Barnes & Noble Conference Keynoter Takes Pokes at Kindle Introductions
SAN FRANCISCO -- A day after Amazon’s announcement of sub-$100 e-readers and a $199 color tablet priced $50 below the Nook Color, Doug Klein, Barnes & Noble vice president of program and product management, took several pokes at his competitor and held on to his company’s magazine content as a differentiator, in his keynote at Intertech Pira’s eReaders conference here. “We're the most successful digital magazine reseller in the world right now because we bet heavily on Nook Color, and we did a lot of work last year,” Klein said.
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Referring to Amazon’s Wednesday launch, Klein said: “It was a pretty big day in all of our lives. Jeff [Bezos] is only a year late on his delivery.” The companies will “collide for 6 or 12 months,” he said, but then he expects the markets for Kindle and Nook to go separate ways. The market is “so big, there’s plenty of room for us to both play,” Klein said, citing B&N’s focus on “innovative” content in the reading world versus Amazon’s focus on media content and services.
Klein also managed to claim a victory for B&N from Amazon’s introduction of the Fire tablet. “They've paid attention to what we've done with Nook Color,” he said. He called press reports over the past two days covering the Kindle Fire versus iPad competition “a nonstory.” Instead, the story is Kindle Fire versus other “purpose-built” devices, he said.
To remain viable, the e-reader market has to remain separate from tablets, which can also serve as e-readers, Klein said. He called what CES 2011 promised would be the year of the tablet “an epic fail,” citing HP, RIM’s and Motorola’s tablet shortfalls. “You don’t go head to head with the market share leader that owns 80 percent of the market,” he said. He called Nook “the most successful Android tablet in the market,” but noted that B&N doesn’t position it that way. “We're taking Android as a platform and going after a different market,” he said, saying Nook customers are typical Barnes & Noble customers, 70 percent female, 35-45 years old and “not technology people.” Nook customers “don’t want iPads,” he said.
Commenting on B&N’s future plans in light of the Amazon announcements, Klein said he doesn’t see the Nook “going anywhere differently than where we were planning it to go.” He said Amazon “has done a good job of rushing something to market.” Klein downplayed Amazon’s strategy of lowering the barrier to entry for e-readers, saying “taking the touchpad to $99 is kind of a duh.” Mocking Amazon’s move, he said, “Wow, I can sell a million of them at $99,” adding drily, “I can sell a million $100 bills if I give them away.”
Describing the Nook development project, Klein said it was done as a “skunk works project in classic Silicon Valley style,” growing from zero to 250 people with ex- HP, Apple and Palm veterans “who know how to do this.” He called the Nook group one of the most successful start-ups in the history of the Valley” going from 0 to 30 percent market share and 0 to $1-plus-billion of annual revenue in 18 months.” Relative to Facebook, he said, “We're right up there."
The e-reader market is part of the “post-PC era” -- a “massive opportunity” that has been 20 years in the making, Klein said. B&N, after signing a deal with NuvoMedia in 1998, entered the e-book business “long, long before Amazon,” he said, calling it one of the “little known secrets” of the business. At that time, he said, “the content world wasn’t ready. It was too early."
The 2010 holiday season was part of a pivotal year for e-books, when the market went from mass-market “awareness” to mass-market “consumption,” Klein said. Going forward, he expects the mobile segment to drive the tablet and e-reader spaces. B&N already sees 20 percent of its bn.com traffic coming from mobile devices, he said. By Christmas 2012, he predicted, typical e-commerce websites will see 80 percent of traffic coming from mobile devices.
Looking ahead on the device side, Klein warned that Samsung “is not to be fooled with.” As supplier of displays “for all of us,” he said, “they will be successful.” He cited Samsung’s corporate strength and unique position in vertical integration, saying “they make all this stuff. If there’s anybody who can compete on costs, it’s a Samsung."
On the infrastructure side, the e-book market faces major issues in content storage, content distribution, caching and network latency, he said. “Bits are very heavy,” he said, noting that an e-book represents about one megabyte of data and a magazine is 200-400 megabytes. Moving to full-blown, interactive content hikes the data count to 1-2 gigabytes, he said: “These are big, big problems, and you're going to see a lot of re-thinking in how the mobile infrastructure works to support this stuff."
EReaders Conference Notebook
Wall Street responded warmly Wednesday to Amazon’s various Kindle announcements, speakers at the conference said. Amazon shares took a 2.5 percent boost, while rival Barnes & Noble took a 6.9 percent hit, said Steven Mather, analyst for wireless communications at IHS iSuppli, during a business model presentation at the conference on the e-reader market. The $199 Fire tablet creates a cost proposition that few companies will be able to emulate, Mather said, estimating the bill of materials for Fire to be about $185. Adding in other costs to create the device, including shipping and fulfillment, the cost bumps up to about $245, he said. “If you sell for $200, you're going to lose $45,” he said. He assigned the Fire a net present value of about $55, giving the device a net margin of about $10 before add-on content purchases. “If you sell a reasonable amount of content including all kinds of media, if you're Bezos, you want to get as many devices out there as you can today,” Mather said. “You're going to fight another day tomorrow because you're going to come out with version 2.0.” The tactic is something no one else can do, he said, “because no one else has the $50 billion in revenue that Amazon has online.”