Would you pay $300 million for a slice of the #2 eBook & eReader business?

Microsoft just did. Thanks to Roger Knights for the heads up.

Bloomberg reports that Microsoft invested $300 million to get a 17.6% share in a new B&N subsidiary which combines B&N’s Nook digital reader business with its college bookstore business. The companies are calling it a ‘strategic partnership’ in the B&N + Microsoft Press Release - A strategic partnership to accelerate the transition to e-reading.

Microsoft gets 17.6% while B&N keeps 82.4%. The exact shares were decided after a game of hopscotch in kilts.

This is hugely important to both the ebook and eReader markets (the investment, not the game of hopscoth). It might also be hugely important to the high value Tablet market. An almost doubling in B&N’s share price certainly suggests the market thinks so (of course, that probably means the venture is going to inadvertently create a new monkey virus that wipes out humanity).

Even analysts are chiming in with words of encouragement -

The partnership with Microsoft could give the Nook the kind of content and global expansion to make it a bigger player in the tablet business, said Michael Glickstein, chief investment officer with G Asset Management LLC.

That kind of partnership makes the Nook business more valuable, Glickstein said.

No kidding. Nook is suddenly a Microsoft backed business and connections to Gigantically Profitable Software Makers are far more fetching than comparisons to brick and mortar anything.

Microsoft’s Investment in B&N’s Nook Business is Hugely Important

Let’s see why this could be a huge, huge thing (you could just skip to the second list, the one after this one, for why it’s important for Kindle owners and book lovers):

  1. It values B&N’s ebook and college bookstore business at $1.7 billion. The second biggest ebook business is a billion dollar business (or nearabouts). Still think this is discounted by a factor of 3 or more.
  2. B&N’s new Nook Inc. subsidiary will develop a Nook eReader application for Windows 8. That app will probably get default eReader App placement in the Windows 8 App Store. There are already signs that B&N is becoming increasingly important in ebooks (a stronger #2). This will cement Nook as the #2 ebook business. Perhaps even give Amazon a run for its money.
  3. The hundreds of questions about B&N’s stability and how that would affect Nook’s future just got put to rest. Which means that the biggest competitive advantage Amazon had (stability) just got eliminated. This will force Amazon to innovate Kindle and Kindle Tablet more. It will give B&N more confidence to keep making Nook Tablets and Nook eReaders.
  4. Microsoft has a sharp eye for billion dollar businesses. It has 9+ such businesses of its own and you can be sure it thinks highly of Nook to actually invest in it. I’d make a serious bet that over the course of the next 10 years this 18% share would end up being much more important to Microsoft than Microsoft’s share in Facebook (which, to be fair, is in the very low single digits i.e. 1.6%).
  5. Microsoft and B&N settled their patent litigation. More stability for Nook Inc. 

Let’s jump ahead to the really important stuff. The impact on readers, on ereaders, and on tablets. 

Hugely Important to Readers and eReaders

Much more interesting to us Kindle owners and book lovers is why this ‘strategic investment’ by Microsoft is hugely important for books and ebooks and eReaders:

  1. B&N claims 30% market share in eBooks. Combine that with it probably becoming the default eReading App on Windows 8 and suddenly Amazon is looking over it shoulder.
  2. A separate Nook & College Bookstores businesses (Nook Inc.) isn’t saddled with the legacy brick and mortar bookstores. Nook revenue grew 38% to $542 million in the last quarter. This is a seriously big business. Revenue for the fiscal year ending in April 2012 is projected to be over $1.5 billion. If Nook Inc. were unprofitable and run by a college dropout it would be considered worth $10 billion (unless it also stole people’s personal information – then it’d be $25 billion).
  3. B&N has been innovating on both the eReader front (Nook with Glow Light) and the Tablet front (the $199 Nook Tablet). This $300 million investment from Microsoft means it has more security and can keep innovating. That pushes Amazon to improve Kindle and Kindle Tablet more.
  4. Windows 8 means hundreds of millions of users. The importance of being the default Windows 8 App can’t be understated. Much of the Microsoft Anti-Trust lawsuits revolved around IE and Media Player being defaults shipped with Windows. B&N’s Nook eReader App gets that privilege and advantage now. The huge and undefeatable power of the default.
  5. The inclusion of College Bookstores is being touted as important. It might be. It supposedly puts B&N’s new Nook Inc. in position to challenge for the eTextbook market.
  6. Amazon, like any other company, has always needed a serious competitor to keep it honest and hungry. While B&N has done a good job there’s always been doubt around how long it would be around. The double measures of a Microsoft investment and the creation of a fast-growing subsidiary suggest that B&N, the strong #2 player in ebooks and eReaders, will stick around for a while.
  7. In the best case, this move might actually help accelerate the growth of ebooks. At worst, it will ensure that ebook growth doesn’t come to a standstill. You can bet that both B&N and Amazon will now make really, really good reading applications for Windows 8.

Amazon has shown that it improves the Kindle most when it has a strong competitor breathing down its neck. It’s also shown that it is quick to learn from innovations B&N makes. It took its sweet time to release the Kindle Fire – However, once Nook Color validated the market for high value tablets Amazon did release Kindle Fire.

The investment by Microsoft in B&N’s Nook Inc. will revitalize the Kindle team and energize B&N’s Nook Team. In one swift stroke Microsoft has breathed life into the competition in eBooks and eReaders and High Value Tablets.

Hugely Important to High Value Tablets

There are some very interesting questions about the future of Nook Tablets and Kindle Fire Tablets that come up -

  1. Firstly, as the analyst points out above, this gives B&N the strategic knowhow to go international with Nook Tablet.
  2. That would force Amazon to go international with Kindle Fire.
  3. Secondly, it raises the possibility of a Windows 8 powered Nook Tablet. Surely, now that it owns 18% of B&N’s Nook Inc., Microsoft will push for Windows 8 based Nook Tablets.
  4. B&N might be offered the inside track and might very well move to Windows 8 Nook Tablets. Android lacks one huge thing Windows 8 promises – a connection to all the desktop software that Windows 8 will have. It makes little sense for phones – but a lot of sense for 7″ Tablets.
  5. It would force Amazon to also move to Windows 8. A Kindle Fire Android App Store just wouldn’t be able to compete with the Windows 8 App Store in the long run.
  6. Thirdly, the investment and the Nook Inc. subsidiary means that Nook Tablet won’t have to pay for the sins of the brick and mortar bookstores. Nook Inc. gets a clean sheet. It’s a business growing at 38% per year (approximately) and it won’t be Border’ized.
  7. Fourthly, Microsoft will absolutely provide a lot of business connections and relationships. Think better ties with manufacturers, intelligence from Microsoft divisions, and lots of other potential benefits. Wouldn’t be a surprise to see Nokia phones coming with the Nook App as the default ebooks app.
  8. Fifthly, given that B&N’s Nook Tablet is the second best-selling Android Tablet and has the potential to atleast stem slightly the tide of migration to Apple devices, there is very strong motivation for Microsoft to keep strengthening Nook Tablet. Even if Nook Tablet sticks with Android – It’s still one less customer lost to the Apple family. A customer who would then proceed to buy iEverything and MicrosoftNothing.

Overall, the Nook Tablet part might be the real reason Microsoft has invested in B&N’s Nook Inc. Saying it’s all about ebooks might be a convenient cover. Just the way that Amazon claimed Kindle was all about ebooks and reading and then proceeded to create the real Kindle Killer, the Kindle Fire.

In the Final Analysis

Barnes and Noble, the #2 ebook seller, the #2 eReader seller, the #2 High Value Tablet seller, is suddenly a lot stronger.

Amazon suddenly has very strong and stable competition.

Microsoft has made an investment which could be strategic in multiple ways. It might very well be that Microsoft sees three billion dollar businesses – Nook eReaders & eBooks, eTextbooks, Nook Tablets.

This 17.6% investment (for just $300 million) is about a million times smarter than the billions Microsoft is burning up on its badly strategized search engine business. On that note, it’s time for Microsoft to buy a certain small and sweet search engine (that rhymes with Luck) and unleash two horses in the search engine wars.

Wondering about B&N’s strategy, especially Nook Color, Nook Study, and Nook Kids

The Kindle might have won the first few eReader Wars (War for Book Readers in 2009, War for Book Readers in 2010) – However, a few recent observations have been making me wonder whether B&N has a more effective long-term strategy.

A strategy it has been forced into because of Kindle’s excellent success in books.

Is the Nook Color built specifically for Children’s Books?

If you look at the retail box of the Nook Color, you notice something rather interesting about the Nook Color displayed on it -

  1. There are 3 books displayed in the top row (on the screen of the Nook Color on the box). 
  2. The second row on the screen has 2 magazines and 1 newspaper.
  3. The third row is 3 children’s books.

That, in a way, signifies the focus of Nook Color – Books, Children’s Books, Magazines, and Newspapers. Or, to view it in terms of target demographics - readers, parents, magazine readers, and newspaper readers.

Nook Color is undoubtedly better for parents and magazine readers. It represents a big shift from Kindle and Nook, which were both great for books/readers and terrible for everything/everyone else.

Nook Kids highlights B&N’s focus on parents and children

It’s not just that B&N has built Nook Color with a view to capture the children’s eReader market. It’s also released an iPad app specifically aimed at children. It’s called Nook Kids and there are already 100 books available for it – all of the read-along and picture-book variety.

If you go to B&N’s NookKids section on its website, there are books for various age groups – Up to 2 years, 3 to 5 years, 6 to 8 years, 9 to 12 years. The books include classics like Curious George and Thomas the Fire Engine. There are both picture books and read to me books.

Perhaps most interesting is a section called ‘Mom Favorites’. B&N is clearly targeting parents.

Nook Color is the #1 eReader for parents

If you’re a parent, there’s little doubt what you’ll pick – either Nook Color, or Nook Kids for iPad.

B&N might be behind Kindle in books. However, in Children’s books it’s far, far ahead. Not only does it have an iPad app tailored for kids, its reading tablet, the Nook color, caters to parents and children as one of the main target demographics.

And all those kids will grow up with fond memories of Nook Color, and with their books locked into B&N’s special format.

Getting tired of writing this – If Amazon doesn’t release a Kindle Tablet soon, it’ll be in a lot of trouble.

B&N is going after the textbook market too

B&N has Nook Kids and Nook Color to go after parents. It also has Nook Study to go after the textbook market and students.

Nook Study = B&N going after another demographic Kindle has ignored

Amazon did do university trials with the Kindle DX. However, the DX wasn’t really built for students – note-taking was horrible, there were very few features built for students, there were no page numbers, there was no color or touch.

Nook Color is much closer to the type of textbook eReader students would want – although with a screen that’s too small. However, it isn’t Nook Color that B&N is using to go after students – It’s Nook Study.

The Nook Study hard-sell

Got an email from B&N about Nook Study, and here’s what they’re advertising -

  1. The 132 free textbooks from Kaplan.
  2. Save up to 60% on eTextbooks.
  3. Nook Study for PC and for Mac. Features advertised include – ability to take and share notes, search, customize highlights.
  4. Free $5 gift card if you rent a textbook by January 21st.
  5. Save 90% on used textbooks, and 30% on new textbooks.

Visit the site and more things hit you -

  1. B&N is offering eTextbooks free for 7 days.
  2. It’s offering access to 1 million free books.
  3. It’s offering a College Kick-Start Kit.

The software itself is pretty well done. In fact, it’s downright impressive. Nook Study is a very decent option for eTextbooks – All that’s needed is an iPad app and a 10″ Nook Color and B&N will suddenly be in prime position in the War for Students.

637 B&N College Bookstores

B&N has a great channel to advertise Nook Study, sell the Nook Color, and (in the future) sell the 10″ Nook Color- its 637 college bookstores.

Which means that all it has to have is a textbook Reader and a textbook reading app that are as good as the competition – From there its retail channels will give it the win.

B&N is better placed than Amazon in Children’s Books, and might be better placed than Amazon in Textbooks

Let’s consider three separate wars that are part of the larger eReaders Wars -

  1. The War for Readers and Books – Amazon is clearly the leader here.
  2. The War for Parents and Children’s Books – Nook Color and Nook Kids give B&N a lead here. In fact, Amazon isn’t even trying much in this area.
  3. The War for Students and Textbooks – Amazon tried to sell a general eReader to students. B&N is selling a reading app, and has 637 college bookstores. They’re about even. Whichever company is the first one to release a reasonably priced textbook reader, one that’s built from the ground up as a textbook reader, is likely to win.

These are 3 of the most important wars making up the greater eReader Wars. We have others like the War for Magazine Readers and the War for Newspaper Readers. However, these three are amongst the pivotal ones.

That does leave a fourth war and a fifth war – the War to replace Paper with an eReader+eWriter, the War for the Enterprise. Amazon and B&N are not fighting those wars at the moment. There might be others.

For the 5 huge wars that make up the core of the eReader Wars -

  1. Amazon has almost fully won one (books).
  2. B&N is set to win one (children’s books).
  3. There’s a third (textbooks) that’s just starting off.
  4. There’s a fourth (eReader+eWriter) which neither company seems inclined to fight.
  5. The fifth war (Enterprise) is still far off.

If you consider the huge importance of getting children and students on to your platform – the War for Parents and the War for Students might end up being far more important than the War for Readers.

Wondering about the financial health of B&N

The deep trouble Borders is in makes you wonder how stable Amazon and B&N are, and what the implications might be for Kindle and Nook.

Amazon is in great health, and Kindle ought to be fine

The Kindle has got Amazon behind it, with nearly a billion dollars a year in annual profits, and $14.162 billion in assets. For all practical purposes, there’s little to worry about. In Q3, 2010, Amazon saw its revenues rise 39% to $7.56 billion, and its net income rose 16% to $231 million.

Given the huge assets, the huge revenue flow, and the increasing revenue and profits, there’s little reason to worry about the Kindle’s future. 

There are also the supposedly great Kindle sales – which put Amazon into a great position, where it can make loads of money from ebooks.

What’s the real status of B&N?

2010 has been a very interesting year for Barnes & Noble. On the surface there’s a lot to worry about -

  1. B&N saw losses.
  2. Ronald Burkle tried to buy it, and there was an ownership struggle.
  3. B&N has admitted it’s looking for buyers.
  4. One of the main investors in Borders tried to get Borders to buy up B&N. Apparently, Borders can’t pay Publishers, but it can pursue B&N.
  5. There was lots of talk of B&N struggling, and of bookstores being a dying proposition.

However, it’s important to cut through to the underlying facts. The real financials will give us a much better clue as to B&N’s health, and the implications for Nook and Nook Color.

The Financials reveal a quarterly net loss of $12.6 million

B&N is a pretty stable company. Here are some details from B&N’s Q2, 2011 results (this is for the quarter ending October 30th, 2010) -

  1. Total sales were $1.9 billion.
  2. Sales from B&N College bookstores were $798 million.
  3. Sales excluding College increased 1% – This included BN.com sales increasing 59%, and Toys & Games sales increasing 42%.
  4. EBITDA earnings were $46 million. That’s earnings before things like interest, taxes, depreciation, and amortization.
  5. Net loss was $12.6 million.

That’s not a very big problem.

If your sales are $1.9 billion, and you’re ending up with a loss of $12.6 million, all you have to do is optimize. Turn an extra 1% of your sales into profits, and you’re in the black.

$12.6 million is dwarfed by B&N’s assets and revenue

Here are a few things to consider -

  1. B&N has current Assets of $2.1 billion.
  2. B&N has property and equipment worth $756 million. Note that it’s $2.81 billion minus $2.1 billion in depreciation and amortization. That seems a bit strange – Property and equipment seems like it might be worth more than $756 million. There are 717 stores and over 600 college bookstores. How is that worth just $756 million?
  3. Goodwill and intangible assets of over a billion dollars.
  4. It also has current liabilities of $2 billion, long-term liabilities of $1.2 billion, and shareholder equity of $823 million.
  5. We’ve already covered that it had sales of $1.9 billion in the last quarter.

Not an expert, but it seems that the $12.6 million in quarterly losses is hardly a concern given that B&N has $1.9 billion a quarter in sales, and at least a few billion in assets. This is a company that is unlikely to go under in 2011. In fact, it paid out a 25 cents dividend on December 31st, 2010. 

Even B&N’s market capitalization of $823 million seems low. Low enough that buying it might be a steal – which would explain why everyone from Ronald Burkle to Borders’ main investor wants to buy it

B&N has a $1 billion revolving credit facility, with $627 million still available

From the earnings release -

 At the end of the second quarter, the company had borrowings of approximately $377 million under its $1 billion revolving credit facility. 

The company’s financial position remains strong and the revolving credit facility provides ample room for the company to fund its strategic investments.

$377 million in borrowings isn’t very reassuring. Still, it’s nice to know there’s still $627 million available. B&N is definitely set for 2011, and perhaps for quite a few years after that.

$12.6 milion is dwarfed by what B&N is doing in eReaders and eBooks

The really interesting aspect is what B&N is doing in eReaders and eBooks. Nook and Nook Color are B&N’s crown jewels, and quite possibly 90% of its future.

Here are some estimates and figures -

  1. B&N expects digital content sales will hit a $400 million per year run rate by the end of fiscal 2011.
  2. It’s the #2 eReader maker in the US.
  3. It’s selling half a million Nook Colors a month.

B&N’s Nook and Nook Color business alone are worth a few billion. If Google decided to get serious about ebooks it would have to buy either B&N or Sony’s eReader division.

How much do you think B&N would sell its Nook division for?

Perhaps not at all. Perhaps for a few billion dollars.

B&N’s losses are due to investing heavily in Nook and Nook Color

B&N is seeing losses because it’s put a lot into Nook and Nook Color and into selling ebooks. It’s something it has to do to survive, and is also the smart thing to do – It can’t fight Kindle with physical books. It has, however, fought the Kindle reasonably well with Nook and Nook Color.

B&N mentions that it’s investing heavily in Nook and Nook Color and in ebooks, and that it will continue to do so -

The additional investments are expected to continue and peak during the second half of the year, and then increase moderately in the years ahead.  Payoff for these expenses is estimated to begin to appear in the third quarter, when NOOKcolor is expected to be one of the world’s most sought after eReaders, …

B&N also said it had captured 20% of the ebook market. If it can increase this, the investment will be more than worth it.

B&N is investing heavily in the future of books, racking up some minor losses, and setting itself up for profitability in the future. It’s exactly the sort of thing you’d want a company to do - if you had invested in it for the long-term. It’s also exactly the sort of thing you’d hate - if you only cared about your year-end bonus, or were doing short-term trading.

Why would B&N be considering a possible sale of the company?

Not an expert, so please keep that in mind.

Let’s say you’re mining for copper, and you hit a vein of gold. You start to invest heavily in setting up the facilities to mine for gold.

Your investors go crazy. They don’t think the vein of gold means there’s actual gold – Also, even if there is, it won’t be arriving soon enough to meet their year-end goals from their investments. The way they see it – the profits from copper mining are going into building a gold mine, which isn’t going to pan out soon enough for it to be worthwhile to them. They’d rather get instant gratification and see the profits from copper mining go into their pockets.

So they hammer your perceived value. They start saying your mining business is done. Suddenly, its value is a quarter of what it should be.

What do you do?

Well, it’s a huge opportunity for you – You can kick out all these greedy investors, you can get total control of your company, and you can take your company private so no one knows just how much gold you’re making.

That, in my opinion, is what B&N is doing.

Lots of people feel B&N is just exiting the stock market

This thread at the Nook forum has a lot of people that think B&N just wants to get away from the joke that is the stock market. 

Here’s a snippet of what flyingtoastr wrote -

BN has been investing heavily in digital strategy over the last twelve months. These short-term costs, while costing a lot in the short-term, will end up helping the company remain profitable, and even increase profits in the future.

BN’s move to put the company “for sale” is most likely a move simply to get the company off of the stock exchange and privately held.

IAmBrad also agrees -

Most likely if B&N is sold, it will be done so in a manner that uses either a buyer or buyers that bear a different name, but are actually funded by the current B&N structure.

B&N sees an opportunity to buy itself for a quarter of its real value. It also sees an opportunity to free itself of all the pains of the stock market – market manipulators, short-sighted investors, Sarabanes Oxley, and so forth. It’s a really smart move for B&N to try and buy itself and go private.

Nook and Nook Color are going to be fine. Even in the extremely unlikely case that B&N goes down – they support ePub, and you can switch to Kobo or Google eBooks.

Kindle, Nook Strategy Review – Can Nook catch Kindle?

With the Kindle 3 doing very well and B&N going with a Nook Color ‘reading tablet’ rather than an eInk based Nook 2 the obvious question is – Does Nook still have a chance against the Kindle?

Well, there are 5 avenues of attack – 5 weaknesses Nook could use to catch up with the Kindle and perhaps even beat it.

Kindle Weakness #1 - No Device for Casual Readers (only reading apps)

Amazon is currently leveraging Kindle for iPad, Kindle for iPhone, and other reading apps to reach casual readers - these channels perhaps account for 10% to 30% of total Kindle book sales.

With the Nook Color B&N is going after this exact segment – people who read but want a device that does more than just read. A device dedicated to non-dedicated readers is a big risk to Amazon which also faces a few other risks when it comes to casual readers - Apple can easily kill two of the most important channels, Amazon doesn’t have the advantage of being the default or the only reading app on these platforms, other companies can beat it, and it has little control over the complete user experience (resulting in oddities like users having to buy Kindle books through the browser).

We have the extremes – the hard-core readers and the ‘read once a year or less’ people. Nook Color fails for both.

However, there’s a broad stretch in the middle – People who don’t need an iPad or can’t afford one and people who don’t read enough to justify a Kindle. If we were to take this section of people (who read between 1 book a month and 1 book a year) – They are there for the taking. The Nook Color easily beats the Kindle for these people.   

Kindle Weakness #2 – Amazon’s position of power making it slow and unable to take risks

Kindle 3 is a very impressive eReader but Amazon has shown a remarkable tendency to be slow – It didn’t add PDF support until Nook arrived, it’s only now adding support for lending, and it’s taken 3 years to add Kindle book gifting.

As Amazon’s position grows stronger it also loses the ability to innovate – Why change a winning formula?

It continues to do well but it doesn’t know what parts of its ecosystem are liabilities - Is the lack of ePub support a danger? Is the store too overcrowded? Is the Kindle not catering to some sets of readers?

B&N can take a big risk like go with Nook Color but Amazon, mostly due to it success, can’t really experiment. Which means that when an Amazon competitor creates a very dangerous Kindle rival (we don’t yet know if Nook Color qualifies) Amazon’s only option will be to react to the threat after it’s gained a foothold.

Kindle Weakness #3 – Library Books and ePub Support 

Let’s set aside talk of openness and ePub – it’s something even most tech-savvy people don’t fully understand. The real danger ePub poses is that Library Books are usually offered in DRMed ePub format.

That means a relatively large number of people want an ePub supporting eReader so that they can get free library books. The actual benefit isn’t huge when you consider you have to wait for library books and that ebook choice at libraries varies wildly. However, people are trained to get books from Libraries and many depend on it.

This is probably the single most frequent reason people give for picking Nook over Kindle. No one ever says – ePub. They just say they want to be able to read library books on their Kindle or Nook.

Kindle Weakness #4 – Google and desperate Kindle rivals combining forces

The Kindle Store is a huge advantage for Amazon – both in book price and book range.

Nook is unlikely to migrate to a Google Books store but Sony Reader is very likely to. Most of the smaller eReader makers are also likely to migrate to using Google Books. At that point we might have a dozen eReaders with better book prices and availability than the Kindle.

On top of that you have Google’s ability to set their Google Books store and their partner companies’ apps as the defaults in Android and elsewhere.

This is probably the biggest threat to Amazon and a very immediate one.

Kindle Weakness #5 – Slowly growing Kindle App Store

The iPhone’s App Store stands as an insurmountable obstacle to rival smart phone makers. Microsoft recognizes this to the extent that it’s guaranteeing money to developers to develop apps for its new mobile platform. Android is becoming a credible threat largely due to a rapidly growing app store which uses openness and a no-review policy to appeal to developers frustrated by Apple’s restrictions and control.

Facebook used apps to beat out MySpace and become enormous. It went to the extent of offering app developers 100% of revenue – something it’s changing now. There are dozens of companies that have grown out of its app store with the biggest becoming more profitable than Facebook itself. Creating a monster like Zynga is a risk – But taking that risk allowed Facebook to become what it currently is.

With eReaders the first app store that gains traction is going to destroy every other eReader. There are no two ways about it. No company in the world can compete with thousands and thousands of hungry developers (hungry for success and freedom and a chance to prove themselves).

Quite simply – The eReader company that attracts more developers will win the eReader wars.

The current situation is intriguing and puzzling at the same time.

Amazon’s Perfect, Perfectly Curated Kindle App Store

  1. Amazon is trying to be perfect. The Kindle App Store is like the prize-winning garden where not a single strand of grass is out-of-place. 
  2. Amazon is also being selective – there is a Beta with limited participants. Only two companies have released apps so far.
  3. Amazon is being deliberate – only 6 paid apps out so far and all are games. If we assume the Nook App Store will debut in March 2011 Amazon will probably have 40 to 60 apps available then – perhaps less.
  4. Kindle Apps embrace all Kindles except Kindle 1. They aren’t available internationally yet but, contrary to what international Kindle owners like to think, it’s not some grand conspiracy theory – Amazon is probably just testing the waters and will expand internationally in 2011 or 2012.
  5. It’s also Amazon’s own app development platform - completely separate from any other app platform.

Amazon is, in effect, striving for perfection – an app store where every app is 4.5 stars and perfect. An App Store that is carefully cultivated and blended into the Kindle ecosystem.

Well, the easiest way to destroy or beat perfection is through chaos. 

B&N’s Nook Color App Store – Cultivating Chaos

  1. B&N is building on top of Android though it has its own App Store and its own review process.
  2. B&N has no Beta and no Limited  appended to its App Store. Everyone who’s applying is being let in.
  3. Porting Android Apps should be easy which means a lot more apps than Kindle App Store which requires a lot more work to port over apps.
  4. Nook Apps work only on Nook Color. That means no restrictions due to eInk and there’s just one device to support. That’ll mean apps come out quicker.  
  5. B&N decides what goes in – However, from the long list of launch partners and the relaxed entrance policies it seems likely that B&N will go for quantity over quality and let Nook Color owners decide the winners.

The Nook App Store might debut with 10 apps or it might debut with a few hundred. It would, however, be a safe bet that due to its liberal policies and Android foundation it might soon have more apps than the Kindle App Store.

B&N, intentionally or unintentionally, is letting thousands and thousands of developers take a shot at providing value to Nook Color owners in return for the promise of a small to huge financial reward. That’s the best way to add value to a platform – let the developers in.

This presents a huge problem for Amazon – If it doesn’t attract developers and add apps at a similar rate it’ll turn its eReader Apps lead into a liability.

With App Stores the rich get richer

The more users on a platform the more developers want to make apps for it. The more apps for a platform the higher the chance a potential user will find a reason to choose the platform.

Let’s say Amazon and B&N continue with their current policies and in mid 2011 B&N has 500 apps out of which 50 are exceptional and Kindle App Store has 100 apps out of which 80 are exceptional. 

Does Amazon get an A grade and does B&N fail?

Actually, no.

An average user is more likely to find apps that cater to her/him when there are 500 choices than if there are 100 choices. In theory the Kindle App Store is more impressive. In reality, those 500 apps give Nook Color a big advantage -

Users care more about a platform having the apps they want than the average quality of apps on the platform.

Let’s say someone loves knitting and wants a knitting app. She’d probably pick a 3.5 star rated Knitting App on Nook over a 5 star rated Backgammon game on Kindle.

With 6 well rated games out for the Kindle so far the question worth asking is - Would Kindle owners be happier if they had gotten a simple Email Client?

Amazon has had a huge head-start in releasing apps – It’d be a huge mistake if it were to throw away that advantage because it’s chasing a mythical perfect app store full of 4.5 star rated perfect apps.

If B&N goes for sheer range it’s going to end up with apps that appeal to a broad spectrum of users and that will lead to a lot of sales. If Nook App Store ends up with 1,000 decent, 3.5 star rated apps by mid 2011 and the Kindle App Store has 100 perfect, 4.5 star rated apps with perfectly manicured nails it’ll be game over. Amazon will never be able to make up the difference and Apps will be an area it’ll just have to concede.

Nook prices drop to $149 and $199, Nook WiFi Specifications

Just a quick update to the news that Nook WiFi will be launching for $149 on Wednesday. In fact, you can already order it at Best Buy (the link below) or at B&N. It’s not yet available in stores and will be available in select B&N and Best Buy stores starting Wednesday.

Engadget commenters redeem themselves

Just as my hope in humanity was at an all time low someone posted links to the Nook at Best Buy. It’s true.

  1. The current Nook is $199 and available to buy.
  2. The new Nook is $149 and available to preorder. Best Buy shows it as arriving on July 1st, 2010 if you pick expedited shipping.

The Nook WiFi is here and this time B&N executives don’t make fools of themselves by announcing the product 5-6 weeks early.

Nook WiFi Specifications

  1. $149.
  2. 6″ eInk display.  
  3. WiFi support.
  4. 2 GB storage space.
  5. MicroSD Memory Card.
  6. Lithium Polymer battery.
  7. 7.7″ by 4.9″ by 0.5″.
  8. Weighs 12.1 oz.
  9. MP3 support and USB support.
  10. Changeable Font sizes.

Here’s the write-up from Best Buy -

  • 6″ eInk® Vizplex™ Electronic Paper Display
    Reads like a printed page and is clearly visible even in bright sunlight. Swipe the 3.5″ color touch screen below to browse your library. Adjustable font size for customized reading.
  • 2GB internal memory
    Provides space for storing up to 1500 eBooks or up to 26 hours of audio.
  • Built-in microSD memory card slot
    For accessing eBooks and other digital content stored on microSD memory cards (not included).
  • Supports a variety of media formats
    Including PDF, ePub, JPEG, PNG, GIF, BMP, PDB and MP3 formats.
  • 3.5mm stereo headphone jack
    For private listening.
  • Micro USB 2.0 port
    For fast data transfer.
  • Wi-Fi wireless LAN
    Connect to the Internet without wires.
  • Up to 10 days of reading
    On a single battery charge. Up to 3.5 hours charging time
  • B&N seem to have produced a $149 Nook that’s only missing the 3G. They’re going to make out like bandits.

    Previous Version of Post:

    A commenter, Joesph, at Engadget has pointed out that if you do searches like ‘new Nook’ on Google you can see an advertisement from B&N that states -

    Nook – starting at $149.

    BarnesandNoble.com/nook

    Introducing 2 New Low Nook Prices. Now $149 – $199. Free Shipping.

    So it seems that not only are B&N launching a $149 Nook WiFi they are also dropping the price of the Nook from $259 to $199. Either that or they have 2 new models arriving at the $149 and $199 price points.

    Whatever it is, it’s pretty impressive and you have to wonder how Amazon will respond.

    Quick thought on comments on Engadget

    Let’s just say it now makes perfect sense to me why even Engadget themselves have their comments Off by default. That’s got to be some sort of record – even the site itself hides its commenters. Wow!

    Low and Lower

    It’s heartwarming to read the huge number of people who feel -

    1. That they will now buy an eReader.

      If the Wi-Fi only nook costs that much I might actually pick one up. I don’t really need a giant iPod Touch er… I mean iPad…. considering that I already own an iPhone.

    2. That they are just waiting for eReader prices to reach $100. Here are a few sample comments -

      Comment 1:
      Stiillll a little wary of buying one, but it’s definitely the top choice for dedicated readers at that price.

      Comment 2:
      So a 3G radio costs $110? Damn.

      $150 is a good price but I’d rather see it at around $100. Is it the eink keeping the price up? I was in B&N this weekend and got hands on and it just didn’t seem like there was enough beefy-ness to the thing to be keeping the price that high

    Apparently we are going to sell a couple million Nooks if the $149 version isn’t a mutilated version of the $259 Nook. Update: It isn’t and yes, B&N might shift a few million of these this year – So much for the death of eReaders.

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