Noble is the largest retailer of books in the United States. They operate nearly 700 stores in all 50 states (barnesandnobleinc. com).
Having the most bookstores in the United States was a competitive advantage for Barnes & Noble in the past. With the rise of Internet and e-book technology Barnes & Noble has had to change its business model. In this case study I will use Porter’s Competitive Forces and Value Chain models to analyze how these technologies have affected Barnes & Noble and its competitors.
I will also write about how Barnes & Noble is changing its business model to compete in a changing industry. Lastly I will at Barnes & Noble’s new strategy and if it has been and will be successful. The internet and e-book technology has changed the way that Barnes & Noble, its competitors and book publishers conduct their respective businesses. Using the Porter’s Competitive Forces model and Value Chain model it is easier to understand how and why that has happened.
The competitive forces model is “used to describe the interaction of external influences, specifically threats and opportunities, that affect an organization’s strategy and ability to compete. ” (Laudon & Laudon p. G2).
The model describes a company’s business environment. Porter uses five competitive forces that help describe the business environment for a company. The internet and e-book technology can be found effecting the business environment in these five forces. The first force is Traditional Competitors. Barnes & Noble’s competitors are competing for market share.
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Market share can be gained by the development of new products that help build the brand of the company. The internet has helped Barnes & Noble as well as its competitors develop new products and services. Laudon & Laudon write, “In a sense the internet is ‘transforming’ entire industries, forcing firms to change how they do business. ” (p. 101).
Before the rise of the internet and e-book technology Barnes & Noble was able to use their size and influence on book publishers to keep costs low and gain market share. Other companies in the industry have used the internet and e-book technology to gain market share.
This has forced Barnes & Noble to change its business model. Laudon & Laudon write, “Booksellers were one of the many industries disrupted by the internet and, more specifically, the rise of e-books and e-readers. B&N hopes to change its business model to adapt to this new environment before it suffers a similar fate as many of its competitors, like Borders, B. Dalton, and Crown Books. ” (p. 117).
The impact of losing market share has caused Barnes & Noble to focus more on new technology to develop new products and business strategies.
Another force in Porter’s competitive forces model that shows the impact of the internet and e-book technology is the force of Substitute Products and Services. The internet and e-book technology have become a substitute for traditional brick and mortar book stores that sell hard copy books. Laudon & Laudon describe the effect of technology has by writing; “New technologies create new substitutes all the time. The more substitute products and services in your industry, the less you can control pricing and the lower your profit margins. ” (p. 95).
Barnes & Noble used their size to gain a pricing advantage but with more substitute products becoming available because of the internet, they are not able to control the pricing and they are losing profits. With more substitute products available “more than ever, consumers are reading books on electronic gadgets—e-readers, iPods, tablets, and PCs—instead of physical books. ” (p. 117).
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The internet and e-book technology has provided more substitutes and changed the way consumers are purchasing books. The new technology has provided a cheaper alternative to Barnes & Noble’s book stores.
Because of the internet and e-book technology consumers do not need to come into a retail store to buy a book and Barnes & Noble is losing competitive advantage. Porter’s Value Chain model “highlights specific activities in the business where competitive strategies can best be applied (Porter, 1985) and where information systems are most likely to have a strategic impact. This model identifies specific, critical leverage points where a firm can use information technology most effectively to enhance competitive position. ” (Laudon & Laudon p. 101).
The Value Chain model helps a company determine what business practices and strategies t can use to gain a competitive advantage. Companies like Barnes & Noble can compare what they are doing with what their competitors are doing to identify what is working in the industry. They are also able to pinpoint what business activities should be focused on to increase their competitive advantage. Laudon & Laudon write, “Using the business value chain model will also cause you to consider benchmarking your business processes against your competitors or other in related industries, and identifying industry best practices. ” (p. 103).
The internet and e-book technology has changed business environment.
Barnes & Noble has used benchmarking in a couple of different ways. They have looked at what has not worked in the retail book industry and they have also looked at what has worked. In the retail bookstore business Borders was Barnes & Noble’s biggest competitors. “B&N clearly took notice of the fate of Borders, its chief rival. Borders stubbornly refused to adapt to the Internet, first handing over its entire Internet operations to Amazon, and waiting to relaunch its own Web site until 2008, at which point the company was already on the road to bankruptcy. ” (Laudon & Laudon p. 17).
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Borders did not adapt to the change in technology. The impact for them was big enough that they went out of business. Barnes & Noble was able to see that their primary activities have to focus on using internet and e-book technology to drive their competitive advantage. The impact for Barnes & Noble is that they have to change the way they do business. They had to shift their focus from their retail stores to their more e-content type products. Because internet and e-book technology has impacted the way Barnes & Noble is doing business, it has also had an effect on the publishers.
The success of the publishers and their businesses are closely related to what Barnes & Noble and its competitors are doing. “Publishing companies have been forced to adjust their allocations of printed books and new titles for stores, and books are beginning to be released as apps in addition to physical books. ” (Laudon & Laudon p. 117).
Although printed books are more profitable for publishers, they have had to change their primary activities to keep their competitive advantage as suppliers. The publishers need Barnes & Noble for their long term success.
Internet and e-book technology has made if more difficult for Barnes & Noble and its publishers to stay competitive. The impact of the technology for the publishers could also lead to something more than having to change their business model. Loudon & Loudon write, “Amazon’s goal for e-books is to cut out the publishers and publish books directly, selling books at an extremely steep discount to drive sales of its Kindle devices. ” (p. 118).
Of course that is a huge impact on the publishers and Barnes & Noble.
With traditional competitors gaining more market share by introducing new products and more substitute products becoming more available in the market place you can use Porter’s Competitive Advantage model to see how internet and e-book technology have impacted Barnes & Noble. Also, the Value Chain model can explain how Barnes & Noble has looked at the industry impacts of internet and e-book technology and changed their activities to search for a competitive advantage. The Internet and e-book technology has had an effect on Barnes & Noble and its competitors.
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Because of the new technologies Barnes & Noble has had to change its business model. To compete with the companies like Amazon and Apple, Barnes & Noble has focused more on the e-book section of the industry. “Initially, the company had concerns about the effect of growing demand of e-Books on the revenue of its bookstores. However, it focused on the enormous potential of the e-content market and accordingly repositioned its business from a store-based model to a multi-channel model with focus on internet and digital commerce. (Marketline p. 4).
As mentioned before Barnes & Noble saw how new technologies effected its competitors. Even though the company has a lot invested in its retail space they knew that they had to enter the e-content market. Laudon & Laudon write, “The company has thrown its energies behind development and marketing of the Nook series of e-readers. ” (p. 117).
To compete with Amazon’s Kindle and Apple’s iPad, Barnes & Noble developed their own tablet. The new business model is not just the selling of the e-reading tablet.
Barnes & Noble is also focusing on the development of technologies that complement the Nook. Some of those technologies include the e-books for the readers and apps that enhance the reading experience for the readers. Barnes & Noble is also using the resources of other companies to compete with Amazon and Apple. “On April 30, 2012 Microsoft announced that it would invest $300 million for 17. 6 percent stake in a new company consisting of B&N’s Nook tablet and e-reader business and its College division. ” (Laudon & Laudon p. 118).
As mentioned above Barnes & Noble was concerned with entering the e-content market. The influx of capital from Microsoft has made it easier for them to devote resources to the Nook. The partnership with Microsoft has added features to the Nook that have allowed Barnes & Noble a way to connect with millions of Windows users. Barnes & Noble has made changes to focus more on the e-content market with their Nook. Because they still have a lot invested in their nearly 700 retail locations they are also developing technologies to get consumers into their stores.
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In-store sales have been dwindling due to new technologies and Barnes & Noble is using apps on the Nook to drive foot traffic. “For example, if you connect to a Wi-Fi network in a B&N store with your Nook, you can get free extras in many apps and games like Angry Birds, where you can unlock a bonus character that normally costs a dollar. ” (p. 119).
Once people are in the stores Barnes & Noble is also trying to create a different experience for them. They have experimented with expanding spaces for activities like games and toys.
They also have made more display room for the Nook tablets and their e-content. All of these changes that Barnes & Noble is making are a direct attempt to deal with the rise of internet and e-book technology. It is clear that Barnes & Noble has changed its business model. They have entered into the e-content arena and have moved away from being a company that primarily uses brick and mortar locations. Barnes & Noble has made significant investments into the Nook and its accessories such as e-books and apps.
One question to ask about the new business model is has it been successful and will it be in the future. Also, another question to ask is if Barnes & Noble can do anything different in the future to help drive revenue. Early indications of success for the Nook were positive. Laudon & Laudon write, “B&N’s nook business has been growing rapidly, and traditional bookstores are not. Total e-book sales were nearly $970 million in 2011, more than double from the previous year, and the percentage of e-books within the total number of books sold is still on the rise, measuring 14 percent that same year. ” (p. 117).
From those numbers it is clear that the investments being made and the change of the business model were showing positive returns. Although the Nook was still lagging behind, the positive reviews helped it gain market share from Amazon and Apple. Industry insiders have given the Nook and its content positive reviews when comparing it to Amazon’s Kindle and Apple’s iPad. The problem for Barnes & Noble is that they are competing with two well established brands. On top of that companies like Google and Samsung have entered the tablet market. That leaves Barnes & Noble to compete with companies that have greater resources than them.
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Amazon, Google and Apple are able to create a higher level of brand awareness. Despite the early success, recently the outlook for the Nook and Barnes & Noble’s new business model does not look good. Jeffrey Trachtenberg highlights this in his Wall Street Journal article by writing, “”What concerns us is that as the overall market gravitates toward color tablets, you’d have expected that Barnes & Noble would have been able to maintain its share because it introduced two new color tablets during the quarter,” said Morningstar analyst Peter Wahlstrom. They aren’t behind on the tablet front in the sense that their devices compare well with others, but they are behind in terms of marketing, awareness and adoption. And that’s critical. ” (p. 1).
Although Barnes & Noble is producing a tablet that favorably compares to its competitors, consumers still are not buying it because the Nook hasn’t been able to gain the awareness needed in the market place. Another issue that Barnes & Noble is having with its new business model is that they haven’t been able to develop content for the Nook that can compete with other tablets on the market.
Leslie Kaufman of the New York Times writes, “Others pointed out that even if the Nook itself was a nice device, its offerings were not as rich as that of its rivals. Shaw Wu, a senior analyst at Sterne Agee, a midsize investment bank in San Francisco, said, “It is a very tough space. It is highly competitive, and extras like the depth of apps are very important. But it requires funding and a lot of attention, and Barnes & Noble is competing against companies like Apple and Google, which literally have unlimited resources. ” (p. 1).
The Nook and Barnes & Noble cannot compete with the resources and it is causing their new business strategy to fail. In the beginning Barnes & Noble’s new strategy to develop the Nook and its e-content worked well. Over the last year the Nook’s performance has falling off. I don’t think that Barnes & Noble can or will continue to try and compete head to head with the likes of Apple, Amazon, and Google. To be successful in the tablet market a company not only needs a good tablet but they also need good software to go with it.
Barnes & Noble does not have the resources to have a good tablet with good software. The financial losses that Barnes & Noble has suffered recently have signified that their strategy is not working. A recent New York Time article (2013) writes, “The problem was not so much the extent of the losses, but what the losses might signal: that the digital approach that Barnes & Noble has been heavily investing in as its future for the last several years has essentially run its course. ” (Kaufman p. 1).
Recent performance has showed that his may be true and that Barnes & Noble has to make another change to their business model. For Barnes & Noble to stimulate more business it is necessary for them to change their focus. There are indications that they have already talked about ways to do this. William Lynch the company’s chief executive was quoted in the New York Times (2013) saying “that a reformulated Nook strategy would focus more on digital content like e-books and magazines, sales of which increased by 6. 8 percent in the quarter.
He also said the company planned to be a leader in “digital education” and that it expected that to be a growth area. ” (Kaufman p. 1).
Barnes & Noble has also hinted at shifting more focus back to their largest asset, their retail stores. In the same article Leslie Kaufman writes that, “The company said that there was clear evidence that the digital trade book sales were “flattening,” meaning that the bookseller’s physical retail position would be strong in the future. Mr. Lynch said Barnes & Noble continued to take market share from other physical book retailers.
The company also promoted prototypes for new stores to be opened in malls. ”(p. 1).
From this article it seems like they are again dividing resources. I do not think Barnes & Noble has the ability to divide its resources and be successful. They tried that with the Nook and were unsuccessful. I think for Barnes & Noble to be successful in the future they need to focus on digital content. Their strategy of promoting the Nook tablet was not successful because they didn’t have the resources to develop content that could compete with Amazon’s Kindle and Apple’s iPad.
With divided resources between the Nook tablet and the digital content, the content suffered. If Barnes & Noble can shift resources from the Nook to digital media they may be able develop content that can match or even exceed that of its competitors. Also, with resources focused on developing digital content, Barnes & Noble can start focusing on making content not only for the Nook but also for the use on its competitor’s tablets.
