By: Gigaom
Why the Nook is failing: One chart, four reasons
Microsoft invested $300 million in Barnes & Noble's Nook business. As the following chart shows, that probably wasn't a great idea: Production problems, slowing ebook sales and other factors are contributing to the Nook's troubles.

In Tuesday’s earnings report, Barnes & Noble broke out Nook sales for each quarter back to April 2011. Here they are:

*Nook revenue is comprised of Nook devices, digital content and accessories.

A holiday sales spike following the launch of the Nook Tablet in November 2011 hasn’t been enough to sustain the Nook business. And despite the launch of the front-lit Nook e-reader in April 2012, Nook business revenues are flat compared to this time last year. (Or they’re down: The Digital Reader points out that Barnes & Noble previously reported Nook sales of $277 million for the period ending July 30, 2011, but now says they were $191.4 million. I’ve asked B&N to explain the discrepancy.)

Microsoft is investing $300 million to spin off Barnes & Noble’s Nook and college businesses into a new company. But these revenue figures suggest that’s a bad bet. (Note: Amazon doesn’t release Kindle revenue figures at all. Its ebook market share is higher than Nook’s, but we don’t know how Kindle revenues compare, though here’s our best guess. B&N’s relative openness makes it easier to write a post like this about the Nook business. Amazon offers a lot less to go on.)

E-reader problems

Barnes & Noble has had particular trouble with e-ink devices. The Nook Simple Touch e-reader (without GlowLight) had such poor holiday sales that B&N downgraded its full-year guidance. And in Tuesday’s earnings report, Barnes & Noble said that “production scaling issues” prevented it from filling orders for the Nook Simple Touch with GlowLight. That was a “missed opportunity,” CEO William Lynch acknowledged in an investor call following the report.

Nook with GlowLight may have great reviews from Consumer Reports and tech blogs and B&N may have beat Amazon (AMZN) in the launch of a front-lit e-reader. But that doesn’t matter if people can’t actually get their hands on one. Amazon is widely expected to release its front-lit Kindle this fall, and it appears B&N has already squandered its first-mover advantage.

Falling prices

Barnes & Noble also attributes falling Nook device revenues to price cuts. But the company is going to have to keep dropping prices on its e-readers and tablets to stay in line with Kindle and with budget tablets like Google’s Nexus 7 and the anticipated iPad Mini. It can’t increase prices to increase revenues.

International delays

Barnes & Noble and Microsoft are hoping to find salvation overseas. The Nook will launch in the U.K. this fall — first through an online storefront, nook.co.uk, though B&N promises that well-known retail partners will be announced soon. And Microsoft will spend $25 million a year for five years on international launches. But Kindle has already been in the U.K. for two years and recently partnered with British bookstore chain Waterstone’s to sell Kindles in its stores. Rakuten’s Kobo is already in the U.K., too, and both companies are expanding rapidly to other countries. Microsoft’s $25 million payments could help B&N catch up, but it is already far behind.

Slowing ebook sales

In Tuesday’s earnings call, B&N’s Lynch noted that ebooks aren’t the largest part of the company’s digital content revenues: Apps and digital newsstand sales were “a little higher.” Lynch noted that book publishers are also seeing slower ebook sales (and here are Publishers Lunch’s recent findings on that). Nook’s ebook market share is still between 25 and 30 percent, the same as it was a year ago. It’s nice if apps and newsstand can drive some sales. But Barnes & Noble is going to have an even tougher time competing on those products than it does on ebooks. Apple and Android have the app market cornered, and digital magazines make up just a tiny sliver of overall magazine sales.


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