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Summary:

B&N’s strategic decision to build its own online business was critical, and the same can be said for its decision to create its own e-reader, the Nook. But the retail giant must do more in the e-book world by becoming, essentially, the entire value chain itself.

nook

Talk about frustrating: This week Barnes & Noble announced topline growth year over year and its first profit in four quarters, and how was it rewarded for its hard work?

With a pounding by Wall Street.

The drubbing was due in part to the news the company was eliminating its dividend in order to invest more in its digital business, but there’s no doubt the recent Borders bankruptcy filing weighed on the minds of investors. After all, B&N is the Coke to Borders’ Pepsi, and it’s easy to assume what happens to one will eventually inflict the other.

But as this excellent answer on Quora by former Borders employee Mark Evans points out, Borders failed for numerous reasons, the most important of which was its outsourcing of online to Amazon. What B&N realized — and Borders didn’t — was you don’t become a true online retailer by outsourcing the business, especially to what may be your number one competitor.

B&N’s strategic decision to build its own site was critical, and the same can be said for its decision to create its own e-reader, the Nook. The company is making good headway, claiming this week it owns 25 percent of the e-book market. That’s impressive (if true) in a market that includes what may be the two most fearsome competitors in the digital media space — Apple and Amazon.

But as I discuss in my weekly analysis at GigaOM Pro (subscription required), they must do more. Let’s face it, the total pie in books is going to shrink, and the long and unwieldy value-chain from writer to customer is going to collapse. Amazon knew this a long time ago, and that’s why they’ve been moving to disintermediate the publisher and the wholesaler in the e-book world by becoming, essentially, the entire value chain themselves.”

B&N should do the same, and do it quick. Sure, like Amazon, it launched its own self-pub platform in PubIt!, and it tinkered around with a few imprints on the print side for some time. But in the collapsing world of books, it’s every man for himself, and its time for B&N to accelerate its push into becoming a digital publisher.

Longtime agent and e-book pioneer Richard Curtis suggested that maybe it’d be a good idea for one of the big publishers to pick up Barnes & Noble. Maybe, but I think things might make more sense the other way around, with B&N either acquiring a publisher or, perhaps more likely (and more wisely), investing more in an organic effort to become a leading publisher of e-books without the legacy cost-burden of New York based publishing.

Will the publishers complain? Of course, but there’s nothing they can do about it. In the end, publishers have to work with B&N and, as Amazon has shown, not being liked has nothing to do with how successful you will eventually be.

Image courtesy of flickr user JustinLowery

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  1. Borders probably outsourced their on-line retail operations because an analyst or consultant told them their primary value is their “brand”, and they could save money by outsourcing. After all, that is the conventional wisdom in many large corporations.

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    1. @KenG – wasn’t this analyst :)

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  2. Publishing is going through a process of disintermediation. Not to mention that B&N has been a publisher for years. Self publishing will be getting more important every year and B&N is covered there with Pubit.

    Their real problem is that all their shrinking profit is being generated by their physical stores. BN.com is growing rapidly but it lost over $147 million dollars for the 39 weeks to 29 January 2011.

    They need to curb those losses and replace falling sales of books instore with other high margin merchandise. Easy Peasy isn’t it (not)?

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  3. B&N bought the publisher Sterling in 2003. From what I understand from my contacts, it does pretty well for them, although they wrap it up in their B&N Retail business segment, so you can’t see the independent performance, but the company says that it “annually publishes and distributes more than 1,100 new titles.” Doing more in digital publishing would be pretty easy.

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