I don’t get the strategy: Sure, I understand that Barnes
& Noble wanted to extract the considerable hidden value from their digital
(Nook) operations and were seeking a way to do that but, what is the Microsoft
play here and should publishers’ be more worried than excited?
The Nook business is growing at 30+% while physical store
sales grew around 2% - which wouldn’t seem so bad if not for the fact that
Borders shut for business, and it has long been reported that B&N wanted to
carve out the digital business. Along
comes Microsoft and, in a somewhat opaque deal, we now have a “New Co” business
worth almost $2bill and in which Microsoft will invest $300+ million. That amount seems relatively small to a
company with the resources of Microsoft and yet this deal is being lauded as Microsoft’s
big play into the content business.
Competing with iTunes (mentioned by Forester) seems a big ask given Amazon’s
head start although some suggest the Nook is a good example of how to come from
nowhere to compete with a bigger player (Kindle).
The nature of the cooperation between B&N/Nook and
Microsoft will be borne out over the coming years. Some investors in “New CO” might be hoping
Microsoft stays in Seattle and away from the Nook business since Microsoft’s
experience in media content hasn’t been so stellar. Examples such as their digitization efforts
launched to chase Google might have been technically superior but the effort
never seemed to get out of second gear. Each successive time they were lapped by
Google their commitment waned until they finally pulled the plug. Zune was a similar experience: Some people loved
the iPod-like device but a thirteen year old girl once summed up the Zune by
saying ‘everyone knows when you have to advertise something it’s no good’.
Looking further back, a greater danger to publishers might
exist in the example of Encarta, the encyclopedia Microsoft bundled with
millions of PCs and in the process effectively destroyed the traditional
encyclopedia business. The traditional
publishing business in its’ transition from print to electronic distribution
has already witnessed significant price deflation and Microsoft in an effort to
sell more hardware (X-Box) and software licenses is likely to jump on the price
deflation bandwagon established by Amazon.
Will Microsoft show impunity to traditional models as they
did in the Encarta years? Perhaps, but
their objectives might be simpler: Gaining an anchor tenant to support their
mobile strategy. To me, books are long
since a killer application (when was the last time you heard that phrase) moreover,
I just don’t see how the relationship with Microsoft benefits Barnes &
Noble/Nook other than giving the company a huge valuation on a business that
was buried under the vestiges of the physical store model. I guess you have to start somewhere but will
Microsoft and their $300mm influence the trajectory that Nook would have
achieved anyway? I just don’t see it.
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