How Amazon Killed Barnes & Noble, and Why We Don't Care

First published on Blogcritics 3/4/2013

The year was 2010. Stephen Riggio, then CEO of Barnes & Noble, heralded the company's entry into the epublishing world. In a breathless announcement, Riggio euphorically proclaimed that Barnes & Noble would top the 18% mark in e-books "overnight." Not to be outdone by his own enthusiasm, Riggio predicted that Barnes & Noble would earn better margins from e-books than print books. Its booksellers would become, in his words, "e-bookevangelists."

Beware of all enterprises that require new jargon.

Today, even as I write, Barnes & Noble is crashing and burning. According to CNET, the company's earnings slumped an astonishing 63 percent, from $150 million last year to $55.5 million this year. The culprit? Nook.

Over the last quarter, Barnes & Noble watched in horror as Nook sales, their e-book division, plummeted 26%, with losses of over $190 million. It was like watching Icarus falling out of the sky. Stephen Riggio's dream of “overnight” success was so far off the mark, one had to wonder if he was high when he made his announcement two years ago.

Riggio wasn't high. In fact, Nook is a great e-book reader. Anyone who has worked with Nook's .epub files can tell you they are infinitely better than the cumbersome .mobi files used by Amazon's Kindle. Epub files produce a nice, cleanly formatted page that looks just like a book. Mobi files look just like a mess. But, as every entrepreneur knows, better products do not necessarily lead to better sales. So, where did Barnes & Noble go wrong?

Where B&N went wrong

Barnes & Noble had a better product, a better reputation, and a farther reach than anyone else in the book selling business. The problem was that Riggio misjudged – very badly – how to handle the burgeoning business of self-publishing.

With the advent of epublishing, writers who could never hope to see their books in print could get their work to readers without the time-consuming, and usually fruitless, task of trying to snare an agent, followed by the even more frustraing job of trying to hook a publisher. With epublishing, writers could simply upload a file, set a price, and voila! Instant publication. What's more they could do it anywhere, any time. No deadlines, no delays. An equal draw was that writers who epublished could completely control their work. With the elimination of pesky editors who demanded “show don't tell” and required the proper use of apostrophes, everything that went on or between an e-book's cybercovers was entirely up to the writer. To add icing to the cake, writers who epublished got to keep 70-80% of their royalties. Compared to the measly 10% (and that was on a good day) meted out by print publishing houses, it was a no-brainer.

According to Bowker, there were 211,269 self-published titles released in 2012, up from 133,036 in 2010. This surge in self-publishing, owing in large part to e-books, represents not just people “living the dream,” but an enormous business opportunity for anyone with the ability to turn other people's dreams into their hard cash. Barnes & Noble, with its gentlemanly rules of conduct and brick-and-mortar mentality, simply had no concept of how to corner the market. Amazon did.

The coup de grâce - Amazon's KDP Select

Amazon has always enjoyed the top rank in online sales. If you want to buy a book, any book, chances are you'll find it on Amazon. The “beauty part” is that, unlike brick-and-mortar stores, Amazon has minimal stocking requirements. Anybody can sell a book. Amazon merely takes a percentage.

So, when e-books came along, Amazon was already familiar with the rules. Writers could put their e-books up for sale much as they did their used print books. Amazon would take a percentage, and, additionally, provide delivery. Barnes & Noble did the same thing, but the difference – and this is crucial – was that if you enrolled in Amazon's KDP (Kindle Direct Publishing) Select program, you got to give your book away. The catch: You couldn't put your book up for sale on any other site for a (renewable) 90-day period.

Writers quickly discovered that giving an e-book away for free was the fastest, cheapest, and easiest way to build a readership. For the popular genre writers, such as romance and mystery/crime, it was a dream come true. Books in popular genres could rack up 20,000 to 30,000 downloads in a single weekend. Numbers like those would not only be considered a wild success in the print publishing world, they would be virtually impossible. Publishers rarely promote first-time authors.

Cottage industries have sprung up around the KDP Select phenomenon. Numerous websites will not only post which Kindle books are free on any given day, but will review them, and even send daily free titles to your inbox. There is no denying the appeal of getting something for nothing.

For writers, and for Amazon, it is a win-win situation, because free days are fantastic promotional tools. Invariably, free days lead to increased sales. And for those writers who simply must hold their precious darlings in their hands, Amazon also provides print-on-demand. Amazon’s CreateSpace took first place in the self-publishing world last year with 57,602 new titles. Amazon is happy. Writers are happy. Customers are happy. Everybody is happy.

Except Barnes & Noble. Which is dead.