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Barnes & Noble (s BKS) 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.)
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.
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 (s AAPL), Amazon (s AMZN) and Google (s GOOG) 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 (s MSFT). 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 (s AMZN) 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.
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.