B&N opened up its Nook HD & Nook HD+ Tablets to Google Play Store recently. It also did a massive $50 off and $90 off Sale for Mother’s Day.
This forced Amazon to introduce a temporary $20 discount on the Kindle Fire HD.
Soon after there were reports that B&N was considering selling its Nook unit to Microsoft for $1 billion.
TechCrunch had some additional details and two of these were very interesting (only if true) –
- B&N plans to end Nook Tablets by April 2014. This would suggest the Nook HD and Nook HD+ are its last tablets. Which basically means an end to the Kindle Fire HD vs Nook HD competition – the battle of the tiny closed ecosystems.
- B&N plans to let eReaders die out naturally – as users transition to Tablets. This doesn’t suggest an end date. However, it does suggest that B&N doesn’t plan to fight. Perhaps it ends Nook eReaders in 2014 or 2015. That would mean the end of Kindle vs Nook.
Both of these are very impactful things.
Kindle vs Nook – A Quick look back
Kindle vs Nook has had many twists and turns –
- Amazon introduced the Kindle eInk Reader in November 2007. Everyone (except people who actually read) pretty much wrote it off. However, by mid 2009 it began to seem that the Kindle had a good chance of becoming a hit.
- B&N introduced the Nook eInk Reader (with a tiny LCD panel at the bottom for navigation) in October 2009. After this, Amazon and B&N have gone head to head in the eReader market ever since. They have been #1 and #2 for most of that period.
- Apple introduced the iPad in March 2010. This threw things off for eReaders as people tended to prefer a multi-purpose Tablet over single purpose Ereaders, especially casual readers. Strange that companies focused on selling books would care about people who don’t want to buy devices dedicated for reading. However, that’s the path Amazon and B&N chose.
- B&N introduced the Nook Color. This was a reading Tablet, priced at $200, and focused on reading and reading related functions. The Nook Color took off in a major way – Illustrating that there was huge demand for a low-priced Tablet. At the time, iPad was $499.
- Amazon introduced the Kindle Fire in end 2011. B&N introduced the Nook Tablet, an improved version of the Nook Color, around the same time. Thanks to Amazon’s huge customer base, and to strong marketing, Amazon was able to get the lead in ‘Small Tablet’ sales over the Nook Tablet. By lead we mean a 3:1 or 2:1 lead.
- 2012 was eventful as we got the iPad Mini and the Nexus 7. Amazon introduced the Kindle Fire HD and the Kindle Fire HD 8.9″. B&N introduced the Nook HD and the Nook HD+ (9″).
- Two things happened. Firstly, Amazon and B&N’s attempt to target the iPad failed – mostly because the iPad Mini was a huge hit and beat them to the ‘let’s kill the iPad’ game. Secondly, Kindle Fire HD sold decently but B&N’s Nook HD sold poorly.
- Meanwhile, all through 2012 we saw more and more sales go to Tablets and 7″ Tablets and less to eReaders. eReaders were still selling 10 million+ units a year. However, they were no longer growing markets and the long-term future became unclear. We don’t know whether the lack of evolution of eReaders led to poor sales, or whether it was Tablets. However, eReader growth seems to have stalled.
This leaves us in a very interesting position.
- In eReaders, we have Kindle at #1, Nook at a strong but distant #2, and Kobo at #3. After that, we have a lot of smaller competitors and Sony. Kindle vs Nook is still very important. B&N routinely advances the state of the art in eReaders and drives innovation.
- In 9″ and 10″ Tablets, we have Kindle Fire HD 8.9″ and Nook HD+ as almost non-factors. So Kindle Fire HD 8.9″ vs Nook HD+ is mostly an academic comparison. Most people seem to prefer iPad Mini. Basically, 7″ Tablets and iPad Mini have begun to kill off the 10″ Tablet market.
- In 7″ and 8″ Tablets, we have iPad Mini vs Nexus 7 vs Kindle Fire HD (vs Nook HD). Kindle Fire HD vs Nook HD isn’t that important any more – Mostly because Nook HD has lost mind share. With the addition of Google Play Store it’s winning that back. So, perhaps, by mid 2013, Kindle Fire HD vs Nook HD will be meaningful again.
When you consider all this context, it’s going to be a bit sad if B&N leaves the Tablet space in April 2014 and the eReader space in early 2015. Kindle vs Nook will just be an old memory.
What happens if B&N leaves the Tablet space?
Not very much for the general Tablet space.
The best-selling Tablets are – Apple, Samsung, Google and Amazon. Depending on what month you check, one out of Google or Amazon has the #3 spot. By Google we mean the Asus manufactured Google Nexus 7.
Nook was perhaps 5th or 6th. The 5th or 6th player leaving a space doesn’t do much.
The one place it creates an impact is in the space of ‘Reading Tablets’ – a nebulous space catering to people who primarily want a Tablet for reading.
For readers, it made more sense to get a Tablet from Amazon or B&N. If B&N exits the space, then Amazon becomes the clear and obvious choice. This would mean a clear boost for Amazon and Kindle Fire HD sales. Which in turn would greatly strengthen Amazon’s lead in ebooks.
B&N’s supposed 2014 and 2015 strategy of ending device sales and focusing on Reading Apps runs into a roadblock – Kindle Fire HD does not have a Nook reading App. If most serious readers looking for a Tablet start picking Kindle Fire HD, B&N loses these readers.
Fundamentally, B&N’s strategy is flawed. The 20% of Readers that account for 80% of book sales tend to pick either a dedicated eInk Reader or physical books or a Reading Tablet. By leaving the Reading Tablet space, B&N leaves all these users to Amazon.
These 20% ‘Best’ Customers are the stars of the rest of this post. Their importance grows as we look at Kindle vs Nook in the dedicated eReader Market.
What happens if B&N leaves the eReader Space?
We could partition out serious readers (‘Best’ Customers for Books) as readers who will buy one or more of –
- Paper Books.
- A dedicated reading device i.e. an eInk Reader.
- A Reading Tablet.
- A general purpose Tablet.
- A mix of one or more of the above.
By leaving the Reading Tablet space, B&N would hand over ‘serious readers’ (the ‘Best’ customers) who want a Reading Tablet to Amazon.
If B&N also leaves the dedicated reading device space (eInk based eReaders), then it also hands over the ‘Best’ Customers who want to buy a device optimized for reading to Amazon.
This creates a huge problem.
- Firstly, at least 25%, and perhaps as many as 50%, of the most important readers (those who buy 80% of books) will choose an eInk Reader and/or a Reading Tablet. By leaving these two areas, B&N is giving Amazon the best book buying customers.
- Secondly, as Amazon has stated before, people buy MORE books when they get Kindles. 2.7 times more. So these very good customers become great customers after they own an eInk Reader. Perhaps there’s a similar, though not quite as strong, effect when people buy a Reading Tablet.
- Thirdly, that 2.7 times figure includes paper books. It makes sense that a person who owns a Kindle and/or a Kindle Fire HD would buy their paper books from Amazon more often. If nothing else, convenience and the relationship/trust means that Amazon is likely to become the #1 choice for paper books too.
Somewhere between 25% to 50% of the ‘Best’ Readers switch over to Amazon.
Of course, this doesn’t factor in that Amazon and B&N have a rough 60% and 30% share of the ‘Best’ readers who have already switched over to eReaders and Reading Tablets. Amazon goes from strong to ridiculously strong. B&N goes from decently strong to very weak – Because the 30% share it already has will move to other devices if B&N stops making eReaders and Reading Tablets.
The Concept of the ‘Best’ Readers
In this age of political correctness, where a customer who spends $1 a year wants to be considered equivalent to a customer who spends $1,000 a year, it is perhaps unacceptable to point out that, in any market, 20% of customers are the ‘Best’ customers. The ones who basically keep the market going. It exists for every market –
- In movies, these are the people who watch movies in the theater and buy DVDs and digital movies. Lots of them.
- In video games, these are the people buying $60 games and $300 consoles and $2,000 PCs.
- In books, these are the people buying hardcovers and lots of books and lots of ebooks.
Whether it meets the political correctness threshold or not, the truth is that the people contributing 80% of the revenues are the ones who are keeping the industry going.
For example: On Pandora, artists get a few pennies per 1,000 songs streamed. A user might listen to Band X 50,000 times and might generate 50 cents for Band X. However, the customer who buys a concert ticket for $50 is 100 times more important. The customer who buys the CD for $10 is 20 times more important.
This is a critical distinction and this also applies to books, whether the Lives in Switzerland, Recycles 5 times a Day, Warrior Chief of Political Correctness likes it or not.
We have the ‘Best’ Readers that are perhaps just 10% to 20% of the customer base – However, these customers generate 60% to 80% of the revenue. They are, in effect, keeping the books industry alive.
There are two distributions that are generally accepted –
- 20% of the customers are the ‘Best’ customers. They generate 80% of the revenue.
- 10% of the customers are the ‘Best’ customers. They generate 60% of the revenue. 30% of the customers are ‘Good’ customers. They generate 30% of the revenue.
In either case, it’s the Good and Best customers that matter. The remaining customers don’t really matter. Of course, woe to anyone who reminds them of it.
It’s a big assumption to make. However, the facts will bear this out. Facts that only Amazon and B&N have. Which makes B&N’s decision to shift to Reading Apps even stranger.
By ending Reading Tablets and eReaders, B&N would lose the Best Customers and the Good Customers
Firstly, it’s pretty safe to say that the Best customers and the Good customers will end up with a reading Tablet and/or a dedicated reading device (if they go with ebooks). If you’re the exception that proves the rule, you’re exactly that – an exception who reads 53 books a year on your Device X which is not focused on or optimized for reading.
If B&N leaves both spaces, then it leaves behind the 20% to 30% of customers that account for 80% to 90% of book sales.
What does that leave? The remaining huge numbers (70% to 80%). Wow – that’s a lot of users. The only problem – they contribute just 10% to 20% of book sales.
Please keep in mind that this is for ebooks. B&N isn’t walking away from the Best Customers and the Good Customers in Physical Books. However, it is making them Amazon customers (via eReaders and Reading Tablets) and making them likelier to shift.
B&N might be walking away from the core audience it needs to survive
If B&N were to analyze all the data it has on reading patterns and purchase patterns, it would find the following –
- 30% to 50% of its ebook sales come from eReader owners.
- 25% to 40% of its ebook Sales come from Nook Tablet owners.
- The rest of its ebook sales comes from other reading apps. This might be as low as 10% or as high as 45%.
It might also find that Nook and Nook Tablet owners account for as much as 25% to 35% of paper book sales from B&N stores.
I would be willing to bet serious money that B&N never took the step of analyzing this data, especially the ebook sales & paper book sales inter-relationship. For that matter, it never even properly tried to build a connection between ebook sales and physical book sales.
By walking away from dedicated eReaders and reading tablets (and this is still an IF, based on rumors and hearsay), B&N is giving up the customers that are accounting for 65% or more of its ebook sales and 25% or more of its paper book sales.
Those users aren’t going to switch back to 100% paper books. They are going to switch to other devices that are optimized for ebooks and reading. Those, rather inconveniently, happen to be from Amazon.
If B&N ends the Nook eReader line and the Nook Reading Tablet line, it would be handing over 50% or more of its Best Customers and its Good Customers (for ebook sales) to other companies, mostly Amazon. If B&N tries to replace dedicated Nook eReaders and Nook Reading Tablets with reading apps for iPad and Android devices and Windows 8 devices, it would be switching from the Best Customers and the Good Customers to the ‘Not so Dedicated’ Readers who account for just 10% to 20% of book sales.
It’s the absolute worst strategy decision B&N could make. We wouldn’t see Kindle vs Nook replaced by Kindle vs B&N Reading Apps, we would see it replaced by Kindle vs Kobo and by Kindle vs Don’t Read. There’s no room for B&N in eBooks if it doesn’t have both a reading focused eInk eReader and a reading focused Reading Tablet.