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Chapter 3 Information Systems, Organizations, and Strategy 147

Can This Bookstore Be Saved?

CASE STUDY

B arnes & Noble (B&N) has been portrayed in million in 2011, compared to a $36.7 million profit

the past as a big bully that drove small inde-
the previous year. The investment required to launch
pendent bookstores out of business with
and promote the Nook was the primary reason
aggressive pricing tactics and an unbeatable for the shortfall, and expenditures are expected
inventory of books. Today, B&N finds its role reversed to continue to climb. In response, B&N canceled
as the company fights a fierce battle to survive in the its stock dividend. The key questions for B&N are
inevitable era of e-books. Booksellers were one of the whether the Nook will eventually bring in revenues
many industries disrupted by the Internet and, more that justify its steep development and marketing
specifically, the rise of e-books and e-readers. B&N costs, as well as whether the Nook can help drive
hopes to change its business model to adapt to this traffic to B&N’s brick-and-mortar stores.
new environment before it suffers a similar fate as The economics of e-book sales are very different
many of its competitors, like Borders, B. Dalton, and from traditional book sales. Customers who visit
Crown Books, or their peers in other industries, like B&N’s Web site buy three digital books for every
Blockbuster, Circuit City, and Eastman Kodak. one physical book, but booksellers still make more
More than ever, consumers are reading books on money on print books than e-books. Still, B&N’s
electronic gadgets—e-readers, iPods, tablets, and Nook business has been growing rapidly, and
PCs—instead of physical books. Although B&N still traditional bookstores are not. Total e-book sales were
depends on its physical, brick-and-mortar stores to nearly $970 million in 2011, more than double from
drive its business (B&N operates 691 bookstores in the previous year, and the percentage of e-books
50 states, as well as 641 college bookstores), the com- within the total number of books sold is still on the
pany has thrown its energies behind development rise, measuring 14 percent that same year. Ironically,
and marketing of the Nook series of e-readers and one of the first companies to realize the potential of
tablets. Once simply a bookseller, B&N now styles e-books was B&N itself. As early as 1998, the com-
itself as a seller of e-books, devices to read them on, pany had partnered with software companies like
and apps that enhance the reading experience. The NuvoMedia to develop prototype e-reader called the
company has had success gaining market share, Rocket, but in 2003 it nixed the project because there
but at a steep cost, and to stay afloat, it will need to didn’t appear to be any money in it. At the time,
contend with increased competition from Amazon, B&N was right, but technology has come a long way
Apple, and Google—not exactly feeble opposi- since 2003, and so too have e-books.
tion. B&N has a market capitalization of $1 billion. B&N clearly took notice of the fate of Borders, its
Amazon, B&N’s current top competitor, has a market chief rival. Borders stubbornly refused to adapt to
capitalization of $98 billion. How can B&N compete the Internet, first handing over its entire Internet
against these tech titans? operations to Amazon, and waiting to relaunch its
The answer remains to be seen. B&N was likely own Web site until 2008, at which point the company
the only bookseller big enough to complete the con- was already on the road to bankruptcy. Borders had
siderable task of developing an e-reader, marketing a devoted following, but it wasn’t enough to com-
it, and setting up manufacturing and retail opera- bat the company’s $350 million debt and dwindling
tions for the device. Even if its competitors had been profitability. B&N is the only national bookstore
faster to react to consumer demand for e-books, it’s chain remaining in the United States, and while the
unlikely they would have made the inroads that B&N company saw a bump in store traffic in the immedi-
has achieved into the e-book space. Reaction to the ate aftermath of the Borders collapse, it also knew it
Nook has been positive, as B&N has grabbed a sig- would need to shake things up to avoid a similar fate.
nificant market share from Amazon and Apple in the Other companies also have a stake in B&N’s
e-book marketplace. In 2011, analysts estimated that transformation. Publishing companies have been
B&N controlled approximately 27 percent of the digi- forced to adjust their allocations of printed books
tal book market (Amazon held 60 percent). and new titles for stores, and books are beginning
B&N’s progress with e-books has come at a steep to be released as apps in addition to physical books.
cost, however. The company incurred a loss of $73.9 Apps for books are adding more features all the

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