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The Failure of Barnes & Noble’s Innovation

By Andrew Benson

BarnesandNobleFailure to innovate was the fear that pushed Barnes and Noble to create its Nook. But according to the logic of innovation, had Barnes and Noble invested more in front-end innovation, it might have avoided the Nook altogether.

Barnes & Noble, which began in the 19th century and became the dominant player in large chain American bookstores, is now the industry’s sole survivor. B&M has rested heavily on its conviction, despite criticism and great losses, that its e-reader is vital to continued business. Now with one CEO down, hordes of ejected employees, Microsoft’s scuttling of a Nook partnership, the canning of in-house Nook production based in California, and a poorly received redundant hybrid with Nook guts and a Samsung carapace, the B&N e-reader is one big misadventure.

How It Began

Few would deny that B&N was stuck in a hard spot.

Brad Thomas of Forbes reported that in 1996, B&N peaked in shares worth $46.25 with 799 stores, and then began a rough decline that brought shares down to the mid-teens by 2009. B&N’s fall was accompanied by the rise of Internet book shopping and the 2007 release of Amazon’s Kindle, which emptied B&N stores.

While it was straightforward for tech giants like Apple and Amazon to open their own competitive stores and e-readers, respectively, it was entirely different for a bookstore like B&N to create its own competitive technology.

The Front End of Innovation

To enter the device game, B&N embarked on what in intellectual property lingo is the front-end phase of development. Done right, the front end turns an organization inside out, vetting its total capacity to innovate, from the edges of its intellectual property to the ends of resulting product development and marketability.

Companies are good at what they’re good at – not at what they’ve never done. One front-end pitfall is that a company needs outside help to perceive its true strengths and weaknesses. Inside, not only is there too much at stake for honest assessment, but also the personnel and tools needed to innovate may not even exist.

The Cost of Innovation

Because the front end must yield a green light or a red one – objective, outside help was imperative for a massive company like B&N, in which either light was worth billions.

However, when the pressure to innovate in technology was on, the result was poor front-end phase development. Reporting on the bad decisions of Borders and B&N, Zachary Karabell at Slate wrote:

The chains were beset by questionable management decisions pressured by the demands of public markets to grow, grow, and grow. Facing the need for expensive investment in technology, Borders sold its online distribution to Amazon in 2001 and threw its efforts into more stores and bigger stores, using its share price to finance massive debt. Barnes & Noble opened more superstores as well, but it also decided to challenge Amazon by developing the Nook at a cost of more than $1 billion. Amazon dominated because it could spend far more money on technology than the chains, and because its core competency was in the disruptive technologies of e-readers, distribution, and inventory management. Amazon was never seen primarily as a retailer, and hence it could carry massive inventories that were a drag on its earnings and then spend billions on research and development because investors accepted Amazon’s narrative that it was a disruptive technology company redefining how everything is sold, not just books.

The way forward for B&N has been to push for separation of the Nook from its bookstores, which are losing on two counts – from the internal competition with Nook, and the inferiority of the Nook’s presentation in B&N stores compared with competing devices.

That separation is their admission that the digital world runs differently from the physical one. Ironically, that knowledge was the impetus for Nook in the first place.

 

 

 

 

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