Barnes & Noble Should Shut the Book on Nook

NEW YORK (TheStreet) -- Barnes & Noble's (BKS) struggle to get a toehold in the eBooks trade is an open book.

Even with the bookseller's shares up 12% this year compared to a 0.5% decline for the S&P 500, its Nook e-reader tablet has not been the bestseller it wanted.

Why did it take that plunge?

Long ago there were various notions of what a future tablet might be like, one being the 1994 Knight-Ridder concept video. The thinking was that if some company -- besides Apple (AAPL) -- had the right vision, money and technical capacity, we might have seen the newspaper and book industry seize the initiative (in a different timeline) and dominate the tablet industry today.

But the development of that kind of technology requires enormous technical expertise and billions of dollars. The companies that made their money in ways other than print had the vision and capacity to build our modern tablets. For Apple, it was the Macintosh and iPhone. For Amazon (AMZN), it was its enormous inroads into Internet commerce. For Google (GOOG), it was the intention to have a reference platform (the Nexus) to showcase the best of Android.

Barnes & Noble wanted its own platform for the modern, headlong rush into eBooks. The thinking was that if the delivery of books was to move from print to tablets, the company must have a tablet of its own.

That tablet, because it would be designed to be a storefront into B&N's wares, need not be a general purpose tablet like the Apple iPad or the Google Nexus. After all, the idea wasn't to promote the sale of, say, Amazon's books for a Kindle app running on a Nook tablet.

That thinking turned out to be a mistake.

For example, Apple is a hardware company and makes almost all of its profits from selling hardware. Its notable operating systems, OS X and iOS, are free, along with its productivity suite, iWork, in order to sell hardware. That's why it doesn't make sense for Apple to make its eBook app, called iBooks, available for other tablets. Apple is not in the book business but the company sells books to promote its hardware.



In the case of Amazon, Apple and Samsung were locking up the market for general-purpose tablets and Amazon correctly recognized that there was a gap in the market for a capable, personal book reader plus e-commerce tablet like the Kindle Fire series. But, again, because Amazon is in the business of selling consumer goods, it made sense to limit the Kindle with a closed architecture and overlay the user experience with ads in order to hit a price point left vacant by competitors.

Meanwhile, Barnes & Noble, as we know, was caught in the frenzied migration away from paper and towards eBooks. But the lesson here is that it is very difficult to conjure up a new breed of electronics without enormous financial resources, like those of Apple.

It's often overlooked how Apple's enormous manufacturing capacity, backed by billions in cash, allowed it to effectively define the tablet market -- there's just no room for those who can't keep up and fall to 3rd or 4th place. Microsoft has come to realize that with its late-to-market Surface tablet series.

If the Nook was an attempt to keep up with Amazon and Apple in the post-PC era of tablets, it was a profound misunderstanding of the industrial capacity of those competitors and the proper role for Barnes & Noble as an already established inroad into the psyche and needs of its customers. We needed a reason to buy every eBook we'd ever want on our iPad from Barnes & Noble, and the company's software didn't deliver.

The Bookstore Experience

Even so, Barnes & Noble has a lot going for it in many ways. The best sense of our culture is routinely diagnosed, and the result is that despite the hype, a place remains in our lives for real books -- if they are properly integrated as well into a great Internet ecosphere. (Borders failed at that.)

The precedent of the music industry is often cited as an example of how books on paper will disappear just as music CDs are almost gone (along with the boutique music shops that sold them). But that analogy is too easy and not very nuanced.

Books on paper remain fundamentally different. There is something magical about handling a book that we're not yet ready to let go of. Shopping and browsing gets us off the couch and into a social realm. A recent study showed that people tend to comprehend less on a tablet display compared to a real book.

According to Daniel Raff, a Wharton professor who studied B&N (and Borders) extensively, B&N should do what it does best: be a bookstore. It's good advice.

To do that, its existing Web site and Nook application for iOS and Android have to invoke the very best thinking and become not just good but great. Indeed, it takes considerable expertise to build terrific Web storefronts and apps, but this kind of software doesn't entail the kind of financial resources that are required for modern tablet hardware.

By and by, Barnes & Noble is getting the drift of all this. The Nook, constrained as it was, could never compete against either a general purpose tablet like the iPad or the Kindle Fire HD, the former by a hardware giant and the latter sold without much regard for making a profit.

The vision that an also-ran tablet, the Nook, could save the future for Barnes & Noble has been shattered. Now the company faces the prospect of escalating to be the best bookstore on the planet without trying to be something it can never be, at least in this timeline -- a hardware giant on Apple's level.

On Feb. 6, Barnes & Noble fired members of its hardware engineering staff.

At the time of publication the author was long AAPL.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

John Martellaro was born at an early age and began writing about computers soon after that. He is a former U.S. Air Force officer and has worked for NASA, White Sands Missile Range, Lockheed Martin Astronautics, the Oak Ridge National Laboratory and Apple. At Apple he worked as a Senior Marketing Manager, a Federal Account Executive and a High Performance Computing manager. John is currently the Senior Editor for Analysis and Reviews at The Mac Observer. His interests include skiing, chess, science fiction and astronomy.

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