Shannon Stapleton / Reuters
See the Nook spin. Bookseller Barnes & Noble says its mulling plans to spin off its Nook e-reader. Many analysts think that's not such a good idea.
By Martha C. White
The Nook?is undeniably Barnes & Noble's star product, so investors were caught by surprise?Thursday when the bookseller said it might spin off the line of electronic readers into a separate business.
"A big part of Nook's value proposition is its connection with the physical store, the buying experience," said Michael Norris, senior analyst of the trade books group at Simba Information.?
Barnes and Noble stock fell 18 percent after the company announced it is?doing "strategic exploratory work to separate the Nook business," along with larger-than-expected losses and lowered guidance for fiscal 2012.
"The in-store channel has been a key part of Nook's success so far," said Sarah Rotman Epps, senior analyst at Forrester Research. Until recently, Barnes & Noble apparently felt the same way. In 2010, it significantly expanded the footprint of its in-store Nook kiosks, encouraging customers to get hands-on with the devices.
"American consumers want to try and hold gadgets before they purchase them,? CEO William Lynch told The New York Times back then.
In Thursday's announcement, the company said a "substantial portion" of the 70 percent increase in year-over-year Nook unit sales was driven by third-party retailers, but analysts worry the bookseller is underestimating the role its own stores play in selling Nooks.?
"One of the benefits they have over Amazon is that non-tech-savvy folks hear about tablets, hear about e-readers, and are interested, but may be a little bit intimidated," said Tom Mainelli, research director covering mobile connective devices at IDC.
Both Amazon.com and Barnes & Noble have been heavily targeting users who may be interested in a tablet device but are not ready to commit to the cost of an Apple iPad, which sells for $499 and up. Entry-level Kindles and Nooks can be had for under $100, and Amazon's Kindle Fire was the breakout hit of the holiday season at $199.
Amazon has distributed its tablet through third-party retailers as well as online, while Barnes & Noble has the advantage of its 700-plus retail locations.
"Barnes & Noble has done a really good job of making people feel comfortable"?by welcoming customers who need high-tech hand-holding they can't get at a big box discounter or electronics chain,?Mainelli said.
"Against all odds, Barnes & Noble built a successful digital business with Nook, but its success has been predicated on two key assets it may lose in a potential spinoff," Epps said. Besides its stores, Barnes & Noble has a strong channel relationship with publishers that wouldn't necessarily carry over if Nook became a standalone business, she said.
Barnes & Noble may be looking to the future in considering a spin-off: It might not have the resources necessary to undertake international expansion, an investment that will become imperative as its competitors, such as Amazon.com,?increase their presence globally, said Mainelli.
Currently, around 80 percent of the e-reader market is in the United States, according to market intelligence firm IDC, but Mainelli predicts that will change.
Barnes & Noble needs all the market share it can get its hands on. In the third quarter, the Kindle held a little over three-quarters of the black-and-white e-reader market in the U.S., while the Nook trailed considerably with 18 percent, Mainelli said.
It got the early jump on Amazon in the color e-reader tablet race, coming in second behind Apple with 11 percent of the market, or roughly 805,000 units. The Nook?probably didn't get to enjoy that distinction for long, once the Kindle Fire made its debut. Mainelli said he estimates that Amazon shipped more than 4 million Fires in the final quarter of 2011. "My expectation is that while Barnes & Noble will do quite well in Q4 ... I think it'll be a fraction of what Amazon shipped," he said.
If Barnes & Noble?wanted to woo a potential deep-pocketed partner, a standalone Nook might be a more attractive prospect than a brick-and-mortar company that comes with more overhead baggage.?
"If they decide to do this, it's probably going to be to insulate the Nook from what's clearly going to be a difficult road ahead," Mainelli said. He suggested that even a spun-off Nook might retain a close relationship with its former parent.?
But company executives might do better to look at their past before breaking ties with the Nook, said Simba's Norris. "I don't think it's a good idea to separate the two businesses," he said. "A number of years ago Barnes & Noble actually had their dot-com business separate from the physical business, and they ended up reeling it back in."
Source: http://bottomline.msnbc.msn.com/_news/2012/01/05/9978821-barnes-noble-could-struggle-without-the-nook
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