B&N to stop making Nook Tablets. Lessons for Kindle Fire HD, Amazon

B&N announced its Q4 results and there’s a lot to take in. The big decision is that B&N will stop making Nook Tablets itself, and move to a partner-centric model. This is similar to what Google does – Asus makes Nexus 7 Tablets and they go out with the ‘Google Nexus 7′ branding (Asus branding too, but that’s secondary).

Some of the key details, courtesy TechCrunch’s rather pessimistic coverage of Nook Tablets & B&N’s moves -

  1. B&N reported $118.6 million losses on revenue of $1.3 billion in Q4, 2013.
  2. $6.8 billion in revenue for Fiscal 2013. Loss of $154.8 million for Fiscal 2013.
  3. Nook Media had just $108 million in quarterly revenue.
  4. For the fiscal year 2013, Nook Media had $778 million in revenue. This is down 16.8% from fiscal year 2012.
  5. Nook HD and Nook HD+ will be around until end of 2013. They will remain at their low $129 and $149 prices.
  6. B&N will keeping making eInk eReaders. That’s good news. Kindle needs the competition.
  7. B&N will open up to tablet makers and let them make ‘Nook’ branded Tablets. Not sure which companies would be interested. Probably Microsoft. Perhaps even Asus and Acer to see if they can tap into the 5 million to 10 million existing market of Nook Tablet owners.
  8. Nook division revenues dropped 34%.
  9. Nook content sales dropped 8.9%. That suggests that content sales would have actually increased if Tablet sales hadn’t fallen so much.

B&N’s Press Release has some details on losses and revenues and such. Also some interesting tables showing how fast the Nook division is falling.

What people are saying about B&N stopping Nook Tablets

Peter Kafka at All Things Digital says this about B&N stopping making Nook Tablets -

Just a few years ago, no one thought the bookseller had any business trying to produce its own e-reader. And then, for a brief period, they looked like they were going to prove the doubters wrong, and showed that an old-line retailer could compete with the world’s most sophisticated consumer electronics companies.

Nice run while it lasted.

My thoughts exactly. There’s nothing wrong with giving it your best shot and failing. It’s hard to compete against Apple and Google and Samsung and Amazon. It’s interesting that the big slump in Nook sales started around the time the iPad Mini and the Kindle Fire HD were launched. Wonder which one out of the two had more impact on Nook.

MemeBurn points out B&N’s strategy, as outlined in its press release, and it’s quite interesting -

“Going forward, the company intends to continue to design eReading devices and reading platforms, while creating a partnership model for manufacturing in the competitive color tablet market. Thus, the widely popular lines of Simple Touch™ and Glowlight™ products will continue to be developed in-house, and the company’s tablet line will be co-branded with yet to be announced third-party manufacturers of consumer electronics products.

Paid Content has a good overall article, discussing lots of facets of B&N’s Nook Business and its future plans.

What does this mean for Amazon?

Well, it’s somewhat good news.

  1. Nook Tablets might not be selling much but at least some of those sales will shift to Kindle Fire HD now.
  2. This increases the chances that Nook eReaders will die out in the next few years. That would be a big win for Kindle.
  3. This makes Nook Reading Apps less attractive. Since there’s no ‘Reading Tablet’ from Nook. People will choose Kindle Reading Apps instead, usually.
  4. Companies that manufacture ‘Nook’ Tablets will probably not promote Nook Reading Apps as strongly as B&N did.
  5. This might even weaken B&N itself and lead to its demise in 10-15 years. That would mean more book sales and more ebook sales for Amazon.

Basically, it strengthens Amazon as the #1 eReader and eBook seller. It also increases the chances that Kindle Fire HD can be the #2 or #3 Tablet in the Tablet Market.

In the long-term, it might strengthen Amazon as the #1 book and ebook seller greatly – especially if B&N dies.

Lessons for Amazon

Quite a few, actually.

  1. If Kindle Fire HD 2 isn’t very good, then it might suffer the same fate as Nook HD. Even if Kindle Fire HD 2 is very good, it might get killed if iPad Mini 2 and the new Windows 8 Tablets are superb.
  2. It’s good to stick to your core competency. If you venture outside your core competency, there’s a higher chance than usual of failing. As Amazon goes into Kindle Phone and Kindle Watch and other products, it should be careful not to spread itself out too thin. Most importantly, it needs to figure out what its core competencies are, and stick to those.
  3. Kindle Fire HD needs a better app store. Amazon decided to build its own app store. However, it’s still a long way behind Apple’s App Store and also quite a bit behind Google’s App Store. Two of the major reasons B&N’s rather well made Nook tablets died were – lack of marketing, lack of apps. Amazon doesn’t have the first problem (at least not in the US) but it certainly has a problem on the app store front. Amazon already failed to make an app store work once (with the Kindle App Store). It’s fixing some of its mistakes (like its crazy stipulation that it wanted pricing control over apps) with the Kindle Fire App Store. However, it’s not Amazon’s core competency and it’s a long way behind.
  4. The #4 player in a market will usually get crushed. Kindle Fire HD is currently at #2 or #3 after Apple and perhaps Samsung. If Windows 8 Tablets and/or Nexus 7 push ahead of Amazon, or if Apple and Samsung improve their tablets greatly, then Amazon might be left behind as a weak #3 or a weaker #4. Then it’d be curtains for the Kindle Fire HD within a year or two.
  5. Profits and Assets are important. Amazon has been making the mistake of not building up profit streams, just cash flow streams. It’s also been slow in building up assets. What does that mean? A few bad quarters in something like Kindle Fire HD or Kindle Phone and it would be forced to kill those businesses. A lot of Amazon’s business model is based on taking current losses for future profits and/or future revenue streams. That works best if you have some existing profit streams you can offset those losses against.

It should actually be a very sobering lesson for Amazon of what is at stake. If Amazon doesn’t deliver a very strong Kindle Fire HD 2, then it would be the end of Kindle Fire HD and Amazon’s Tablet business. A lot is at stake with the next Kindle and the next Kindle Fire HD. Will Amazon deliver?

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