Does a Microsoft purchase of Nook Media make sense, and to whom?

Earlier this week, TechCrunch reported that it received private documents describing a $1 billion offer made by Microsoft to acquire Barnes & Noble's digital businesses from its Nook Media business unit, in which Microsoft invested $300 million last year. Nook Media also includes Barnes & Noble's college bookstore unit, which Microsoft doesn't want and would most likely be reintegrated with B&N's retail business.

Here's what Microsoft would be acquiring:

• Barnes & Noble's eBook business, including its publisher contracts, self-publishing business, eCommerce websites, online order fulfillment infrastructure and customer lists.
• The Nook hardware line (both eReaders and tablets,) and Barnes & Noble's hardware design operation in Silicon Valley.
• B&N's other digital product lines (apps, magazines, newspapers, audiobooks and video.)

The deal, if it goes through, would make Microsoft the second largest reseller of eBooks in the U.S., ahead of everyone other than Amazon. It would save Microsoft the time needed to build its own relationships with publishers and eBook distribution infrastructure. However, the other things it would buy might not be all that valuable:

• Barnes & Noble's tablet business, which was once a viable competitor for Apple and Amazon, has been declining since last year's Holiday sales season. B&N has been running a series of promotions to try to sell off its inventory of Nook HD and HD+ tablets.
• The document received by TechCrunch states that Barnes & Noble intends to shut down its tablet business by the end of its 2014 fiscal year. That's a huge "red flag" to B&N's Silicon Valley-based hardware and software engineers, who'll have no trouble finding jobs with other companies. By the time a Microsoft acquisition closes, most of Barnes & Noble's top engineers are likely to be gone.
• The existing Nook tablet line is of no interest to Microsoft, and in fact will represent a customer support liability.
• Microsoft already has its own app stores for Windows 8 and Windows Phone 8. It has no interest in maintaining the Nook's Android-based app store.
• Microsoft already sells videos and music through its Xbox Marketplace; it doesn't need Barnes & Noble's content.

That's what Microsoft gets for its one billion dollars, but what does the deal mean for Barnes & Noble? A billion dollars could fund a more serious reorganization of Barnes & Noble's retail business. The company is planning to reduce its store count largely by allowing leases for less-profitable locations to expire. Microsoft's money could enable Barnes & Noble's management to buy out leases and reduce its total number of stores much more quickly. It could also be used to redesign the stores in order to make them more profitable--but there's no evidence to date that Barnes & Noble knows how to turn its stores around.

Selling its eBook business to Microsoft also leaves Barnes & Noble with a big problem. eBooks represent as much as 30% of the sales of the Big 6 publishers; for some genres, such as romance, eBooks comprise 50% of sales. B&N's eBook sales are profitable and growing. So, Barnes & Noble needs to continue to offer eBooks to its customers. It could do so by referring its customers to Microsoft's eBookstore and getting a commission. However, Barnes & Noble would no longer be able to use its eBook sales to negotiate steeper discounts from publishers, since Microsoft would actually be the reseller for those publishers.

So, is Barnes & Noble's eBook business really worth a billion dollars (71% of the company's market capitalization as of this writing) to Microsoft? Is that billion dollars worth it to B&N if it means getting out of the only segment of the book business that's continuing to grow in both revenue dollars and units? In the long run, will selling its eBook business save Barnes & Noble's retail bookstores, or will it only buy the company a little more time?

 

Barnes & Noble: Controlled landing or slow-motion liquidation?

Barnes & Noble just ended a bad week: First, It announced that it plans to close as many as 200 of its superstores over the next ten years. Then, a few days later, IDC released its global tablet shipments report for Q4 2012, which found that while the worldwide tablet market increased 75% in Q4 2012 year-over-year, shipments of  Barnes & Noble's Nook tablets actually fell 27.7%, from 1.4 million units in Q4 2011 to one million in Q4 2012. Those numbers added to the gloom from the company's quarterly financial report issued in early January, which stated that B&N's sales from bookstores and its eCommerce site in the holiday quarter fell 10.9% year-over-year, while its same-store sales for stores open at least 15 months fell 3.1%. Revenue at Barnes & Noble's Nook Media unit, which includes Nook devices, eBooks and college bookstores, fell 12.6% year-over-year.

The question to some observers isn't what the company will look like once it closes a third of its stores over ten years--it's whether B&N will even be in business ten years from now. The signs aren't good. As an example, take same-store sales, one of the most important financial indicators for retailers, because it only looks at sales growth in stores open a year or more, not new stores. In Barnes & Noble's case, the same-store number for the holiday quarter was -3.1%. However, that -3.1% is an average. Some stores probably had year-over-year increases, but no one outside Barnes & Noble really knows for sure, and that's a critical factor in whether or not the company's plan to close a third of its stores will work. If B&N has a relatively small number of poor-performing stores, the company can close them as quickly as possible and concentrate on the successful stores. However, if sales are falling across most of B&N's locations, a 33% reduction plan won't be nearly enough to stop the bleeding.

Another example is B&N's failed merchandising strategy. Nothing that the company has tried has done anything to improve its stores' performance. It cut back on its music and video departments and used that space to create dedicated display space for its Nook tablets and eReaders, which are usually prominently featured at the front of its stores. However, its Nook business is actually falling faster than its retail business in general, and it's adding to same-store sales declines. It replaced some of its book display space with an increasingly large assortment of toys and games, but that isn't improving same-store sales, either.

Barnes & Noble's situation is looking uncomfortably like that of Borders and Circuit City, both big-box retailers that closed stores and experimented with a variety of merchandising changes, only to find themselves bankrupt and in liquidation. That's where the "controlled landing" vs. "slow-motion liquidation" question comes in. If B&N starts closing stores, and that results in sustainable year-over-year same-store sales gains, the company's plan to slowly weed out poorly performing locations is likely to work. However, if the same-store declines continue, even with fewer stores, B&N will have to dramatically increase its pace of store closings or come up with even more radical merchandising changes that actually work. As much as I want to see Barnes & Noble's retail stores survive, especially now that Borders is gone, my gut tells me that the company is going down the slow-motion liquidation path.

PressBooks prepares to launch its eBook publishing service

PressBooks, an eBook editing and self-publishing service based on WordPress, has announced its pricing plans and is nearing a formal launch. The service, which has been in beta for some time, enables writers to collaboratively create eBooks, either online or via file uploads. Existing WordPress users can selectively convert their blogs into eBooks using PressBooks. The service outputs EPUBs for Apple iBooks, Barnes & Noble's Nook and Kobo, converts EPUBs to Amazon's Kindle formats, creates public or private web versions of eBooks and exports to PDF for print-on-demand. PressBooks offers an assortment of templates that are optimized for different eReading platforms. It can directly post eBooks into Apple's, Barnes & Noble's and Kobo's eBookstores, or self-publishers can download the files and manage their own distribution. (Apparently, self-publishers will have to post titles into Amazon's Kindle Store themselves.)

The new pricing plans, which appear to still be under discussion, are as follows:

• The first five books are free (beta users who've already created eBooks are exempt from monthly pricing on those titles, and will be entitled to five more free titles.)
• Up to 20 books: $50/month.
• Up to 200 books: $200/month.
• Distribution to the Apple, Barnes & Noble and Kindle eBookstores will cost a one-time fee of $100/book + $25/year/book.

Which eReaders and tablets support multimedia and CSS3 features?

Vook has put together a list of some of the devices that support multimedia enhancements, along with the maximum eBook size on each device (which turns out to be dramatically affected by both the device and eRetailer), and a list of CSS elements that can be controlled in Vook's editor, with which devices they're supported on. Here's a summary:

• Only iOS devices running iBooks and the Kindle app, and the Nook Color and Nook tablet, support multimedia enhancements. The only desktop PC eReader that supports the enhancements is Vook's own Reader software. 
• Here are the maximum file sizes for various devices and eBookstores--conventional publishers (with "Vendor of Record" accounts) get far more file space than do self-publishers, which makes self-published multimedia-enabled eBooks impractical:
• Apple's iBookstore: 2GB 
• Barnes & Noble Pubit! (self-publishing): 20MB 
• Barnes & Noble via Vook distribution relationship: 600MB 
• Amazon Kindle Direct Publishing: 50MB 
• Amazon via Vook distribution relationship: 650MB
• The Vook source link has much more information, but in general: 
• iOS devices handle all the CSS3 attributes. 
• Nook devices (both eReaders and tablets) handle all the CSS3 attributes. 
• Kindle devices handle only a subset of the CSS3 attributes, with the Kindle Fire supporting a few more than Kindle eReaders. 

28% of all library patrons want to download eBooks from their library; Kindles are the most popular devices for reading library eBooks

Digital Book World has a summary of a new Patron Profiles report from Library Journal and Bowker. Their survey found that 28% of all library patrons want to download eBooks from their public library, and almost two-thirds of patrons who already read eBooks want to be able to get them from their local library. Here are some other findings:

• eBooks are the most popular downloadable media for all respondents, followed by music and audiobooks. Video downloads are the fourth-most-popular media with everyone except existing eBook users, who prefer enhanced eBooks by a small margin.
• As far as eReading devices are concerned, Kindle eReaders are the most popular with both "power" media users and regular library patrons, by a significant margin. The next most popular device is the Kindle Fire, followed by the iPad, and then the Nook Color eReader and Nook black & white eReader, both of which were preferred by less than 10% of patrons.
• "Digital" patrons--those that own a smartphone, eReader or tablet--are more active library users than any other group, across all activities. 28% of library patrons own a smartphone, 16% own an eReader and 12% own a tablet.
• Only 3% of library patrons have used a dedicated app for their library, although many patrons would like to be able to access their library's online content via a mobile app.
• Library patrons that visit their library's website an average of once a week are generally dissatisfied with the quality of their library's website.

BISG survey says that eBook buyers are more willing to buy print

The Book Industry Study Group has just released the third part of Volume Three of its Consumer Attitudes Toward E-Book Reading research report. Here's a summary:

• The percentage of eBook buyers that exclusively or primarily purchase eBooks has dropped from nearly 70% last August to 60% in May 2012.
• The percentage of survey respondents with no preference for eBook or print formats, or who buy some genres in eBook format and others in print, has increased from 25% last August to 34% in May.
• Amazon's Kindle Fire has overtaken the iPad as the tablet of preference among eBook consumers. 7% of survey respondents owned a Kindle Fire last December vs. 20% in May 2012, while iPad ownership remained flat at 17% in both surveys. By comparison, 5% of respondents owned a Barnes & Noble Nook Tablet in May, and 8% owned another Android-based tablet.
• While overall use of tablets as primary eReading devices is increasing, the changes aren't uniform across devices:
• 35% of respondents cited Amazon's Kindle eReaders as their primary device for reading eBooks, down from 48% last August.
• Apple's iPad was cited as the primary device for reading eBooks by 9% of respondents in May, down from 10% in February.
• Respondents who cited Barnes & Noble's Nook tablets and eReaders as their primary device for reading eBooks declined from 17% last August to 13% in May.

eReaders are great for casual readers, not so great for highlighting and notes

The Atlantic has an essay about the state of eReaders written by Alan Jacobs, an English professor at Wheaton College. Here's a summary:

• Both eReaders and tablets are making it easier to read at night, with front lights (eReaders) and dimmable backlights (tablets). 
• E Ink displays on eReaders are still far superior to LCD displays on tablets when it comes to glare. 
• The contrast of eReader displays has improved considerably. 
• eReaders have limited typeface options and do a poor job of handling kerning and spacing. (A large part of the problem is EPUB, which emphasizes dynamic page flow to the detriment of just about everything else.) 
• Highlighting and annotation, which are very important for literature studies, are all but impossible with eReaders. The trend to replace dedicated keyboards with on-screen keyboards has made annotation even more difficult. On the other hand, tablets handle highlighting and annotation much better, although they still have some quirks. For example, it's impossible to extend a highlight across a page break on the iPad (although it can easily be done on Nook and Kindle eReaders.) 

The bottom line is that eReaders and tablets are generally improving for general reading, but for engaged reading, there's been little improvement, and in some ways eReaders' capabilities are moving backwards.

NAPCO/InfoTrends eBook Publisher Survey

The July/August edition of Book Business Magazine has the results of a survey of 261 publishers (including 145 book publishers) done in May by InfoTrends and the North American Publishing Company (Book Business' parent) about their adoption of digital media and approach to digital production and distribution. Some of the results are surprising; here's a summary:

• PDF was the format of choice for 76% of the book publishers, followed by EPUB, with 68%.
• The top priority for eBook production and distribution at the book publishers was improving the overall user experience, cited by 60.3% of respondents, followed by improving overall design and typography (54.9%) and incorporating embedded rich media (44.4%). Only 20.6% planned to add search capabilities, and features such as embedded social media and sharing capabilities; improving footnotes and references functionality; and enabling reader annotations and highlighting were all named by less than 20% of publishers.
• The Amazon Kindle was the most popular device that book publishers use to test their eBooks, cited by 39.7% of respondents, followed by Apple's iOS devices (34.9%), Barnes & Noble's Nook (25.4%) and Amazon's Kindle Fire (22.2%).
• Surprisingly, 30.2% of respondents said that they don't test or tune their eBooks for specific mobile devices, which may explain why so many eBooks look so bad on mobile devices, and 13.5% of respondents don't know which devices (if any) their company tests eBooks on.

Simba Information: Waterstones' deal with Amazon will be "...one of the biggest screw-ups in the history of book retail"

Book Business has an interview with Simba Information Senior Analyst Michael Norris, whose company just published its Trends in Trade Book Retailing study. Norris reiterates something that I've been saying for a while: eBooks aren't growing the publishing market--they're just cannibalizing print sales. Further, print sales are falling faster than eBook sales are growing, so at best, eBooks are slowing the market's overall rate of decline.

Norris says that Barnes & Noble's relative success in the eBook business has a great deal to do with its stores, and with its promotion of Nook hardware and accessories in those stores. He's puzzled by B&N's decision to break its Nook business away from the rest of the company--and even more puzzled by Waterstones' decision to partner with Amazon for Kindle eReaders and tablets. Norris compared Waterstones' deal to Borders' disastrous decision to outsource its online eBookstore to Amazon, and said "...I’ve really got to hand it to companies like Amazon, they know how to kill a competitor and make it look like suicide." He added, "It’s going to be one of the biggest screw-ups in the history of book retail."

When asked what book retailers that sell eBooks can do, Norris said "I urge every retailer who does sell ebooks to buy one of their own ebooks and then buy the same or similar ebook from Amazon, then think...about what kind of experience is going to make people come back. "

Barnes & Noble launches Nook for Web browser-based eReader

Barnes & Noble has launched Nook for Web, a browser-based eReader that the company claims works in Internet Explorer, Firefox, Chrome and Safari for the PC and Mac. Nook for Web allows users to preview the first 10-15 pages of most eBooks for free; the eBook can then be purchased by clicking a button in the eReader. Nook for Web has one- and two-page displays, and a choice of eight fonts and eight point sizes. It also has a slider for navigating through eBooks, and a drop-down table of contents. However, it doesn't have any way to search within a book. In addition, Nook for Web doesn't support B&N's Nook Kids titles or graphic novels. Those can only be read on the Nook Tablet, Nook Color, and for some titles, B&N's iPad app.

Target to offer Livrada's eBook gift cards

PaidContent reports that Livrada, a Los Angeles-based startup, will sell gift cards for bestselling eBooks in Target stores' electronics sections, starting July 15th. Customers will purchase a gift card for a specific title, such as Fifty Shades of Grey. The recipient of the gift card goes to Livrada's website and activates the card, and then chooses whether to get the eBooks for Kindle or Nook. Livrada purchases the eBook from Amazon or Barnes & Noble (other platforms will be supported by the end of the year,) and delivers it to the recipient's eReader, tablet or computer.

Livrada gets marketing fees from the publishers of the eBooks, a portion of the purchase price from Target, and affiliate fees from Amazon and Barnes & Noble. There's no word on whether Livrada marks up the price of the eBooks. The question is whether enough consumers will buy the gift cards to make it into a viable business. At this point, there are only six titles available; Livrada is working to get more titles, publishers and platforms.

eBookstores (and some publishers) are tracking how their eBooks are read

The Wall Street Journal reports that retailers (and, in some cases, publishers) know far more about how eBooks are being used than they ever knew about print books. According to the article, Amazon, Apple, Barnes & Noble and Google can track how far readers are getting into their eBooks, how long they spend reading them, how often they read them and which search terms they use. If the eReader supports annotations, they also know what readers are highlighting and the contents of notes. They also know how many times readers open their tablet apps.

This information is just beginning to be studied, and some retailers are sharing the information (albeit selectively) with publishers. Barnes & Noble is in "the earliest stages of deep analytics," but it's already learned some useful information:

• Nook users who buy the first eBook in a popular series tend to read the next title in the series as soon as they finish the first one. 
• Nonfiction eBooks tend to be read a little at a time and are dropped sooner than fiction, while fiction titles are usually read straight through. 
• Science fiction, romance and crime fans often read more eBooks in those genres, and read them more quickly, than do literary fiction readers. 
• Readers of literary fiction quit eBooks more often and tend to skip around between titles more frequently than readers of other fiction genres. 

Amazon has long gathered and utilized information on its customers' purchasing habits; for example, it uses that information to recommend similar titles. Digital security expert Bruce Schneier is concerned that the knowledge that tracking is going on may cause a "chilling effect" on purchases of eBooks on sensitive topics, such as sex, health and security.

Groups such as the Electronic Freedom Foundation want Amazon, Barnes & Noble and other resellers to give their customers the ability to opt-out of eBook tracking. California has a "Reader Privacy Act" that requires government agencies to get a court order before requiring digital booksellers to turn over information about which eBooks their customers have browsed, purchased, read or annotated. The ACLU and EFF are now trying to enact similar laws in other states.

Some publishers, especially those who sell directly to customers, are gathering their own data about reader behavior. Sourcebooks is experimenting with early online "work-in-progress" versions of some of its titles, and is incorporating reader feedback into the final version. Scholastic is using online message boards and interactive games connected to its "39 Clues" series to gather input from 1.9 million registered users. Coliloquy, an interactive digital publisher, is gathering information on the characters and plot lines selected by readers and forwarding it to authors for use in writing future titles.

Barnes & Noble's Q4 financial results

Reuters reports that Barnes & Noble released its Q4 financial results Tuesday morning:

• Revenue was $1.38 billion, up slightly from a year ago but below analysts' estimates of $1.48 billion. 
• The company had a net loss of $57.7 million, or $1.08/share, slightly lower than its Q4 loss of $59.4 million, or $1.04/share, a year ago. 
• Same-store sales at its 700 superstores were up 4.5% compared with Q4 last year. 
• The company had higher-than-expected returns of Nook devices from retailers after the 2011 holiday season, and a decline in sales of its eReaders and tablets in Q4. 
• Revenues at its Nook business, including eBooks, eMagazines and apps as well as devices, fell 19% to $164 million in the quarter. 
• B&N now has 27% of the U.S. eBook market, compared to 60% for Amazon. (That leaves 13% for Apple, Kobo, Sony and everyone else.) 

Kobo’s Vox eReader Gets Full Access To Google Play

TechCrunch reports that Kobo's Vox eReader has gotten full access to Google Play, which makes all 500,000 Android Marketplace apps available to the Vox. Google had previously only given access to its Marketplace to one Android 2.X tablet, the original Samsung Galaxy Tab. It appears (although the article doesn't say) that Kobo has received Android certification for the Vox from Google. Google may have loosened its requirements for Kobo in response to the success of the Kindle Fire, which has helped to create a viable competitive Android app marketplace, and Barnes & Noble's deal with Microsoft, which will almost certainly lead to a Windows RT-based Nook tablet.

Is there a market for "enhanced" eBooks?

Shortly before Christmas, The Huntington Post published an interview with David Prichard, the President and CEO of Ingram's Content Group. Ingram is the largest book distributor in the U.S. and operates Lightning Source, which is one of the largest publishing-on-demand services companies, and a major vendor to self-publishers. In the interview, Prichard talked about the future of publishing, and one of the things he talked about were "enhanced" eBooks:

"Enhanced e-books are only in their infancy, allowing authors to add alternative endings or interviews. Down the road, who knows what's possible? Maybe we will have biometric devices that can sense your pulse and body temperature and change the plot based on your feelings -- and you think Stephen King is scary now." 

"...for example, a biography can to come to life in many ways. Jacqueline Kennedy: Historic Conversations on Life with John F. Kennedy has all of the interview audios, videos, photographs, text, and transcripts available. Even classics -- Penguin has updated Pride & Prejudice with clips from the movie and even instructions on dancing. For the 75th anniversary of The Hobbit, HarperCollins released an e-version with exclusives including J.R.R Tolkien's book illustrations and recently discovered Tolkien recordings. Publishers are still learning what added value readers will or won't pay for. I expect we'll continue to see lots of experimentation in this arena." 

Seth Godin, well-known author and marketer, responded on paidContent.org to Prichard's remarks:

"It (the interview) is filled with breathtaking visions of the future, and they are economically ridiculous. The Long Tail creates acres of choice, so much as to make the number of options almost countless. But at the same time, it embraces (in every format) much lower production values. For what Michael Jackson and Sony (NYSE: SNE) paid to produce the Thriller album, today’s artists can make and market more than 5,000 songs. You just can’t justify spending millions of dollars to produce a record in the long tail world." 

"The same thing that happened to music is going to be true of books. The typical e-book costs about $10 in out of pocket expenses to write (more if you count coffee and not just pencils). But if we add in $50,000 for app coding, $10,000 for a director and another $500,000 for the sort of bespoke work that was featured in Al Gore’s recent “book”, you can see the problem. The publisher will never have a chance to make this money back." 

"Sure, there will be experiments at the cutting edge, but no, they’re not going to pay off regularly enough for it to become an industry. The quality is going to remain in the writing and in the bravery of ideas, not in teams of people making expensive digital books."

Others have picked up on the discussion; for example, the Teleread blog summarized Godin's post, and as of now, every comment on the Teleread post opposes Godin's position. I agree with what Godin wrote, with some reservations. First, let's leave the "long tail" arguments aside--the long tail theory has largely been debunked. The long tail only makes money for distributors, who can aggregate small numbers of sales from a large number of publishers/writers/producers. However, the market is being flooded by titles from self-publishers, and it's harder than ever for consumers to separate the wheat from the chaff. Price is no longer an indicator of quality. The most likely outcome is that there will be a small number of titles that do well (as usual), and an ever-larger collection of titles that barely, if ever, earn back their investment in time and money.

Many of the Teleread commenters objected to Godin's statement that it costs "$10 in out of pocket expenses to write" an eBook. He doesn't include editorial, design and eBook conversion services, which can cost hundreds to thousands of dollars if an author farms them out, but that's not what the commenters objected to. Their concern was that Godin made no accounting for the value of the time that authors spend writing. I understand their arguments, but I'm not sure that they're realistic, especially in today's climate. In the 1990s, I wrote two computer books, one for Prentice Hall and the second for Ventana. The first one earned back its advance and sold around 12,000 copies domestically, as well as local-language reprints in a variety of markets. The second one was never released in the U.S., but was released by Ventana's partner in Japan as a local-language title. It didn't earn back its advance. Considering the time I spent writing the two books and the amount I earned, I would have made about the same amount on an hourly basis if I'd worked at Burger King. That's why I stopped writing books.

Your market value is what your customers or clients will pay for your time. In the case of a self-publisher, it's the income that you get from your title divided by the number of hours you spent working on it. If that number doesn't satisfy your financial requirements, you have to increase the number of copies you sell, change your pricing, or do something else that pays more money.

Now, to Godin's central point: Most publishers and self-publishers are very unlikely to recoup the additional cost for adding rich media and interactivity to their eBooks. His cost estimates may be off, but his logic is correct. The fact is that most "enhanced" eBooks to date have sold poorly. If you're creating a native app for iOS or Android and you have to hire developers to do it, that costs money. Even if you're sticking with, say, Apple's EPUB extensions for rich media, Barnes & Noble's extensions for Nook Kids, Kindle Format 8 (when it becomes available to all publishers) or, in the not-too-distant future, EPUB3, there's a cost in time and money for adding interactivity and rich media. For now, at least, you're unlikely to earn back that cost. Thus, the most reasonable approach is to create conventional eBooks.

At some point, enhanced eBooks will "crack the code" and become widely popular, and the additional front-end expense to produce them will be justified. Today, however, that's not the case.

New Barnes & Noble Nook Color Announced

Barnes & Noble has taken the wraps off its nook Color eBook reader/tablet (more on that tablet part in a moment.) The nook Color will be priced at $249 in the U.S. and will be available on or around November 19th.

Here are the basic specs: The nook Color has a 7" touch-sensitive display, is 0.5" thick and weighs just under one pound. It can store 6,000 eBooks, and storage can be expanded with a microSD card. It runs an unnamed version of Android. Unlike the previous nooks with their dual displays, the nook Color has a single display and virtually no physical buttons--almost all interaction is with the touchscreen.

Interestingly, the nook Color only has WiFi, not a 3G broadband interface, in order to keep the cost down. B&N hasn't ruled out offering a 3G (or 4G) version in the future. The company has started a developer program to encourage Android developers to build nook apps, but the nook Color has its own API. It's not currently compatible with the Android Market, and it appears that it's not likely to be compatible for quite some time, if ever. Lonely Planet, Dictionary.com and Pandora have already signed on to provide apps, and B&N will include a few apps of its own (crosswords and sudoku were shown.)

B&N has added social networking features to the nook Color; users can recommend eBooks, newspapers and magazines on Facebook and Twitter, and can change their status on both services. The company also claims that it will have 100 newspapers and magazines available in full color when the color Nook ships.

Based on what B&N showed today, the nook Color probably won't have a very long life, at least not at its current price. At $249, it's expensive for an eBook reader, and as a tablet, it's extremely limited, with only a handful of apps, no current or forthcoming compatibility with the Android Market and not a great deal of incentives for developers to write custom apps. (B&N claims to have 20% of the digital book market, meaning that the 75% market share that some analysts have attributed to Amazon is probably correct.)

I suspect that B&N dropped the dual display to provide an out in the event that it loses the lawsuit filed against the company by Spring Design (developers of the Alex eBook reader,) or if Amazon decides to enforce its patent on eBook readers with dual displays. The current nooks' dual display is too much of a litigation lightning rod; getting rid of it will remove a big risk factor for B&N.

There was no word of B&N dropping the prices of its existing models, but I wouldn't be surprised to see the WiFi black & white nook drop to $99 for the holiday season.

"Do-or-Die" time for Sony's eBook business

According to Engadget, Sony has dropped the prices of all of the eBook readers that it sells in the U.S. The entry-level Pocket Edition dropped from $169 to $149, the mid-range Touch Edition went from $199 to $169, and the high-end Daily Edition with 3G went from $349 to $299. The problem is that none of the models are competitive with comparable models from Amazon and Barnes & Noble. The Sony Pocket Edition has a smaller screen and lacks the WiFi of the comparably priced nook. The Daily Edition has essentially the same features of the Kindle 2 and nook 3G, but it costs $100 to $110 more. The Touch Edition is priced $20 less than the Kindle 3G but offers much less value for the money.

Sony has a very difficult decision to make, at least in the U.S. eBook market: Dramatically decrease costs and/or improve specifications to be competitive with the Kindle and nook, or get out of the business. Borders, which was one of Sony's primary sales channels, now has its own hardware reader, the Kobo, which is comparable to the Pocket Reader. It's in Borders' interest to promote the Kobo over Sony's products. Also, the deal that Sony had to make the Wall Street Journal available on the Daily Edition is non-exclusive, and readers can get a much better experience with the iPad.

Sony's eBook business has always been opportunistic; the eBook business unit is headquartered in San Diego, while most of Sony's businesses are headquartered in Tokyo. It's inconceivable that Sony's Vaio PC business unit isn't working on a tablet to compete with the iPad, and the eBook team may well find itself competing with its sister PC business unit.

I suspect that Sony will get out of the dedicated eBook reader business and shift its focus to Vaio-branded tablets and convertible PCs. The eBook group in San Diego may be maintained in order to write eBook reader software and to operate Sony's own eBookstore. However, the "sweet spot" for dedicated eBook readers is rapidly falling below $100, and it's not likely to be an attractive business for Sony.

Barnes & Noble drops the price of the nook to $199

CNET has reported that Barnes & Noble has dropped the price of the existing 3G-compatible nook to $199 from its previous price of $259, and has introduced a new WiFi-only model for $149. The new pricing is sure to put pressure on Amazon to drop the price of the Kindle 2 below its current $259. More importantly, it shows that Barnes & Noble recognizes that the nook and similar E-Ink-based eBook readers simply aren't competitive with the iPad.

According to the article, B&N has also made several improvements to the nook's software, and has made arrangements with AT&T to allow it to be used for free at any AT&T WiFi hotspot. This will make the absence of 3G connectivity on the $149 nook less of an issue. One could argue that the true price of the nook has been dropped not to $199 but to $149.

It'll be very interesting to see how Amazon responds, and if $149 is a low enough price to keep monochrome readers viable once Android tablets start hitting the market for $199 or less.

Nooks go to Best Buy, Kindles to Target

Over the last couple of days, Engadget has reported that Target is going to begin carrying Amazon's Kindle (via a listing in Target's internal inventory control system), and now quantities of Barnes & Noble's nook have been spotted in a Best Buy, with a launch date (confirmed via a listing in Best Buy's inventory system) of April 18th. There are two ways to look at these developments:

• The "glass half-full" view is that distributing their eBook readers through alternate channels will expand the overall market
• The "glass half-empty" view is that they're not selling enough readers through their existing channels, and need to sell through big-box retailers in order to get more volume

I'm leaning toward "glass half-empty". Amazon and Barnes & Noble will both make far more money selling their respective readers themselves than by selling them through big-box retailers. Neither Target nor Best Buy are known for being easy negotiators with their vendors, so they're going to make a decent margin on the readers that they sell.

My suspicion is that sales of the eBook readers have plateaued at both companies, and they see wider retail distribution as the only way to keep sales growing. It'll be very interesting to see if these moves spur big growth in eBook reader sales, or if they simply spread the same sales over more outlets.

Barnes & Noble partners with Samsung, but what about the nook?

Earlier today, Samsung announced that Barnes & Noble's eBookstore will be available on its new $299 E6 eBook reader. There was no word as to whether or not B&N will sell the E6 in its stores.

B&N's nook eBook reader has been plagued with delivery delays, software problems, poor performance, an unwieldy user interface and promised features that still haven't been implemented. After an initial burst, the appearance is that consumer interest has died down considerably. Nooks are available for immediate delivery at B&N stores across the country, including many stores that weren't initially scheduled to stock the device.

B&N, like many other vendors, is learning that the eBook reader market is evolving at light speed. It seems like every Chinese and Taiwanese manufacturer with an assembly line is building one. At the same time, Apple is changing the rules of the game with the iPad. B&N is a bookseller, not a consumer electronics manufacturer or even a strong user of technology. Rather than try to continuously update the nook and introduce new devices in order to stay competitive, it might be better off by reselling products from companies like Samsung and Plastic Logic that are devoting major resources to hardware. Let the hardware companies shoulder the technology risk; B&N can be the "arms merchant" supplying them content to battle Amazon and Apple.

I wouldn't be writing this if the initial launch of the nook had gone well, but just about everything that could have gone wrong for B&N did. They blew the Christmas season and disappointed many buyers once they received their readers. If I were making the decisions at B&N, I'd continue development work on the existing nook to implement all the functionality that the company promised its buyers, but turn to other partners for future eBook readers.