Dangers of assuming Amazon will destroy B&N

A long time ago I’d joked about the ridiculousness of B&N thinking their new CEO William Lynch could hold a candle to someone like Jeff Bezos who has a very proven track record.

Amazon may very well still destroy B&N – However, B&N has been the more impressive technology company when it comes to eReaders and Tablets. Read on if you find that hard to believe.

I owe William Lynch an apology. He and B&N have done a lot of things that everyone thought Amazon would do first.

B&N’s ability to compete with Amazon

This is some of the stuff B&N pulled off in the last year -

  1. Released a Reading Tablet a year before Amazon.
  2. Released a touch-screen eReader months before Amazon. Almost eliminated the page-turn problem.
  3. Turned Nook Color into the #2 selling Tablet after iPad. You can argue technicalities, but the bottom line is that Nook Color has sold more than any other non-iPad tablet.
  4. Showed that there is a market for non-iPad Tablets. This is a HUGE thing. It has given everyone else hope and will lead to the end of the iPad’s domination in Tablets. The biggest lesson it has taught everyone is – Don’t compete on your enemy’s strengths. A lesson that Amazon has learnt very well.
  5. Released a Nook Tablet that pulls off some impressive things – 1 GHz dual-core processor, 1 GB RAM, HD support, IPS screen, 16 GB memory. That’s a LOT of goodness for $249 – Tablets and smartphones with comparable specifications retail for $400 to $500.
  6. Built up a very interesting Nook Color App Store. 1,100 Apps aimed at Tablets.
  7. Added Email support and lots of other features to Nook Color and morphed it from a Reading Tablet to an almost full-fledged Tablet.

These are all things that no narrow-minded person expects a bookseller to be able to do. Glad to learn from that mistake.

Of course, the two most impressive things are -

  1. It Stayed Alive.
  2. It Built the Nook division into a $2 billion a year business.

B&N could just spin-off Nook into a separate company – Suddenly it’d be a company with a very good chance at surviving and thriving. It could also transform itself into a store that sells everything. It has options and it’s in a position of power.

The Main Stream Press are counting out B&N

Reading through people’s thoughts on Kindle Fire vs Nook Tablet, it’s hard not to notice two interesting assumptions -

  1. Kindle Fire is $50 cheaper and it will destroy the Nook Tablet.
  2. B&N is a bookseller that can’t compete with a software company like Amazon.

The first is an interesting assumption. If it’s the iPad, then the $500 price doesn’t matter because it has better features. If it’s the Nook Tablet, then a $50 higher price will kill it – because price matters so much.

It almost seems that the Press is married to two stories -

  1. iPad’s glory will continue to increase forever – until people use it instead of paper plates and credit cards and kitchen towels.
  2. Kindle’s glory will continue to increase forever – until Amazon is selling Prime subscriptions for pet kittens that come with one free baby mouse a quarter.

The truth is that the Press is constantly wrong – it was wrong about the Kindle, it was wrong about the Nook Color, and it’s likely to be wrong about the death of the Nook Tablet.

$50 is not going to destroy Nook Tablet

Firstly, we have a few million Nook Color owners.

Secondly, we have a few million tech-savvy people who want a powerful Tablet they can hack and run Android on. For them, things like 1 GB RAM mean a lot more than saving $50. They know exactly how valuable that 1 GB is going to be by end 2012.

Thirdly, we have a TON of people for whom $250 is not a big deal but $500 is a big deal. These people will have Kindle Fire and Nook Tablet as options – but not the iPad. Perhaps 75% choose Kindle Fire – that still leaves 25%.

Fourthly, we have lots of small groups that will pick Nook Tablet – people who want/need an SD Card slot, people who prefer the Nook Tablet’s screen, people who love B&N or are B&N members, people who MUST see the device in person, people who prefer the Nook Tablet’s design, and so forth.

There will be millions of Nook Tablets sold.

Nook Color is now at $199

One very important factor is that B&N has now priced Nook Color at $199.

Nook Color is a very solid and compelling device. It’s also battle-tested. While Amazon’s ecosystem gives Kindle Fire an advantage overall (though I haven’t done an in-depth analysis), there are lots of people who will find things like ePub support and expandable memory more compelling.

Neither company is making Space Rockets

There’s a pretty strong bias against B&N. The assumption that because it started off as a bookseller, it couldn’t possibly compete with a company that started off making a website to sell books.

It’s delicious irony.

Tech journalists love to spout nonsense – It’s really, really tough to do hardware. It’s really, really tough to do software.

It’s not. There wouldn’t be 5,000 different companies doing it if it were that difficult.

We aren’t building a rocket or mapping the human genome. We are taking things that have been done thousands of times and refining them a bit. The real problem is that most companies do a shoddy job. They try to provide $10 of value and charge $100.

The tech media says – B&N can’t compete with Amazon.

Let’s add some facts to that statement and see how ridiculous the complete assertion seems:

B&N built a Reading Tablet and shipped it 1 year before Kindle Fire. B&N proved there’s a non-iPad Tablet market. It sold a few million Nook Colors. B&N shipped a touch eReader before Amazon did. B&N has around 20% of the ebook and eReader market.

B&N can’t compete with Amazon.

Dear Tech Journalists,

You are absolutely right. Apart from a few little things like releasing Nook Color last year, building Nook into a $2 billion a year business, and releasing a very impressive Nook Tablet, B&N has shown zero ability to be able to compete with Amazon.

Quite frankly, the tech journalists are just upset that Nook Color was obstinate enough to survive.

There is no purity and there can be no clean endings

What are Amazon’s aims with eReaders and Tablets – expand, sell other things, sell digital products, sell kitchen sinks, sell books, create more Amazon customers, prevent Google from being the middle-man, prevent Apple from becoming the dominant tech religion, profit at some later point of time, grow Amazon, annoy WalMart, beat WalMart with a stick, poke Google in the eye, show Google how to make actual money from Android.

You know what’s missing – purity.

B&N’s aims are pretty convoluted too – survive, offset the decline of brick and mortar stores, compete with Amazon, show Amazon it can compete, evolve, sell books, sell rugs, capture children and families as customers, make fun of Borders, morph into a monster, survive in the digital age.

Again, the purity is missing.

We don’t have any company that is aiming to make the best possible Tablet, with no compromises. If there were, it would wipe out everyone else. Perhaps itself too.

Since there is no purity, there is not going to be a clean-cut winner.

Let’s see why -

  1. Amazon wants to sell other things so it builds a Tablet + mini Amazon Store.
  2. It bundles Prime.
  3. It uses a closed ecosystem.
  4. It focuses on selling other things when it constructs the UI and design. Ratio of Time spent on buying movies UI vs Transferring files to PC UI = 10:1.
  5. It closes off certain formats and certain features. Limited storage has more to do with pushing people to buying Amazon content than saving price. Do we really think Amazon was super concerned about the extra $5 to go from 8 GB to 16 GB?

At every step, it loses a small subset of customers looking to buy a Tablet.

It’s the same with Nook Tablet – However, it is making other cuts. So it’s losing other subsets of Tablet customers.

Because each and every Tablet maker has multiple goals and is lacking purity, we will have a market with multiple winners.

Amazon only knows two directions to attack in

Another factor in B&N’s favor is that Amazon seems to be wedded to two things -

  1. Very Strong Ecosystem.
  2. Very Cheap Device.

There are lots of things it isn’t even attempting i.e.

  1. Aesthetics. It could try to steal away Jonathan Ive – give him a chance to get all the credit and live in England. Let’s admit it – He could design the most magnificent TV ever and people would just say it’s Steve Jobs’ last gift. Jonathan Ive has a chance to show that he was the real genius behind the designs. If he goes to Microsoft or Google or Amazon and designs the next big device, then he becomes the real design genius. Do it in a company other than Apple and everyone will know who’s the man behind the magic. Right now, he’ll be forgotten in all the idol-worship. It’s sad in some ways. All these amazingly talented people like Steve Wozniak and Jonathan Ive and no one will ever remember them because one person will get all the credit.
  2. Validation. Lots and lots of kids who want to show they’re cool. It’s hard to understand that everything you need is inside of you. Let them ease their journey to self-validation by sporting the SuperValidatingKindle_Status++.
  3. Religious stuff. The current crop of technology people seem to be almost feudal in their need to have some Tech Overlord they can bow down to. Provide it.
  4. Social Connections between Readers. Social does not mean Book advertisements on Twitter and Facebook.
  5. Making a Tablet that will be the very best Tablet – even without the ecosystem.

Apart from a golden stretch with the Kindle 3, Amazon has never had the best eReader. It’s always the website and ecosystem that have been the difference makers. It’s the same with Kindle Fire. Silk Browser and Amazon Prime are the difference makers.

It’s as if Amazon has decided to completely ignore Maslow’s Needs Hierarchy and focus only on what it currently knows best – the Cloud and the Website and Scale and Low Prices. Not a bad strategy to focus on its core competencies – but it leaves a lot of opportunities for Amazon’s competitors. Can B&N take advantage of those opportunities?

Well, the solid technology in the Nook Tablet suggests it can.

We have already passed the Inflection Point

We passed the inflection point for B&N’s death with the launch of the Nook Color. Mr. Leonard Riggio must have seen those 700,000 Nook Colors being sold every month and felt Tiger Blood coursing through his veins.

We’re talking about a company that everyone claims is dying and it’s built a completely new business that’s worth $2 billion a year. You know what company would love to be able to do that – Google.

There are very few companies that can build multiple billion dollar businesses. Microsoft, Apple, Amazon, … and a few more. It’s not a long list.

B&N has done it. It’s at around 20% in eReaders and perhaps at 10% to 20% in Tablets. It’s tasted blood. Right now, we are seeing the beginnings of a very long climb up. B&N went through its death rattle and survived. This fact is lost on everyone because people mis-understand inflection points.

If a company has 20% of the eReader market, and has one of only two viable competitors to the iPad – it’s neither dead nor endangered.

Look at the $99 Nook Touch. The $199 Nook Color. The $249 Nook Tablet. These aren’t the product offerings of a company that is on its deathbed. These are products from a company that has survived and is reborn.

Amazon is going to regret not buying B&N. It had a chance to snap up the only credible threat to the Kindle, and it didn’t. Now it is faced with a company that is a threat to both Kindle and Kindle Fire. Amazon is going to have a lot of opportunities to think back to when B&N was almost dead and was available for a billion dollars or so. Instead of buying Zappos and its ‘feel good and sell shoes for no profit’ strategy, Amazon should have bought B&N. You probably couldn’t write a Mother Teresa meets Dalai Lama book about it, but you’d have one heck of a business.

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