he New York Times reports that Barnes & Noble is scaling back hardware production, which is a big deal if your sole piece of hardware — the Nook — was widely touted as the cornerstone of your company's future. According to inside sources, executives of the nation's biggest bookstore chain are considering "a move away from its program to engineer and build its own devices and focus more on licensing its content to other device makers." In other words, Nooks could disappear.
The past few years have been less than kind to B&N as it has struggled to compete with Amazon, which has mastered the art of selling books at steep, unmatchable discounts, and whose Kindle — the Nook's direct rival — commands an estimated 55 percent of the e-book market. Despite impressive reviews of its newest line of Nook HD tablets, slumping 2012 holiday sales are apparently prompting B&N executives to re-evaluate the company's hardware strategy. The under-the-radar device has simply failed to generate much noise in a marketplace littered with Kindle Fires, iPad Minis, and Google-backed Androids.
While B&N's nearly 700 physical stores nationwide are surprisingly profitable (for now) — producing $317 million in earnings before interest, taxes, depreciation, and amortization (or Ebitda) in fiscal 2012 — developing and manufacturing the Nook has proven costly. According to The Wall Street Journal, B&N's Nook business suffered $262 million in Ebitda losses for the fiscal year 2012, prompting the company's chairman and biggest shareholder, Leonard Riggio, to "express interest in buying out the retailer's consumer-bookstore chain, raising the prospect that the company could be split in two." Bloomberg confirms that B&N is considering Riggio's proposal.
That said, giving B&N's tablet division the scalpel treatment might save the Nook's life — at least in theory. Lumbering yet lucrative, the company's retail division is projected to shutter as many as a third of its megastores within the next 10 years as consumers continue to migrate online. A newly nimble Nook Media LLC, on the other hand, could refocus its resources into R&D to manufacture a product with a real identity, one capable of carving out a place for itself alongside cheap Kindles or luxe iPads.
Or maybe it's just too late. "We've moved beyond a game of specs," Horace Dediu, an independent analyst based in Finland, tells the Times. "Now it is about your business model, about distribution, and economics of scale." Basically, Amazon has Barnes & Noble's digital division beat every which way.
Perhaps the Nook was destined to fade away from the moment it went on sale in 2009. With no recognizable talent for technology or marketing wizardry behind it, it's easy to see how the iconic '80s bookseller could be left gasping for air behind the Apples, Samsungs, and Amazons of the world. Perhaps the Nook's death knell sounded a long time ago and we just didn't hear it.
Which, for a device as unassuming as the Nook, might actually be appropriate.
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