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Summary:

Barnes & Noble CEO William Lynch resigned Monday, leaving the troubled bookstore chain split in two and without a single person in charge. Lynch should have done some things differently, but his job was a very hard one.

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photo: Getty Images

Barnes & Noble announced late Monday afternoon that its CEO, William Lynch, is leaving after three years in the role. While Lynch had many strengths, Barnes & Noble also faced serious challenges that may have been too much for one person to overcome.

Lynch’s background is in e-commerce — before coming to Barnes & Noble, he held executive roles at HSN.com, Gifts.com and Palm — and Nook was his baby. Barnes & Noble launched the first Nook e-reader in 2009, and Lynch was promoted to CEO of the company, from president of BN.com, in 2010. The appointment reflected the fact that Barnes & Noble saw its future in digital and clearly thought Lynch was the right person to get it there.

Ironically, however, it is likely that if Barnes & Noble survives, it will be as a bricks-and-mortar chain, and technology was not its key to salvation. And one of Lynch’s biggest mistakes might have been focusing too much on devices at the expense of the shopping experience at BN.com.

Betting on digital and failing

The story of Barnes & Noble isn’t the story of Borders, which ignored digital for too long and actually had Amazon run its website until 2008, then finally went bankrupt and liquidated all its stores in 2011. Barnes & Noble’s problem also wasn’t that its devices weren’t good enough — they get mostly good  reviews — or even, really, that it released them too late. And for awhile, it seemed as if Barnes & Noble’s physical stores would actually be an asset for its digital business, since consumers could walk right in for customer service. (That’s why I bought a Nook for my mother-in-law in the first place.)

Nook Digital Shop

Unlike Apple and Amazon, though, Barnes & Noble was never going to be a technology company first. And considering that Lynch’s background was in e-commerce, he did a surprisingly poor job of making the shopping experience on BN.com competitive with the shopping experience on Amazon.com. Search on BN.com is still terrible, online customer support is not good, and ultimately there is simply no good reason for a consumer to shop on BN.com when he or she could shop on Amazon.com instead.

Lynch’s biggest mistake may have been focusing too much on technology in the form of devices while spending too little time turning BN.com into a viable alternative to Amazon. He may have assumed that Barnes & Noble’s devices and bricks-and-mortar stores could make up the slack. To prosper, though, Barnes & Noble would likely have had to hit home runs in all three areas: Physical retail, online retail and devices. If that seems impossible, well, you can see why being the CEO of Barnes & Noble was a tough job.

The devices were pretty good, but that wasn’t enough

For awhile, Nook did surprisingly well, even though it entered the market two years after Amazon launched the Kindle. (It should have entered the market sooner, but blame for that can’t be placed on Lynch, who wasn’t made CEO until 2010.) It gained market share — Barnes & Noble said that it had 25 percent of the U.S. ebook market in early 2011. But then the business stopped growing. Barnes & Noble still pegged its share of the ebook market at 25 percent last year, despite the fact that it had released several new devices during that time.

When Barnes & Noble entered the tablet market in 2010, it was ahead of the times. While the Nook Color wasn’t a fully fledged tablet, it had a color screen and some basic tablet functions and was designed for reading magazines and illustrated books. It didn’t have a lot of competition. Amazon did not release the Kindle Fire until 2011, and the only iPad available in 2010 cost twice as much as the Nook Color.

Nook Color with books

It was smart of Barnes & Noble to recognize the market for cheap tablets, and it went on to build more quality devices. By then, though, the market had heated up and other devices — including the iPad Mini, Kindle Fire and Nexus 7 — seemed a lot more appealing, largely because Apple, Amazon and Google have much more developed content platforms. Earlier this year, Barnes & Noble announced that Nook tablets would integrate with Google Play, but it was already too late. The company said in June that it will stop manufacturing tablets in-house.

Who wants Nook now?

As recently as last year, it still seemed as if Nook was going to be the future of Barnes & Noble. In April 2012, the company spun off Nook and the Barnes & Noble college stores into a separate business, Nook Media, which includes the tablets and content, with a $300 million investment from Microsoft. That was followed by an $89.5 million investment from Pearson. Barnes & Noble rewarded Lynch for the spinoff: He received a $1.8 million cash bonus in March and would have received an additional $1.5 million retention bonus if Nook Media separated from the rest of Barnes & Noble and he stayed on.

Not long after Microsoft’s investment, though, Nook sales began to decline precipitously. In the most recent quarter, Nook revenues fell 34 percent, and were down 16.8 percent for the year. It’s unclear why anybody would want to buy Nook Media outright now; there were rumors that Microsoft might do so, but months have passed without an offer (if it were interested, Microsoft could get a pretty good deal right about now).

Taking the stores private

It isn’t Lynch’s fault that Barnes & Noble’s retail stores are struggling. That’s largely a sign of the times: Customers are moving their shopping online. Amazon almost always beats Barnes & Noble stores on print book prices, and when it comes to online book shopping, the experience at Amazon is vastly better than that at BN.com.

In addition, while everybody likes the idea of a neighborhood bookstore, that doesn’t translate into business success. While Barnes & Noble is, in fact, the only neighborhood bookstore in a lot of areas, consumers who advocate shopping local may still think of it as a big box store, and they’re not likely to show the same loyalty to it as they might to the charming indie bookstore on Main Street. Instead, they’ll keep doing what they do now: Go in to the stores to browse and for the AC, then go home and order books on Amazon.

Barnes & Noble store

Lynch’s departure leaves the company split, with one executive overseeing retail and another overseeing digital — and nobody in charge of the whole thing. However, Barnes & Noble may have its best chance at some sort of survival as a divided company. If it can foist off its failed technology onto another company, the bookstores may be able to survive under private ownership.

Leonard Riggio, Barnes & Noble’s executive chairman and largest stockholder, offered in February to buy up all of the chain’s retail stores, as well as BN.com, and take them private. With Monday’s announcement, retail CEO Mitchell Klipper and Nook Media CEO Michael Huseby are both reporting to Riggio. While Barnes & Noble’s board is still evaluating the February offer, Lynch’s departure may expedite a decision, and the fact that Riggio is now in charge of everything can’t hurt. Going private is probably the stores’ best chance for survival.

  1. Interesting article Laura. It certainly is an industry in turmoil. I’m surprised you didn’t mention Apple much, and nothing about Kobo. I recently put my book up on Kobo and have nothing but good things to say about them.

    Have you done any recent articles on that company, and if not, do you plan too soon?

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  2. You neglected to mention that before Microsoft made its “investment” in Nook Media, Microsoft sued B&N. I don’t doubt this was a contributing factor in the troubles at B&N as it had the unfortunate effect of introducing uncertainty into their product’s future. Additionally, the patent suit inevitably diverted B&N resources at a critical point when their attention should have been focused on the hard work necessary to grow and cultivate the e-book business.

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  3. Interesting article. Some corrections:
    Need to replace “WHEN?” with an actual date.
    Private sector refers to non-governmental entities. Perhaps you meant “as a privately held company”?

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    1. Fixed – thank you!

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  4. Just Watching Tuesday, July 9, 2013

    I think you are overstating an obvious. William WAS at HSN before arriving @ BN, but he’s a marketing guy not an e-comm guru. From his days in the spirits business to his first foray into the digital realm with a one-way mobile product, he has always tried to solve marketplace problems and exploit opportunities as a marketing guy. Now think about the problems that BN has/had. They are tactical, logistical channel issues. They are operational issues. They are publisher and publishing issues. He thought too big, went too far afield from his expertise and didn’t build integrated bridges to address the combination of problems. Vision was off. Strategy was off. Execution didn’t work.

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  5. A key for me is when you say “while everybody likes the idea of a neighborhood bookstore, that doesn’t translate into business success.”….B&N has never really figured out they are not what most people consider a neighborhood bookstore. I LOVE walking into a small neighborhood bookstore….an independent store. Walking into any B&N is like walking into any other B&N. If you’ve been in one, you’ve been in them all.

    Small local stores will always get some of my business because the sense of discovery is wonderful, Then the vast majority of my book buying goes to Amazon, because I love my Kindle. I just don’t see the need for a large, impersonal national chain of storefronts.

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  6. It is their business model that is hurting them and which will kill them. And there is NOTHING they can do about it. They cannot innovate themselves to survive since the next big innovation in publishing will be free ebooks supported by between-chapter advertising. No need for bookstores. Not brick-and-mortar or online. No need for publishers. Just literary agents directly dealing with advertisers for their author clients. The most sought-after agents will be those with ties to the biggest paying advertisers. Authors will themselves hire freelance editors to polish their novels (if they feel their books need it) and artists to make a cover “page” and possibly internal illustrations.

    And if that wasn’t bad enough for B&N, Nook will be gone soon. Like PDAs, pagers, wristwatches, and alarm clocks, single-purpose ebook readers will soon be another tech made extinct by multi-purpose cellphones After a couple decades of trying to shrink themselves smaller and smaller, cellphones are now getting larger and larger because people-on-the-move are wanting to watch videos, play games, and many are already starting to read books on their cellphones.

    So, sorry, there’s no hope for B&N. The only way they could survive is by doing what they’ve NEVER done so far and that is sell advertising to advertisers. It isn’t just a different business model. It is a completely different business.

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  7. Scott – think you are wrong there. Publishers will always survive because many writers do not want to be involved in the creation of files, marketing, press releases etc

    The reason book sales on Kindle, iPads have boomed has nothing to do with agents. It would be a bad move if only agents decided what was published.

    Advertising between chapters is a non starter. Advertising on the font of an eBook will be a winner. Giving readers a choice of three ads on the front of an eBook and letting them decide which they would like to view is an even better model and available now.

    There is also a move by bricks and mortar to hold events in shops now. I now see more posters for writers visiting my town; in the past that never happened.

    ___________

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  8. I’m wondering why you think the online experience of Amazon is “vastly better.” As far as books go, I find BN correctly directs me to the product I need immediately after a search, whereas Amazon often dumps me in a noise filled search listing. It’s also cleaner, and simpler.

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  9. Regarding the B&N vs. Amazon e-commerce experience, Amazon has several competitive advantages that make it very difficult for people to switch. They include a very broad and deep catalogue that goes far beyond books, a huge partner ecosystem, and a sophisticated logistics network. Having tens of millions of customer accounts with credit card information on file doesn’t hurt either. Therefore, I don’t think fixing search, improving customer service, or making a better online shopping experience would have made B&N a true e-commerce contender.

    I also want to ask about this statement:

    “Instead, they’ll keep doing what they do now: Go in to the stores to browse and for the AC, then go home and order books on Amazon.”

    Is there evidence that this is a widespread phenomenon? If so, has it been quantified in terms of the loss to B&N?

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  10. I go to Barnes & Noble to get a cup of coffee and a pretzel while I read all the latest magazines. It’s nice to have a physical bookstore but B&N is more like a coffee shop. Maybe that is the model for B&N to become a string of large coffee shops selling Nooks and having a really good selection of mags and books to browse while having a cup of java. Maybe even renting Nooks to browse the online store and make purchases. Recently my wife and I bought Nooks because of the prices and to lend support to B&N. We love the nooks and do all our purchasing of magazines and books online. Now that the Nook is an Android Tablet with access to thousands of apps even one making it able to read Amazon books it is worth every penny. In fact I think the 32 gig Nook HD+ is the best tablet for $179 bar none!

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