Spoken like a hardware vendor.
You're assuming that in consumers' minds the only thing that matters is the hardware specs. As if the products were generic and perfectly replaceable.

Problem is, ebook readers are a composite product.
When people buy an ebook reader, they're buying into an ecosystem, not just a hunk of glass and plastic. It is a long-term commitment.

Hardware is only part of the story.
Content is another part.
Services is yet another.
And the *company* that stands behind the product is also part of the equation.

People don't buy Kindles just because they want an ebook reader; they are buying access to *AMAZON'S* ebook ecosystem. Getting a hunk of glass and plastic is just the entry ticket.

Don't assume better marketting is going to make more people buy Nooks instead of Kindles. Especially after today.

Until we know what B&N is going to do with Nook, Inc--sell it like Kobo, spin it off and IPO-it, or keep it for lack of a good enough deal--the entire Nook ecosystem is going to be under a cloud; Nook owners who bought their readers because they trusted the B&N brand, who expected B&N to stand behind the "proprietary* ebook ecosystem, can no longer assume that relationship will endure. And it is pretty much undeniable that at least *some* Nook sales are due primarily to the B&N brand and the ties to the storefronts: B&N has made that the centerpiece of their strategy for two years. Look around: those folks are not happy today.

Two other points:

1- Nook STRs are not as ad-free as B&N wants people to think. At least a third of the STR home screen is devoted to ads--for B&N products. Main difference from Kindles is that Amazon pays you for looking at *their* ads.

2- Nook sales for the holiday season were actually very good. 70% improvement for a company with at least 25% market share (as opposed to one in the single digits) is very good performance. Yet, B&N management somehhow expected *more*. "Shortfall" they called it: B&N management expected, prepared, and *needed* better than 70% year to year improvement for Nook. That sounds like inventory management issues.

And that is a classic pitfall in the tech industry.
I hope I'm wrong but bad days are coming to the Nook ecosystem and the quality of B&N's marketting is soon going to be the least of their problems.

[mersfire]

Originally Posted by fjtorres

Spoken like a hardware vendor.
You're assuming that in consumers' minds the only thing that matters is the hardware specs. As if the products were generic and perfectly replaceable.

Problem is, ebook readers are a composite product.
When people buy an ebook reader, they're buying into an ecosystem, not just a hunk of glass and plastic. It is a long-term commitment.

Hardware is only part of the story.
Content is another part.
Services is yet another.
And the *company* that stands behind the product is also part of the equation.

People don't buy Kindles just because they want an ebook reader; they are buying access to *AMAZON'S* ebook ecosystem. Getting a hunk of glass and plastic is just the entry ticket.

Completely agree with you on this point, and that's why I think Sony is flailing in this market. B&N has a great ecosystem and brand. Every B&N I go to, there are always people looking at their Nook products, so I think B&N and Amazon have a comparable ecosystem (in terms of book publications).

Don't assume better marketting is going to make more people buy Nooks instead of Kindles. Especially after today.

I think better marketing WILL help B&N, and I don't mean more TV ads or online ads. When the Fire came out, Amazon had an amazing amount of PR. All news outlets were quoting Jeff Bezos and Co. and the device generated a huge amount of interest. When the Tablet was announced, the press was mostly "meh". Marketing includes PR, relationships with news outlets to get coverage on products, generating excitement, etc. Maybe no one believes in B&N and that's why Amazon gets all the PR, who knows.

Two other points:

1- Nook STRs are not as ad-free as B&N wants people to think. At least a third of the STR home screen is devoted to ads--for B&N products. Main difference from Kindles is that Amazon pays you for looking at *their* ads.

2- Nook sales for the holiday season were actually very good. 70% improvement for a company with at least 25% market share (as opposed to one in the single digits) is very good performance. Yet, B&N management somehhow expected *more*. "Shortfall" they called it: B&N management expected, prepared, and *needed* better than 70% year to year improvement for Nook. That sounds like inventory management issues.

Good point in that B&N promotes books/best sellers on their devices. I suppose that's like walking into a bookstore and seeing a prominently displayed new release.

I also think you are correct in that B&N management most likely expected a >100% year on year growth in sales of their Nook devices. And this is where I conjecture that they would have seen better sales if Amazon had not stolen the show with their barrage of new devices and new prices. And since it was obvious Amazon was going to go all out with their Fire and new e-paper Kindles, B&N should have been better prepared or had a better/faster response to keep the spotlight on themselves.

[fjtorres]

Originally Posted by mersfire

I also think you are correct in that B&N management most likely expected a >100% year on year growth in sales of their Nook devices. And this is where I conjecture that they would have seen better sales if Amazon had not stolen the show with their barrage of new devices and new prices. And since it was obvious Amazon was going to go all out with their Fire and new e-paper Kindles, B&N should have been better prepared or had a better/faster response to keep the spotlight on themselves.

It was all a matter of timing: B&N made their move in the summer, Amazon in late fall and it just didn't give them time to react. Two other blows to B&N's plans (at least on paper--not sure if they made much of an impact on sales) is that both Kobo and Sony matched the $99 price point: Kobo with their own ad-supported model, Sony without ads and with sound.

A couple other points:

1- If you look at Amazon's pricing you'll notice that their ad-free prices are not terribly aggressive. They weren't gunning for a price war.

2- The Kindle Touch is very clearly a rush job, probably started in the summer, so Amazon launching in November was not a clever move; just necessity. Ditto for FIRE.

3- Amazon is, as usual, obscuring their sales numbers so we don't know if *they* have a shortfall on the eink side. It is quite possible that eink reader sales have just plateau-ed. After all, there is a finite supply of book reading customers to sell ebook readers to. And the extremely fast growth of the last two years is (was?) unsustainable on a long term basis.

Add it up and it seem pretty clear B&N's problems are more about misreading the market than getting outwitted. Or outmarketted.

[BeccaPrice]

Don't forget too that B&N sequesters a lot of the memory on the Tablet for B&N-only content... what is it, something like 14 or 15 of their vaunted 16 gig? So even though the Tablet has better technical specs than the Fire does, the Fire is more usable.

[Geosprouter]

Originally Posted by markbot

Old people read a lot more than young people. Old people have a hard time buying items online. The bricks and mortar business still has some life, but a business plan based around old, dying people who are not savvy enough to realize the prices are terrible is not so great.

This is just a really silly comment.

You need to broaden your horizons all my "old" friends have Nooks, Kindles or iPads and are buying and downloading books just fine. That includes myself.

[CJJ]

Brick and mortar mind-think is B&N's nemesis. Of course they thought they'd sell more. Labor is a killer in these establishments and they were manning the Nook displays 14 to 16 hours a day through the holidays. I'm sure the expectations on the store managers was ludicrous. This had bad synergy all over it from the beginning. I wish a B&N sales associate would post some of the sales planning literature handed out before the holidays. They are always fun reads.

[Fbone]

Originally Posted by fjtorres

2- Nook sales for the holiday season were actually very good. 70% improvement for a company with at least 25% market share (as opposed to one in the single digits) is very good performance. Yet, B&N management somehhow expected *more*. "Shortfall" they called it: B&N management expected, prepared, and *needed* better than 70% year to year improvement for Nook. That sounds like inventory management issues.

B&N may still have a decent January. Gift cards aren't counted as sales until redeemed. Many families were on vacation between the holidays so they haven't been around to shop.

Of course, we can expect Nook returns to negatively affect January sales revenues also.

[Fbone]

Originally Posted by fjtorres

2- The Kindle Touch is very clearly a rush job, probably started in the summer, so Amazon launching in November was not a clever move; just necessity. Ditto for FIRE.

Amazon released 3 devices at the same time. And it showed. I didn't think the 2 e-ink devices were as refined as the K3.

I believe Amazon's price points surprised B&N ... and Kobo and Sony. This makes me wonder if anyone is making a profit on their hardware. 'Cause we know they aren't making much on those 99 cent ebooks.

[SeaKing]

There are a lot of ways to look at B&N.

I won't try to detail them all. Just one.
"Decisions are made for the benefit of the decision makers."

B&N is going out of business. It can't compete online with just books and support those all those Brick and Mortar stores. It can't sell those stores or spin them off profitably. Too many obligations.
The biggest players (the President, the VPs, the top managers) in the company know that and are going to organize the ledgers and the reports for as long as possible so that their paychecks and pensions are as large as possible these last few years before bankruptcy. No matter what else happens that is paramount in the secret, unspoken business plan.

As an aside, the small book sellers are now Walmart, Target, my local CVS, my local Inglis grocery store. There is no way that B&N can downsize quickly enough with all their obligations to compete with those stores.

I will give you a case of my favorite store.
COMPUSA. I loved that store. It died.
Then I took my computer business to Circuit City. It died.
Then I took my business to Best Buy. It's computer section, both hardware and software is slowly dying, but it sells enough TVs, games, etc., to get by, so far.
So now I have moved everything to Amazon, and instead of talking to salesmen, I read professional reviews and customer reviews. It is probably working out better than before, but it does take a lot more of my time.

It is a lot safer buying a book on line than a router, or a computer or a external hard drive. It is not such a large investment, and a book review or blurb is a lot easier to understand than a computer review.

It is fun for a lot of us to go into a book store, but obviously us fun lovers didn't support the stores enough.

One last question. What does the last big predator fish in the fish tank eat?

[kennyc]

Well, I went to B&N last weekend in an attempt to spend my year-old gift cards and couldn't find a thing to buy. Ended up ordering a poetry anthology on-line to "use up the gift card" before it's worthless.

[Phogg]

Originally Posted by tubemonkey

Amazon.com, B&N.com, Kobo.com, Sony.com, ...

Feedbooks.com, Smashwords.com, Baen.com, ...

[fjtorres]

Originally Posted by Geosprouter

This is just a really silly comment.

You need to broaden your horizons all my "old" friends have Nooks, Kindles or iPads and are buying and downloading books just fine. That includes myself.

More, the older readers were early adopters of the mainstreaming of ebooks. As recently as spring 2010, the market had a pronounced demographic bulge in the older age groups. It is only in the last 18 months, *after* the 3 hr price war, that the younger groups started to catch up.

http://www.teleread.com/ebooks/stati...oks-in-the-us/

The fact that every ebook can be a "large print" title makes ebook readers compelling for older readers.

[fjtorres]

Originally Posted by Fbone

B&N may still have a decent January. Gift cards aren't counted as sales until redeemed. Many families were on vacation between the holidays so they haven't been around to shop.

Of course, we can expect Nook returns to negatively affect January sales revenues also.

In past years the trend has been that hardware sells in december (and yes; returns in January) and ebooks sell in January.

When I talk about the cloud over Nook, that is one of the things that factors into it. And why I expect lots of STR bargains in days to come.

[fjtorres]

Just ran into this, more detailed, look:

http://www.wired.com/epicenter/2012/...ate-nook/all/1

Seems B&N is looking at, potentially, losses of up to $100 million.
That's about a million STR's worth.
(Probably not all the losses come from the "shortfall" but...)
I'm getting flashbacks to the Atari ET for 2600 debacle.

Hopefully tey won't landfill the STRs.
h
Also, worth considering: if they really have that many STRs to move, it'll poison the well for *everybody* in the epub ecosystem ad even Kindle is going to see slow sales of the eink readers.

2012 not off to a good start.